SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
_______________________________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-14830
CONTINENTAL HOMES HOLDING CORP.
(Exact name of registrant as specified in its charter)
Delaware 86-0554624
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
7001 N. Scottsdale Road, Suite 2050 85253
Scottsdale, Arizona (Zip Code)
(Address of principal executive offices)
(602) 483-0006
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock December 30, 1997
--------------------- -----------------
$.01 par value 6,863,686
________________________________________________________________________________
<PAGE>
CONTINENTAL HOMES HOLDING CORP.
FORM 10-Q
FOR THE QUARTER ENDED
NOVEMBER 30, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Balance Sheets as of November 30, 1997 and
May 31, 1997.............................................. 3
Consolidated Statements of Income for the three and six
months ended November 30, 1997 and 1996................... 4
Consolidated Statements of Cash Flows for the six months
ended November 30, 1997 and 1996.......................... 5
Notes to unaudited Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 8
PART II. OTHER INFORMATION
Item 4. Submission of matters to a vote of Security Holders....... 12
Item 6. Exhibits and Reports on Form 8-K.......................... 12
2
<PAGE>
CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
November 30, May 31,
1997 1997
---- ----
(In thousands)
<S> <C> <C>
ASSETS
Homebuilding:
Cash and cash equivalents $ 27,012 $ 23,759
Receivables 17,038 27,894
Homes, lots and improvements in production 428,098 392,540
Property and equipment, net 3,963 3,656
Prepaid expenses and other assets 21,456 20,868
Excess of cost over related net assets acquired 8,905 9,565
Deferred income tax asset 5,790 2,471
--------- ---------
512,262 480,753
--------- ---------
Mortgage banking:
Mortgage loans held for sale 31,217 27,229
Other assets 946 274
--------- ---------
32,163 27,503
--------- ---------
Total assets $ 544,425 $ 508,256
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding:
Accounts payable and other liabilities $ 59,807 $ 62,163
Notes payable, senior and convertible subordinated debt 294,357 270,763
--------- ---------
354,164 332,926
--------- ---------
Mortgage banking:
Notes payable 16,279 15,662
Other liabilities 588 560
--------- ---------
16,867 16,222
--------- ---------
Total liabilities 371,031 349,148
--------- ---------
Minority interest 3,755 4,209
--------- ---------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value:
Authorized - 2,000,000 shares, Issued none -- --
Common stock, $.01 par value:
Authorized - 20,000,000 shares, Issued 7,081,531 shares 71 71
Treasury stock, at cost - 217,845 and 228,320 shares (2,887) (2,973)
Capital in excess of par value 60,963 60,878
Retained earnings 111,492 96,923
--------- ---------
Total stockholders' equity 169,639 154,899
--------- ---------
Total liabilities and stockholders' equity $ 544,425 $ 508,256
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these unaudited consolidated balance sheets.
3
<PAGE>
CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
------------- ------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Home sales $ 185,197 $ 162,883 $ 370,634 $ 346,547
Land sales 296 14,643 2,266 15,124
Mortgage banking and title operations 3,441 2,564 6,798 5,830
Other income (loss), net (411) (108) (835) 17
----------- ----------- ----------- -----------
Total revenues 188,523 179,982 378,863 367,518
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Homebuilding:
Cost of home sales 152,716 132,976 306,126 282,650
Cost of land sales 316 13,996 2,316 14,492
Selling, general and administrative
expenses 19,451 17,005 38,523 35,645
Interest, net 725 1,361 1,456 2,746
Minority interest (121) (192) (454) (302)
Mortgage banking and title operations:
Selling, general and administrative
expenses 2,539 2,082 4,987 4,138
Interest, net (164) (198) (374) (399)
----------- ----------- ----------- -----------
Total costs and expenses 175,462 167,030 352,580 338,970
----------- ----------- ----------- -----------
Income before income taxes
and extraordinary loss 13,061 12,952 26,283 28,548
Income taxes 5,303 5,160 10,706 11,520
----------- ----------- ----------- -----------
Income from operations 7,758 7,792 15,577 17,028
Extraordinary loss:
Loss on extinguishment of debt
net of income taxes of $233 -- -- (322) --
----------- ----------- ----------- -----------
Net income $ 7,758 $ 7,792 $ 15,255 $ 17,028
=========== =========== =========== ===========
Earnings per common share $ 1.13 $ 1.12 $ 2.22 $ 2.44
Earnings per common share assuming
full dilution $ .81 $ .81 $ 1.60 $ 1.76
Cash dividends per share $ .05 $ .05 $ .10 $ .10
Weighted average number of shares
outstanding 6,861,529 6,978,297 6,857,556 6,990,820
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these unaudited consolidated statements.
4
<PAGE>
CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
November 30,
------------
1997 1996
---- ----
(In thousands)
Cash flows from operating activities:
Net income $ 15,255 $ 17,028
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization 1,550 1,641
Minority Interest (454) (302)
Deferred income taxes (3,319) 385
Decrease (increase) in assets
Homes, lots and improvements in production (35,558) (52,552)
Receivables 6,868 816
Prepaid expenses and other assets (1,504) (2,393)
Increase (decrease) in liabilities
Accounts payable and other liabilities (2,328) 10,358
-------- --------
Net cash used by operating activities (19,490) (25,019)
-------- --------
Cash flows from investing activities:
Net additions of property and equipment (869) (1,750)
Cash paid for acquisitions, net of cash acquired -- (1,205)
Adjustment to purchase price -- 1,700
-------- --------
Net cash used by investing activities (869) (1,255)
-------- --------
Cash flows from financing activities:
Increase in notes payable to financial
institutions 35,684 25,008
Retirement of bonds payable -- (168)
Retirement of 12% Senior Notes (11,557) --
Stock options exercised 171 232
Repurchase of stock -- (1,922)
Dividends paid (686) (698)
-------- --------
Net cash provided by financing activities 23,612 22,452
-------- --------
Net increase (decrease) in cash 3,253 (3,822)
Cash at beginning of period 23,759 25,236
-------- --------
Cash at end of period $ 27,012 $ 21,414
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 2,970 $ 3,245
Income taxes $ 10,257 $ 9,097
The accompanying notes to consolidated financial statements are an integral part
of these unaudited consolidated statements.
5
<PAGE>
CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The consolidated financial statements include the accounts of
Continental Homes Holding Corp. and its subsidiaries (the
"Company"). In the opinion of the Company, the accompanying
unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the Company's financial position,
results of operations and cash flows for the periods presented.
These consolidated financial statements should be read in
conjunction with the consolidated financial statements and the
related disclosures contained in the Company's annual report on
Form 10-K for the year ended May 31, 1997, filed with the
Securities and Exchange Commission.
The results of operations for the three and six months ended
November 30, 1997 are not necessarily indicative of the results to
be expected for the full year.
Note 2. Interest Capitalization
The Company follows the practice of capitalizing for its
homebuilding operations certain interest costs incurred on land
under development and homes under construction. Such capitalized
interest is included in cost of home sales when the units are
delivered. The Company capitalized such interest in the amount of
$11,138,000 and $9,223,000 and expensed as a component of cost of
home sales $8,838,000 and $8,892,000 in the six months ended
November 30, 1997 and 1996, respectively.
Note 3. Notes payable, Senior and Convertible Subordinated Debt
Notes payable, senior and convertible subordinated debt for
homebuilding consist of:
<TABLE>
<CAPTION>
November 30, May 31,
1997 1997
---- ----
(In thousands)
<S> <C> <C>
Notes payable $ 59,629 $ 24,547
10% senior notes, due 2006, net of discount of $1,507 and $1,599 148,493 148,401
12% senior notes, due 1999, net of premium of $65 -- 11,565
6-7/8% convertible subordinated notes, due 2002 86,235 86,250
-------- --------
$294,357 $270,763
======== ========
</TABLE>
6
<PAGE>
CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 4. Interest, net
The summary of the components of interest, net is as follows:
Three months ended Six months ended
November 30, November 30,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
Homebuilding: (In thousands)
Interest expense $ 1,162 $ 1,519 $ 2,385 $ 2,985
Interest income (437) (158) (929) (239)
------- ------- ------- -------
$ 725 $ 1,361 $ 1,456 $ 2,746
======= ======= ======= =======
Mortgage Banking:
Interest expense $ 332 $ 83 $ 585 $ 260
Interest income (496) (281) (959) (659)
------- ------- ------- -------
$ (164) $ (198) $ (374) $ (399)
======= ======= ======= =======
Note 5. Statement of Financial Accounting Standards
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), Earnings Per
Share, which supersedes Accounting Principal Board Opinion 15, the existing
authoritative guidance. SFAS 128 is effective for financial statements for both
interim and annual periods ending after December 15, 1997 and requires
restatement of all prior-period EPS data presented. The new statement modifies
the calculations of primary and fully diluted EPS and replaces them with basic
and diluted EPS. The Company has determined that adoption of SFAS 128 will not
have a material impact on its previous or current reported EPS data.
Note 6. Subsequent Event
In December 1997, the Company entered into a definitive agreement and
plan of merger with D.R. Horton, Inc. ("Horton") pursuant to which the Company
would be merged into Horton. The merger is subject to the approval of
stockholders of both companies, various pre-merger regulatory approvals, and
other customary closing conditions and is expected to close late in the first
calendar quarter of 1998.
7
<PAGE>
CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES
ITEM 2.
-------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Homebuilding
------------
The following table sets forth, for the periods indicated, unit
activity, average sales price and revenue from home sales for the Company:
<TABLE>
<CAPTION>
Quarters ended Six months ended
November 30, November 30,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Units delivered 1,383 1,145 2,763 2,513
Average sales price $ 133,910 $ 142,256 $ 134,142 $ 137,902
Revenue from home sales (000's) $ 185,197 $ 162,883 $ 370,634 $ 346,547
Percentage increase from prior year 13.7% 20.3% 7.0% 29.1%
Change due to volume 20.8% 11.4% 9.9% 22.2%
Change due to average sales price (7.1%) 8.9% (2.9%) 6.9%
</TABLE>
The volume increase in the quarter and six months ended November 30,
1997 compared to the same periods during fiscal 1997 resulted from improved
deliveries in Phoenix, Southern California, San Antonio and Dallas. The decrease
in average sales price in the quarter and six months ended November 30, 1997
compared to the same periods during fiscal 1997 resulted primarily from a
decrease in average sales price in Phoenix, Denver, Southern California, Dallas
and South Florida due to product mix and a decrease in average sales price in
Austin due to competitive pricing pressures.
The following table summarizes information related to the Company's
backlog at the dates indicated:
November 30,
------------
(Dollars in thousands)
1997 1996
---- ----
Units Dollars Units Dollars
----- ------- ----- -------
Phoenix 794 $102,779 714 $ 95,850
Texas 643 71,012 492 53,523
South Florida 329 44,654 176 21,555
Denver 236 42,771 230 44,522
Southern California 159 42,651 72 24,630
-------- -------- -------- --------
Total backlog 2,161 $303,867 1,684 $240,080
======== ======== ======== ========
Average price per unit $141 $143
==== ====
The increase in backlog at November 30, 1997 resulted from increased
sales in all markets during the first six months of fiscal 1998 compared to the
same period during fiscal 1997. The aggregate sales value of new contracts
signed increased 44% in the six months ended November 30, 1997 to $400,072,000
representing 2,909 homes as compared with $277,005,000 representing 2,048 homes
for the six months ended November 30, 1996.
8
<PAGE>
The following table summarizes information related to cost of home
sales, selling, general and administrative ("SG&A") expenses and interest, net
for homebuilding:
<TABLE>
<CAPTION>
Quarters ended November 30, Six months ended November 30,
--------------------------- -----------------------------
1997 1996 1997 1996
---- ---- ---- ----
Dollars % Dollars % Dollars % Dollars %
------- - ------- - ------- - ------- -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from
home sales $185,197 100.0% $162,883 100.0% $370,634 100.0% $346,547 100.0%
Cost of home sales 152,716 82.5 132,976 81.6 306,126 82.6 282,650 81.6
-------- ----- -------- ----- -------- ----- -------- -----
Gross profit from
home sales 32,481 17.5 29,907 18.4 64,508 17.4 63,897 18.4
SG&A expenses 19,451 10.5 17,005 10.4 38,523 10.4 35,645 10.3
-------- ----- -------- ----- -------- ----- -------- -----
Operating income from
homebuilding 13,030 7.0 12,902 8.0 25,985 7.0 28,252 8.1
Interest, net 725 .4 1,361 .9 1,456 .4 2,746 .8
-------- ----- -------- ----- -------- ----- -------- -----
Pre-tax profit from
homebuilding $ 12,305 6.6% $ 11,541 7.1% $ 24,529 6.6% $ 25,506 7.3%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
The decrease in gross profit margin from home sales for the quarter and
six months ended November 30, 1997 was primarily due to a decline in margins in
all markets except Phoenix and San Antonio. The increase in total SG&A expenses
for the quarter and six months ended November 30, 1997 compared to the quarter
and six months ended November 30, 1996 was principally due to the increased
volume which increased variable marketing costs (sales commissions, advertising
and model furniture amortization). SG&A expenses for each home delivered were
$14,064 and $14,852 in the second quarter of fiscal 1998 and 1997, respectively
and $13,942 and $14,184 in the first six months of fiscal 1998 and 1997,
respectively. The Company capitalizes certain SG&A expenses for homebuilding.
Accordingly, total SG&A costs incurred for homebuilding were $22,702,000 and
$44,842,000 for the three and six months ended November 30, 1997 compared to
$19,996,000 and $41,321,000 for the corresponding fiscal 1997 period.
The Company capitalizes certain interest costs for its homebuilding
operations and includes such capitalized interest in cost of home sales when the
related units are delivered. Accordingly, total interest incurred by the Company
was $6,676,000 and $13,523,000 for the three and six months ended November 30,
1997, respectively compared to $6,263,000 and $12,208,000 for the three and six
months ended November 30, 1996, respectively. For the six month period ended
November 30, 1997, interest, net for homebuilding was $1,456,000 compared with
$2,746,000 for the six months ended November 30, 1996. The increase in interest
incurred during the quarter and six months ended November 30, 1997 compared to
the same periods during fiscal 1997 was primarily due to an increase in debt as
a result of the 6% increase in inventory from November 30, 1996 to November 30,
1997. The decrease in interest, net during the first six months of fiscal 1998
compared to the first six months of last year was due to the capitalization of
interest on the Company's Carlsbad, California project which began development
in October 1996, as well as additional interest income.
The Company's pre-tax profit from homebuilding for the six months ended November
30, 1997 was $24,529,000 compared to $25,506,000 for the corresponding six
months ended November 30, 1996.
9
<PAGE>
Mortgage Banking and Title Operations
-------------------------------------
The Company's mortgage banking operations are conducted through its
wholly-owned subsidiary CH Mortgage Company ("CHMC"). The Company also conducts
title operations in Austin, Texas through its wholly-owned subsidiary, Travis
County Title Company. The following table summarizes operating information for
the Company's mortgage banking and title operations:
<TABLE>
<CAPTION>
Quarters ended Six months ended
November 30, November 30,
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Number of loans originated 949 680 1,921 1,557
Loan origination fees $ 975 $ 636 $1,960 $1,480
Sale of servicing and marketing gains 1,679 1,221 3,018 2,695
Title policy premiums, net 447 365 948 881
Other revenue 340 342 872 774
------ ------ ------ ------
Total revenues 3,441 2,564 6,798 5,830
General and administrative expenses 2,539 2,082 4,987 4,138
------ ------ ------ ------
Operating income from mortgage banking and title 902 482 1,811 1,692
Interest, net 164 198 374 399
------ ------ ------ ------
Pre-tax profit from mortgage banking and title $1,066 $ 680 $2,185 $2,091
====== ====== ====== ======
</TABLE>
Revenues and general and administrative expenses from mortgage banking and title
operations increased in the quarter and six months ended November 30, 1997
primarily as a result of a 40% and 23% increase in originations, respectively.
Consolidated operations
-----------------------
Net income was $15,255,000 ($2.22 per share, $1.60 fully diluted) for
the six months ended November 30, 1997 compared to $17,028,000 ($2.44 per share,
$1.76 fully diluted) for the period ended November 30, 1996.
Liquidity and Capital Resources
- -------------------------------
The Company's financing needs depend primarily upon sales volume, asset
turnover, land acquisition and inventory balances. The Company has financed, and
expects to continue to finance, its working capital needs through funds
generated by operations and borrowings. Funds for future land acquisitions and
construction costs are expected to be provided primarily by cash flows from
operations and future borrowings as permitted under the Company's loan
agreements. On June 27, 1996, the Company entered into a credit agreement
("Credit Agreement") with a group of banks which provides for a $140 million
unsecured revolving line of credit. Borrowings under the Credit Agreement bear
interest at LIBOR plus 1.35% or prime plus .10% at the Company's election and
subject to the rating on its senior debt. Available borrowings under the Credit
Agreement are limited to certain percentages of housing unit costs, finished
lots, land under development and receivables as defined in the Credit Agreement.
As a result of this formula, the borrowing base at November 30, 1997 was
$137,713,000 and $49,000,000 was outstanding. The Company believes that amounts
generated from operations and such additional borrowings will provide funds
adequate to finance its existing homebuilding activities and meet its debt
service requirements.
10
<PAGE>
In order to provide funds for the origination of mortgage loans, CHMC
has a warehouse line of credit for $25,000,000 which is guaranteed by the
Company. Pursuant to the warehouse line of credit, the Company issues drafts to
fund its mortgage loans. The amount represented by a draft is drawn on the
warehouse line of credit when the draft is presented for payment. At November
30, 1997, the amount outstanding under the warehouse line of credit and the
amount of funding drafts that had not been presented for payment was
$16,279,000. The Company believes that this line is sufficient for its mortgage
banking operations.
On November 10, 1995, the Company completed the sale of $75,000,000
principal amount of its 6-7/8% Convertible Subordinated Notes due November 2002.
On December 5, 1995, the Company sold an additional $11,250,000 of such notes.
The net proceeds were used to redeem the Company's 6-7/8% Convertible
Subordinated Notes due March 2002 and to reduce temporarily outstanding amounts
under certain of the Company's revolving lines of credit (including the
warehouse line of credit). The Convertible Notes are immediately convertible
into shares of the Company's common stock at a rate of 42.105 shares for each
$1,000 principal amount of Convertible Notes.
On April 18, 1996 the Company completed the sale of $130,000,000
principal amount of its 10% Senior Notes due April 2006. The Company used
approximately $107,542,000 of the net proceeds to repurchase $98,500,000
aggregate principal amount of its 12% Senior Notes due 1999. The remaining
proceeds were used to reduce temporarily outstanding amounts under certain of
the Company's revolving lines of credit. On January 30, 1997, the Company issued
an additional $20,000,000 principal amount of its 10% Senior Notes due April
2006. The net proceeds were used to reduce temporarily outstanding amounts under
the Company's revolving line of credit. On August 1, 1997, the Company redeemed
the remaining $11,500,000 principal amount outstanding of its 12% Senior Notes
due August 1999, at a redemption price of 104%.
Pursuant to a stock repurchase plan approved by the Board of Directors
on December 22, 1994, the Company repurchased 162,000 shares of its common stock
during fiscal 1997 at an average price of $16.22.
Cautionary disclosure regarding forward-looking statements
- ----------------------------------------------------------
The Company desires to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 and is including this
disclosure in order to do so. Certain statements in this report that are not
historical facts are, or may be considered to be, forward-looking statements.
Given the risks, uncertainties and contingencies of the Company's business, the
actual results may differ materially from those expressed or implied by such
forward-looking statements. Further, certain forward-looking statements are
based on assumptions concerning future events which may not prove to be
accurate.
Forward-looking statements by the Company regarding results of
operations and, ultimately, financial condition, are subject to numerous risks
and assumptions, including but not limited to, changes in general economic
conditions, fluctuations in interest rates or labor and material costs, consumer
confidence, competition, government regulations, financing availability,
geographic concentration and risks associated with new and future communities.
11
<PAGE>
CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 3. Legal Proceedings
-----------------
On December 11, 1997, the Company was named a nominal defendant, and
certain directors of the Company were named defendants, in a purported
class action suit brought by Brickell Partners filed in the State of
Delaware alleging breach of fiduciary duty for failure to proceed with
a merger proposal by D.R. Horton, Inc. The Company does not believe
this litigation will have a material adverse effect on its financial
position or operating results.
Item 4. Submission of matters to a vote of Security Holders
---------------------------------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.3(b) Fourth Modification Agreement dated as of November 20,
1997 between BOAZ and CHMC.
10.11 Second Modification Agreement dated as of October 9,
1997 between Bank One, Arizona, N.A. ("BOAZ"), The First
National Bank of Boston, Norwest Bank Arizona, Guaranty
Federal Bank and the Company.
10.12 Agreement and Plan of Merger dated as of December 18,
1997 between the Company and D.R. Horton, Inc.
11 Statement of Computation of Earnings Per Share.
27 Financial Data Schedule.
(b) Reports on Form 8-K: The Company filed reports on Form 8-K dated
October 2, 1997 and December 18, 1997.
12
<PAGE>
CONTINENTAL HOMES HOLDING CORP. AND SUBSIDIARIES
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 thereunto duly authorized.
CONTINENTAL HOMES HOLDING CORP.
Date: January 13, 1998 By: /s/ Julie E. Collins
---------------------------
JULIE E. COLLINS
Chief Financial Officer
Date: January 13, 1998 By: /s/ W. Thomas Hickcox
---------------------------
W. Thomas Hickcox
Chief Executive Officer
13
FOURTH MODIFICATION AGREEMENT
-----------------------------
DATE: November 20, 1997
- ----
PARTIES: Borrower: CH Mortgage Company, a Colorado corporation formerly known
- ------- as American Western Mortgage Company
Bank: Bank One, Arizona, NA, a national banking association.
RECITALS:
- ---------
A. Bank has extended to Borrower credit ("Loan") in the principal amount of
$25,000,000.00 pursuant to the Amended and Restated Mortgage Warehousing Credit
and Security Agreement, dated July 1, 1995 ("Loan Agreement"), and evidenced by
the Amended and Restated Replacement Revolving Line of Credit Promissory Note
dated December 1, 1995 ("Note"). The unpaid principal of the Loan as of the date
hereof is $5,513,279.00.
B. The Loan is secured by, among other things, the collateral described in
the Loan Agreement (the agreements, documents, and instruments securing the Loan
and the Note are referred to individually and collectively as the "Security
Documents").
C. Bank and Borrower have executed and delivered previously the following
agreements ("Modifications") modifying the terms of the Loan, the Note, the Loan
Agreement, and/or the Security Documents: Modification Agreement dated December
1, 1995, Letter Agreement dated July 1, 1995, Modification Agreement dated
November 27, 1996, and Third Modification Agreement dated January 3, 1997. (The
Note, the Loan Agreement, the Security Documents, any arbitration resolution,
any environmental certification and indemnity agreement, and all other
agreements, documents, and instruments evidencing, securing, or otherwise
relating to the Loan, as modified in the Modifications, are sometimes referred
to individually and collectively as the "Loan Documents". Hereinafter, "Note",
"Loan Agreement", and "Security Documents" shall mean such documents as modified
in the Modifications.)
D. Borrower has requested that Bank modify the Loan and the Loan Documents
as provided herein. Bank is willing to so modify the Loan and the Loan
Documents, subject to the terms and conditions herein.
AGREEMENT:
- ----------
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower and Bank agree as follows:
1. ACCURACY OF RECITALS.
--------------------
Borrower acknowledges the accuracy of the Recitals.
1
<PAGE>
2. MODIFICATION OF LOAN DOCUMENTS.
------------------------------
2.1 The Loan Documents are modified as follows:
2.1.1 The maturity date of the Loan and the Note is changed from
December 1, 1997 to February 1, 1998. On the maturity date Borrower shall pay to
Bank the unpaid principal, accrued and unpaid interest, and all other amounts
payable by Borrower under the Loan Documents as modified herein.
2.2 Each of the Loan Documents is modified to provide that it shall be a
default or an event of default thereunder if Borrower shall fail to comply with
any of the covenants of Borrower herein or if any representation or warranty by
Borrower herein or by any guarantor in any related Consent and Agreement of
Guarantor(s) is materially incomplete, incorrect, or misleading as of the date
hereof.
2.3 Each reference in the Loan Documents to any of the Loan Documents shall
be a reference to such document as modified herein.
3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.
---------------------------------------------
The Loan Documents are ratified and affirmed by Borrower and shall remain in
full force and effect as modified herein. Any property or rights to or interests
in property granted as security in the Loan Documents shall remain as security
for the Loan and the obligations of Borrower in the Loan Documents.
4. BORROWER REPRESENTATIONS AND WARRANTIES.
---------------------------------------
Borrower represents and warrants to Bank:
4.1 No default or event of default under any of the Loan Documents as
modified herein, nor any event, that, with the giving of notice or the passage
of time or both, would be a default or an event of default under the Loan
Documents as modified herein has occurred and is continuing.
4.2 There has been no material adverse change in the financial condition of
Borrower or any other person whose financial statement has been delivered to
Bank in connection with the Loan from the most recent financial statement
received by Bank.
4.3 Each and all representations and warranties of Borrower in the Loan
Documents are accurate on the date hereof.
4.4 Borrower has no claims, counterclaims, defenses, or set-offs with
respect to the Loan or the Loan Documents as modified herein.
4.5 The Loan Documents as modified herein are the legal, valid, and binding
obligation of Borrower, enforceable against Borrower in accordance with their
terms.
4.6 Borrower is validly existing under the laws of the State of its
formation or organization and has the requisite power and authority to execute
and deliver this Agreement and to perform the Loan Documents as
2
<PAGE>
modified herein. The execution and delivery of this Agreement and the
performance of the Loan Documents as modified herein have been duly authorized
by all requisite action by or on behalf of Borrower. This Agreement has been
duly executed and delivered on behalf of Borrower.
5. BORROWER COVENANTS.
------------------
Borrower covenants with Bank:
5.1 Borrower shall execute, deliver, and provide to Bank such additional
agreements, documents, and instruments as reasonably required by Bank to
effectuate the intent of this Agreement.
5.2 Borrower fully, finally, and forever releases and discharges Bank and
its successors, assigns, directors, officers, employees, agents, and
representatives from any and all actions, causes of action, claims, debts,
demands, liabilities, obligations, and suits, of whatever kind or nature, in law
or equity of Borrower, whether now known or unknown to Borrower, (i) in respect
of the Loan, the Loan Documents, or the actions or omissions of Bank in respect
of the Loan or the Loan Documents and (ii) arising from events occurring prior
to the date of this Agreement.
5.3 Contemporaneously with the execution and delivery of this Agreement,
Borrower has paid to Bank:
5.3.1 All accrued and unpaid interest under the Note and all amounts,
other than interest and principal, due and payable by Borrower under the Loan
Documents as of the date hereof.
5.3.2 All the internal and external costs and expenses incurred by Bank
in connection with this Agreement (including, without limitation, inside and
outside attorneys, appraisal, appraisal review, processing, title, filing, and
recording costs, expenses, and fees).
6. EXECUTION AND DELIVERY OF AGREEMENT BY BANK.
-------------------------------------------
Bank shall not be bound by this Agreement until (i) Bank has executed and
delivered this Agreement, (ii) Borrower has performed all of the obligations of
Borrower under this Agreement to be performed contemporaneously with the
execution and delivery of this Agreement, (iii) each guarantor(s) of the Loan,
if any, has executed and delivered to Bank a Consent and Agreement of
Guarantor(s), and (iv) if required by Bank, Borrower and any guarantor(s) have
executed and delivered to Bank an arbitration resolution, an environmental
questionnaire, and an environmental certification and indemnity agreement.
7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER.
------------------------------------------------------------------------
The Loan Documents as modified herein contain the complete understanding and
agreement of Borrower and Bank in respect of the Loan and supersede all prior
representations, warranties, agreements, arrangements, understandings, and
negotiations. No provision of the Loan Documents as modified herein may be
3
<PAGE>
changed, discharged, supplemented, terminated, or waived except in a writing
signed by the parties thereto.
8. BINDING EFFECT.
--------------
The Loan Documents as modified herein shall be binding upon and shall inure to
the benefit of Borrower and Bank and their successors and assigns and the
executors, legal administrators, personal representatives, heirs, devisees, and
beneficiaries of Borrower, provided, however, Borrower may not assign any of its
right or delegate any of its obligation under the Loan Documents and any
purported assignment or delegation shall be void.
9. CHOICE OF LAW.
-------------
This Agreement shall be governed by and construed in accordance with the laws of
the State of Arizona, without giving effect to conflicts of law principles.
10. COUNTERPART EXECUTION.
---------------------
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original and all of which together shall constitute one and the
same document. Signature pages may be detached from the counterparts and
attached to a single copy of this Agreement to physically form one document.
DATED as of the date first above stated.
CH MORTGAGE COMPANY, A Colorado
corporation formerly known as
American Western Mortgage Company
By: /s/ P. DAFFIN
-------------------------------------
Name: PATRICIA A. DAFFIN
-----------------------------------
Title: TREASURER AND ASSISTANT SECRETARY
----------------------------------
BANK ONE, ARIZONA, NA, a national
banking association
By: /s/ Rhonda R. Williams
-------------------------------------
Name: Rhonda R. Williams
-----------------------------------
Title: Assistant Vice President
----------------------------------
4
<PAGE>
CONSENT AND AGREEMENT OF GUARANTOR(S)
-------------------------------------
With respect to the Fourth Modification Agreement, dated November 20, 1997
("Agreement"), between CH Mortgage Company, a Colorado corporation formerly
known as American Western Mortgage Company ("Borrower") and Bank One, Arizona,
NA, a national banking association ("Bank"), the undersigned (individually and,
if more than one, collectively "Guarantor") agrees for the benefit of Bank as
follows:
1. Guarantor acknowledges (i) receiving a copy of and reading the
Agreement, (ii) the accuracy of the Recitals in the Agreement, and (iii) the
effectiveness of (A) the Guaranty, dated July 1, 1995 ("Guaranty"), by the
undersigned for the benefit of Bank, as modified herein, and (B) any other
agreements, documents, or instruments securing or otherwise relating to the
Guaranty, (including, without limitation, any arbitration resolution and any
environmental certification and indemnity agreement previously executed and
delivered by the undersigned), as modified herein. The Guaranty and such other
agreements, documents, and instruments, as modified herein, are referred to
individually and collectively as the "Guarantor Documents".
2. Guarantor consents to the modification of the Loan Documents and all
other matters in the Agreement.
3. Guarantor fully, finally, and forever releases and discharges Bank and
its successors, assigns, directors, officers, employees, agents, and
representatives from any and all actions, causes of action, claims, debts,
demands, liabilities, obligations, and suits of whatever kind or nature, in law
or equity, that Guarantor has or in the future may have, whether known or
unknown, (i) in respect of the Loan, the Loan Documents, the Guarantor
Documents, or the actions or omissions of Bank in respect of the Loan, the Loan
Documents, or the Guarantor Documents and (ii) arising from events occurring
prior to the date hereof.
4. Guarantor agrees that all references, if any, to the Note, the Loan
Agreement, the Security Documents, and the Loan Documents in the Guarantor
Documents shall be deemed to refer to such agreements, documents, and
instruments as modified by the Agreement.
5. Guarantor reaffirms the Guarantor Documents and agrees that the
Guarantor Documents continue in full force and effect and remain unchanged,
except as specifically modified by this Consent and Agreement of Guarantor(s).
Any property or rights to or interests in property granted as security in the
Guarantor Documents shall remain as security for the Guaranty and the
obligations of Guarantor in the Guaranty.
6. Guarantor agrees that the Loan Documents, as modified by the Agreement,
and the Guarantor Documents, as modified by this Consent and Agreement of
Guarantor(s), are the legal, valid, and binding obligations of Borrower and the
undersigned, respectively, enforceable in accordance with their terms against
Borrower and the undersigned, respectively.
7. Guarantor agrees that Guarantor has no claims, counterclaims, defenses,
or offsets with respect to the enforcement against Guarantor of the Guarantor
Documents.
5
<PAGE>
8. Guarantor represents and warrants that there has been no material
adverse change in the financial condition of any Guarantor from the most recent
financial statement received by Bank.
9. Guarantor agrees that this Consent and Agreement of Guarantor(s) may be
executed in one or more counterparts, each of which shall be deemed an original
and all of which together shall constitute one and the same document. Signature
and acknowledgement pages may be detached from the counterparts and attached to
a single copy of this Consent and Agreement of Guarantor(s) to physically form
one document.
DATED as of the date of the Agreement.
CONTINENTAL HOMES, INC.,
a Delaware corporation
By: /s/ TIMOTHY C. WESTFALL
---------------------------------
Name: TIMOTHY C. WESTFALL
---------------------------------
Title: VICE PRESIDENT
---------------------------------
CONTINENTAL HOMES HOLDING CORP.,
a Delaware corporation
By: /s/ TIMOTHY C. WESTFALL
---------------------------------
Name: TIMOTHY C. WESTFALL
---------------------------------
Title: VICE PRESIDENT
---------------------------------
EXHIBIT 10.11
SECOND MODIFICATION AGREEMENT
THIS SECOND MODIFICATION AGREEMENT ("Agreement") is entered into as of
October 9, 1997, among CONTINENTAL HOMES HOLDING CORP., a Delaware corporation
("Borrower"), the Banks listed on the signature pages of this Agreement, and
BANK ONE, ARIZONA, NA, a national banking association, as Agent. The parties
hereto agree as follows:
RECITALS:
- ---------
A. Agent, Banks and Borrower entered into a Credit Agreement dated as
of June 27, 1996, as amended by that First Modification Agreement dated as of
April 11, 1997 (the "Credit Agreement") pursuant to which the banks named
therein (the "Banks"), among other things, established a credit facility
("Credit Facility") for Borrower, which is evidenced by the Notes. Capitalized
terms not otherwise defined herein shall have the same meanings ascribed to such
terms in the Credit Agreement.
B. Borrower has requested that Banks decrease the interest rate payable
by Borrower under the Credit Facility. Additionally, Borrower has requested that
Banks add certain subsidiaries of Borrower as guarantors under the Credit
Facility. Banks have agreed to so modify the Credit Facility and to amend the
Credit Agreement and other Loan Documents on the terms and subject to the
conditions set forth in this Agreement.
AGREEMENTS:
- -----------
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrower, Banks and Agent agree as follows:
SECTION 1. ACCURACY OF RECITALS.
--------------------
The parties acknowledge the accuracy of the Recitals.
SECTION 2. MODIFICATION OF CREDIT AGREEMENT.
--------------------------------
Effective as of the Effective Date (as hereafter defined), the Credit
Agreement shall be modified as follows:
2.1 Subject to the provisions of Section 4.3 of this Agreement, the
definition of "Guarantors" in Article I of the Credit Agreement is hereby
modified in its entirety to read as follows:
"Guarantors" means ACHETER, INC., a Texas corporation, CH
MORTGAGE COMPANY, a Colorado corporation, CHI CONSTRUCTION COMPANY, an
Arizona corporation, CONTINENTAL HOMES, INC., a
<PAGE>
Delaware corporation, CONTINENTAL HOMES OF AUSTIN, L.P., a Texas
limited partnership, CONTINENTAL HOMES OF DALLAS, L.P., a Texas limited
partnership, CONTINENTAL HOMES OF FLORIDA, INC., a Florida corporation,
CONTINENTAL HOMES OF SAN ANTONIO, L.P., a Texas limited partnership,
CONTINENTAL HOMES OF TEXAS, INC., a Texas corporation, CONTINENTAL
RANCH, INC., a Delaware corporation formerly known as RANCHO CARILLO,
INC., KDB HOMES, INC., a Delaware corporation, L & W INVESTMENTS INC.,
a California corporation, MILBURN INVESTMENTS, INC., a Texas
corporation, MILTEX MANAGEMENT, INC., a Texas corporation, MILTEX
MORTGAGE OF TEXAS LIMITED PARTNERSHIP, a Texas limited partnership,
R.O.S. CORPORATION, a Texas corporation, SETTLEMENT CORPORATION, a
Texas corporation, TRAVIS COUNTY TITLE COMPANY, a Texas corporation,
and their successors and assigns, and any Subsidiary that shall
hereafter become a Guarantor in accordance with Section 11.4 hereof,
and any successors and assigns of any of the foregoing. "Guarantor"
means any one of the Guarantors.
2.2 Section 2.11(a) of the Credit Agreement is hereby modified in its
entirety to read as follows:
(a) Senior Debt Rating. The Applicable Margins shall be
determined by reference to the Senior Debt Rating, in accordance with
the following table:
Applicable Applicable
Senior Debt LIBOR Rate Floating Rate
Rating Margin (%) Margin (%)
----------- ---------- -------------
BBB-/Baa3 or .75 0
higher
BB+/Ba1 .95 0
BB/Ba2 1.15 0
BB-/Ba3 1.35 0.10
B+/B1 or lower 1.55 0.20
or no rating
2.3 The references to "Applicable Unused Commitment Rate" in Sections
2.11(b) and (c) of the Credit Agreement are hereby deleted.
2.4 The following Section 2.11(d) is hereby added to the Credit
Agreement:
(d) Applicable Unused Commitment Rate. The Applicable Unused
Commitment Rate shall be determined by reference to aggregate
Commitments and the aggregate "average daily outstandings" for the
month (or portion thereof) with
-2-
<PAGE>
respect to which the Unused Commitment Fee is being computed, in
accordance with the following table:
Aggregate of each Bank's Applicable Unused
Average Daily Outstandings Commitment Rate (%)
-------------------------- -------------------
66% or more of the aggregate Commitments 0.15
More than 33%, but less than 66%, of the 0.20
aggregate Commitments
33% or less of the aggregate Commitments 0.275
2.5 The number "$10,000,000.00", as it appears in Section 4.2(ii) of
the Credit Agreement, is hereby amended to be "$15,000,000.00."
2.6 Section 4.7(b) of the Credit Agreement is hereby amended in its
entirety to read as follows:
(b) Calculation of Fee. The Facility Letter of Credit Fee
shall be determined by reference to the Senior Debt Rating, in
accordance with the following table:
Applicable
Senior Debt Letter of Credit
Rating Rate (%)
----------- ----------------
BBB-/Baa3 or higher .75
BB+/Ba1 .85
BB/Ba2 .90
BB-/Ba3 1.10
B+/B1or lower 1.30
or no rating
2.7 The number "$6,000,000.00", as it appears in Section 8.5(v) of the
Credit Agreement, is hereby amended to be "$15,000,000.00."
2.8 The following Section 8.12 is hereby added to the Credit Agreement:
8.12 Negative Pledge. Borrower will not, nor will it permit
any Guarantor to, directly or indirectly enter into any agreement
(other than this Agreement and the Indenture) with any Person that
prohibits or restricts or limits the ability of Borrower or any
Guarantor to create, incur, pledge or suffer to exist any Lien upon any
assets of Borrower or any Guarantor (except that agreements
-3-
<PAGE>
creating Liens permitted under Sections 8.6(ii), (iii), (vi), (vii),
(viii) and (xiii) may prohibit, restrict or limit other Liens on those
assets encumbered by the Liens created by such agreements).
2.9 Exhibit J to the Credit Agreement is hereby modified in its
entirety to mean that document attached hereto as Exhibit J.
SECTION 3. OTHER MODIFICATIONS; RATIFICATION OF LOAN DOCUMENTS.
---------------------------------------------------
3.1 As of the Effective Date, each reference in the Loan Documents to
any of the Loan Documents is hereby amended to be a reference to such document
as modified herein.
3.2 The Loan Documents are ratified and affirmed by Borrower and shall
remain in full force and effect as modified herein.
SECTION 4. CONSENT OF BANKS.
----------------
4.1 Consent to Assumption by New Guarantors. Banks hereby consent to
Borrower's formation and capitalization of
(a) Continental Homes of Dallas, L.P., a Texas limited
partnership ("CHD"), and its constituent partners CHTEX of Dallas, Inc., a
Delaware corporation, and CH Investments of Texas, Inc., a Delaware corporation;
(b) Continental Homes of San Antonio, L.P., a Texas limited
partnership ("CHS"), and its constituent partners CHTEX of San Antonio, Inc., a
Delaware corporation, and CH Investments of Texas III, Inc., a Delaware
corporation; and
(c) Continental Homes of Austin, L.P., a Texas limited
partnership ("CHA") and its constituent partners CHTEX of Austin, Inc., a
Delaware corporation, and CH Investments of Texas II, Inc., a Delaware
corporation.
Banks hereby consent to the addition of CHD, CHS and CHA as Guarantors under the
Credit Facility, and the assumption by CHD, CHS and CHA of the obligations of a
Guarantor as set forth in the attached Consent and Agreement of Guarantor.
4.2 Consent to Transfer of Assets. Banks hereby consent to the transfer
(pursuant to a multi-survivor merger) of all, or substantially all, of the
assets of Milburn Investments, Inc., a Texas corporation, to CHA. Banks hereby
consent to the transfer (pursuant to a multi-survivor merger) of all, or
substantially all, of the assets of Continental Homes of Texas, Inc., a Texas
corporation, to CHS. Such consent shall not constitute a consent to the transfer
of any other assets of Borrower or any other Guarantor except as may be
specifically permitted under the Credit Agreement.
-4-
<PAGE>
4.3 Consent to Dissolution. Banks hereby consent to the dissolution of
CHI Finance Corp., an Arizona corporation, as described in Section 5.1(a).
Contemporaneously herewith, Borrower is dissolving the following Guarantors, and
Banks hereby consent to the dissolution of such Guarantors in accordance with
the dissolution documents approved by Agent pursuant to Section 8.7 of this
Agreement: Acheter, Inc., a Texas corporation, Continental Homes of Texas, Inc.,
a Texas corporation, Milburn Investments, Inc., a Texas corporation, Miltex
Management, Inc., a Texas corporation, Miltex Mortgage of Texas Limited
Partnership, a Texas limited partnership, R.O.S. Corporation, a Texas
corporation, and Settlement Corporation, a Texas corporation. Such consent shall
not constitute a consent to any dissolution of any other entity except as may be
specifically permitted under the Credit Agreement. Upon the dissolution of each
such Guarantor, such Guarantor shall be deleted automatically from the
definition of "Guarantors" in Article I of the Credit Agreement.
4.4 No Other Consent. The consents granted by Banks herein shall in no
way affect the liability or obligations of Borrower or any Guarantor under the
Loan Documents. Such consent shall not constitute a consent to any other
matters, similar or dissimilar, other than those specifically enumerated above.
SECTION 5. WAIVER OF VARIANCES.
-------------------
5.1 Waiver. Banks hereby waive the following variances with the Credit
Agreement by Borrower:
(a) Non-Compliance with under Section 10.12 as a result of the
dissolution of CHI Finance Corp., an Arizona corporation, pursuant to Articles
of Dissolution filed with the Arizona Secretary of State on May 2, 1997;
(b) Non-compliance with Section 8.4 as a result of the
transfer of substantially all of the assets of Milburn Investments, Inc., a
Texas corporation, to CHA pursuant to the Articles of Merger filed with the
Texas Secretary of State on July 25, 1996;
(c) Non-compliance with Section 8.4 as a result of the
transfer of substantially all of the assets of Continental Homes of Texas, Inc.,
a Texas corporation, to CHS pursuant to the Articles of Merger filed with the
Texas Secretary of State on July 25, 1996;
(d) Non-compliance with Section 6.10 as a result of the
submission of Borrowing Base Certificates from July 1996 through August 1997
which did not reflect the transfer of assets described in subparagraphs (b) and
(c) above, and which showed Borrowing Base assets not owned by a Guarantor;
(e) Non-compliance with Section 11.4 as a result of the
addition of CHS, CHA and CHD as a "Guarantor" (as defined therein) under the
Indenture pursuant to that First Supplemental Indenture dated February 4, 1997,
and the subsequent failure to add CHS, CHA and CHD as Guarantors under the
Credit Agreement; and
-5-
<PAGE>
(f) Non-compliance with Section 8.5(v) as a result of Borrower
permitting Continental Homes, Inc., a Delaware corporation, to extend loans in
1997 to the Surprise Entities in excess of $6 million.
5.2 Effect of Waiver. The waivers of Borrower's non-compliance with the
covenants specified in Section 5.1 hereof are specific in time and intent and
are granted only with respect to the specific matters and covenants specified in
Section 5.1 hereof and for the times stated in Section 5.1 hereof. These waivers
shall not be construed as a waiver of any other provisions of the Credit
Agreement. These waivers do not constitute an agreement or obligation of Agent
or Banks to waive any other existing or future event that would, absent consent
or waiver, constitute non-compliance with the terms of the Credit Agreement.
Except for the waivers specifically set forth herein, Agent and Banks do not in
any way waive or relinquish any rights they have or may have under the Credit
Agreement or otherwise, nor do the waivers herein in any way affect or impair
the terms of, or the rights of Agent or Banks under, the Credit Agreement.
SECTION 6. BORROWER REPRESENTATIONS AND WARRANTIES.
---------------------------------------
Borrower represents and warrants to Banks and Agent:
6.1 As of October 6, 1997, the outstanding principal balance of the
Notes is $20,000,000.00; interest has been paid through the due date.
6.2 No default or event of default under any of the Loan Documents as
modified herein, nor any event, that, with the giving of notice or the passage
of time or both, would be a default or an event of default under the Loan
Documents as modified herein has occurred and is continuing.
6.3 There has been no material adverse change in the financial
condition of Borrower or any Guarantor or any other person whose financial
statement has been delivered to Agent in connection with the Credit Facility
from the most recent financial statement received by Agent.
6.4 Each and all representations and warranties of Borrower in the Loan
Documents are accurate on the date hereof.
6.5 Borrower has no claims, counterclaims, defenses, or set-offs with
respect to the Credit Facility or the Loan Documents as modified herein.
6.6 The Loan Documents as modified herein are the legal, valid, and
binding obligation of Borrower, enforceable against Borrower in accordance with
their terms.
6.7 Borrower is validly existing under the laws of the State of its
formation or organization and has the requisite power and authority to execute
and deliver this Agreement and to perform the Loan Documents as modified herein.
The execution and delivery of this Agreement and the performance of the Loan
Documents as modified herein have been duly
-6-
<PAGE>
authorized by all requisite action by or on behalf of Borrower. This Agreement
has been duly executed and delivered on behalf of Borrower.
6.8 CHD, CHS and CHA are each (a) a Wholly-Owned Subsidiary of
Borrower, (b) a Restricted Subsidiary, as defined in the Indenture, and (c) a
"Guarantor" (as defined therein) under the Indenture. The addition of CHD, CHS
and CHA as a Guarantor shall not cause an Event of Default or an Unmatured Event
of Default to occur.
SECTION 7. BORROWER COVENANTS.
------------------
Borrower covenants with Agent and Banks:
7.1 Borrower shall execute, deliver, and provide to Agent such
additional agreements, documents, and instruments as reasonably required by
Agent to effectuate the intent of this Agreement.
7.2 Borrower fully, finally, and absolutely and forever releases and
discharges Agent and Banks and their present and former directors, shareholders,
officers, employees, agents, representatives, successors and assigns, and their
separate and respective heirs, personal representatives, successors and assigns,
from any and all actions, causes of action, claims, debts, damages, demands,
liabilities, obligations, and suits, of whatever kind or nature, in law or
equity that Borrower has or in the future may have, (i) in respect of the Credit
Facility, the Loan Documents, or the actions or omissions of Agent or any Bank
in respect of the Credit Facility or the Loan Documents and (ii) arising from
events occurring prior to the date of this Agreement, and which are known to
Borrower.
SECTION 8. CONDITIONS PRECEDENT.
--------------------
The agreements of Banks and Agent and the modifications contained
herein shall not be binding upon Banks and Agent until Borrower has executed and
delivered this Agreement and Agent has received, at Borrower's expense, all of
the following on or before October 9, 1997 (the "Effective Date"), and each
of which shall be in form and content satisfactory to Agent and shall be subject
to prior approval by Agent:
8.1 An original of this Agreement fully executed by Borrower and
Guarantors;
8.2 With respect to CHD, CHA and CHS and their respective constituent
partners:
(i) Copies of its partnership agreement, certificate of
incorporation, and articles of merger, together with all amendments,
and a certificate of good standing, all certified by the appropriate
governmental officer in the jurisdiction of incorporation or formation.
-7-
<PAGE>
(ii) Copies, certified by the Secretary or Assistant
Secretary, of the respective corporations, of its by-laws and with
respect to the general partners, of its Board of Directors' resolutions
(and resolutions of other bodies, if any are deemed necessary by
counsel for any Bank) authorizing the assumption of the Guarantors'
obligations under the Guaranty and any Loan Documents obligating
Guarantors and the execution of the attached Consent and Agreement of
Guarantor, all in its capacity as general partner of CHS, CHA or CHD,
as applicable.
(iii) Incumbency certificates, executed by the Secretary or
Assistant Secretary of the respective general partner of CHS, CHA or
CHD, which shall identify by name and title and bear the signature of
the officers of the such corporation authorized to sign the attached
Consent and Agreement of Guarantor, upon which certificates Agent and
Banks shall be entitled to rely until informed of any change in writing
by the applicable Guarantor.
8.3 Such resolutions or authorizations and such other documents as
Agent may require relating to the existence and good standing of Borrower and
each Guarantor, and the authority of any person executing this Agreement or
other documents on behalf of Borrower and each Guarantor.
8.4 A written opinion of Timothy C. Westfall, general counsel to
Borrower and Guarantors, addressed to Agent and Banks in substantially the form
of Exhibit A hereto.
8.5 A written opinion of Terry Mitchell, Texas counsel to Borrower and
Guarantors, addressed to Agent and Banks in substantially the form of Exhibit B
hereto.
8.6 A written opinion of Cahill, Gordon & Reindel, counsel to Borrower
and Guarantors, addressed to Agent and Banks in substantially the form of
Exhibit C hereto.
8.7 Articles of Dissolution and such other documents as Agent may
require relating to the dissolutions described in Section 4.3 of this Agreement.
8.8 True and correct Borrowing Base Certificates for the periods
described in Section 5.1(d) of this Agreement, together with payment of any sums
owing under Section 2.2 of the Credit Agreement as a result of any previously
submitted Borrowing Base Certificates.
8.9 Payment of all external costs and expenses incurred by Agent in
connection with this Agreement (including, without limitation, attorneys' and
processing costs, expenses, and fees).
SECTION 9. GENERAL.
-------
9.1 The Loan Documents as modified herein contain the complete
understanding and agreement of Borrower, Banks and Agent in respect of the
Credit Facility and supersede all prior
-8-
<PAGE>
representations, warranties, agreements, arrangements, understandings, and
negotiations. No provision of the Loan Documents as modified herein may be
changed, discharged, supplemented, terminated, or waived except in a writing
signed by the parties thereto.
9.2 The Loan Documents as modified herein shall be binding upon and
shall inure to the benefit of Borrower, Banks and Agent and their successors and
assigns; provided, however, Borrower may not assign any of its rights or
delegate any of its obligations under the Loan Documents and any purported
assignment or delegation shall be void.
9.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Arizona, without giving effect to conflicts of law
principles.
9.4 This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same document. Signature pages may be detached from the counterparts and
attached to a single copy of this Agreement to physically form one document.
IN WITNESS WHEREOF, Borrower, Banks, and Agent have executed this
Agreement as of the date set forth above.
BORROWER:
CONTINENTAL HOMES HOLDING CORP., a
Delaware corporation
By: /s/ W. Thomas Hickcox
---------------------------------------
Name: W. Thomas Hickcox
Title: Chief Executive Officer, President
and Chief Operating Officer
BANKS AND AGENT:
BANK ONE, ARIZONA, NA, a national banking
association, Individually and as Agent
By: /s/ Rhonda R. Williams
---------------------------------------
Name: Rhonda R. Williams
Title: Vice President
-9-
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Nick Whiting
---------------------------------------
Name: Nick Whiting
Title: Vice President
NORWEST BANK ARIZONA, N.A., a national
banking association
By: /s/ E. Kevin Kosan
---------------------------------------
Name: E. Kevin Kosan
Title: Vice President
GUARANTY FEDERAL BANK, FSB
By: /s/ Randall S. Reid
---------------------------------------
Name: Randall S. Reid
Title: Vice President
-10-
<PAGE>
CONSENT AND AGREEMENT OF GUARANTOR
----------------------------------
With respect to the Second Modification Agreement, dated October 9,
1997 ("Agreement"), among CONTINENTAL HOMES HOLDING CORP., a Delaware
corporation ("Borrower"), the Banks listed on the signature pages of the
Agreement, and BANK ONE, ARIZONA, NA, a national banking association, as Agent,
the undersigned (severally and collectively, "Guarantor") agree for the benefit
of Agent and Banks as follows:
1. Guarantor acknowledges (i) receiving a copy of and reading the
Agreement, (ii) the accuracy of the Recitals in the Agreement, and (iii) the
effectiveness of (A) the Guaranty dated June 27, 1996 executed by the
undersigned for the benefit of Agent and Banks, as modified pursuant to the
Consent and Agreement of Guarantors executed in connection with the First
Modification Agreement, and as modified herein (the "Guaranty"), and (B) any
other agreements, documents, or instruments securing or otherwise relating to
the Guaranty, as modified herein. The Guaranty and such other agreements,
documents, and instruments, as modified herein, are referred to individually and
collectively as the "Guarantor Documents."
2. Guarantor consents to the modification of the Loan Documents and all
other matters in the Agreement.
3. Guarantor fully, finally, and absolutely and forever releases and
discharges Agent and Banks and their present and former directors, shareholders,
officers, employees, agents, representatives, successors and assigns, and their
separate and respective heirs, personal representatives, successors and assigns,
from any and all actions, causes of action, claims, debts, damages, demands,
liabilities, obligations, and suits, of whatever kind or nature, in law or
equity that Guarantor has or in the future may have, (i) in respect of the
Credit Facility, the Loan Documents, the Guarantor Documents, or the actions or
omissions of Agent or any Bank in respect of the Credit Facility, the Loan
Documents, or the Guarantor Documents and (ii) arising from events occurring
prior to the date hereof and which are known to Guarantor.
4. Guarantor agrees that all references, if any, to the Notes, the
Credit Agreement, and any other Loan Documents in the Guarantor Documents shall
be deemed to refer to such agreements, documents, and instruments as modified by
the Agreement.
5. Guarantor reaffirms the Guarantor Documents and agrees that the
Guarantor Documents continue in full force and effect and remain unchanged,
except as specifically modified by this Consent and Agreement of Guarantors. Any
property or rights to or interests in property granted as security in the
Guarantor Documents shall remain as security for the Guaranty and the
obligations of Guarantor in the Guaranty.
6. Guarantor agrees that the Loan Documents, as modified by the
Agreement, and the Guarantor Documents, as modified by this Consent and
Agreement of Guarantors, are the legal,
-11-
<PAGE>
valid, and binding obligations of Borrower and the undersigned, respectively,
enforceable in accordance with their terms against Borrower and the undersigned,
respectively.
7. Guarantor agrees that Guarantor has no claims, counterclaims,
defenses, or offsets with respect to the enforcement against Guarantor of the
Guarantor Documents.
8. Guarantor represents and warrants that there has been no material
adverse change in the financial condition of any Guarantor from the most recent
financial statement received by Agent.
9. Guarantor is validly existing under the laws of the State of its
formation or organization and has the requisite power and authority to execute
and deliver this Agreement and to perform the Guarantor Documents as modified
herein. The execution and delivery of this Agreement and the performance of the
Guarantor Documents as modified herein have been duly authorized by all
requisite action by or on behalf of Guarantor. This Agreement has been duly
executed and delivered on behalf of Guarantor.
10. CHD, CHS and CHA each hereby assume the obligations for payment and
performance of all covenants, conditions, provisions and agreements under the
Guaranty and the Loan Documents to be performed by Guarantors, all as modified
by this Agreement. This assumption has been agreed to by and between Borrower,
the other Guarantors and CHD, CHS and CHA. CHD, CHS and CHA shall each be deemed
to be one of the Guarantors for purposes of the Credit Agreement, the Guaranty,
and the other Loan Documents. CHD, CHS and CHA each hereby covenant, promise and
agree (i) to pay the indebtedness under the Guaranty and the Loan Documents to
be paid by Guarantors at the times, in the manner and in all other respects as
therein provided or as it may be modified in writing from time to time; (ii) to
perform each and all of the covenants, conditions, provisions and agreements in
the Guaranty and the Loan Documents to be performed by Guarantors, at the time,
in the manner and in all other respects as therein provided; and (iii) to be
bound by each and every term, condition and provision of the Guaranty and the
Loan Documents as though such documents and instruments had originally been
made, executed and delivered by CHD, CHS and CHA as Guarantors.
DATED as of the date of the Agreement.
GUARANTORS:
-----------
ACHETER, INC., a Texas corporation
By: /s/ Timothy C. Westfall
--------------------------------------
Name: Timothy C. Westfall
Title: Secretary
-12-
<PAGE>
CH MORTGAGE COMPANY, a Colorado
corporation
By: /s/ Randall C. Present
--------------------------------------
Name: Randall C. Present
------------------------------------
Title: Chairman and President
------------------------------------
CHI CONSTRUCTION COMPANY, an Arizona
corporation
By: /s/ Timothy C. Westfall
--------------------------------------
Name: Timothy C. Westfall
------------------------------------
Title: Vice President
------------------------------------
CONTINENTAL HOMES, INC., a Delaware
corporation
By: /s/ Timothy C. Westfall
--------------------------------------
Name: Timothy C. Westfall
------------------------------------
Title: Vice President, General Counsel
------------------------------------
and Assistant Secretary
CONTINENTAL HOMES OF AUSTIN, L.P., a
Texas limited partnership
BY: CHTEX OF AUSTIN, INC., a Delaware
corporation, General Partner
By: /s/ Timothy C. Westfall
-------------------------------
Name: Timothy C. Westfall
-----------------------------
Title: Vice President and
-----------------------------
Assistant Secretary
-13-
<PAGE>
CONTINENTAL HOMES OF DALLAS, L.P., a
Texas limited partnership
BY: CHTEX OF DALLAS, INC., a Delaware
corporation, General Partner
By: /s/ Timothy C. Westfall
----------------------------------
Name: Timothy C. Westfall
Title: Vice President and Secretary
CONTINENTAL HOMES OF FLORIDA, INC., a
Florida corporation
By: /s/ Timothy C. Westfall
----------------------------------------
Name: Timothy C. Westfall
Title:Vice President and Secretary
CONTINENTAL HOMES OF SAN ANTONIO,
L.P., a Texas limited partnership
BY: CHTEX OF SAN ANTONIO, INC., a
Delaware corporation, General Partner
By: /s/ Timothy C. Westfall
----------------------------------
Name: Timothy C. Westfall
Title: Vice President and
Assistant Secretary
-14-
<PAGE>
CONTINENTAL HOMES OF TEXAS, INC., a
Texas corporation
By: /s/ W. Thomas Hickcox
----------------------------------------
Name: W. Thomas Hickcox
Title: Vice President
CONTINENTAL RANCH, INC., a Delaware
corporation formerly known as RANCHO
CARILLO, INC.
By: /s/ W. Thomas Hickcox
----------------------------------------
Name: W. Thomas Hickcox
Title: Vice President
KDB HOMES, INC., a Delaware corporation
By: /s/ Timothy C. Westfall
----------------------------------------
Name: Timothy C. Westfall
Title: Vice President
L & W INVESTMENTS INC., a California
corporation
By: /s/ Timothy C. Westfall
----------------------------------------
Name: Timothy C. Westfall
Title: Vice President
-15-
<PAGE>
MILBURN INVESTMENTS, INC., a Texas
corporation
By: /s/ Timothy C. Westfall
----------------------------------------
Name: Timothy C. Westfall
Title: Vice President
MILTEX MANAGEMENT, INC., a Texas
corporation
By: /s/ Timothy C. Westfall
----------------------------------------
Name: Timothy C. Westfall
Title: Secretary
MILTEX MORTGAGE OF TEXAS LIMITED
PARTNERSHIP, a Texas limited partnership
BY: MILTEX MANAGEMENT, INC., a Texas
corporation, General Partner
By: /s/ Timothy C. Westfall
---------------------------------
Name: Timothy C. Westfall
Title: Secretary
R.O.S. CORPORATION, a Texas corporation
By: /s/ Timothy C. Westfall
----------------------------------------
Name: Timothy C. Westfall
Title: Secretary
-16-
<PAGE>
SETTLEMENT CORPORATION, a Texas
corporation
By: /s/ Timothy C. Westfall
----------------------------------------
Name: Timothy C. Westfall
Title: Secretary
TRAVIS COUNTY TITLE COMPANY, a Texas
corporation
By: /s/ Timothy C. Westfall
----------------------------------------
Name: Timothy C. Westfall
Title: Vice President
GUARANTOR
-17-
<PAGE>
EXHIBIT A
---------
October 9, 1997
Bank One, Arizona, NA,
in its capacity as Agent
and in its individual capacity
Western Region Real Estate
241 North Central Avenue
Phoenix, Arizona 85004
Attention: Rhonda R. Williams, Vice President
Norwest Bank Arizona, N.A.
3300 North Central Avenue, MS-9008
Phoenix, AZ 85012-2501
Attention: Vicki Slade, Vice President
BankBoston, N.A., formerly known as
- -----------------------------------
The First National Bank of Boston
- ---------------------------------
115 Perimeter Center Place, N.E., Ste. 1500
Atlanta, GA 30346
Attention: Nick Whiting, Vice President
Guaranty Federal Bank, FSB
8333 Douglas Avenue, 10th Floor
Dallas, TX 75225
Attention: Randall S. Reid
Re: Unsecured Revolving Line of Credit in the amount of
$140,000,000.00 ("Loan") made by Bank One, Arizona, NA, a
national banking association, Norwest Bank Arizona, N.A. and
BankBoston, N.A., formerly known as The First National Bank of
Boston, and Guaranty Federal Bank, FSB (collectively, the
"Banks"), to Continental Homes Holding Corp., a Delaware
corporation ("Borrower"), and guaranteed by the guarantors
listed on Schedule "1" hereto ("Guarantors"), with Bank One,
Arizona, NA acting as agent for the Banks ("Agent"); Second
Modification Agreement dated October ___, 1997 ("Modification
Agreement)
Ladies & Gentlemen:
I am general counsel of Borrower and Guarantors. Each capitalized term
used and not otherwise defined in this letter shall have the meaning ascribed to
such term in the Modification Agreement. In addition, as used in this letter,
the phrase "consummation of the modification", means the closing of the loan
modification contemplated in the
<PAGE>
Bank One, Arizona, NA
Norwest Bank Arizona, N.A.
The First National Bank of Boston
Guaranty Federal Bank, FSB
October 9, 1997
Page 2
Modification Agreement and the performance of the obligations to be performed by
Borrower and Guarantors prior to the closing of the loan modification but does
not include performance of obligations or compliance with terms and conditions
of the Modification Agreement after the closing of the loan modification.
For purposes of this letter, I have examined such questions of law and
fact and such documentation as I have determined to be necessary or appropriate.
Based on the foregoing and subject to the assumptions, qualifications,
and limitations set forth below, it is my opinion that:
1. Borrower has the requisite corporate power and corporate authority
to carry out the terms and conditions applicable to it under the Modification
Agreement. The execution, delivery and performance of the Modification Agreement
by Borrower has been duly authorized by all requisite corporate action on the
part of Borrower and the consent or approval of shareholders of Borrower is not
required. The Modification Agreement has been duly executed and delivered on
behalf of Borrower.
2. Each Guarantor has the requisite corporate (or partnership, as
applicable) power and corporate authority to carry out the terms and conditions
applicable to it under the Modification Agreement. The execution, delivery, and
performance of the Modification Agreement by each Guarantor has been duly
authorized by all requisite corporate or partnership action on the part of each
such Guarantor and the consent or approval of shareholders or partners, as
applicable, of such Guarantor is not required. The Modification Agreement has
been duly executed and delivered on behalf of each such Guarantor.
3. The execution and delivery of the Modification Agreement and
consummation of the modification by Borrower will not conflict with, or result
in violation of, any applicable law, ordinance, regulation or rule (federal,
state or local) affecting Borrower of which I am aware, except for such
conflicts or violations which would not be reasonably likely to result in a
Material Adverse Effect. By the foregoing opinion, I do not intend to express,
and you agree that I do not express, any opinion concerning any securities law,
regulation or rule or any law, regulation, or rule regulating the making of
secured loans by banks or non-banking subsidiaries of bank holding companies.
<PAGE>
Bank One, Arizona, NA
Norwest Bank Arizona, N.A.
The First National Bank of Boston
Guaranty Federal Bank, FSB
October 9, 1997
Page 3
4. The execution and delivery of the Modification Agreement and
consummation of the modification by each Guarantor will not conflict with, or
result in a violation of, any applicable law, ordinance, regulation or rule
(federal, state or local) affecting any Guarantor of which I am aware, except
for such conflicts or violations which would not be reasonably likely to result
in a Material Adverse Effect. By the foregoing opinion, I do not intend to
express, and you agree that I do not express, any opinion concerning any
securities law, regulation, or rule or any law, regulation or rule regulating
the making of secured loans by banks or non-banking subsidiaries of bank holding
companies.
5. No consent, approval, authorization, or other action by, or filing
with, any federal, state, or local governmental authority is required in
connection with the execution and delivery by Borrower of the Modification
Agreement and the consummation of the modification, other than those which have
been obtained prior to the consummation of the modification.
6. No consent, approval, authorization, or other action by, or filing
with, any federal, state, or local governmental authority is required in
connection with the execution and delivery by any Guarantor of the Modification
Agreement and the consummation of the modification, other than those which have
been obtained prior to the consummation of the modification.
7. The execution and delivery of the Modification Agreement and
consummation of the modification by Borrower will not conflict with or result in
a violation of the Articles of Incorporation and Bylaws of Borrower.
8. The execution and delivery of the Modification Agreement and
consummation of the modification by each Guarantor will not conflict with or
result in a violation of the Articles of Incorporation and Bylaws or the
Partnership Agreement, as applicable, of any such Guarantor.
9. The Modification Agreement constitute legal, valid, and binding
obligations of Borrower, enforceable in accordance with their terms against
Borrower.
10. The Modification Agreement constitutes legal, valid, and binding
obligations of each Guarantor, enforceable in accordance with their terms
against each Guarantor.
<PAGE>
Bank One, Arizona, NA
Norwest Bank Arizona, N.A.
The First National Bank of Boston
Guaranty Federal Bank, FSB
October 9, 1997
Page 4
11. The execution and delivery of the Modification Agreement and
consummation of the modification by Borrower will not conflict with, or result
in a violation of, any judgments, orders, or decrees of any arbitrator, other
private adjudicator, court, or governmental authority (federal, state, or local)
to which Borrower is a party or by which Borrower or the property of Borrower is
bound, except for such conflicts or violations which, in the aggregate, would
not be reasonably likely to result in a Material Adverse Effect.
12. The execution and delivery of the Modification Agreement by each
Guarantor and consummation of the modification by each Guarantor will not
conflict with, or result in a violation of, any judgments, orders, or decrees of
any arbitrator, other private adjudicator, court, or governmental authority
(federal, state, or local) to which any such Guarantor is a party or by which
such Guarantor or the property of such Guarantor is bound, except for such
conflicts or violations which, in the aggregate, would not be reasonably likely
to result in a Material Adverse Effect.
13. The execution and delivery of the Modification Agreement and
consummation of the modification by Borrower will not conflict with, or result
in a violation of, any contract, or any other agreement to which Borrower is
currently a party or by which it is currently bound (except for the Indenture,
the Old Indenture and the Convertible Notes Indenture as to which I express no
opinion).
14. The execution and delivery of the Modification Agreement and
consummation of the modification by each Guarantor will not conflict with, or
result in a violation of, any contract, or any other agreement to which such
Guarantor is currently a party or by which it is currently bound (except for the
Indenture, the Old Indenture and the Convertible Notes Indenture as to which I
express no opinion).
15. I have no actual knowledge of any pending or overtly threatened
litigation or other proceeding before any arbitrator, other private adjudicator,
court, or governmental agency (federal, state or local) against Borrower which,
in the aggregate, would be reasonably likely to result in a Material Adverse
Effect .
16. I have no actual knowledge of any pending or overtly threatened
litigation or other proceeding before any arbitrator, other private adjudicator,
court, or governmental agency (federal, state or local) against any Guarantor
which, in the aggregate, would be reasonably likely to result in a Material
Adverse Effect.
<PAGE>
Bank One, Arizona, NA
Norwest Bank Arizona, N.A.
The First National Bank of Boston
Guaranty Federal Bank, FSB
October 9, 1997
Page 5
17. CHI Finance Corporation, an Arizona corporation, was dissolved in
accordance with applicable law upon filing of Articles of Dissolution with the
Arizona Corporation Commission on May 2, 1997.
18. The formation and capitalization of new entities, as described in
Section 4.1 of the Modification Agreement; (i) did not conflict with, or result
in a violation of, any judgments, orders, or decrees of any arbitrator, other
private adjudicator, court, or governmental authority (federal, state, or local)
to which Borrower or any Guarantor is a party or any of their respective
properties is bound, and (ii) did not conflict with, or result in a violation
of, any contract, or any other agreement to which Borrower or any Guarantor is
currently a party or by which it is currently bound, except for such conflicts
or violations, if any, as have been corrected or consented to by the Banks in
the Modification Agreement and except for the Indenture, the Old Indenture and
the Convertible Notes Indenture as to which I express no opinion.
19. The transfer of assets described in Section 4.2 of the Modification
Agreement: (i) did not conflict with, or result in a violation of, any
judgments, orders, or decrees of any arbitrator, other private adjudicator,
court, or governmental authority (federal, state, or local) to which Borrower or
any Guarantor is a party or by which Borrower or any Guarantor or any of their
respective properties is bound, and (ii) did not conflict with, or result in a
violation of, any contract, or any other agreement to which Borrower or any
Guarantor is currently a party or by which it is currently bound, except for
such conflicts or violations, if any, as have been corrected or consented to by
the Banks in the Modification Agreement and except for the Indenture, the Old
Indenture and the Convertible Notes Indenture as to which I express no opinion.
20. The dissolution of CHI Finance Corporation, an Arizona corporation
(i) did not conflict with, or result in a violation of, any judgments, orders,
or decrees of any arbitrator, other private adjudicator, court, or governmental
authority (federal, state, or local) to which Borrower or any Guarantor is a
party or by which Borrower or any Guarantor or any of their respective
properties is bound, and (ii) did not conflict with, or result in a violation
of, any contract, or any other agreement to which Borrower or any Guarantor is
currently a party or by which it is currently bound (except for the Indenture,
the Old Indenture and the Convertible Notes Indenture as to which I express no
opinion), and the dissolution of the remaining entities described in Section 4.3
of the Modification Agreement; (i) will not conflict with, or result in a
violation of, any judgments, orders, or decrees of any arbitrator, other private
adjudicator, court, or governmental authority (federal, state, or local)
<PAGE>
Bank One, Arizona, NA
Norwest Bank Arizona, N.A.
The First National Bank of Boston
Guaranty Federal Bank, FSB
October 9, 1997
Page 6
to which Borrower or any Guarantor is a party or by which Borrower or any
Guarantor or any of their respective properties is bound, and (ii) will not
conflict with, or result in a violation of, any contract, or any other agreement
to which Borrower or any Guarantor is currently a party or by which it is
currently bound (except for the Indenture, the Old Indenture and the Convertible
Notes Indenture as to which I express no opinion).
21. Borrower's non-compliance with the terms of the Credit Agreement,
as identified and described in Section 5.1 of the Modification Agreement: (i)
did not conflict with, or result in a violation of, any judgments, orders, or
decrees of any arbitrator, other private adjudicator, court, or governmental
authority (federal, state or local) to which Borrower or any Guarantor is a
party or by which Borrower or any Guarantor or any of their respective
properties is bound, and (ii) did not conflict with, or result in a violation
of, any contract, or any other agreement to which Borrower or any Guarantor is
currently a party or by which it is currently bound (except for the Indenture,
the Old Indenture and the Convertible Notes Indenture as to which I express no
opinion).
In rendering the foregoing opinions I have assumed with your
permission and without investigation:
(i) The genuineness of the signatures not witnessed, the
authenticity of documents submitted as originals, and the conformity to
originals of documents submitted as copies;
(ii) The legal capacity of all natural persons executing the
Modification Agreement;
(iii) The Modification Agreement accurately describes and
contains your understanding, and there are no oral or written
statements or agreements by you, that modify, amend, or vary, or
purport to modify, amend, or vary, any of the terms of the Modification
Agreement;
(iv) Borrower owns all property, interests in property, and
rights purported to be owned by it;
(v) Each Bank is a national banking association or a federal
savings bank validly existing under the law of the United States of
America;
<PAGE>
Bank One, Arizona, NA
Norwest Bank Arizona, N.A.
The First National Bank of Boston
Guaranty Federal Bank, FSB
October 9, 1997
Page 7
(vi) Agent and each Bank have the requisite corporate power
and corporate authority to carry out the terms and conditions
applicable to them under the Modification Agreement;
(vii) The execution, delivery and performance of the
Modification Agreement by Agent and each Bank have been duly authorized
by all requisite corporate action on their part; and
(viii) The Modification Agreement is the legal, valid and
binding obligation of Banks and Agent and is enforceable in accordance
with its terms against Banks and Agent.
The opinions set forth above are subject to the following
qualifications and limitations:
(a) The validity and enforceability of the Modification
Agreement may be subject to, or limited by, (i) any applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium, or
fraudulent transfer laws (including without limitation, Section 548 of
the Federal Bankruptcy Code) or any other laws or judicial decisions
affecting creditors' rights and remedies generally; (ii) general
principles of equity; (iii) forfeiture or similar laws (including court
decisions) of the State of Arizona or of the United States; and (iv)
the rights and remedies of the Pension Benefits Guaranty Corporation
under the Employee Retirement Income Security Act of 1974, or of the
United States under the Federal Tax Lien Act of 1966.
(b) The enforceability of the Modification Agreement is
further subject to the qualification that certain waivers, procedures,
remedies and other provisions of the Modification Agreement may be
unenforceable under, or limited by, the law of the State of Arizona.
However, such limitations do not, in my opinion, interfere (i) with
practical enforcement by you of the obligation of Borrower under the
Modification Agreement to pay to you the principal amount of the Loan
and interest thereon as provided in the Notes, or (ii) with practical
enforcement by you of the obligation of each Guarantor under the
Guaranty to pay to you the unpaid principal amount of the Loan and
interest thereon as provided in the Notes upon failure by Borrower to
pay such principal amount and interest when due, except (A) with
respect to (i) and (ii) for the economic consequences of any procedural
delays that may result from such limitations, and (B) with respect to
(ii), on the basis of events, actions, or circumstances that may occur
or arise after consummation of the Loan, the law of guaranty and
suretyship may prevent the enforcement of the Guaranty.
<PAGE>
Bank One, Arizona, NA
Norwest Bank Arizona, N.A.
The First National Bank of Boston
Guaranty Federal Bank, FSB
October 9, 1997
Page 8
(c) I express no opinion with respect to your ability to
enforce the Modification Agreement against Borrower or any Guarantor if
the Loan fails to comply with any statutory, regulatory or other loan
limits applicable to you, or if the Loan fails to comply with any other
state or federal law (including court decisions), rule or regulation
which prescribes permissible and lawful investments for you (either as
to type, amount, percentage of total investments, or otherwise).
I am qualified to practice law in the State of Arizona. The opinions
expressed in this letter are based upon the presently effective laws of the
State of Arizona only, and I assume no obligation to revise or supplement this
opinion should such law be changed by legislative action, judicial decision, or
otherwise. I express no opinion with respect to the laws of any other
jurisdiction. The opinions expressed herein are limited to the matters stated
herein and no opinion is implied or may be inferred beyond the matters expressly
stated.
This opinion is rendered solely to you and solely in connection with
the Loan and may not be relied upon by you or by any other person for any other
purpose, provided, however, that this opinion may be relied upon by any person
to which all or a part of the Loan, or a participation therein, may be
transferred, provided that such reliance is only in connection with the Loan and
that this opinion remains effective only as of the date hereof and will not be
considered to be effective or restated as of any other date. This opinion is not
to be referred to, or quoted, in any document, report, or financial statement or
filed with, or delivered to, any governmental agency or other person or entity
without my prior written consent, provided, however, this opinion may be
delivered to your auditors, governmental regulators, transferees and
participants of any person entitled to rely on this opinion.
Very truly yours,
/s/Timothy C. Westfall
Timothy C. Westfall
<PAGE>
SCHEDULE 1
----------
("Guarantors")
Acheter, Inc.
CH Mortgage Company
CHI Construction Company
Continental Homes, Inc.
Continental Homes of Austin, L.P.
Continental Homes of Dallas, L.P.
Continental Homes of Florida, Inc.
Continental Homes of San Antonio, L.P.
Continental Homes of Texas, Inc.
Continental Ranch, Inc. (formerly known as Rancho Carrillo, Inc.)
KDB Homes, Inc.
L & W Investments Inc.
Milburn Investments, Inc.
Miltex Management, Inc.
Miltex Mortgage of Texas Limited Partnership
R.O.S. Corporation
Settlement Corporation
Travis County Title Company
<PAGE>
EXHIBIT A
SCHEDULE 2
----------
List of Modification Agreement
1. First Modification Agreement, dated October ____, 1997, between
Borrower, Banks and Agent, with Consent and Agreement of Guarantors,
dated October ____, 1997, by Guarantors for the benefit of Banks and
Agent ("Modification Agreement").
2. Promissory Note, dated October ____, 1997, in the principal amount of
$30,000,000 executed by Borrower payable to Guaranty Federal Bank, FSB.
3. Letter Agreement dated October ____, 1997 between Borrower and Bank
One, Arizona, NA.
(The Modification Agreement identified above are hereinafter
collectively referred to as the "Modification Agreement".)
A-10
<PAGE>
EXHIBIT B
---------
Milburn
Welcome Home
October 9, 1997
Bank One, Arizona, NA,
in its capacity as Agent
and in its individual capacity
Western Region Real Estate
241 North Central Avenue
Phoenix, AZ 85004
Attention: Rhonda R. Williams, Vice President
Norwest Bank Arizona, N.A.
3300 North Central Avenue, MS-9008
Phoenix, AZ 85012-2501
Attention: Vicki Slade, Vice President
BankBoston, N.A.
115 Perimeter Center Place, N.E., Ste. 1500
Atlanta, GA 30346
Attention: Nick Whiting, Vice President
Guaranty Federal Bank, FSB
8333 Douglas Avenue, 10th Floor
Dallas, TX 75225
Attention: Randall S. Reid
RE: Unsecured Revolving Line of Credit in the amount of
$140,000,000.00 ("Loan") made by Bank One, Arizona, NA, a
national banking association, Norwest Bank Arizona, NA, N.A.
and BankBoston, N.A., formerly known as The First National
Bank of Boston, and Guaranty Federal Bank, FSB (collectively,
the "Banks"), to Continental Homes Holding Corp., a Delaware
corporation ("Borrower"), and guaranteed by the guarantors
listed on Schedule "1" hereto ("Guarantors"), with Bank One,
Arizona, NA acting as agent for the Banks ("Agent"); Second
Modification Agreement dated October 9, 1997 ("Modification
Agreement")
Ladies & Gentlemen:
I am general counsel of certain Guarantors. Each capitalized term used
and not otherwise defined in this letter shall have the meaning ascribed to such
term in the Modification Agreement. In addition, as used in this letter, the
phrase "consummation of the modification", means the closing of the loan
modification contemplated in the Modification Agreement and the performance of
the obligations to be performed by Borrower and Guarantors prior to the closing
of the loan modification but does not include performance of obligations or
compliance with terms and conditions of the Modification Agreement after the
closing of the loan modification.
B-1
<PAGE>
EXHIBIT B
Bank One, Arizona, NA
Norwest Bank Arizona, N.A.
BankBoston, N.A.
Guaranty Federal Bank, FSB
October 9, 1997
Page 2
For purposes of this letter, I have examined such questions of law and
fact and such documentation as I have determined to be necessary or appropriate.
Based on the foregoing and subject to the assumptions, qualifications,
and limitations set forth below, it is my opinion that:
1. Continental Homes of Austin, L.P. ("CHA"), Continental Homes of
Dallas, L.P. ("CHD") and Continental Homes of San Antonio, L.P. ("CHS") are each
a limited partnership duly organized, validly existing, and in good standing
under the laws of the State of Texas.
2. Each of CHA, CHD and CHS has the requisite power and authority (I)
to own and operate its properties and assets, and (ii) to carry out its business
as such business is currently being conducted.
3. CHTEX of Austin, Inc., CHTEX of Dallas, Inc. and CHTEX of San
Antonio, Inc. are each a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware and each has the requisite
corporate power and corporate authority (I) to own and operate its properties
and assets, and (ii) to carry out its business as such business is currently
being conducted.
4. All actions necessary to dissolve R.O.S. Corporation, a Texas
corporation, have been taken except the filing of the Articles of Dissolution
thereof with the Texas Secretary of State. Upon such filing, R.O.S. Corporation
will be dissolved in accordance with applicable law.
5. All actions necessary to dissolve Acheter, Inc., a Texas
corporation, have been taken except the filing of the Articles of Dissolution
thereof with the Texas Secretary of State. Upon such filing, Acheter, Inc. will
be dissolved in accordance with applicable law.
6. All actions necessary to dissolve Milburn Investments, Inc., a Texas
corporation, have been taken except the filing of the Articles of Dissolution
thereof with the Texas Secretary of State. Upon such filing, Milburn
Investments, Inc. will be dissolved in accordance with applicable law.
7. All actions necessary to dissolve Continental Homes of Texas, Inc. a
Texas corporation, have been taken except the filing of the Articles of
Dissolution thereof with the Texas Secretary of State. Upon such filing,
Continental Homes of Texas, Inc. will be dissolved in accordance with applicable
law.
8. All actions necessary to dissolve Miltex Management, Inc., a Texas
corporation, have been taken except the filing of the Articles of Dissolution
thereof with the Texas Secretary of State. Upon such filing, Miltex Management,
Inc. will be dissolved in accordance with applicable law.
9. All actions necessary to dissolve Miltex Mortgage of Texas Limited
Partnerships, a Texas limited partnership, have been taken except the filing of
the Certificate of Cancellation thereof with the Texas Secretary of State. Upon
such filing, Miltex Mortgage of Texas Limited Partnership will be dissolved in
accordance with applicable law.
B-2
<PAGE>
EXHIBIT B
Bank One, Arizona, NA
Norwest Bank Arizona, N.A.
BankBoston, N.A.
Guaranty Federal Bank, FSB
October 9, 1997
Page 3
In rendering the foregoing opinions I have assumed with your permission
and without investigation:
(i) The genuineness of the signatures not witnessed, the
authenticity of documents submitted as originals, and the conformity to
originals of documents submitted as copies;
(ii) The legal capacity of all natural persons executing the
documents.
I am qualified to practice law in the State of Texas. The opinions
expressed in this letter are based upon the presently effective laws of the
State of Texas only and, for purposes of this opinion, in Paragraph 3 on Page 2,
the laws of the State of Delaware, and I assume no obligation to revise or
supplement this opinion should such law be changed by legislative action,
judicial decision, or otherwise. I express no opinion with respect to the laws
of any other jurisdiction. The opinions expressed herein are limited to the
matters stated herein and no opinion is implied or may be inferred beyond the
matters expressly stated.
This opinion is rendered solely to you and solely in connection with
the Loan and may not be relied upon by you or by any other person for any other
purpose, provided, however, that this opinion may be relied upon by any person
to which all or a part of the Loan, or a participation therein, may be
transferred, provided that such reliance is only in connection with the Loan and
that this opinion remains effective only as of the date hereof and will not be
considered to be effective or restated as of any other date. This opinion is not
to be referred to, or quoted, in any document, report, or financial statement or
filed with, or delivered to, any governmental agency or other person or entity
without my prior written consent, provided, however, this opinion may be
delivered to your auditors, governmental regulators, transferees and
participants of nay person entitled to rely on this opinion.
Very truly yours,
/s/Terry E. Mitchell
Terry E. Mitchell
B-3
<PAGE>
EXHIBIT B
Bank One, Arizona, NA
Norwest Bank Arizona, N.A.
BankBoston, N.A.
Guaranty Federal Bank, FSB
October 9, 1997
Page 4
SCHEDULE 1
- ----------
("Guarantors")
Acheter, Inc.
CH Mortgage Company
CHI Construction Company
Continental Homes, Inc.
Continental Homes of Austin, L.P.
Continental Homes of Dallas, L.P.
Continental Homes of Florida, Inc.
Continental Homes of San Antonio, L.P.
Continental Homes of Texas, Inc.
Continental Ranch, Inc. (formerly known as Rancho Carrillo, Inc.)
KDB Homes, Inc.
L & W Investments Inc.
Milburn Investments, Inc.
Miltex Management, Inc.
Miltex Mortgage of Texas Limited Partnership
R.O.S. Corporation
Settlement Corporation
Travis County Title Company
B-4
<PAGE>
EXHIBIT C
---------
CAHILL GORDON & REINDEL
EIGHTY PINE STREET
NEW YORK, N.Y. 10005-1702
October 9, 1997
RE: Unsecured Revolving Line of Credit in the amount of
$140,000,000.00 (`Loan") made by Bank One, Arizona, NA, a
national banking association, Norwest Bank Arizona, N.A.,
BankBoston, N.A., a national banking association formerly known
as The First National Bank of Boston, and Guaranty Federal Bank,
FSB (collectively, the "Banks"), to Continental Homes Holding
Corp., a Delaware corporation ("Borrower"), and guaranteed by the
guarantors listed on Schedule 1 hereto ("Guarantors"), with Bank
One, Arizona, NA acting as agent for the Banks ("Agent"); Second
Modification Agreement dated October 9, 1997 ("Modification
Agreement")
Ladies & Gentlemen:
We have acted as special counsel to the Borrower and the Guarantors in
connection with the Loan Modification for purposes of rendering this opinion.
You have requested our opinion on certain matters pursuant to Section 8.6 of the
Modification Agreement. Each capitalized term used and not otherwise defined in
this letter shall have the meaning ascribed to such term in the Modification
Agreement or the Credit Agreement.
<PAGE>
CAHILL GORDON & REINDEL
-2-
We have examined the originals, photocopies or conformed copies of all
such records of the borrower and the guarantors and all such agreements,
certificates of public officials, certificates of officers and representatives
of the Borrower and the Guarantors and such other documents as we have deemed
relevant and necessary as a basis for the opinions hereinafter expressed. In
such examinations, we have assumed the genuineness of all signature on original
documents and the conformity to the originals of all copies submitted to us as
conformed or photocopies. Based on the foregoing, it is our opinion that:
1. The execution and delivery of the Modification Agreement by the
Borrower and each Guarantor will not conflict with, or result in a violation of,
the Indenture, or the Convertible Notes Indenture.
2. With respect to the Indenture:
(a) The execution and delivery of the Modification Agreement by the
Borrower and each Guarantor will not constitute a "Default" or "Event of
Default", as said terms are defined in the Indenture; provided that any
debt incurred under the amended Credit Agreement in excess of $10,000,000
may only be incurred when the Borrower's Coverage Ratio (as defined in the
Indenture) is not less than 2.0 to 1.0.
(b) The formation and capitalization of new entities, at described in
Section 4.1 of the Modification Agreement, did not conflict with, or result
in a violation of the Indenture.
(c) The transfer of assets described in Section 4.2 of the
Modification Agreement did not conflict with the Indenture and did not
constitute a "Default" or an "Event of Default", as said terms are defined
in the Indenture.
(d) The dissolution of CH Finance Corp., an Arizona corporation, did
not, and the dissolution of the remaining entities described in Section 4.3
of the Modification Agreement, will not, conflict with the Indenture and
did not and will not constitute a "Default" or an "Event of Default", as
said terms are defined in the Indenture.
(e) Borrower's non-compliance with the terms of the Credit Agreement,
as identified and described in Section 5.1 of the Modification Agreement
did not conflict with, or cause a default or an Event of Default under, the
Indenture.
3. With respect to the Convertible Notes Indenture:
<PAGE>
CAHILL GORDON & REINDEL
-3-
(a) The execution and delivery of the Modification Agreement by the
Borrower and each Guarantor will not constitute a "Default" or "Event of
Default", as said terms are defined in the Convertible Notes Indenture.
(b) The formation and capitalization of new entities, as described in
Section 4.1 of the Modification Agreement, did not conflict with, or result
in a violation of the Convertible Notes Indenture.
(c) The transfer of assets described in Section 4.2 of the
Modification Agreement did not conflict with the Convertible Notes
Indenture and did not constitute a "Default" or and "Event of Default", as
said terms are defined in the Convertible Notes Indenture.
(d) The dissolution of CH Finance Corp., an Arizona corporation, did
not, and the dissolution of the remaining entities described in Section 4.3
of the Modification Agreement, will not, conflict with the Convertible
Notes Indenture and did not and will not constitute a "Default" or an
"Event of Default", as said terms are defined in the Convertible Notes
Indenture.
(e) Borrower's non-compliance with the terms of the Credit Agreement,
as identified and described in Section 5.1 of the Modification Agreement
did not conflict with, or cause a Default or and Event of Default under,
the Convertible Notes Indenture.
We are members of the bar of the State of New York and do not purport
to be experts in, or to express any opinion concerning, the laws of any
jurisdiction other than the law of the State of New York, the General
Corporation law of the State of Delaware ant the federal law of the United
States.
This opinion is being furnished solely to you and may not be
distributed or relied upon by any other person without our prior written
consent, provided, however, that this opinion may be relied upon by any person
to which all or a part of the Loan, or a participation therein, may be
transferred, provided that such reliance is only in connection with the Loan and
that this opinion remains effective only as of the date hereof and will not be
considered to be effective or restated as of any other date. This opinion is not
to be referred to, or quoted, in any document, report, or financial statement or
filed with, or delivered to, any governmental agency or other person or entity
without our prior written consent, provided, however, that this opinion may be
delivered to your auditors, government regulators,
<PAGE>
CAHILL GORDON & REINDEL
-4-
transferees and participants of any person entitled to rely on this opinion.
/s/ Cahill Gordon & Reindel
CAHILL GORDON & REINDEL
Bank One, Arizona, NA,
in its capacity as Agent
and in its individual capacity
Western Region Real Estate
241 North Central Avenue
Phoenix, AZ 85004
Attention: Rhonda R. Williams, Vice President
Norwest Bank Arizona, N.A.
3300 North Central Avenue, MS-9008
Phoenix, AZ 85012-2501
Attention: Vicki Slade, Vice President
BankBoston, N.A.
115 perimeter Center Place, N.E., Ste. 1500
Atlanta, GA 30346
Attention: Nick Whiting, Vice President
Guaranty Federal Bank, FSB
8333 Douglas Avenue, 10th Floor
Dallas, TX 75225
Attention: Randall S. Reid
<PAGE>
SCHEDULE I
----------
("Guarantors")
Acheter, Inc.
CH Mortgage Company
CHI Construction Company
Continental Homes, Inc.
Continental Homes of Austin, L.P.
Continental Homes of Dallas, L.P.
Continental Homes of Florida, Inc.
Continental Homes of San Antonio, L.P.
Continental Homes of Texas, Inc.
Continental Ranch, Inc. (formerly known as Rancho Carrillo, Inc.)
KDB Homes, Inc.
L & W Investments Inc.
Milburn Investments, Inc.
Miltex Management, Inc.
Miltex Mortgage of Texas Limited Partnership
R.O.S. Corporation
Settlement Corporation
Travis County Title Company
<PAGE>
EXHIBIT "J"
COMPLIANCE CERTIFICATE
TO: THE BANK PARTIES TO THE CREDIT AGREEMENT DESCRIBED BELOW
SCHEDULE OF COMPLIANCE AS OF _______________
This Compliance Certificate is furnished pursuant to that certain
Credit Agreement dated as of June 27, 1996 (as amended, modified, renewed or
extended from time to time, the "Agreement") among CONTINENTAL HOMES HOLDING
CORP., a Delaware corporation and the Banks party thereto and BANK ONE, ARIZONA,
NA, as Agent for the Banks. Unless otherwise defined herein, capitalized terms
used in this Compliance Certificate have the meanings ascribed thereto in the
Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
I. I am the duly elected officer of Borrower, as indicated;
1. I have reviewed the terms of the Agreement and I have made,
or have caused to be made under our supervision, a detailed review of the
transactions and conditions of Borrower and its Subsidiaries during the
accounting period covered by the attached financial statements;
2. The examinations described in paragraph 2 did not disclose,
and I have no knowledge of, the existence of any condition or event which
constitutes an Event of Default or Unmatured Event of Default during or at the
end of the accounting period covered by the attached financial statements or as
of the date of this Certificate, except as set forth below; and
3. Schedules I and II attached hereto sets forth financial
data and computations evidencing compliance with the Financial Covenant Tests
and certain covenants in Article VIII of the Agreement, respectively, all of
which data and computations are true, complete and correct in all material
respects.
<PAGE>
Described below are the exceptions, if any, to paragraph 3 by
listing, in detail, the nature of the condition or event, the period during
which it has existed and the action which Borrower has taken, is taking, or
proposes to take with respect to each such condition or event:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
The foregoing certifications, together with the computations
set forth in Schedule I and Schedule II hereto and the financial statements
delivered with this Certificate in support hereof, are made and delivered this
_____ day of ___________________, 19___.
CONTINENTAL HOMES HOLDING CORP., a
Delaware corporation
By:_____________________________________
Name:___________________________________
Title:__________________________________
-2-
<PAGE>
[SAMPLE]
SCHEDULE I TO COMPLIANCE CERTIFICATE
Schedule of Compliance as of _______________________________
with the Financial Covenant Tests set forth in Article IX of the Agreement.
<PAGE>
<TABLE>
<S> <C> <C>
1. Consolidated Tangible Net Worth Test (Section 9.1)
Consolidated Tangible Net Worth:
Capital Accounts $__________
Less Intangible Assets $__________
Less Net loans and advances to directors,
officers and employees (excluding mortgage
loans) $__________
Equals Consolidated Tangible Net Worth $__________
Minimum Consolidated Tangible Net Worth required:
$96,000,000 $96,000,000
Plus 50% of Consolidated Net Income
earned after March 1, 1996 $__________
Plus 100% of net proceeds of capital
stock issued after March 1, 1996 $__________
Equals Minimum Consolidated Tangible
Net Worth required $________
Actual Minimum Consolidated Tangible
Net Worth per above calculation $________
Surplus (or deficit) Minimum Consolidated
Tangible Net Worth $________
or
($________)
2. Leverage Test (Section 9.2(a))
Consolidated Indebtedness:
Total Indebtedness $________
Less Indebtedness of
non-homebuilding Subsidiaries $________
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Less Indebtedness under Convertible
Notes maturing after Facility Termination Date $________
Less other Public Indebtedness
constituting similar convertible
subordinated notes maturing after
Facility Termination Date $________
Equals Consolidated Indebtedness $________
Adjusted Consolidated Tangible
Net Worth:
Consolidated Tangible Net Worth $________
Plus Indebtedness under Convertible
Notes maturing after Facility Termination Date $________
Plus other Public Indebtedness
constituting similar convertible
subordinated notes maturing after
Facility Termination Date $________
Less Net Worth of mortgage lending and
title insurance Subsidiaries:
GAAP Net Worth $________
less advances paid and
outstanding from Subsidiary
to Borrower $________
Equals Net Worth $________
Equals Adjusted Consolidated Tangible
Net Worth $________
Times Applicable Leverage Multiplier _________
Equals Maximum Consolidated Indebtedness
Permitted $________
Actual Consolidated Indebtedness per
calculation above $________
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Excess (or deficit) Consolidated Indebtedness $________
or
($________)
3. Interest Coverage Test (Section 9.2(b))
EBITDA:
Consolidated Net Income $________
Plus Consolidated Interest Expense:
Total Interest Expense (per $________
definition)
less interest expense
for mortgage lending and
title insurance Subsidiaries $________
Equals Consolidated Interest
Expense $________
Plus taxes $________
Plus depreciation expense $________
Plus amortization expense $________
Plus other non-cash charges $________
Plus extraordinary losses $________
Less extraordinary gains $________
Equals EBITDA $________
Consolidated Interest Incurred:
Interest expense $________
Plus capitalized interest $________
Plus other items per definition
(if applicable) $________
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Less interest expense for mortgage
lending and title insurance
Subsidiaries $________
Equals Consolidated Interest Incurred $________
Ratio of EBITDA to Consolidated
Interest Incurred: _____________
Minimum Ratio Required: 2.0 to 1
4. Spec Unit Inventory (Section 9.3)
a) Total Spec Units Owned by Guarantors ________
b) Plus Total Model Units Owned by Guarantors ________
c) Total Spec and Model Units ________
d) Total Housing Unit Closing
during preceding 12 months _________
Times 50% ________
e) Total Housing Closings during
preceding 6 months _________
Times 110% ________
f) Amount in (c) less the greater
of amount in (d) or (e) ________
or
(________)
g) Total Spec Units where certificate
of occupancy was issued more than
6 months ago (should be zero) ________
5. Land Owned (Section 9.4)
Book value of Finished Lots $________
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Plus book value of Land
under development $________
Plus book value of vacant land $________
Equals total book values $________
Consolidated Tangible Net Worth $________
Plus Indebtedness under Convertible
Notes maturing after Facility
Termination Date $________
Plus other Public Indebtedness
constituting similar convertible
subordinated notes maturing
after Facility Termination Date $________
Equals total net worth/equity $________
Times 150% $________
Excess (or deficit) of total
book values $________
or
($________)
</TABLE>
-5-
<PAGE>
[SAMPLE]
SCHEDULE II TO COMPLIANCE CERTIFICATE
Schedule of Compliance as of _______________ with certain covenants set
forth in Article VIII of the Agreement.
<TABLE>
<CAPTION>
Section 8.2
Indebtedness
- ------------
<S> <C>
(iii) Warehouse Facility Debt [$30 mil. max.] $_________________
(viii) Letters of Credit [$20 mil. max.] $_________________
(ix) Non-Recourse Debt [$25 mil. max.] $_________________
(xii) Other Debt [$35 mil. max.] $_________________
Section 8.3
Merger
- ------
(v)(b) Net Worth in last 24 months of Non-Related Business $_________________
[$10 mil. max. net worth in 24 months]
Section 8.5
Investments and Acquisitions
- ----------------------------
(iv) Investments in Mortgage Lending and Title Insurance $_________________
Subsidiaries [$15 mil. max.]
(v) Future Investments in Surprise Entities [$15 mil. max.] $_________________
(vi) Investments in Joint Ventures [$15 mil. max.] $_________________
(vii) Investments in Subsidiaries in a Non-Related Business $_________________
[$10 mil. max.]
(xiv) Other Investments [$5 mil. max.] $_________________
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Section 8.6
Liens
- -----
<S> <C>
(iv) Liens in ordinary course of business [$25 mil. max.] $_________________
Section 8.7
Redemption
- ----------
(ii) Aggregate Redemption for consideration other than $__________________________
CHHC stock after 6/27/96 [$5 mil. max.]
</TABLE>
-7-
AGREEMENT AND PLAN OF MERGER
between
D. R. HORTON, INC.
and
CONTINENTAL HOMES HOLDING CORP.
Dated as of December 18, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1. THE MERGER........................................................1
1.1. The Merger. ............................................1
1.1.1. Effective Time. .............................1
1.1.2. Closing. ....................................2
1.2. Effective Time. ........................................2
1.3. Effect of the Merger. ..................................2
1.4. Certificate of Incorporation, By-Laws. .................2
1.4.1. Certificate of Incorporation. ...............2
1.4.2. By-Laws. ....................................2
1.5. Directors and Officers. ................................2
ARTICLE 2. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES............................3
2.1. Effect on Capital Stock. ...............................3
2.1.1. No Conversion of DRHI Common Stock. .........3
2.1.2. Cancellation of Certain Shares of
Company Common Stock. .......................3
2.1.3. Conversion of the Company Shares. ...........3
2.1.4. Stock Options. ..............................4
2.1.5. Adjustment of Exchange Ratio. ...............4
2.1.6. Convertible Notes. ..........................5
2.1.7. No Appraisal Rights. ........................5
2.2. Exchange of Certificates. ..............................5
2.2.1. Exchange Agent. .............................5
2.2.2. Exchange Procedures. ........................5
2.2.3. Distribution with Respect to Unexchanged
Shares. .....................................6
2.2.4. No Further Ownership Rights in Company
Shares. .....................................6
2.2.5. No Fractional Shares. .......................6
2.2.6. Termination of Exchange Fund. ...............7
2.2.7. No Liability. ...............................7
2.2.8. Investment of Exchange Fund. ................7
2.2.9. Transfer Taxes. .............................7
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................8
3.1. Organization, Existence and Good Standing of the
Company. ...............................................8
3.2. Organization, Existence and Good Standing of Company
Subsidiaries. ..........................................8
i
<PAGE>
Page
3.3. Capitalization. ........................................9
3.3.1. Capitalization of Company and Company
Subsidiaries..................................9
3.3.2. Obligations to Issue Capital Stock of
Company or Company Subsidiaries. ............9
3.4. Authority Relative to this Agreement;
Recommendation. .......................................10
3.5. Company Material Contracts. ...........................10
3.6. No Conflict. ..........................................10
3.7. Required Filings and Consents. ........................11
3.8. Compliance. ...........................................11
3.9. Permits. ..............................................11
3.10. SEC Filings. ..........................................11
3.11. Financial Statements. .................................12
3.12. Absence of Certain Changes or Events. .................12
3.13. No Undisclosed Liabilities. ...........................12
3.14. Absence of Litigation. ................................12
3.15. Employee Benefit Plans. ...............................13
3.15.1. Company Employee Plans. ....................13
3.15.2. Absence of Certain Events. .................13
3.16. Labor Matters. ........................................14
3.17. Restrictions on Business Activities. ..................14
3.18. Real Property. ........................................14
3.19. Taxes. ................................................16
3.20. Intellectual Property. ................................18
3.21. Environmental Matters. ................................18
3.22. Interested Party Transactions. ........................19
3.23. Insurance. ............................................19
3.24. Opinions of Financial Advisors. .......................19
3.25. Brokers. ..............................................19
3.26. Section 203 of the Delaware Law; Arizona Corporate
Takeover Statute. .....................................20
3.27. Tax Treatment; Pooling Matters. .......................20
3.28. Affiliates. ...........................................20
3.29. Pooling. ..............................................20
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF DRHI...........................20
4.1. Organization, Existence and Good Standing of DRHI. ....20
4.2. Organization, Existence and Good Standing of the
DRHI Subsidiaries. ....................................21
4.3. Capitalization. .......................................21
4.3.1. Capitalization of DRHI and the DRHI
Subsidiary. ................................21
4.3.2. Obligations to Issue Capital Stock of
DRHI or the DRHI Subsidiaries. .............22
4.4. Authority Relative to this Agreement. .................22
ii
<PAGE>
Page
4.5. DRHI Material Contracts. ..............................22
4.6. No Conflict. ..........................................22
4.7. Required Filings and Consents. ........................23
4.8. Compliance. ...........................................23
4.9. Permits. ..............................................23
4.10. SEC Filings. ..........................................23
4.11. Financial Statements. .................................24
4.12. Absence of Certain Changes or Events. .................24
4.13. No Undisclosed Liabilities. ...........................24
4.14. Absence of Litigation. ................................25
4.15. Employee Benefit Plans. ...............................25
4.15.1. DRHI Employee Plans. .......................25
4.15.2. Absence of Certain Events. .................25
4.16. Labor Matters. ........................................26
4.17. Restrictions on Business Activities. ..................26
4.18. Real Property. ........................................26
4.19. Taxes. ................................................28
4.20. Intellectual Property. ................................29
4.21. Environmental Matters. ................................29
4.22. Insurance. ............................................30
4.23. Brokers. ..............................................30
4.24. DRHI Common Stock. ....................................30
4.25. Tax Treatment; Pooling Matters. .......................30
4.26. Investment Intent. ....................................31
4.27. Sufficient Funds. .....................................31
4.28. Pooling. ..............................................31
ARTICLE 5. CONDUCT OF BUSINESS PENDING THE MERGER...........................31
5.1. Conduct of Business by the Company Pending the
Merger. ...............................................31
5.2. No Solicitation. ......................................33
5.3. Conduct of Business by DRHI Pending the Merger. .......35
ARTICLE 6. ADDITIONAL AGREEMENTS............................................36
6.1. HSR Act. ..............................................36
6.2. Access to Information; Confidentiality. ...............36
6.3. Registration Statement. ...............................37
6.4. Meetings of Stockholders. .............................39
6.5. Pooling and Tax-Free Reorganization Treatment. ........39
6.6. Affiliate and Pooling Agreements. .....................40
6.7. Company Stock Options. ................................40
6.8. Board Representation. .................................40
6.9. Publication of Combined Results. ......................41
6.10. Indemnification and Insurance. ........................41
6.11. Notification of Certain Matters. ......................42
6.12. Further Action. .......................................42
iii
<PAGE>
Page
6.13. Public Announcements. .................................42
6.14. Employee Benefits. ....................................42
ARTICLE 7. TERMINATION, AMENDMENT AND WAIVER................................43
7.1. Termination. ..........................................43
7.2. Effect of Termination. ................................44
ARTICLE 8. CONDITIONS TO CLOSING............................................45
8.1. Mutual Conditions. ....................................45
8.1.1. No Injunctions or Restraints; Illegality. ..45
8.1.2. Governmental Actions. ......................45
8.1.3. HSR Act. ...................................45
8.1.4. Company Stockholder Approval. ..............45
8.1.5. DRHI Stockholder Approval. .................45
8.1.6. Listing. ...................................46
8.1.7. Registration Statement. ....................46
8.1.8. Consents. ..................................46
8.2. Conditions to Obligations of DRHI. ....................46
8.3. Conditions to Obligations of the Company. .............47
ARTICLE 9. GENERAL PROVISIONS...............................................47
9.1. Expenses. .............................................47
9.2. Effectiveness of Representations, Warranties,
Covenants and Agreements. .............................49
9.3. Notices. ..............................................49
9.4. Certain Definitions. ..................................49
9.5. Amendment. ............................................51
9.6. Waiver. ...............................................51
9.7. Headings. .............................................51
9.8. Severability. .........................................51
9.9. Entire Agreement. .....................................51
9.10. Assignment. ...........................................51
9.11. Parties in Interest. ..................................52
9.12. Failure or Indulgence Not Waiver; Remedies
Cumulative. ...........................................52
9.13. Governing Law. ........................................52
9.14. Counterparts. .........................................52
Exhibit 6.6 Forms of Agreement regarding disposition of shares
iv
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Page
DEFINED TERMS
1997 Company Balance Sheet...................................................12
1997 DRHI Balance Sheet......................................................24
affiliate....................................................................49
Agreement.....................................................................1
Antitrust Division...........................................................36
beneficial owner.............................................................50
Blue Sky Laws................................................................11
business day.................................................................50
Certificate of Merger.........................................................2
Certificates..................................................................5
Closing Date..................................................................2
Code..........................................................................1
Company.......................................................................1
Company Affiliates...........................................................20
Company Board.................................................................1
Company Common Stock..........................................................1
Company Disclosure Schedule...................................................8
Company Employee Plans.......................................................13
Company ERISA Affiliate......................................................13
Company Permits..............................................................11
Company SEC Reports..........................................................11
Company Shares................................................................1
Company Stock Plan............................................................4
Company Stockholder Meeting..................................................39
Company Subsidiary............................................................8
Confidentiality Letters......................................................36
control......................................................................50
Convertible Notes.............................................................5
Delaware Law..................................................................1
DLJ..........................................................................30
DRHI..........................................................................1
DRHI Common Stock.............................................................3
DRHI Disclosure Schedule.....................................................20
DRHI Employee Plans..........................................................25
DRHI ERISA Affiliate.........................................................25
DRHI Material Contracts......................................................22
DRHI Permits.................................................................23
DRHI Preferred Stock.........................................................21
DRHI SEC Reports.............................................................24
DRHI Shares...................................................................4
DRHI Stockholder Meeting.....................................................39
DRHI Subsidiary..............................................................21
Effective Time................................................................2
Environmental Law............................................................19
ERISA....................................................................13, 25
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Page
Exchange Act.................................................................10
Exchange Agent................................................................5
Exchange Fund.................................................................5
Exchange Ratio................................................................3
FTC..........................................................................36
Governmental Entity..........................................................11
Hazardous Substance..........................................................19
HSR Act......................................................................11
Indemnified Parties..........................................................41
IRS..........................................................................13
material adverse effect......................................................50
Material Contracts...........................................................10
Merger........................................................................1
Morgan Stanley...............................................................19
Mr. Anderson.................................................................40
Notice of Superior Proposal..................................................34
NYSE.........................................................................30
PBGC.........................................................................13
person.......................................................................50
Proxy Statement..............................................................37
Registration Statement.......................................................37
Salomon Smith Barney.........................................................19
SEC..........................................................................10
Securities Act...............................................................11
Stock Option..................................................................4
Stock Value...................................................................4
subsidiary...................................................................50
Superior Proposal............................................................35
Surviving Corporation.........................................................1
Tax..........................................................................16
Tax Returns..................................................................16
Taxes........................................................................16
Terminating Breach...........................................................43
Third Party..................................................................34
Third Party Acquisition......................................................34
trading day..................................................................51
Transfer Taxes................................................................8
vi
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 18, 1997 (the
"Agreement"), between D. R. HORTON, INC., a Delaware corporation ("DRHI"), and
CONTINENTAL HOMES HOLDING CORP., a Delaware corporation (the "Company").
WHEREAS, the Board of Directors of DRHI and the Board of Directors of the
Company (the "Company Board") have approved the merger of the Company with and
into DRHI (the "Merger") in accordance with the Delaware General Corporation Law
(the "Delaware Law"), upon the terms and conditions set forth in this Agreement,
whereby each share of common stock, par value $.01 per share, of the Company
(the "Company Common Stock"), not owned directly or indirectly by the Company,
will be converted into the right to receive the merger consideration provided
for herein (the Company Common Stock may be sometimes hereinafter referred to as
the "Company Shares");
WHEREAS, each of DRHI and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger; and
WHEREAS, for federal income Tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the premises, and the mutual covenants
and agreements contained herein, the parties hereto do hereby agree as follows:
ARTICLE 1.
THE MERGER
1.1. The Merger.
1.1.1. Effective Time. At the Effective Time (as defined below),
and subject to and upon the terms and conditions of this Agreement and
the Delaware Law, the Company shall be merged with and into DRHI, the
separate corporate existence of the Company shall cease, and DRHI
shall continue as the surviving corporation. DRHI as the surviving
corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation." The name of the Surviving Corporation
shall be D. R. Horton, Inc.
1.1.2. Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned
pursuant to Section 7.1. and subject to the satisfaction or waiver of
the conditions set forth in Article 8., the consummation of the Merger
will take place as promptly as practicable (and in any event within
two business days) after satisfaction or waiver
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<PAGE>
of the conditions set forth in Article 8., at the offices of Gibson,
Dunn & Crutcher LLP, Dallas, Texas, unless another date, time or place
is agreed to in writing by the parties hereto (the date of the
consummation of the Merger being the "Closing Date").
1.2. Effective Time. As promptly as practicable (and in any event within
two business days) after the satisfaction or waiver of the conditions set forth
in Article 8., the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger as contemplated by the Delaware Law (the
"Certificate of Merger"), together with any required related certificates, with
the Secretary of State of the State of Delaware, in such form as required by,
and executed in accordance with the relevant provisions of, the Delaware Law
(the time of such filing being the "Effective Time").
1.3. Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the Delaware Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of the Company and DRHI shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and DRHI shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4. Certificate of Incorporation, By-Laws.
1.4.1. Certificate of Incorporation. At the Effective Time the
Certificate of Incorporation of DRHI, as in effect immediately prior
to the Effective Time, shall be the Certificate of Incorporation of
the Surviving Corporation until thereafter amended as provided by the
Delaware Law and such Certificate of Incorporation.
1.4.2. By-Laws. The Bylaws of DRHI, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended as provided by the Delaware Law,
the Certificate of Incorporation of the Surviving Corporation and such
Bylaws.
1.5. Directors and Officers. The directors of DRHI immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation, each
to hold office in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation, subject to Section 6.8., and the officers of DRHI
shall be the initial officers of the Surviving Corporation, in each case until
their respective successors are duly elected or appointed and qualified.
2
<PAGE>
ARTICLE 2.
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1. Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of DRHI, the Company or any holder of
any of the following securities:
2.1.1. No Conversion of DRHI Common Stock. Each share of common stock,
par value $.01 per share, of DRHI ("DRHI Common Stock") issued and
outstanding immediately prior to the Effective Time shall continue to be
issued and outstanding DRHI Common Stock. Any DRHI Common Stock held in
DRHI's treasury immediately prior to the Effective Time shall continue to
be held in treasury of the Surviving Corporation at the Effective Time.
2.1.2. Cancellation of Certain Shares of Company Common Stock. Each
Company Share held in the treasury of the Company and each Company Share
owned by DRHI or any direct or indirect wholly owned subsidiary of the
Company or DRHI immediately prior to the Effective Time shall cease to be
outstanding, be canceled and retired without payment of any consideration
therefor and cease to exist.
2.1.3. Conversion of the Company Shares. At the Effective Time, each
Company Share (other than the Company Shares to be canceled in accordance
with Section 2.1.2.), issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive the number of
shares of DRHI Common Stock determined in accordance with this Section
2.1.3. (the "Exchange Ratio").
(a) If the Stock Value is greater than or equal to $16.878 and
less than or equal to $18.776, the Exchange Ratio shall be 2.37.
(b) If the Stock Value is less than $16.878 and greater than
$14.50, the Exchange Ratio shall equal the quotient obtained by
dividing $40.00 by the Stock Value (rounded to the nearest one
thousandth).
(c) If the Stock Value is more than $18.776 and less than $19.78,
the Exchange Ratio shall equal the quotient obtained by dividing
$44.50 by the Stock Value (rounded to the nearest one thousandth).
(d) If the Stock Value is less than or equal to $14.50, the
Exchange Ratio shall be 2.759; provided that the Exchange Ratio shall
equal the quotient obtained by dividing $35.00 by the Stock Value
3
<PAGE>
(rounded to the nearest one thousandth) if the Stock Value is less
than $12.69 and DRHI so elects as provided in Section 7.1.(f).
(e) If the Stock Value is more than or equal to $19.78, the
Exchange Ratio shall be 2.25.
(f) The term "Stock Value" means the average of the closing
prices of DRHI Common Stock as reported for New York Stock Exchange
Composite Transactions for 15 randomly selected trading days within
the 30 consecutive trading days ending on the date that is five
trading days prior to the Closing Date. The random selection of
trading days shall be supervised jointly by the financial advisors
retained by the parties in connection with the transactions
contemplated hereby.
All such shares of DRHI Common Stock shall be fully paid and nonassessable
and are hereinafter sometimes referred to as the "DRHI Shares." Upon such
conversion, all such Company Shares shall be canceled and cease to exist,
and each holder thereof shall cease to have any rights with respect thereto
other than the right to receive DRHI Shares issued in exchange therefor and
cash in lieu of fractional DRHI Shares in accordance with the terms
provided herein.
2.1.4. Stock Options. At the Effective Time, each outstanding option
to purchase Company Common Stock (a "Stock Option") granted under the
Company's 1988 Stock Incentive Plan or 1986 Stock Incentive Plan
(collectively, the "Company Stock Plans"), whether or not then vested or
exercisable, shall be assumed by the Surviving Corporation, in accordance
with the terms of the Company Stock Plan pursuant to which it was granted
and any stock option agreement by which it is evidenced. It is intended
that the foregoing provisions shall be undertaken in a manner that will not
constitute a "modification" as defined in Section 424 of the Code, as to
any stock option which is an "incentive stock option." Each Stock Option so
assumed shall be exercisable for that number of shares of DRHI Common Stock
equal to the number of the Company Shares subject thereto multiplied by the
Exchange Ratio, and shall have an exercise price per share equal to the
exercise price per Company Share divided by the Exchange Ratio.
2.1.5. Adjustment of Exchange Ratio. If after the date hereof and
prior to the Effective Time there shall have been a change in the DRHI
Common Stock, by reason of a stock split (including a reverse split) of the
DRHI Common Stock or a dividend payable in the DRHI Common Stock, or any
other distribution of securities to holders of the DRHI Common Stock with
respect to their DRHI Common Stock (including without limitation such a
distribution made in connection with a recapitalization, reclassification,
merger, consolidation, reorganization or similar transaction) or otherwise,
then the Exchange Ratio and the dollar amounts set forth in clauses (a)
through (f) of Section 2.1.3. shall be appropriately adjusted.
4
<PAGE>
2.1.6. Convertible Notes. At the Effective Time, each of the Company's
6-7/8% Convertible Subordinated Notes due March 2002 (the "Convertible
Notes") shall be convertible for that number of shares of DRHI Common Stock
equal to the number of the Company Shares into which the Convertible Notes
are then convertible multiplied by the Exchange Ratio.
2.1.7. No Appraisal Rights. The holders of the Company Shares and the
holders of shares of DRHI Common Stock shall not be entitled to appraisal
rights in respect of the Merger.
2.2. Exchange of Certificates.
2.2.1. Exchange Agent. Prior to the Effective Time, DRHI shall enter
into an agreement with a bank or trust company designated by DRHI (the
"Exchange Agent"), providing that DRHI shall deposit with the Exchange
Agent as of the Effective Time, for the benefit of the holders of the
Company Shares, for exchange in accordance with this Section 2.2. through
the Exchange Agent, (i) certificates representing the shares of DRHI Common
Stock issuable pursuant to Section 2.1. and (ii) cash in an amount equal to
the aggregate amount required to be paid in lieu of fractional interests of
DRHI Common Stock pursuant to Section 2.2.5. (such shares of DRHI Common
Stock, together with any dividends or distributions with respect thereto
with a record date after the Effective Time and the cash referred to in
clause (ii) of this Section 2.2.1. being hereinafter referred to as the
"Exchange Fund") in exchange for outstanding Company Shares.
2.2.2. Exchange Procedures. As soon as practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding Company Shares (the "Certificates") whose shares
were converted into the right to receive the merger consideration provided
for in Section 2.1., (i) a letter of transmittal and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for
certificates representing shares of DRHI Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such
letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of DRHI Common Stock and cash
which such holder has the right to receive pursuant to the provisions of
Sections 2.1. and 2.2. and the Certificate so surrendered shall forthwith
be canceled. If any cash or any certificate representing DRHI Shares is to
be paid to or issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, a certificate representing
the proper number of shares of DRHI Common Stock may be issued to a person
other than the person in whose name the Certificate so surrendered is
registered, if such Certificate shall be properly endorsed or otherwise be
in proper form for transfer and the person requesting such payment shall
pay to the Exchange Agent any transfer or other Taxes required by reason of
the issuance of shares of DRHI
5
<PAGE>
Common Stock to a person other than the registered holder of such
Certificate or establish to the satisfaction of the Exchange Agent that
such Tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.2., each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon
such surrender the certificate representing shares of DRHI Common Stock and
cash in lieu of any fractional shares of DRHI Common Stock as contemplated
by this Section 2.2. No interest will be paid or will accrue on any cash
payable in lieu of any fractional shares of DRHI Common Stock.
2.2.3. Distribution with Respect to Unexchanged Shares. No dividends
or other distributions with respect to DRHI Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of DRHI Common Stock represented
thereby and no cash payment in lieu of fractional shares shall be paid to
any such holder pursuant to Section 2.2.5. until the surrender of such
Certificate in accordance with this Section 2.2. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall
be paid to the holder of the certificates representing whole shares of DRHI
Common Stock issued in exchange therefor, without interest, (i) at the time
of such surrender, the amount of any cash payable in lieu of a fractional
share of DRHI Common Stock to which such holder is entitled pursuant to
Section 2.2.5. and the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such
whole shares of the DRHI Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and with a payment
date subsequent to such surrender payable with respect to such whole shares
of DRHI Common Stock. If any holder of converted Company Shares shall be
unable to surrender such holder's Certificates because such Certificates
shall have been lost or destroyed, such holder may deliver in lieu thereof
an affidavit and indemnity bond in form and substance and with surety
reasonably satisfactory to DRHI.
2.2.4. No Further Ownership Rights in Company Shares. All shares of
DRHI Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article 2. (including any cash paid
pursuant to Sections 2.2.3. or 2.2.5.) shall be deemed to have been issued
and paid in full satisfaction of all rights pertaining to the Company
Shares theretofore represented by such Certificates. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or
the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article 2., except as otherwise provided by law.
2.2.5. No Fractional Shares. No certificates or scrip representing
fractional shares of DRHI Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of
DRHI. Notwithstanding
6
<PAGE>
any other provision of this Agreement, each holder of Company Shares
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of DRHI Common Stock (after taking into
account all Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional part
of a share of DRHI Common Stock multiplied by the per share closing price
of DRHI Common Stock on the date of the Effective Time (or, if shares of
DRHI Common Stock do not trade on such date, the first date of trading of
DRHI Common Stock after the Effective Time). The parties acknowledge that
payment of the cash consideration in lieu of issuing fractional shares was
not separately bargained for consideration but merely represents a
mechanical rounding off for purposes of simplifying the corporate and
accounting complexities which would otherwise be caused by the issuance of
fractional shares.
2.2.6. Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of the Certificates for six
months after the Effective Time shall be delivered to DRHI, upon demand,
and any holders of the Certificates who have not theretofore complied with
this Article 2. shall thereafter look only to DRHI for payment of DRHI
Common Stock, any cash in lieu of fractional shares of DRHI Common Stock
and any dividends or distributions with respect to DRHI Common Stock.
2.2.7. No Liability. None of DRHI, the Company or the Exchange Agent
shall be liable to any person in respect of any shares of DRHI Common Stock
(or dividends or distributions with respect thereto) or cash from the
Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificates shall not
have been surrendered prior to the end of the applicable period after the
Effective Time under escheat laws (or immediately prior to such earlier
date on which any shares of DRHI Common Stock, any cash in lieu of
fractional shares of DRHI Common Stock or any dividends or distributions
with respect to DRHI Common Stock in respect of such Certificates would
otherwise escheat to or become the property of any governmental entity),
any such shares, cash, dividends or distributions in respect of such
Certificates shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or
interest of any person previously entitled thereto.
2.2.8. Investment of Exchange Fund. The Exchange Agent shall invest
any cash included in the Exchange Fund on a daily basis as directed by
DRHI. Any interest and other income resulting from such investments shall
be paid to DRHI.
2.2.9. Transfer Taxes. DRHI and the Company shall cooperate in the
preparation, execution and filing of all returns, applications or other
documents regarding any real property transfer, stamp, recording,
documentary or other taxes and any other fees and similar taxes which
become payable in connection with the Merger other than transfer or stamp
taxes payable in respect of transfers pursuant
7
<PAGE>
to the third sentence of Section 2.2.2. (collectively, "Transfer Taxes").
From and after the Effective Time, DRHI shall pay or cause to be paid,
without deduction or withholding from any amounts payable to the holders of
Company Shares, all Transfer Taxes.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to DRHI that, except as set
forth in written disclosure schedule delivered on or prior to the date hereof by
the Company to DRHI that is arranged in paragraphs corresponding to the numbered
and lettered paragraphs contained in this Article 3. (the "Company Disclosure
Schedule"):
3.1. Organization, Existence and Good Standing of the Company. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has all necessary corporate power and
authority to own its properties and assets and to carry on its business as
presently conducted. The Company is qualified to do business and is in good
standing in each jurisdiction where the nature or character of the property
owned, leased or operated by it or the nature of the business transacted by it
makes such qualification necessary, except where the failure to be so qualified
or be in good standing would not have a Company Material Adverse Effect. The
Company has delivered to DRHI a complete and correct copy of its Certificate of
Incorporation and Bylaws as amended to the date hereof.
3.2. Organization, Existence and Good Standing of Company Subsidiaries.
Section 3.2. of the Company Disclosure Schedule sets forth a list of all
subsidiaries of the Company (a "Company Subsidiary"), the jurisdiction of
incorporation or organization, as applicable, of each Company Subsidiary, the
type of each Company Subsidiary, the percentage of the Company's and Company
Subsidiaries' ownership of the outstanding voting stock of each such corporate
Company Subsidiary, the authorized and outstanding capital stock of each such
corporate Company Subsidiary, and the type and percentage of the Company's and
Company Subsidiaries' ownership interest in each other Company Subsidiary. Each
Company Subsidiary is a corporation, business trust, general or limited
partnership or limited liability company (as specified in Section 3.2. to the
Company Disclosure Schedule) duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, as applicable. Each Company Subsidiary has all necessary entity
power and authority to own its properties and assets and to carry on its
business as presently conducted. Each Company Subsidiary is qualified to do
business and is in good standing in each jurisdiction where the nature or
character of the property owned, leased or operated by it or the nature of the
business transacted by it makes such qualification necessary, except where the
failure to be so qualified or be in good standing would not have a Company
Material Adverse Effect. Except for the Company Subsidiaries, the Company does
not, directly or indirectly, own any equity interest in any other corporation,
association, partnership, joint venture,
8
<PAGE>
business organization or limited liability company or other entity, with respect
to which interest the Company or any Company Subsidiary has invested or is
required to invest $100,000 or more, excluding securities in any publicly traded
company held for investment and comprising less than five percent of the
outstanding voting securities of such company.
3.3. Capitalization.
3.3.1. Capitalization of Company and Company Subsidiaries. The
authorized capital stock of the Company consists solely of 20,000,000
shares of Company Common Stock and 2,000,000 shares of preferred stock,
$.01 par value per share. As of the date hereof: (i) 6,863,686 shares of
Company Common Stock were issued and outstanding and 217,845 shares of
Company Common Stock were held in treasury, and no shares of preferred
stock were issued and outstanding; (ii) 834,345 shares of Company Common
Stock were reserved for future issuance pursuant to outstanding stock
options, and (iii) 3,630,925 shares of Company Common Stock were reserved
for future issuance in connection with the Convertible Notes. All of the
outstanding shares of Company Common Stock, and all shares of Company
Common Stock which may be issued prior to the Effective Time upon exercise
of any option or conversion right will be, validly issued, fully paid and
nonassessable and free of preemptive rights. Except as set forth above, as
of the date hereof there are outstanding no shares of capital stock or
other voting securities of the Company and no equity equivalent interests
in the ownership or earnings of the Company or the Company Subsidiaries.
All of the outstanding shares of capital stock, or other ownership
interest, of each Company Subsidiary is validly issued, fully paid and
nonassessable, and is owned by the Company or another Company Subsidiary
free and clear of all security interests, liens, claims, pledges, charges
or other encumbrances of any nature whatsoever.
3.3.2. Obligations to Issue Capital Stock of Company or Company
Subsidiaries. Section 3.3.2. of the Company Disclosure Schedule sets forth
a true and complete list of all outstanding rights to purchase Company
Common Stock, the name of each holder thereof, the number of shares
purchasable thereunder and the per share exercise or purchase price of each
right. Except with respect to the Convertible Notes, there are no
securities of the Company or any Company Subsidiary convertible or
exchangeable for shares of capital stock or voting securities of the
Company or any Company Subsidiary, no options, warrants or other similar
rights, agreements, arrangements or commitments of any character obligating
the Company or any Company Subsidiary to issue or sell any shares of
capital stock of, or other equity interests in, the Company or any Company
Subsidiary. There are no obligations, contingent or otherwise, of the
Company or any Company Subsidiary to repurchase, redeem or otherwise
acquire any shares of Company Common Stock or the capital stock or other
equity interest of any Company Subsidiary or to make any investment (in the
form of a loan, capital contribution or otherwise) in any Company
Subsidiary.
9
<PAGE>
3.4. Authority Relative to this Agreement; Recommendation. The Company has
all necessary corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the transactions so
contemplated (other than the adoption of this Agreement by the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote in
accordance with the Delaware Law and the Company's Certificate of Incorporation
and Bylaws). This Agreement has been duly and validly executed and delivered by
the Company and, assuming the due authorization, execution and delivery by DRHI
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms. The Company Board has
unanimously resolved to recommend that the stockholders of the Company adopt and
approve this Agreement.
3.5. Company Material Contracts. Section 3.5. of the Company Disclosure
Schedule sets forth a list of all agreements to which the Company or any Company
Subsidiary is a party or by which any of them is bound which, as of the date
hereof: (i) are required to be filed as "material contracts" with the Securities
and Exchange Commission (the "SEC") pursuant to the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); (ii) under
which the consequences of a default, nonrenewal or termination would have a
Company Material Adverse Effect; or (iii) pursuant to which payments might be
required or acceleration of benefits may be required upon a "change of control"
of the Company, or upon execution of this Agreement by the Company or the
performance by the Company of its obligations hereunder (collectively, the
"Material Contracts").
3.6. No Conflict. The execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company will not,
(i) conflict with or violate the Certificate of Incorporation or Bylaws of the
Company, (ii) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to the Company or any Company Subsidiary or by
which its or any of their respective properties is bound or affected, or (iii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or impair the rights of the
Company or any Company Subsidiary or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation, or result in the creation of a lien or encumbrance
on any of the properties or assets of the Company or any Company Subsidiary
pursuant to any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any Company Subsidiary is a party or by which the Company or any
Company Subsidiary or any of their respective properties is bound or affected,
except in any such case for any such conflicts, violations, breaches, defaults
or other occurrences that would not have a Company Material Adverse Effect.
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3.7. Required Filings and Consents. The execution and delivery of this
Agreement by the Company does not, and the performance of this Agreement by the
Company will not, require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority,
domestic or foreign, federal, state or local ("Governmental Entity"), except (i)
for applicable requirements, if any, of the Securities Act of 1933, as amended
(the "Securities Act"), the Exchange Act, state securities laws ("Blue Sky
Laws"), the pre-merger notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended ("HSR Act"), and the filing and
recordation of appropriate merger or other documents as required by the Delaware
Law, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the Merger, or otherwise prevent or delay the
Company from performing its obligations under this Agreement, or would not
otherwise have a Company Material Adverse Effect.
3.8. Compliance. Neither the Company nor any Company Subsidiary is in
conflict with, or in default or violation of, (i) any law, rule, regulation,
order, judgment or decree applicable to the Company or any Company Subsidiary or
by which its or any of their respective properties is bound or affected or (ii)
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation, except for any such
conflicts, defaults or violations which would not individually or in the
aggregate have a Company Material Adverse Effect.
3.9. Permits. The Company and each Company Subsidiary hold all permits,
licenses, easements, variances, exemptions, consents, certificates, orders and
approvals from Governmental Entities necessary for the operation of the business
of the Company and the Company Subsidiaries as it is now being conducted
(collectively, the "Company Permits"), except where the failure to hold such
Company Permits would not have a Company Material Adverse Effect. The Company
and the Company Subsidiaries are in compliance with the terms of the Company
Permits, except where the failure to so comply would not have a Company Material
Adverse Effect.
3.10. SEC Filings. The Company has filed all forms, reports and documents
required to be filed by it with the SEC. The Company has made available to DRHI
(i) its Annual Reports on Form 10-K for the fiscal years ended May 31, 1996 and
1997, (ii) its Quarterly Report on Form 10-Q for the period ended August 31,
1997, (iii) all proxy statements relating to the Company's meetings of
stockholders (whether annual or special) held since June 1, 1996, (iv) all other
reports or registration statements (other than Reports on Form 10-Q not referred
to in clause (ii) above) filed by the Company with the SEC since June 1, 1996,
and (v) all amendments and supplements to all such reports and registration
statements filed by the Company with the SEC since June 1, 1996 (collectively,
the "Company SEC Reports"). The Company SEC Reports (i) were prepared in all
material respects in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact
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required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of the Company Subsidiaries is required to file any forms,
reports or other documents with the SEC.
3.11. Financial Statements. Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the Company
SEC Reports was prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto), and each fairly presents in all
material respects the consolidated financial position of the Company and its
consolidated subsidiaries as at the respective dates thereof and the
consolidated statements of income and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments. The Company is in full compliance
with Section 13(b)(2) of the Exchange Act.
3.12. Absence of Certain Changes or Events. Except as set forth in the
Company SEC Reports, since June 1, 1997, there has not occurred: (i) any Company
Material Adverse Effect or any event, change or effect which could reasonably be
expected to have a Company Material Adverse Effect; (ii) any amendments or
changes in the Certificate of Incorporation or Bylaws of the Company; (iii) any
damage to, destruction or loss of any asset of the Company or any Company
Subsidiary (whether or not covered by insurance) that would have a Company
Material Adverse Effect; (iv) any material change by the Company in its
accounting methods, principles or practices; (v) any material revaluation by the
Company of any of its assets, including, without limitation, writing off notes
or accounts receivable other than in the ordinary course of business; or (vi)
any action or event that would have required the consent of DRHI pursuant to
Section 5.1. had such action or event occurred after the date of this Agreement.
3.13. No Undisclosed Liabilities. Neither the Company nor any Company
Subsidiary has any liabilities (absolute, accrued, contingent or otherwise),
except liabilities (a) in the aggregate adequately provided for in the Company's
balance sheet (including any related notes thereto) as of August 31, 1997 (the
"1997 Company Balance Sheet"), (b) incurred in the ordinary course of business
before the date of 1997 Company Balance Sheet and not required under generally
accepted accounting principles to be reflected on the 1997 Company Balance
Sheet, (c) disclosed in the Company SEC Reports, or (d) incurred since August
31, 1997 in the ordinary course of business consistent with past practice or in
connection with this Agreement, that would not, individually or in the
aggregate, have a Company Material Adverse Effect.
3.14. Absence of Litigation. Except as set forth in the Company SEC
Reports, there are no claims, actions, suits, proceedings or investigations
pending or, to the knowledge of the Company, threatened against the Company or
any Company Subsidiary or any properties or rights of the Company or any Company
Subsidiary before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that could reasonably be
expected to have a Company Material Adverse Effect or
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that could reasonably be expected to prevent or delay consummation of the
Merger, or otherwise prevent or delay the Company from performing its
obligations under this Agreement.
3.15. Employee Benefit Plans.
3.15.1. Company Employee Plans. Section 3.15.1. of the Company
Disclosure Schedule lists all employee pension plans (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), all employee welfare plans (as defined in Section 3(1) of
ERISA) and all other bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance and other similar
fringe or employee benefit plans, programs or arrangements, and any
employment, executive compensation, consulting or severance agreements,
written or otherwise, for the benefit of, or relating to, any employee of
or consultant to the Company, any trade or business (whether or not
incorporated) which is a member of a controlled group including the Company
or which is under common control with the Company (a "Company ERISA
Affiliate") within the meaning of Section 414 of the Code, or any Company
Subsidiary, as well as each plan with respect to which the Company or a
Company ERISA Affiliate could incur liability under Section 4069 (if such
plan has been or were terminated) or Section 4212 of ERISA (collectively
the "Company Employee Plans"). There have been made available to DRHI
copies of (i) each such written Company Employee Plan (other than those
referred to in Section 4(b)(4) of ERISA), (ii) the most recent annual
report on Form 5500 series, with accompanying schedules and attachments,
filed with respect to each Company Employee Plan required to make such a
filing, and (iii) the most recent actuarial valuation for each Company
Employee Plan subject to Title IV of ERISA.
3.15.2. Absence of Certain Events. (i) None of the Company Employee
Plans provides retiree medical or other retiree welfare benefits to any
person (other than as required under COBRA), and none of the Company
Employee Plans is a "multiemployer plan" as such term is defined in Section
3(37) of ERISA; (ii) there has been no non-exempt "prohibited transaction,"
as such term is defined in Section 406 of ERISA and Section 4975 of the
Code, with respect to any Company Employee Plan, which would result in a
Company Material Adverse Effect; (iii) all Company Employee Plans are in
compliance with the requirements prescribed by any and all statutes
(including ERISA and the Code), orders, or governmental rules and
regulations currently in effect with respect thereto (including all
applicable requirements for notification to participants or the Department
of Labor, the Pension Benefit Guaranty Corporation (the "PBGC"), Internal
Revenue Service (the "IRS") or Secretary of the Treasury) except as would
not individually or in the aggregate result in a Company Material Adverse
Effect, and the Company and each Company Subsidiary have performed all
obligations required to be performed by them under, and are not in default
under or violation of any of the Company Employee Plans except as would not
individually or in the aggregate result in a Company Material Adverse
Effect;
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(iv) each Company Employee Plan intended to qualify under Section 401(a) of
the Code and each trust intended to qualify under Section 501(a) of the
Code is the subject of a favorable determination letter from the IRS; (v)
all contributions required to be made to any Company Employee Plan pursuant
to Section 412 of the Code, or the terms of the Company Employee Plan or
any collective bargaining agreement, have been made on or before their due
dates; (vi) with respect to each Company Employee Plan subject to Title IV
of ERISA, no "reportable event" within the meaning of Section 4043 of ERISA
(excluding any such event for which the 30 day notice requirement has been
waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 of ERISA has occurred; and (vii)
neither the Company nor any Company ERISA Affiliate has incurred, nor
reasonably expects to incur, any liability under Title IV of ERISA (other
than liability for premium payments to the PBGC arising in the ordinary
course).
3.16. Labor Matters. (i) There are no controversies pending or, to the
knowledge of the Company, threatened, between the Company or any Company
Subsidiary and any of their respective employees, which controversies have had
or could reasonably be expected to have a Company Material Adverse Effect; (ii)
neither the Company nor any Company Subsidiary is a party to any material
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or any Company Subsidiary, nor does the Company
know of any activities or proceedings of any labor union to organize any such
employees; and (iii) the Company has no knowledge of any strikes, slowdowns,
work stoppages, lockouts, or threats thereof, by or with respect to any
employees of the Company or any Company Subsidiary which could reasonably be
expected to have a Company Material Adverse Effect. To the knowledge of the
Company, as of the date hereof, no executive or management employee of the
Company or any of the Company Subsidiaries intends to terminate his employment
in connection with the Merger.
3.17. Restrictions on Business Activities. Except for this Agreement, there
is no agreement, judgment, injunction, order or decree binding upon the Company
or any Company Subsidiary, or any affiliate thereof, which has or would have the
effect of prohibiting the conduct of business by the Company or any Company
Subsidiary as currently conducted, except for any prohibitions as would not,
individually or in the aggregate, have a Company Material Adverse Effect.
3.18. Real Property. The Company and the Company Subsidiaries have good and
marketable (or indefeasible, in jurisdictions where the term "marketable" is not
customarily used) title in fee simple, or will acquire good and marketable (or
indefeasible, as the case may be) title in fee simple, to the real property
purported to be owned or optioned by them, free and clear of all liens, charges
and encumbrances, except liens for Taxes not yet due and such liens or other
imperfections of title as do not or will not materially interfere with the
present use or intended use by the Company and the Company Subsidiaries or
materially affect the value or marketing of the property affected thereby and
that do not, individually or in the aggregate, have a Company Material Adverse
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Effect. Neither the Company nor any Company Subsidiary has given, nor have they
received, any notice that a breach or an event of default exists, and no
condition or event has occurred that with the giving of notice, the lapse of
time, or both would constitute a breach or event of default, by the Company or
any Company Subsidiary, or to the knowledge of the Company, any other person
with respect to any agreements, arrangements, contracts, covenants, conditions,
deeds, deeds of trust, rights-of-way, easements, mortgages, restrictions,
surveys, title insurance policies, and other documents granting to the Company
or any Company Subsidiary title to or an interest in or otherwise affecting the
real property which is material to the operation of the business of the Company
and the Company Subsidiaries, as presently conducted or intended to be
conducted, except for such breach or event of default that would not,
individually or in the aggregate, have a Company Material Adverse Effect. No
condemnation, eminent domain, or similar proceeding exists, is pending or, to
the knowledge of the Company, is threatened with respect to, or that could
affect, any real property owned or leased by the Company or any Company
Subsidiary that would reasonably be expected to have a Company Material Adverse
Effect. There is no judgment, injunction, order, decree, statute, ordinance,
rule, regulation, moratorium, or other action by a Governmental Entity, or to
the knowledge of the Company, pending before or being considered by a
Governmental Entity, which has or would have the effect of restricting the
conduct of business by the Company or any Company Subsidiary as currently
conducted or intended to be conducted by them, except for any restrictions as
would not, individually or in the aggregate, have a Company Material Adverse
Effect. No developer-related charges or assessments by any public authority or
any other person for public improvements or otherwise made against any property
developed by the Company or any Company Subsidiary are unpaid (other than those
reflected on the Company Balance Sheet or incurred since the date of the Company
Balance Sheet in the ordinary course of the Company's business consistent with
past practices), except for charges or assessments as would not, individually or
in the aggregate, have a Company Material Adverse Effect. The real property of
the Company and the Company Subsidiaries to be used for homebuilding conform, in
all material respects, to the appropriate governmental authority's standards,
and there is no material impediment to approval for undeveloped real property,
such approval to allow development in the manner in which the Company currently
anticipates building thereon, except for such as is not reasonably likely to
result in a Company Material Adverse Effect. The developed real property of the
Company and the Company Subsidiaries has access to streets, and is serviced, in
all material respects, by all utilities and other services, as is necessary to
construct homes on such property, and such utilities and other services are
adequate for the current and intended use of such property. The undeveloped real
property of the Company and the Company Subsidiaries has access to streets, and
such real property is serviced, in all material respects, by all utilities and
other services, as is necessary for the development thereof or such utilities
and other services are or will be available, in all material respects, to such
property. All leases pursuant to which the Company or any Company Subsidiary
leases from others material amounts of real or personal property are in good
standing, valid and effective in accordance with their respective terms, and
there is not under any of such leases, any existing default or event of default
(or event which with notice or lapse of time, or both,
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would constitute a material default), except where the lack of such good
standing, validity and effectiveness or the existence of such defaults or event
of defaults would not, individually or in the aggregate, have a Company Material
Adverse Effect.
3.19. Taxes.
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean Taxes,
fees, levies, duties, tariffs, imposts, and governmental impositions or charges
of any kind, in the nature of taxes, payable to any federal, state, local or
foreign taxing authority, including, without limitation, (i) income, franchise,
profits, gross receipts, ad valorem, net worth, value added, sales, use,
service, real or personal property, special assessments, capital stock, license,
payroll, withholding, employment, social security, workers' compensation,
unemployment compensation, utility, severance, production, excise, stamp,
occupation, premiums, windfall profits, transfer and gains taxes, and (ii)
interest, penalties, additional taxes and additions to tax imposed with respect
thereto. For purposes of this Agreement, "Tax Returns" shall mean returns,
reports, and information statements with respect to Taxes required to be filed
with the IRS or any other taxing authority, domestic or foreign, including,
without limitation, consolidated, combined and unitary tax returns.
(b) (i) The Company and the Company Subsidiaries have duly and timely (with
due regard to valid extensions properly secured) filed all Tax Returns
required to be filed by them prior to the date of this Agreement (except
where failure to duly or timely file a Tax Return or to properly secure a
valid extension of time to file the same did not have a material adverse
effect on the Company or any of the Company Subsidiaries). All Tax Returns
so filed were true, correct and complete in all material respects as filed
(or as validly amended thereafter). The Company and the Company
Subsidiaries have timely (with due regard to valid extensions properly
secured) paid in full all Taxes shown as due on all Tax Returns filed as
described above (except where such failure to timely or fully pay any Tax
or to secure a valid extension of time to pay the same did not have a
material adverse effect on the Company or any of the Company Subsidiaries).
(ii) None of the Tax Returns of the Company or any of the Company
Subsidiaries contains a disclosure statement under Section 6662 (or any
predecessor provision) of the Code, or any similar provision of state,
local or foreign law.
(iii) Neither the Company nor any of the Company Subsidiaries is aware
of any pending or (to the knowledge of any officer thereof) threatened
action, audit, proceeding, or investigation with respect to (A) the
assessment or collection of Taxes, (B) a claim by any Tax jurisdiction that
the Company or any Company Subsidiary has been required to file a Tax
Return, but has failed to do so, or (C) a claim for refund made by the
Company or any of the Company Subsidiaries with respect to Taxes previously
paid, in any case that would have a material adverse effect on the Company
or any of the Company Subsidiaries if ultimately determined adversely.
Neither the Company nor any of the Company Subsidiaries
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has requested an extension of time to file any Tax Return not yet filed,
nor has been granted any waiver of any statute of limitations with respect
to, or any extension of a period for the assessment of, any Tax not yet
paid, which extension or waiver would have a material adverse effect on the
Company or any of the Company Subsidiaries. All Tax deficiencies formally
asserted or assessed against the Company or any of the Company Subsidiaries
in writing have been paid or finally settled or are being contested in good
faith by appropriate action.
(iv) All Taxes that were required to be collected or withheld by the
Company or any of the Company Subsidiaries have been duly collected or
withheld, and all such Taxes that the Company or any of the Company
Subsidiaries were required to remit to any taxing authority have been duly
remitted, except where a failure to collect, withhold or remit Taxes does
not have a material adverse effect on the Company or any of the Company
Subsidiaries.
(v) Neither the Company nor any of the Company Subsidiaries has filed
a consent pursuant to the collapsible corporation provisions of Section
341(f) of the Code or agreed to have Section 341(f) (2) of the Code apply
to any disposition of any asset owned by it.
(vi) Neither the Company nor any of the Company Subsidiaries is
required to include in income any adjustment pursuant to Section 481 of the
Code (or similar provisions of other law or regulation) by reason of a
change in accounting method, nor does the Company or any of the Company
Subsidiaries have any knowledge that the IRS (or other taxing authority)
has proposed, or (to the knowledge of any officer thereof) is considering,
any such change in accounting method, except where any such inclusion in
income or any such change would not have a material adverse effect on the
Company or any of the Company Subsidiaries.
(vii) The Company has no foreign stockholders for whom shares of
Company Common Stock and the Convertible Notes are United States real
property interests as defined in Section 897 of the Code.
(viii) None of the assets of the Company or any of the Company
Subsidiaries is property which is required to be treated as owned by any
other person pursuant to the "safe harbor lease" provisions of former
Section 168(f)(5)(B) of the Code.
(ix) Neither the Company nor any of the Company Subsidiaries is a
party to, is bound by, or has any obligation under, any Tax sharing or Tax
indemnification or similar agreement or arrangement with any entity other
than a corporation that is a member of an affiliated group currently filing
a consolidated federal income tax return with the Company.
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(x) Neither the Company nor any of the Company Subsidiaries has
entered into any compensatory agreements with respect to the performance of
services under which payment would result in a nondeductible expense to the
Company or any of the Company Subsidiaries pursuant to Sections 162(m) or
280G of the Code or an excise tax to the recipient of such payment pursuant
to Section 4999 of the Code.
(xi) The Company has made available to or provided to representatives
of DRHI copies of all federal and state income and franchise Tax Returns,
and other written correspondence with respect thereto (other than requests
for extension of time to file returns and tax payment vouchers), filed or
submitted by the Company and the Company Subsidiaries with or to the
relevant taxing authorities with respect to all periods beginning on or
after May 31, 1994, and has produced for DRHI's inspection at the Company's
headquarters all material sales tax, use tax, payroll tax, and property tax
and information returns filed by the Company and the Company Subsidiaries
with respect to such periods.
3.20. Intellectual Property. The Company and the Company Subsidiaries own,
or are licensed or otherwise possess legally enforceable rights to use, all
patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, technology, know-how, computer software programs or
applications, and tangible or intangible proprietary information or material
that are used in the business of the Company and the Company Subsidiaries as
currently conducted, except as would not, individually or in the aggregate, have
a Company Material Adverse Effect.
3.21. Environmental Matters. Except for such matters that, individually or
in the aggregate, would not have a Company Material Adverse Effect: (a) the
Company and the Company Subsidiaries have complied with all applicable
Environmental Laws; (b) the properties currently owned or operated by the
Company or any Company Subsidiary (including soils, groundwater, surface water,
buildings or other structures) do not contain and, to the Company's knowledge,
have not previously contained any Hazardous Substances; (c) the properties
formerly owned or operated by the Company or any Company Subsidiary did not
contain any Hazardous Substances at any time during the period of ownership or
operation by the Company or the Company Subsidiary; (d) neither the Company nor
any Company Subsidiary has disposed of any Hazardous Substance on any third
party property which could reasonably be expected to result in any liability
under Environmental Law; (e) neither the Company nor any Company Subsidiary has
released any Hazardous Substance at any property owned or operated by any of
them which could reasonably be expected to result in any liability under
Environmental Law; (f) neither the Company nor any Company Subsidiary has
received any written notice, demand, letter, claim or request for information
alleging that the Company or any Company Subsidiary may be in violation of or
liable under any Environmental Law; (g) neither the Company nor any Company
Subsidiary is a party to any orders, decrees, injunctions or agreements with any
Governmental Entity or is a party to any indemnity or other agreement with any
third party which is expected to result in liability on the Company or any
Company Subsidiary under any Environmental Law; (h) there are no circumstances,
conditions or
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activities involving the Company or any Company Subsidiary that could reasonably
be expected to result in any liability or costs to the Company or any Company
Subsidiary or any restrictions on the ownership, use or transfer of any property
now owned by the Company or a Company Subsidiary pursuant to any Environmental
Law; and (i) to the knowledge of the Company, none of the properties now owned
or operated by the Company or any Company Subsidiary contains any underground
storage tanks, asbestos-containing material, lead-based products, or
polychlorinated biphenyls.
As used herein, "Environmental Law" means any federal, state, local or
foreign law, regulation, rule, treaty, order, decree, permit, authorization, or
the common law or any requirement of any governmental authority relating to: (A)
the protection, investigation or restoration of the environment, or natural
resources; (B) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance; or (C) noise, odor, wetlands, pollution,
contamination or injury or threat of injury to persons or property; and
"Hazardous Substance" means any substance that is listed or regulated by any
Environmental Law, including any petroleum product or by-product,
asbestos-containing material, lead-containing paint or plumbing, polychlorinated
biphenyls, radioactive materials or radon.
3.22. Interested Party Transactions. Except as set forth in Section 3.22.
of the Company Disclosure Schedule or in the Company SEC Reports, since the date
of the Company's proxy statement dated July 8, 1997, no event has occurred that
would be required to be reported as a Certain Relationship or Related
Transaction, pursuant to Item 404 of Regulation S-K promulgated by the SEC.
3.23. Insurance. The Company maintains insurance with financially
responsible insurance companies in amounts customary in its industry to insure
it against risks and losses associated with the operation of the business and
properties of the Company and the Company Subsidiaries.
3.24. Opinions of Financial Advisors. The Company Board has received the
opinion of the Company's financial advisors, Smith Barney Inc. and Salomon
Brothers Inc (collectively, "Salomon Smith Barney") and the non-employee
directors have received the opinion of Morgan Stanley & Co., Inc. ("Morgan
Stanley"), each to the effect that, as of the date of this Agreement, the
Exchange Ratio is fair from a financial point of view to such holders.
3.25. Brokers. No broker, finder or investment banker (other than Salomon
Smith Barney and Morgan Stanley) is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company. The
Company has heretofore furnished to DRHI a complete and correct copy of all
agreements between the Company and Salomon Smith Barney and Morgan Stanley
pursuant to which such firms would be entitled to any payment relating to the
transactions contemplated hereunder.
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3.26. Section 203 of the Delaware Law; Arizona Corporate Takeover Statute.
The Company Board has taken all actions so that the restrictions contained in
Section 203 of the Delaware Law applicable to a "business combination" (as
defined in Section 203) will not apply to the execution, delivery or performance
of this Agreement or the consummation of the transactions contemplated by this
Agreement. The Company is not an "issuing public corporation" within the meaning
of the Arizona Corporate Takeover Statute.
3.27. Tax Treatment; Pooling Matters. Neither the Company nor, to the
knowledge of the Company, any of its affiliates has taken or agreed to take any
action that would prevent accounting for the business combination to be effected
by the Merger as a pooling of interests for financial reporting purposes in
accordance with generally accepted accounting principles and rules, regulations
and interpretations of the SEC, or preventing the Merger from constituting a
tax-free reorganization (except with respect to cash received in lieu of
fractional shares) qualifying under Section 354(a)(1) and Section 368(a)(1)(A)
of the Code.
3.28. Affiliates. Except for the directors and executive officers of the
Company, each of whom is listed in Section 3.28. of the Company Disclosure
Schedule, there are no persons who, to the knowledge of the Company, may be
deemed to be affiliates of the Company under Rule 145 of the Securities Act
("Company Affiliates").
3.29. Pooling. The Company has received a letter from Arthur Andersen LLP,
a copy of which has been previously delivered to DRHI, with respect to the
eligibility of the Company for "pooling of interests" accounting treatment.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF DRHI
DRHI hereby represents and warrants to the Company that, except as set forth in
the written disclosure schedule delivered on or prior to the date hereof by DRHI
to the Company that is arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article 4. (the "DRHI Disclosure
Schedule"):
4.1. Organization, Existence and Good Standing of DRHI. DRHI is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. DRHI has all necessary corporate power and authority
to own its properties and assets and to carry on its business as presently
conducted. DRHI is qualified to do business and is in good standing in each
jurisdiction where the nature or character of the property owned, leased or
operated by it or the nature of the business transacted by it makes such
qualification necessary, except where the failure to be so qualified or be in
good standing would not have a DRHI Material Adverse Effect. DRHI has delivered
to the Company a complete and correct copy of its Amended and Restated
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Certificate of Incorporation and Bylaws as most recently restated and
subsequently amended to the date hereof.
4.2. Organization, Existence and Good Standing of the DRHI Subsidiaries.
Section 4.2. of the DRHI Disclosure Schedule sets forth a list of all
subsidiaries of DRHI (a "DRHI Subsidiary"), the jurisdiction of incorporation or
organization, as applicable, of each DRHI Subsidiary, the type of each DRHI
Subsidiary, the percentage of DRHI's and the DRHI Subsidiaries' ownership of the
outstanding voting stock of each such corporate DRHI Subsidiary, the authorized
and outstanding capital stock of each such corporate DRHI Subsidiary, and the
type and percentage of DRHI's and the DRHI Subsidiaries' ownership interest in
each other DRHI Subsidiary. Each DRHI Subsidiary is a corporation, business
trust, general or limited partnership or limited liability company (as specified
in Section 4.2. to the DRHI Disclosure Schedule) duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, as applicable. Each DRHI Subsidiary has all
necessary entity power and authority to own its properties and assets and to
carry on its business as presently conducted. Each DRHI Subsidiary is qualified
to do business and is in good standing in each jurisdiction where the nature or
character of the property owned, leased or operated by it or the nature of the
business transacted by it makes such qualification necessary, except where the
failure to be so qualified or be in good standing would not have a DRHI Material
Adverse Effect. Except for the DRHI Subsidiaries, DRHI does not, directly or
indirectly, own any equity interest in any other corporation, association,
partnership, joint venture, business organization or limited liability company
or other entity, with respect to which interest DRHI, any DRHI Subsidiary has
invested or is required to invest $100,000 or more, excluding securities in any
publicly traded company held for investment and comprising less than five
percent of the outstanding voting securities of such company.
4.3. Capitalization.
4.3.1. Capitalization of DRHI and the DRHI Subsidiary. The authorized
capital stock of DRHI consists solely of 100,000,000 shares of the DRHI
Common Stock and 30,000,000 shares of preferred stock, $.10 par value per
share ("DRHI Preferred Stock"). As of the date hereof: (i) 37,352,663
shares of the DRHI Common Stock were issued and outstanding and no shares
of the DRHI Common Stock were held in treasury, (ii) 2,853,924 shares of
the DRHI Common Stock were reserved for future issuance pursuant to
outstanding stock options and (iii) no shares of the DRHI Preferred Stock
were issued and outstanding. All of the outstanding shares of the DRHI
Common Stock, and all shares of the DRHI Common Stock which may be issued
prior to the Effective Time upon exercise of any option or conversion right
will be, validly issued, fully paid and nonassessable and free of
preemptive rights. Except as set forth above, as of the date hereof there
are outstanding no shares of capital stock or other voting securities of
DRHI and no equity equivalent interest in the ownership or earnings of DRHI
or the DRHI Subsidiaries. All of the outstanding shares of capital stock,
or other ownership interest, of each DRHI Subsidiary is validly issued,
fully paid
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and nonassessable, and is owned by DRHI or another DRHI Subsidiary, free
and clear of all security interests, liens, claims, pledges, charges or
other encumbrances of any nature whatsoever.
4.3.2. Obligations to Issue Capital Stock of DRHI or the DRHI
Subsidiaries. Section 4.3.2. of the DRHI Disclosure Schedule sets forth a
true and complete list of all outstanding rights to purchase the DRHI
Common Stock, the number of shares purchasable thereunder and the per share
exercise, conversion or purchase price of each right. There are no
securities of DRHI or any DRHI Subsidiary convertible or exchangeable for
shares of capital stock or voting securities of DRHI or any DRHI
Subsidiary, no options, warrants or other similar rights, agreements,
arrangements or commitments of any character obligating DRHI or any DRHI
Subsidiary to issue or sell any shares of capital stock of, or other equity
interests in, DRHI or any DRHI Subsidiary. There are no obligations,
contingent or otherwise, of DRHI or any DRHI Subsidiary to repurchase,
redeem or otherwise acquire any shares of the DRHI Common Stock or the
capital stock or other equity interest of any DRHI Subsidiary or to make
any investment (in the form of a loan, capital contribution or otherwise)
in any DRHI Subsidiary.
4.4. Authority Relative to this Agreement. DRHI has all necessary corporate
power and authority to execute and deliver this Agreement and to perform its
respective obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by DRHI and the
consummation by DRHI of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action, and no other corporate
proceedings on the part of DRHI are necessary to authorize this Agreement or to
consummate the transactions so contemplated (other than the adoption of this
Agreement by the holders of a majority of the outstanding shares of the DRHI
Common Stock entitled to vote in accordance with the Delaware Law and DRHI's
Amended and Restated Certificate of Incorporation and Bylaws). This Agreement
has been duly and validly executed and delivered by DRHI and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of DRHI enforceable against DRHI in accordance with its
terms. The Board of Directors of DRHI has unanimously resolved to recommend that
the stockholders of DRHI adopt and approve this Agreement.
4.5. DRHI Material Contracts. Section 4.5. of the DRHI Disclosure Schedule
sets forth a list of all agreements to which DRHI or any DRHI Subsidiary is a
party or by which any of them is bound which, as of the date hereof: (i) are
required to be filed as "material contracts" with the SEC pursuant to the
requirements of the Exchange Act or (ii) under which the consequences of a
default, nonrenewal or termination would have a DRHI Material Adverse Effect
(collectively, the "DRHI Material Contracts").
4.6. No Conflict. The execution and delivery of this Agreement by DRHI does
not, and the performance of this Agreement by DRHI will not, (i) conflict with
or violate the Amended and Restated Certificate of Incorporation or Bylaws of
DRHI, (ii) conflict
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with or violate any law, rule, regulation, order, judgment or decree applicable
to DRHI or any DRHI Subsidiary or by which its or any of their respective
properties is bound or affected, or (iii) result in any breach of or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, or impair the rights of DRHI or any DRHI Subsidiary or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of any DRHI Material
Contract, or result in the creation of a lien or encumbrance on any of the
properties or assets of DRHI or any DRHI Subsidiary pursuant to any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which DRHI or any DRHI Subsidiary is a party
or by which DRHI or any DRHI Subsidiary or any of their respective properties is
bound or affected, except in any such case for any such conflicts, violations,
breaches, defaults or other occurrences that would not have a DRHI Material
Adverse Effect.
4.7. Required Filings and Consents. The execution and delivery of this
Agreement by DRHI does not, and the performance of this Agreement by DRHI will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for applicable requirements, if any, of the Securities Act,
the Exchange Act, Blue Sky Laws, the pre-merger notification requirements of the
HSR Act, and the filing and recordation of appropriate merger or other documents
as required by the Delaware Law, and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the Merger, or
otherwise prevent or delay DRHI from performing its obligations under this
Agreement, or would not otherwise have a DRHI Material Adverse Effect.
4.8. Compliance. Neither DRHI nor any DRHI Subsidiary is in conflict with,
or in default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to DRHI or any DRHI Subsidiary or by which its or any of their
respective properties is bound or affected or (ii) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation, except in each case for any such conflicts, defaults
or violations which would not individually or in the aggregate have a DRHI
Material Adverse Effect.
4.9. Permits. DRHI and each DRHI Subsidiary hold all permits, licenses,
easements, variances, exemptions, consents, certificates, orders and approvals
from Governmental Entities necessary for the operation of the business of DRHI
and the DRHI Subsidiaries as it is now being conducted (collectively, the "DRHI
Permits"), except where the failure to hold such DRHI Permits would not have a
DRHI Material Adverse Effect. DRHI and the DRHI Subsidiaries are in compliance
with the terms of the DRHI Permits, except where the failure to so comply would
not have a DRHI Material Adverse Effect.
4.10. SEC Filings. DRHI has filed all forms, reports and documents required
to be filed with the SEC. DRHI has made available to Company (i) its Annual
Reports on Form 10-K for the fiscal years ended September 30, 1996 and 1997,
(ii) its Proxy Statement, dated December 12, 1997, for its Annual Meeting of
Stockholders, (iii) all
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proxy statements relating to DRHI's meetings of stockholders (whether annual or
special) held since October 1, 1995, (iv) all other reports or registration
statements (other than Reports on Form 10-Q) filed by DRHI with the SEC since
October 1, 1995, and (v) all amendments and supplements to all such reports and
registration statements filed by DRHI with the SEC since October 1, 1995
(collectively, the "DRHI SEC Reports"). The DRHI SEC Reports (i) were prepared
in all material respects in accordance with the requirements of the Securities
Act or the Exchange Act, as the case may be, and (ii) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of the DRHI
Subsidiaries is required to file any forms, reports or other documents with the
SEC.
4.11. Financial Statements. Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the DRHI SEC
Reports was prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto), and each fairly presents in all material
respects the consolidated financial position of DRHI and its consolidated
subsidiaries as at the respective dates thereof and the consolidated statements
of income and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments. DRHI is in full compliance with Section 13(b)(2) of the
Exchange Act.
4.12. Absence of Certain Changes or Events. Except as set forth in the DRHI
SEC Reports, since October 1, 1997, there has not occurred: (i) any DRHI
Material Adverse Effect or any action, change or effect which could reasonably
be expected to have a DRHI Material Adverse Effect; (ii) any amendments or
changes in the Certificate of Incorporation or Bylaws of DRHI (except as
permitted by Section 5.3.); (iii) any damage to, destruction or loss of any
asset of DRHI or any DRHI Subsidiary (whether or not covered by insurance) that
would have a DRHI Material Adverse Effect; (iv) any material change by DRHI in
its accounting methods, principles or practices; (v) any material revaluation by
DRHI of any of its assets, including, without limitation, writing off notes or
accounts receivable other than in the ordinary course of business; or (vi) any
action or event that would have required the consent of the Company pursuant to
Section 5.3. had such action or event occurred after the date of this Agreement.
4.13. No Undisclosed Liabilities. Neither DRHI nor any DRHI Subsidiary has
any liabilities (absolute, accrued, contingent or otherwise), except liabilities
(a) in the aggregate adequately provided for in DRHI's audited balance sheet
(including any related notes thereto) as of September 30, 1997 (the "1997 DRHI
Balance Sheet"), (b) incurred in the ordinary course of business before the date
of the 1997 DRHI Balance Sheet and not required under generally accepted
accounting principles to be reflected on the 1997 DRHI Balance Sheet, (c)
disclosed in the DRHI SEC Reports, or (d) incurred since September 30, 1997 in
the ordinary course of business consistent with past practice or
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incurred in connection with this Agreement, that would not, individually or in
the aggregate, have a DRHI Material Adverse Effect.
4.14. Absence of Litigation. Except as set forth in the DRHI SEC Reports,
there are no claims, actions, suits, proceedings or investigations pending or,
to the knowledge of DRHI, threatened against DRHI or any DRHI Subsidiary or any
properties or rights of DRHI or any DRHI Subsidiary before any court, arbitrator
or administrative, governmental or regulatory authority or body, domestic or
foreign, that would have a DRHI Material Adverse Effect or that could reasonably
be expected to prevent or delay consummation of the Merger, or otherwise prevent
or delay DRHI from performing its obligations under this Agreement.
4.15. Employee Benefit Plans.
4.15.1. DRHI Employee Plans. Section 4.15.1. of the DRHI Disclosure
Schedule lists all employee pension plans (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
all employee welfare plans (as defined in Section 3(1) of ERISA) and all
other bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar fringe
or employee benefit plans, programs or arrangements for the benefit of
employees generally of DRHI, any trade or business (whether or not
incorporated) which is a member of a controlled group including DRHI or
which is under common control with DRHI (a "DRHI ERISA Affiliate") within
the meaning of Section 414 of the Code, or any DRHI Subsidiary, as well as
each plan with respect to which DRHI or a DRHI ERISA Affiliate could incur
liability under Section 4069 (if such plan has been or were terminated) or
Section 4212 of ERISA (collectively the "DRHI Employee Plans"). There have
been made available to the Company copies of (i) each such written DRHI
Employee Plan (other than those referred to in Section 4(b)(4) of ERISA),
(ii) the most recent annual report on Form 5500 series, with accompanying
schedules and attachments, filed with respect to each DRHI Employee Plan
required to make such a filing, and (iii) the most recent actuarial
valuation for each DRHI Employee Plan subject to Title IV of ERISA.
4.15.2. Absence of Certain Events. (i) None of the DRHI Employee Plans
provides retiree medical or other retiree welfare benefits to any person
(other than as required under COBRA), and none of the DRHI Employee Plans
is a "multiemployer plan" as such term is defined in Section 3(37) of
ERISA; (ii) there has been no non-exempt "prohibited transaction," as such
term is defined in Section 406 of ERISA and Section 4975 of the Code, with
respect to any DRHI Employee Plan, which would result in a DRHI Material
Adverse Effect; (iii) all DRHI Employee Plans are in compliance with the
requirements prescribed by any and all statutes (including ERISA and the
Code), orders or governmental rules and regulations currently in effect
with respect thereto (including all applicable requirements for
notification to participants or the Department of Labor, the PBGC, IRS or
Secretary of the Treasury) except as would not individually or in
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the aggregate result in a DRHI Material Adverse Effect, and DRHI and each
DRHI Subsidiary have performed all obligations required to be performed by
them under, and are not in default under or violation of any of the DRHI
Employee Plans except as would not individually or in the aggregate result
in a DRHI Material Adverse Effect; (iv) each DRHI Employee Plan intended to
qualify under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code is the subject of a favorable
determination letter from the IRS; (v) all contributions required to be
made to any DRHI Employee Plan pursuant to Section 412 of the Code, or the
terms of the DRHI Employee Plan or any collective bargaining agreement,
have been made on or before their due dates; (vi) with respect to each DRHI
Employee Plan, no "reportable event" within the meaning of Section 4043 of
ERISA (excluding any such event for which the 30 day notice requirement has
been waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 of ERISA has occurred; and (vii)
neither DRHI nor any DRHI ERISA Affiliate has incurred, nor reasonably
expects to incur, any liability under Title IV of ERISA (other than
liability for premium payments to the PBGC arising in the ordinary course).
4.16. Labor Matters. Except as set forth in Section 4.16. of the DRHI
Disclosure Schedule: (i) there are no controversies pending or, to the knowledge
of DRHI, threatened, between DRHI or any DRHI Subsidiary and any of their
respective employees, which controversies have had or could reasonably be
expected to have a DRHI Material Adverse Effect; (ii) neither DRHI nor any DRHI
Subsidiary is a party to any material collective bargaining agreement or other
labor union contract applicable to persons employed by DRHI or any DRHI
Subsidiary, nor does DRHI know of any activities or proceedings of any labor
union to organize any such employees; and (iii) DRHI has no knowledge of any
strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with
respect to any employees of DRHI or any DRHI Subsidiary which could reasonably
be expected to have a DRHI Material Adverse Effect.
4.17. Restrictions on Business Activities. Except for this Agreement, there
is no agreement, judgment, injunction, order or decree binding upon DRHI or any
DRHI Subsidiary which has or would have the effect of prohibiting the conduct of
business by DRHI or any DRHI Subsidiary as currently conducted, except for any
prohibitions as would not, individually or in the aggregate, have a DRHI
Material Adverse Effect.
4.18. Real Property. DRHI and the DRHI Subsidiaries have good and
marketable (or indefeasible, in jurisdictions where the term "marketable" is not
customarily used) title in fee simple, or will acquire good and marketable (or
indefeasible, as the case may be) title in fee simple, to the real property
purported to be owned or optioned by them, free and clear of all liens, charges
and encumbrances, except liens for Taxes not yet due and such liens or other
imperfections of title as do not or will not materially interfere with the
present use or intended use by DRHI and the DRHI Subsidiaries or materially
affect the value or marketing of the property affected thereby and that do not,
individually or in the aggregate, have a DRHI Material Adverse Effect. Neither
DRHI nor any DRHI Subsidiary has given, nor have they received, any notice that
a breach or an event of
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default exists, and no condition or event has occurred that with the giving of
notice, the lapse of time, or both would constitute a breach or event of
default, by DRHI or any DRHI Subsidiary, or to the knowledge of DRHI, any other
person with respect to any agreements, arrangements, contracts, covenants,
conditions, deeds, deeds of trust, rights-of-way, easements, mortgages,
restrictions, surveys, title insurance policies, and other documents granting to
DRHI or any DRHI Subsidiary title to or an interest in or otherwise affecting
the real property which is material to the operation of the business of DRHI and
the DRHI Subsidiaries, as presently conducted or intended to be conducted,
except for such breach or event of default that would not, individually or in
the aggregate, have a DRHI Material Adverse Effect. No condemnation, eminent
domain, or similar proceeding exists, is pending or, to the knowledge of DRHI,
is threatened with respect to, or that could affect, any real property owned or
leased by DRHI or any DRHI Subsidiary that would reasonably be expected to have
a DRHI Material Adverse Effect. There is no judgment, injunction, order, decree,
statute, ordinance, rule, regulation, moratorium, or other action by a
Governmental Entity, or to the knowledge of DRHI, pending before or being
considered by a Governmental Entity, which has or would have the effect of
restricting the conduct of business by DRHI or any DRHI Subsidiary as currently
conducted or intended to be conducted by them, except for any restrictions as
would not, individually or in the aggregate, have a DRHI Material Adverse
Effect. No developer-related charges or assessments by any public authority or
any other person for public improvements or otherwise made against any property
developed by DRHI or any DRHI Subsidiary are unpaid (other than those reflected
on the DRHI Balance Sheet or incurred since the date of the DRHI Balance Sheet
in the ordinary course of DRHI's business consistent with past practices),
except for charges or assessments as would not, individually or in the
aggregate, have a DRHI Material Adverse Effect. The real property of DRHI and
the DRHI Subsidiaries to be used for homebuilding conform, in all material
respects, to the appropriate governmental authority's standards, and there is no
material impediment to approval for undeveloped real property, such approval to
allow development in the manner in which DRHI currently anticipates building
thereon, except for such as is not reasonably likely to result in a DRHI
Material Adverse Effect. The developed real property of DRHI and the DRHI
Subsidiaries has access to streets, and is serviced, in all material respects,
by all utilities and other services, as is necessary to construct homes on such
property, and such utilities and other services are adequate for the current and
intended use of such property. The undeveloped real property of DRHI and the
DRHI Subsidiaries has access to streets, and such real property is serviced, in
all material respects, by all utilities and other services, as is necessary for
the development thereof or such utilities and other services are or will be
available, in all material respects, to such property. All leases pursuant to
which DRHI or any DRHI Subsidiary leases from others material amounts of real or
personal property are in good standing, valid and effective in accordance with
their respective terms, and there is not under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a material default), except where the lack of such good
standing, validity and effectiveness or the existence of such defaults or event
of defaults would not, individually or in the aggregate, have a DRHI Material
Adverse Effect.
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4.19. Taxes.
(a) DRHI and the DRHI Subsidiaries have duly and timely (with due regard to
valid extensions properly secured) filed all Tax Returns required to be filed by
them prior to the date of this Agreement (except where failure to duly or timely
file a Tax Return or to properly secure a valid extension of time to file the
same did not have a material adverse effect on DRHI or any of the DRHI
Subsidiaries). All Tax Returns so filed were true, correct and complete in all
material respects as filed (or as validly amended thereafter). DRHI and the DRHI
Subsidiaries have timely (with due regard to valid extensions properly secured)
paid in full all Taxes shown as due on all Tax Returns filed as described above
(except where such failure to timely or fully pay any Tax or to secure a valid
extension of time to pay the same did not have a material adverse effect on DRHI
or any of the DRHI Subsidiaries).
(b) None of the Tax Returns of DRHI or any of the DRHI Subsidiaries
contains a disclosure statement under Section 6662 (or any predecessor
provision) of the Code, or any similar provision of state, local or foreign law.
(c) Neither DRHI nor any of the DRHI Subsidiaries is aware of any pending
or (to the knowledge of any officer thereof) threatened action, audit,
proceeding, or investigation with respect to (i) the assessment or collection of
Taxes, (ii) a claim by any Tax jurisdiction that DRHI or any DRHI Subsidiary has
been required to file a Tax Return, but has failed to do so, or (iii) a claim
for refund made by DRHI or any of the DRHI Subsidiaries with respect to Taxes
previously paid, in any case that would have a material adverse effect on DRHI
or any of the DRHI Subsidiaries if ultimately determined adversely. Neither DRHI
nor any of the DRHI Subsidiaries has requested an extension of time to file any
Tax Return not yet filed, nor has been granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax not yet paid, which extension or waiver would have a material adverse
effect on DRHI or any of the DRHI Subsidiaries. All Tax deficiencies formally
asserted or assessed against DRHI or any of the DRHI Subsidiaries in writing
have been paid or finally settled or are being contested in good faith by
appropriate action.
(d) All Taxes that were required to be collected or withheld by DRHI or any
of the DRHI Subsidiaries have been duly collected or withheld, and all such
Taxes that DRHI or any of the DRHI Subsidiaries were required to remit to any
taxing authority have been duly remitted, except where a failure to collect,
withhold or remit Taxes does not have a material adverse effect on DRHI or any
of the DRHI Subsidiaries.
(e) Neither DRHI nor any of the DRHI Subsidiaries has filed a consent
pursuant to the collapsible corporation provisions of Section 341(f) of the Code
or agreed to have Section 341(f) (2) of the Code apply to any disposition of any
asset owned by it.
(f) Neither DRHI nor any of the DRHI Subsidiaries is required to include in
income any adjustment pursuant to Section 481 of the Code (or similar provisions
of other law or regulation) by reason of a change in accounting method, nor does
DRHI or any of
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the DRHI Subsidiaries have any knowledge that the IRS (or other taxing
authority) has proposed, or (to the knowledge of any officer thereof) is
considering, any such change in accounting method, except where any such
inclusion in income or any such change would not have a material adverse effect
on DRHI or any of the DRHI Subsidiaries.
(g) DRHI has no foreign stockholders for whom shares of DRHI Common Stock
are United States real property interests as defined in Section 897 of the Code.
(h) None of the assets of DRHI or any of the DRHI Subsidiaries is property
which is required to be treated as owned by any other person pursuant to the
"safe harbor lease" provisions of former Section 168(f)(5)(B) of the Code.
(i) Neither DRHI nor any of the DRHI Subsidiaries is a party to, is bound
by, or has any obligation under, any Tax sharing or Tax indemnification or
similar agreement or arrangement within any entity other than a corporation that
is a member of an affiliated group currently filing a consolidated federal
income tax return with DRHI.
(j) Neither DRHI nor any of the DRHI Subsidiaries has entered into any
compensatory agreements with respect to the performance of services under which
payment would result in a nondeductible expense to DRHI or any of the DRHI
Subsidiaries pursuant to Sections 162(m) or 280G of the Code or an excise tax to
the recipient of such payment pursuant to Section 4999 of the Code.
(k) DRHI has made available to or provided to representatives of the
Company copies of all federal and state income and franchise Tax Returns, and
other written correspondence with respect thereto (other than requests for
extension of time to file returns and tax payment vouchers), filed or submitted
by the DRHI and the DRHI Subsidiaries with or to the relevant taxing authorities
with respect to all periods beginning on or after September 30, 1994, and has
produced for the Company's inspection at DRHI's headquarters all material sales
tax, use tax, payroll tax, and property tax and information returns filed by
DRHI and the DRHI Subsidiaries with respect to such periods.
4.20. Intellectual Property. DRHI and the DRHI Subsidiaries own, or are
licensed or otherwise possess legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, technology, know-how, computer software programs or applications, and
tangible or intangible proprietary information or material that are used in the
business of DRHI and the DRHI Subsidiaries as currently conducted, except as
would not, individually or in the aggregate, have a DRHI Material Adverse
Effect.
4.21. Environmental Matters. Except for such matters that, individually or
in the aggregate, would not have a DRHI Material Adverse Effect: (a) DRHI and
the DRHI Subsidiaries have complied with all applicable Environmental Laws; (b)
the properties currently owned or operated by DRHI or any DRHI Subsidiary
(including soils, groundwater, surface water, buildings or other structures) do
not contain and, to DRHI's knowledge, have not previously contained any
Hazardous Substances; (c) the properties
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formerly owned or operated by DRHI or any DRHI Subsidiary did not contain any
Hazardous Substances at any time during the period of ownership or operation by
DRHI or the DRHI Subsidiary; (d) neither DRHI nor any DRHI Subsidiary has
disposed of any Hazardous Substance on any third party property which could
reasonably be expected to result in any liability under any Environmental Law;
(e) neither DRHI nor any DRHI Subsidiary has released any Hazardous Substance at
any property owned or operated by any of them which could reasonably be expected
to result in any liability under any Environmental Law; (f) neither DRHI nor any
DRHI Subsidiary has received any written notice, demand, letter, claim or
request for information alleging that DRHI or any DRHI Subsidiary may be in
violation of or liable under any Environmental Law; (g) neither DRHI nor any
DRHI Subsidiary is a party to any orders, decrees, injunctions or agreements
with any Governmental Entity or is a party to any indemnity or other agreement
with any third party which is expected to result in liability on DRHI or any
DRHI Subsidiary under any Environmental Law; (h) there are no circumstances,
conditions or activities involving DRHI or any DRHI Subsidiary that could
reasonably be expected to result in any liability or costs to DRHI or any DRHI
Subsidiary or any restrictions on the ownership, use or transfer of any property
now owned by DRHI or a DRHI Subsidiary pursuant to any Environmental Law; and
(i) to the knowledge of DRHI, none of the properties now owned or operated by
DRHI or any DRHI Subsidiary contains any underground storage tanks,
asbestos-containing material, lead-based products, or polychlorinated biphenyls.
4.22. Insurance. DRHI maintains insurance with financially responsible
insurance companies in amounts customary in its industry to insure it against
risks and losses associated with the operation of the business and properties of
DRHI and the DRHI Subsidiaries.
4.23. Brokers. No broker, finder or investment banker (other than
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")) is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. DRHI has heretofore furnished to Company a complete
and correct copy of all agreements between DRHI and DLJ pursuant to which such
firm would be entitled to any payment relating to the transactions contemplated
hereunder.
4.24. DRHI Common Stock. On the Closing Date, DRHI will have a sufficient
number of authorized but unissued or treasury shares of the DRHI Common Stock
available for issuance to the holders of the Company Shares, Stock Options and
Convertible Notes in accordance with the provisions of this Agreement. The DRHI
Common Stock to be issued pursuant to this Agreement will, when so delivered, be
(i) duly and validly issued, fully paid and nonassessable, and (ii) listed on
the New York Stock Exchange ("NYSE"), upon official notice of issuance.
4.25. Tax Treatment; Pooling Matters. Neither DRHI nor, to the knowledge of
DRHI, any of its affiliates has taken or agreed to take any action that would
prevent accounting for the business combination to be effected by the Merger as
a pooling of
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interests for financial reporting purposes in accordance with generally accepted
accounting principles and rules, regulations and interpretations of the SEC, or
preventing the Merger from constituting a tax-free reorganization (except with
respect to cash received in lieu of fractional shares) qualifying under Section
354(a)(1) and Section 368(a) of the Code.
4.26. Investment Intent. DRHI is acquiring the Company Shares hereunder for
its own account and not with a view to the distribution or sale thereof, and
DRHI has no understanding, agreement, or arrangement to sell, distribute,
partition or otherwise transfer or assign all or any part of the Company Shares
to any other person.
4.27. Sufficient Funds. At the Effective Time DRHI will have available to
it sufficient funds to satisfy the obligations of the Company as a result of the
Merger, if any, (i) to repurchase the Company's outstanding 10% Senior Notes due
April 2006 and (ii) under the Company's revolving and warehouse lines of credit.
4.28. Pooling. DRHI has received a letter from Ernst & Young LLP, a copy of
which has been previously delivered to the Company, with respect to the
eligibility of DRHI for "pooling of interests" accounting treatment.
ARTICLE 5.
CONDUCT OF BUSINESS PENDING THE MERGER
5.1. Conduct of Business by the Company Pending the Merger. The Company
covenants and agrees that, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time, unless DRHI shall otherwise agree in writing, the Company shall
conduct its business and shall cause the businesses of the Company Subsidiaries
to be conducted only in, and the Company and the Company Subsidiaries shall not
take any action except in, the ordinary course of business in the manner
consistent with past practice. The Company shall use reasonable commercial
efforts to preserve substantially intact the business organization of the
Company and the Company Subsidiaries, to keep available the services of the
present officers, employees and consultants of the Company and the Company
Subsidiaries and to preserve the present relationships of the Company and the
Company Subsidiaries with customers, suppliers and other persons with which the
Company or any Company Subsidiary has significant business relations. By way of
amplification and not limitation, except as contemplated by this Agreement,
neither the Company nor any Company Subsidiary shall, during the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, directly or indirectly do any of the
following without the prior written consent of DRHI:
(a) except as set forth in Section 5.1.(a) of the Company Disclosure
Schedule, amend or otherwise change the Certificate of Incorporation or Bylaws
of the Company or the organizational documents of any Company Subsidiary;
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(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance,
sale, pledge, disposition or encumbrance of, any shares of capital stock of any
class, or any options, warrants, convertible securities or other rights of any
kind to acquire any shares of capital stock, or any other ownership interest
(including, without limitation, any phantom interest) in the Company (except for
the issuance of shares of Company Common Stock pursuant to any previously
granted Stock Option or upon conversion of the Convertible Notes);
(c) except as set forth in Section 5.1.(c) of the Company Disclosure
Schedule, sell, pledge, dispose of or encumber any assets of the Company or any
Company Subsidiary, except for (i) sales of assets in the ordinary course of
business in a manner consistent with past practice, (ii) disposition of obsolete
or worthless assets, (iii) sales of immaterial assets not in excess of $100,000
individually, and (iv) liens on assets to secure purchase money and construction
financings in the ordinary course of business consistent with past practice or
arising under the Company's existing revolving and warehouse lines of credit and
other encumbrances entered into in the ordinary course of business consistent
with past practice;
(d) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except for quarterly cash dividends not in excess of
$.05 per share paid in accordance with past practice, and except that a wholly
owned Company Subsidiary may declare and pay a dividend or make advances to its
parent or the Company, (ii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
(iii) amend the terms or change the period of exercisability of, purchase,
repurchase, redeem or otherwise acquire, or permit any Company Subsidiary to
purchase, repurchase, redeem or otherwise acquire, any of its securities,
including, without limitation, shares of Company Common Stock or any option,
warrant or right, directly or indirectly, to acquire shares of Company Common
Stock, or propose to do any of the foregoing;
(e) except as set forth in Section 5.1.(e) of the Company Disclosure
Schedule, (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof; (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse or otherwise as an accommodation
become responsible for, the obligations of any person, except under existing
lines of credit in the ordinary course of business consistent with past
practice, or make any loans or advances (other than loans or advances to or from
direct or indirect wholly owned Company Subsidiaries or pursuant to existing
contracts or contracts for the acquisition or development of land entered into
in the ordinary course of business consistent with past practice), (iii) enter
into or amend any contract or agreement, other than in the ordinary course of
business consistent with past practice, that is or would be a Material Contract
or is otherwise material to the Company and the Company Subsidiaries taken as a
whole; or (iv) authorize any capital expenditures or purchase of fixed assets
(other than the purchase of land in the ordinary course of business consistent
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with past practice) which are, in the aggregate, in excess of $100,000
individually or $1,000,000 in the aggregate;
(f) except as set forth in Section 5.1.(f) of the Company Disclosure
Schedule or as may be required by law, increase the compensation payable or to
become payable to its officers or employees, grant any severance or termination
pay to, or enter into any employment or severance agreement with any director,
officer or other employee of the Company or any Company Subsidiary, or
establish, adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
current or former directors, officers or employees, except increases in annual
compensation for employees in the ordinary course consistent with past practice
to the extent such compensation increases do not result in a material increase
in compensation expense to the Company;
(g) change accounting policies or procedures (including, without
limitation, procedures with respect to revenue recognition, payments of accounts
payable and collection of accounts receivable);
(h) make any material Tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign Tax liability
or agree to an extension of a statute of limitations with respect to any
material amount of Tax, except to the extent the amount of any such settlement
or compromise has been reserved for in the financial statements contained in the
Company SEC Reports filed prior to the date hereof; and
(i) take, or agree to take, any of the actions described in Sections
5.1.(a) through (h) above, or any action which would make any of the
representations or warranties of the Company contained in this Agreement untrue
or incorrect in any material respect as contemplated hereby or prevent the
Company from performing or cause the Company not to perform in any material
respect its covenants hereunder.
5.2. No Solicitation.
(a) The Company shall, and shall cause the Company Subsidiaries and its and
their respective officers, directors, employees, representatives and agents to,
immediately cease any discussions or negotiations with any parties with respect
to any Third Party Acquisition (as defined below). The Company shall not, nor
shall the Company authorize or permit any Company Subsidiary or any of its or
their respective officers, directors, employees, representatives or agents to,
directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with or provide any non-public information to any
person or group (other than DRHI or any designees of DRHI) concerning any Third
Party Acquisition; provided, however, that (i) nothing herein shall prevent the
Company Board from taking and disclosing to the Company's stockholders a
position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange
Act
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with regard to any tender offer; and (ii) the Company may make inquiry of and
participate in discussions or negotiations with any person or group who has
submitted after the date hereof an unsolicited and unencouraged Superior
Proposal if, and to the extent, the Company Board by requisite vote determines
in its good faith judgment, after consultation with and based upon the advice of
outside legal counsel, that it is required to do so in order to comply with its
fiduciary duties. The Company shall promptly notify DRHI in the event it
receives any proposal or inquiry concerning a Third Party Acquisition, including
the terms and conditions thereof and the identity of the party submitting such
proposal, and shall advise DRHI from time to time of the status and any material
developments concerning the same.
(b) Except as set forth in this Section 5.2.(b) the Company Board shall not
withdraw its recommendation of the transactions contemplated hereby or approve
or recommend, or cause the Company to enter into any agreement with respect to,
any Third Party Acquisition. Notwithstanding the foregoing, if the Company Board
by requisite vote determines in its good faith judgment, after consultation with
and based upon the advice of outside legal counsel, that it is required to do so
in order to comply with its fiduciary duties, the Company Board may withdraw its
recommendation of the transactions contemplated hereby or approve or recommend a
Superior Proposal, but in each case only (i) after providing reasonable written
notice to DRHI (a "Notice of Superior Proposal") advising DRHI that the Company
Board has received a Superior Proposal, specifying the material terms and
conditions of such Superior Proposal and identifying the person making such
Superior Proposal and (ii) if DRHI does not, within three business days of
DRHI's receipt of the Notice of Superior Proposal, make an offer which the
Company Board by requisite vote determines in its good faith judgment (based on
the advice of a financial adviser of nationally recognized reputation) to be as
favorable to the Company's stockholders as such Superior Proposal; provided,
however, that the Company shall not be entitled to enter into any agreement with
respect to a Superior Proposal unless and until this Agreement is terminated by
its terms pursuant to Section 7.1. Any disclosure that the Company Board may be
compelled to make with respect to the receipt of a proposal for a Third Party
Acquisition in order to comply with its fiduciary duties or Rule 14d-9 or 14e-2
will not constitute a violation of this Section 5.2.(b) provided that such
disclosure states that no action will be taken by the Company Board with respect
to the withdrawal of its recommendation of the transactions contemplated hereby
or the approval or recommendation of any Third Party Acquisition except in
accordance with this Section 5.2.(b).
(c) For the purposes of this Agreement, "Third Party Acquisition" means the
occurrence of any of the following events: (i) the acquisition of the Company by
merger or otherwise by any person (which includes a "person" as such term is
defined in Section 13(d)(3) of the Exchange Act) other than DRHI or any
affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of
more than 35% of the total assets of the Company and the Company Subsidiaries
taken as a whole; (iii) the acquisition by a Third Party of 35% or more of the
outstanding Shares; (iv) the adoption by the Company of a plan of liquidation or
the declaration or payment of an extraordinary dividend; or (v) the repurchase
by the Company or any Company Subsidiary of more than 35% of the
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outstanding Shares. For purposes of this Agreement, a "Superior Proposal" means
any bona fide proposal to acquire directly or indirectly for consideration
consisting of cash and/or securities more than 50% of the Company Shares then
outstanding or all or substantially all the assets of the Company and otherwise
on terms which the Company Board by requisite vote determines in its good faith
judgment (based on the advice of a financial adviser of nationally recognized
reputation) to be more favorable to the Company's stockholders than the Merger.
5.3. Conduct of Business by DRHI Pending the Merger. DRHI covenants and
agrees that, during the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement or the Effective Time,
unless the Company shall otherwise agree in writing, which agreement shall not
be unreasonably withheld or delayed, DRHI shall conduct its business and shall
cause the businesses of the DRHI Subsidiaries to be conducted only in, and DRHI
and the DRHI Subsidiaries shall not take any action except in, the ordinary
course of business in the manner consistent with past practice. By way of
amplification and not limitation, except as contemplated by this Agreement,
neither DRHI nor any DRHI Subsidiary shall, during the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, directly or indirectly do any of the following
without the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed:
(a) amend or otherwise change the Amended and Restated Certificate of
Incorporation or Bylaws of DRHI other than incident to a stock split or
combination;
(b) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except for quarterly cash dividends paid out of
current earnings and stock dividends and except that a wholly owned DRHI
Subsidiary may declare and pay a dividend to its parent or DRHI or (ii)
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock;
(c) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof if such transaction would prevent or materially delay the consummation
of the transactions contemplated by this Agreement or if the amount of
consideration paid exceeds the largest amount of consideration paid by DRHI in
an acquisition prior to the date hereof;
(d) issue any shares of capital stock of any class (except pursuant to
stock options issued under DRHI's stock option plans or in any stock dividend)
in one transaction or series of related transactions if the shares so issued
constitute more than 15% of the outstanding shares of such class (after giving
effect to such issuance); and
(e) take, or agree to take, any of the actions described in Sections
5.3.(a) through (d) above, or any action which would make any of the
representations or warranties of DRHI contained in this Agreement untrue or
incorrect in any material
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respect as contemplated hereby or prevent DRHI from performing or cause DRHI not
to perform in any material respect its covenants hereunder.
ARTICLE 6.
ADDITIONAL AGREEMENTS
6.1. HSR Act. As promptly as practicable after the date of this Agreement,
the Company and DRHI shall file notifications under the HSR Act in connection
with the Merger and the transactions contemplated hereby and thereafter use
reasonable efforts to respond as promptly as practicable to any inquiries
received from the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice (the "Antitrust Division") for additional
information or documentation and to respond as promptly as practicable to all
inquiries and requests received from any State Attorney General or other
governmental authority in connection with antitrust matters.
6.2. Access to Information; Confidentiality.
(a) Upon reasonable notice and subject to restrictions contained in
confidentiality agreements to which such party is subject (from which such party
shall use reasonable efforts to be released), the Company shall (and shall cause
each Company Subsidiary to) afford to the officers, employees, accountants,
counsel and other representatives of DRHI reasonable access, during the period
to the Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, the Company shall (and shall cause each Company
Subsidiary to) furnish promptly to DRHI all information concerning its business,
properties and personnel as such other party may reasonably request.
(b) Upon reasonable notice and subject to restrictions contained in
confidentiality agreements to which such party is subject (from which such party
shall use reasonable efforts to be released), DRHI shall (and shall cause each
DRHI Subsidiary to) afford to the officers, employees, accountants, counsel and
other representatives of the Company reasonable access, during the period to the
Effective Time, to all its properties, books, contracts, commitments and records
and, during such period, DRHI shall (and shall cause each DRHI Subsidiary to)
furnish promptly to the Company all information concerning its business,
properties and personnel as such other party may reasonably request.
(c) Each of DRHI and the Company shall make available to the other the
appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and personnel
as either DRHI or the Company may reasonably request. The Company and DRHI shall
keep all information obtained under this Section 6.2. confidential in accordance
with the terms of the confidentiality letters, dated November 17, 1997 and
December 4, 1997 (the "Confidentiality Letters"), between DRHI and the Company.
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6.3. Registration Statement.
(a) DRHI shall prepare and file with the SEC and any other applicable
regulatory bodies, as soon as reasonably practicable, a Registration Statement
on Form S-4 with respect to the shares of the DRHI Common Stock to be issued in
the Merger (together with any amendments or supplements thereto, the
"Registration Statement"), and will otherwise proceed promptly to satisfy the
requirements of the Securities Act, including Rule 145 thereunder. Such
Registration Statement shall contain a joint proxy statement of DRHI and of the
Company prepared by DRHI and the Company containing the information required by
the Exchange Act (together with any amendments or supplements thereto, the
"Proxy Statement"). DRHI shall use its reasonable best efforts to cause the
Registration Statement to be declared effective and to maintain such
effectiveness until all of the shares of the DRHI Common Stock covered thereby
have been distributed. DRHI shall promptly amend or supplement the Registration
Statement to the extent necessary in order to make the statements therein not
misleading or to correct any statements which have become false or misleading.
The Company and DRHI shall use their reasonable best efforts to have the Proxy
Statement approved by the SEC under the provisions of the Exchange Act. The
Company and its counsel shall be given a reasonable opportunity to review and
comment on the filings made pursuant to this Section 6.3. prior to their filing
with the SEC and shall be provided with any comments DRHI and its counsel may
receive from the SEC or its staff with respect to such filings promptly after
receipt of such comments.
(b) The information specifically designated as being supplied by the
Company for inclusion or incorporation by reference in the Registration
Statement shall not, at the time the Registration Statement is declared
effective or at the time the Proxy Statement is first mailed to holders of the
Company Common Stock, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. The information specifically
designated as being supplied by the Company for inclusion or incorporation by
reference in the Proxy Statement shall not, at the date the Proxy Statement is
first mailed to holders of the Company Common Stock and the DRHI Common Stock,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time, any event or
circumstance relating to the Company, or its officers or directors, should be
discovered by the Company which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, the Company shall
promptly inform DRHI. All documents, if any, that the Company is responsible for
filing with the SEC in connection with the transactions contemplated hereby will
comply as to form and substance in all material respects with the applicable
requirements of the Securities Act and the rules and regulations thereunder and
the Exchange Act and the rules and regulations thereunder.
(c) The information specifically designated as being supplied by DRHI for
inclusion or incorporation by reference in the Registration Statement shall not,
at the time
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the Registration Statement is declared effective or at the time the Proxy
Statement is first mailed to holders of the Company Common Stock and the DRHI
Common Stock, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading. The information specifically designated
as being supplied by DRHI for inclusion or incorporation by reference in the
Proxy Statement shall not, at the date the Proxy Statement is first mailed to
holders of the Company Common Stock and the DRHI Common Stock, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstance under which they are made, not misleading. If at any
time prior to the Effective Time any event or circumstance relating to DRHI or
its officers or directors should be discovered by DRHI which should be set forth
in an amendment to the Registration Statement or a supplement to the Proxy
Statement, DRHI shall promptly inform the Company and shall promptly file such
amendment to the Registration Statement. All documents that DRHI or the Company
is responsible for filing with the SEC in connection with the transactions
contemplated herein will comply as to form and substance in all material
respects with the applicable requirements of the Securities Act and the rules
and regulations thereunder and the Exchange Act and the rules and regulations
thereunder.
(d) Prior to the Closing Date, DRHI shall use its reasonable best efforts
to cause the shares of the DRHI Common Stock to be issued pursuant to the Merger
to be registered or qualified under all applicable Blue Sky Laws of each of the
states and territories of the United States, and to take any other actions which
may be necessary to enable the DRHI Common Stock to be issued pursuant to the
Merger to be distributed in each such jurisdiction.
(e) Prior to the Closing Date, DRHI shall file a subsequent listing
application with the NYSE relating to the shares of the DRHI Common Stock to be
issued in connection with the Merger, and shall use reasonable best efforts to
cause such shares of the DRHI Common Stock to be listed, upon official notice of
issuance, prior to the Closing Date.
(f) The Company shall furnish all information to DRHI with respect to the
Company and the Company Subsidiaries as DRHI may reasonably request for
inclusion in the Registration Statement, the Proxy Statement and shall otherwise
cooperate with DRHI in the preparation and filing of such documents.
(g) The Company shall use all reasonable efforts to cause Arthur Andersen
LLP to deliver a letter dated not more than five days prior to the date on which
the Registration Statement shall become effective (and updated to a date no more
than five days prior to the Closing Date) and addressed to itself and DRHI and
their respective Boards of Directors in form and substance reasonably
satisfactory to DRHI and customary in scope and substance for agreed-upon
procedures letters delivered by independent public accountants in connection
with registration statements and proxy statements similar to the Registration
Statement and the Proxy Statement.
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(h) DRHI shall use all reasonable efforts to cause Ernst & Young LLP to
deliver a letter dated not more than five days prior to the date on which the
Registration Statement shall become effective (and updated to a date no more
than five days prior to the Closing Date) and addressed to itself and the
Company and their respective Boards of Directors in form and substance
reasonably satisfactory to the Company and customary in scope and substance for
agreed-upon procedures letters delivered by independent public accountants in
connection with registration statements and proxy statements similar to the
Registration Statement and the Proxy Statement.
6.4. Meetings of Stockholders.
(a) The Company will take all steps necessary in accordance with its
Certificate of Incorporation and Bylaws to call, give notice of, convene and
hold a meeting of its stockholders (the "Company Stockholder Meeting") as soon
as practicable after the effectiveness of the Registration Statement, for the
purpose of approving and adopting this Agreement and the transactions
contemplated hereby and for such other purposes as may be necessary. Unless this
Agreement shall have been validly terminated as provided herein, the Company
Board (subject to the provisions of Section 5.2. and Section 7.1.(d) hereof)
will (i) recommend to its stockholders the approval and adoption of this
Agreement, the transactions contemplated hereby and any other matters to be
submitted to the stockholders in connection therewith, to the extent that such
approval is required by applicable law in order to consummate the Merger, and
(ii) use its reasonable good faith efforts to obtain the approval by its
stockholders of this Agreement and the transactions contemplated hereby.
(b) DRHI will take all steps necessary in accordance with its Amended and
Restated Certificate of Incorporation and By-Laws to call, give notice of,
convene and hold a meeting of its stockholders (the "DRHI Stockholder Meeting")
as soon as practicable after the effectiveness of the Registration Statement,
for the purpose of approving the issuance of the DRHI Shares upon consummation
of the Merger and for such other purposes as may be necessary. Unless this
Agreement shall have been validly terminated as provided herein, DRHI's Board
(i) will recommend to its stockholders the approval of the issuance of the DRHI
Shares upon consummation of the Merger and any other matters to be submitted to
the stockholders in connection therewith, to the extent that such approval is
required by applicable law or the requirements of the NYSE in order to issue
such shares, and (ii) use its reasonable good faith efforts to obtain the
approval by its stockholders of this Agreement and the transactions contemplated
hereby.
6.5. Pooling and Tax-Free Reorganization Treatment. Neither DRHI nor the
Company shall take or cause to be taken any action on or before the Effective
Time, and DRHI agrees to use commercially reasonable best efforts not to take or
cause to be taken any action after the Effective Time, which would disqualify
the Merger as a "pooling of interests" for accounting purposes or which would
prevent the Merger from constituting a tax-free reorganization (except with
respect to cash received in lieu of fractional shares) within the meaning of
Section 354(a)(1) and Section 368(a)(1)(A) of the Code.
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6.6. Affiliate and Pooling Agreements. DRHI and the Company will each use
their respective reasonable efforts to cause each of their respective directors
and executive officers and each of their respective "affiliates" (within the
meaning of Rule 145 under the Securities Act) to execute and deliver to DRHI as
soon as practicable an agreement in the form attached hereto as Exhibit 6.6.
relating to the disposition of shares of the Company Common Stock and shares of
the DRHI Common Stock held by such person and the shares of the DRHI Common
Stock issuable pursuant to this Agreement.
6.7. Company Stock Options.
(a) As soon as reasonably practicable after the Effective Time, DRHI shall
deliver to the holders of the Stock Options appropriate notices setting forth
such holders' rights pursuant to the Company Stock Plans, and any stock option
agreement evidencing such Stock Options which shall continue in full force and
effect on the same terms and conditions (subject to the adjustments required by
Section 2.1.4. or this Section 6.7. after giving effect to the Merger and the
assumption of such options by DRHI as set forth herein) as in effect immediately
prior to the Effective Time. DRHI shall comply with the terms of the Company
Stock Plans and such agreements as so adjusted, and shall use its reasonable
efforts to ensure, to the extent required by, and subject to the provisions of,
such plan or agreements, that the Stock Options which qualified as incentive
stock options prior to the Effective Time shall continue to qualify as incentive
stock options after the Effective Time.
(b) DRHI shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of the DRHI Common Stock for delivery upon
exercise of the Stock Options assumed by DRHI in accordance with Section 2.1.4.
As soon as practicable after the Effective Time, DRHI shall file with the SEC a
registration statement on Form S-8 with respect to shares of the DRHI Common
Stock subject to each such assumed Stock Option and shall use its reasonable
efforts to maintain the effectiveness of a registration statement or
registration statements covering such options (and maintain the current status
of the prospectus or prospectuses contained therein) for so long as such the
Stock Options remain outstanding.
(c) Except to the extent otherwise agreed to by the parties, all
restrictions or limitations on transfer and vesting with respect to the stock
options, to the extent that such restrictions or limitations shall not have
already lapsed, shall remain in full force and effect with respect to such
options after giving effect to the Merger and the assumption by DRHI as set
forth above.
6.8. Board Representation. The Company hereby designates W. Thomas Hickcox
and Bradley S. Anderson ("Mr. Anderson") for appointment or nomination for
election as directors of DRHI. Prior to the filing of the Registration
Statement, the Company may designate an individual in lieu of Mr. Anderson for
such appointment or nomination; provided that the individual so designated shall
be reasonably acceptable to DRHI and satisfy the requirements of the NYSE for an
"independent" and "outside" director of DRHI subsequent to the Merger. DRHI
shall use its best efforts, whether
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through increase in the size of its Board of Directors or otherwise, to cause
the appointment or election of the two such designated individuals as directors
of DRHI at the Effective Time.
6.9. Publication of Combined Results. DRHI agrees that after the end of the
first calendar quarter to end after the first full calendar month after the
Effective Time, DRHI shall cause the prompt publication of the combined results
of operations of DRHI and the Company. For purposes of this Section 6.9., the
term "publication" shall have the meaning provided in SEC Accounting Series
Release No. 135.
6.10. Indemnification and Insurance.
(a) From and after the Effective Time, the Surviving Corporation shall, to
the fullest extent permitted under applicable law and the Surviving
Corporation's Certificate of Incorporation and Bylaws (including Section 145(h)
of the Delaware Law), indemnify and hold harmless, each present and former
director or officer of the Company, determined as of the Effective Time
(collectively, the "Indemnified Parties"), against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages and liabilities incurred in connection with, and amounts paid in
settlement of, any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative and wherever asserted, brought
or filed, arising out of or pertaining to any acts or omissions or alleged acts
or omissions by them in their capacities as such; provided that, as to claims
existing as of the Effective Time, in no event shall the Surviving Corporation
be obligated to provide indemnification under this Section 6.10.(a) in excess of
the indemnification that the Company is required to provide under its
Certificate of Incorporation or Bylaws as in effect as of the date hereof.
(b) For a period of three years after the Effective Time, the Surviving
Corporation shall maintain (through the continuation or endorsement of the
Company's existing policy or the purchase of a "tail-end" rider permitted by
such policy) in effect, if available, the directors' and officers' liability
insurance covering those persons who are currently covered by the Company's
directors' and officers' liability insurance policy on the terms (including the
amounts of coverage and the amounts of deductibles, if any) now applicable to
them; provided that in no event shall the Surviving Corporation be required to
spend in excess of 150% of the annual premium currently paid by the Company for
such coverage, and provided further that, if the premium for such coverage
exceeds such amount, the Surviving Corporation shall maintain the greatest
coverage available for such 150% of the annual premium.
(c) This Section 6.10. shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding on all successors and assigns of
the Surviving Corporation and shall be enforceable by the Indemnified Parties.
In the event that the Surviving Corporation or any of its successors or assigns
(i) consolidates or merges into any other person or entity and shall not be the
continuing or surviving corporation or entity in such consolidation or merger or
(ii) transfers all or substantially all of its
41
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properties and assets to any person or entity, then and in such case, proper
provisions shall be made so that the successors and assigns of the Surviving
Corporation (as the case may be) assume the obligations of the Surviving
Corporation set forth in this Section 6.10.
6.11. Notification of Certain Matters. The Company shall give prompt notice
to DRHI, and DRHI shall give prompt notice to the Company, of (i) the occurrence
or nonoccurrence of any event the occurrence or nonoccurrence of which would be
likely to cause any representation or warranty contained in this Agreement to be
untrue or inaccurate the result of which would be a Material Adverse Effect to
the Company or DRHI, as applicable, or (ii) any failure of the Company or DRHI,
as the case may be, materially to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 6.11. shall
not limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
6.12. Further Action. Upon the terms and subject to the conditions hereof,
each of the parties hereto shall use all reasonable efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, to obtain in a
timely manner all material waivers, consents and approvals and to effect all
necessary registrations and filings, and otherwise to satisfy or cause to be
satisfied in all material respects all conditions precedent to its obligations
under this Agreement.
6.13. Public Announcements. DRHI and the Company shall consult with each
other before issuing any press release with respect to the Merger or this
Agreement and shall not issue any such press release or make any such public
statement without the prior consent of the other party, which shall not be
unreasonably withheld or delayed; provided, however, that a party may, without
the prior consent of the other party, issue such press release or make such
public statement as may upon the advice of counsel be required by law or the
rules and regulations of the NYSE if it has used all reasonable efforts to
consult with the other party.
6.14. Employee Benefits. For the period of six months beginning as of the
Effective Time, DRHI shall pay salaries and wages and (to the extent permitted
by applicable law) provide employee benefits to persons who are employees of the
Company or any Company Subsidiary immediately before the Effective Time that are
at least substantially equivalent in the aggregate to those paid and provided by
the Company and the Company Subsidiaries before the Effective Time (other than
stock options or other equity-based compensation). For the period of six months
beginning at the end of the period described in the preceding sentence, DRHI
shall provide, to the extent permitted by applicable law, employee benefits to
such persons that are at least substantially equivalent in the aggregate to
those then provided by DRHI and the DRHI Subsidiaries generally to their other
employees. Nothing contained herein shall be construed as requiring DRHI or any
DRHI Subsidiary to continue the employment or position of any specific person,
but is subject to any employment or severance agreements in effect as of the
date hereof. The
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Company and DRHI shall make such amendments and modifications to their
respective employee benefit plans as are necessary to provide that only those
employees of the Surviving Corporation and its subsidiaries that were eligible
to participate in the Company Employee Plans immediately prior to the Effective
Time are eligible to participate in the Company Employee Plans immediately after
the Effective Time and only those employees of the Surviving Corporation that
would have been eligible to participate in the DRHI Employee Plans immediately
prior to the Effective Time are eligible to participate in the DRHI Employee
Plans immediately after the Effective Time; provided that the foregoing shall
not limit the Surviving Corporation's ability to amend, modify or terminate such
plans after the Effective Time consistent with the terms of such plans, the
terms of this Agreement and applicable law.
ARTICLE 7.
TERMINATION, AMENDMENT AND WAIVER
7.1. Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of matters presented in
connection with the Merger by the holders of the Company Common Stock or the
DRHI Common Stock:
(a) by mutual written consent of DRHI and the Company;
(b) by either DRHI or the Company:
(i) if, upon a vote at a duly held meeting of stockholders or any
adjournment thereof, any required approval of the holders of the Company
Common Stock shall not have been obtained;
(ii) if the Merger shall not have been consummated on or before May
31, 1998, unless the failure to consummate the Merger is the result of a
willful and material breach of this Agreement by the party seeking to
terminate this Agreement;
(iii) if a court of competent jurisdiction or governmental, regulatory
or administrative agency or commission shall have issued a nonappealable
final order, decree or ruling or taken any other action having the effect
of permanently restraining, enjoining or otherwise prohibiting the Merger
(provided that the right to terminate this Agreement under this Section
7.1.(b)(iii) shall not be available to any party who has not complied with
its obligations under Section 6.12. and such noncompliance materially
contributed to the issuance of any such order, decree or ruling or the
taking of such action);
(iv) in the event of a material breach by the other party of any
representation, warranty, covenant or other agreement contained in this
Agreement which would give rise to the failure of a condition set forth in
Section 8.2.(a) or 8.3.(a) as applicable (a "Terminating Breach") (provided
that the terminating party
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is not then in material breach of any representation, warranty, covenant or
other agreement contained in this Agreement); provided, that, if such
Terminating Breach is curable by the Company or DRHI, as the case may be,
through the exercise of its reasonable efforts and for so long as the
Company or DRHI, as the case may be, continues to exercise such reasonable
efforts, neither DRHI nor the Company, respectively, may terminate this
Agreement under this Section 7.1.(b)(iv); or
(v) if, upon a vote at a duly held meeting of stockholders or any
adjournment thereof, any required approval of the holders of the DRHI
Common Stock shall not have been obtained;
(c) by either DRHI or the Company in the event that (i) all of the
conditions to the obligation of such party to effect the Merger set forth in
Section 8.1. shall have been satisfied and (ii) any condition to the obligation
of such party to effect the Merger set forth in Section 8.2. (in the case of
DRHI) or Section 8.3. (in the case of the Company) is not capable of being
satisfied prior to the end of the period referred to in Section 7.1.(b)(ii);
(d) by the Company if the Company Board has received a Superior Proposal,
the Company Board by requisite vote determines in its good faith judgment, after
consultation with and based upon the advice of outside legal counsel, that it is
required to do so in order to comply with its fiduciary duties, withdraws its
recommendation of the transactions contemplated hereby or approves or recommends
such Superior Proposal, and the Company Board complies with all other provisions
of Section 5.2.(b) and concurrently complies with the provisions of Section
9.1.(b);
(e) by DRHI if the Company Board shall have recommended to the Company's
stockholders a Superior Proposal; or the Company Board shall have withdrawn its
recommendation of this Agreement or the Merger, provided that any disclosure
that the Company Board is compelled to make of the receipt of a proposal for a
Third Party Acquisition in order to comply with its fiduciary duties or Rule
14d-9 or 14e-2 shall not in and of itself constitute the withdrawal of the
Company Board's recommendation; provided, further, that such disclosure states
that no action will be taken by the Company Board with respect to the withdrawal
of its recommendation of the transactions contemplated hereby or the approval or
recommendation of any Third Party Acquisition except in accordance with Section
5.2.(b); or
(f) by the Company if the Stock Value is less than $12.69, unless prior to
the Closing Date DRHI elects, by notice to the Company, to have the Exchange
Ratio equal the quotient obtained by dividing $35.00 by the Stock Value (rounded
to the nearest one thousandth).
7.2. Effect of Termination. In the event of termination of this Agreement
as provided in Section 7.1., this Agreement shall forthwith become void and have
no effect, without any liability or obligation on the part of any party, its
affiliates, directors, officers or stockholders other than the provisions of
Section 9.1., unless such termination results
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from the willful and material breach by a party of any of its representations,
warranties, covenants or other agreements set forth in this Agreement, in which
event the terminating party shall retain its rights and remedies against such
other party in respect of such other party's breach.
ARTICLE 8.
CONDITIONS TO CLOSING
8.1. Mutual Conditions. The respective obligations of each party to effect
the Merger shall be subject to the satisfaction at or prior to the Effective
Time of the following conditions:
8.1.1. No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect;
and there shall not be any action taken, or any statute, rule, regulation
or order enacted, entered, enforced or applicable to the Merger which makes
the consummation of the Merger illegal;
8.1.2. Governmental Actions. There shall not have been instituted or
pending any action or proceeding by any governmental authority or
administrative agency, before any governmental authority, administrative
agency or court of competent jurisdiction, nor shall there be in effect any
judgment, decree or order of any governmental authority, administrative
agency or court of competent jurisdiction, in either case, seeking to
prohibit or limit DRHI from exercising all material rights and privileges
pertaining to its ownership of the assets of the Company (including the
Company Subsidiaries) taken as a whole or the ownership or operation by
DRHI or any DRHI Subsidiary of all or a material portion of the business or
assets of the Surviving Corporation and its subsidiaries taken as a whole,
or seeking to compel DRHI or any DRHI Subsidiary to dispose of or hold
separate all or any material portion of the business or assets of the
Surviving Corporation and its subsidiaries taken as a whole, as a result of
the Merger or the transactions contemplated by this Agreement.
8.1.3. HSR Act. The waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated.
8.1.4. Company Stockholder Approval. The holders of shares of the
Company Common Stock shall have approved the adoption of this Agreement and
any other matters submitted to them for the purpose of approving the
transactions contemplated hereby.
8.1.5. DRHI Stockholder Approval. The holders of shares of the DRHI
Common Stock shall have approved the adoption of this Agreement and any
other
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matters submitted to them for the purpose of approving the transactions
contemplated hereby.
8.1.6. Listing. The shares of the DRHI Common Stock to be issued in
connection with the Merger shall have been listed on the NYSE, upon
official notice of issuance.
8.1.7. Registration Statement. The Registration Statement shall have
been declared effective in accordance with the provisions of the Securities
Act and Blue Sky Laws, if applicable, and no stop order with respect to the
Registration Statement shall be in effect and no proceeding for that
purpose shall have been instituted by the SEC or any state regulatory
authorities.
8.1.8. Consents. All consents, authorizations, orders and approvals of
(or filings or registrations with) any governmental commission, board or
other regulatory body, the absence of which would have a Material Adverse
Effect on the Surviving Corporation, DRHI, any DRHI Subsidiary or any
Company Subsidiary, shall have been obtained or made, except for filings in
connection with the Merger and any other documents required to be filed
after the Effective Time.
8.2. Conditions to Obligations of DRHI. The obligations of DRHI to
consummate the Merger and the other transactions contemplated hereby shall be
subject to the satisfaction, at or prior to the Closing Date, of the following
additional conditions:
(a) The representations and warranties of the Company contained herein
(without regard to any materiality exceptions contained therein) shall be true
at and as of the Closing Date with the same effect as if made at and as of the
Closing Date (except to the extent such representation or warranty specifically
related to an earlier date, in which case such representation or warranty shall
be true as of such earlier date), except for such untruths or inaccuracies that
would not, individually, or in the aggregate, have a Company Material Adverse
Effect, and the Company shall have performed and complied in all material
respects with all agreements and covenants set forth in this Agreement to be
performed or complied with by it on or prior to the Closing Date.
(b) DRHI shall have been furnished with a certificate, executed by a duly
authorized officer of the Company, dated the Closing Date, certifying as to the
fulfillment of the conditions in paragraph (a).
(c) The Merger shall qualify for "pooling of interests" accounting
treatment, and DRHI shall have received an update letter, dated the Closing
Date, from Ernst & Young LLP to such effect with respect to DRHI if the Merger
is consummated in accordance with the terms and provisions of this Agreement.
(d) DRHI shall have received an opinion from Gibson, Dunn & Crutcher LLP,
tax counsel to DRHI, to the effect that the Merger will constitute a tax-free
reorganization (except with respect to cash received in lieu of fractional
shares) within the meaning of
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Section 354(a)(1) and Section 368(a) of the Code, which opinion may be based
upon reasonable representations of fact provided by officers of DRHI and the
Company.
8.3. Conditions to Obligations of the Company. The obligations of the
Company to consummate the Merger and the other transactions contemplated hereby
shall be subject to the satisfaction, at or prior to the Closing Date, of the
following conditions:
(a) The representations and warranties of DRHI contained herein
(without regard to any materiality exceptions contained therein) shall be
true at and as of the Closing Date with the same effect as if made at and
as of the Closing Date (except to the extent such representation or
warranty specifically relates to an earlier date, in which case such
representation or warranty shall be true as of such earlier date), except
for such untruths or inaccuracies that would not, individually or in the
aggregate, have a DRHI Material Adverse Effect, and DRHI shall have
performed and complied in all material respects with all agreements and
covenants set forth in this Agreement to be performed or complied with by
it on or prior to the Closing Date.
(b) The Company shall have been furnished with a certificate, executed
by duly authorized officer of DRHI, dated the Closing Date, certifying as
to the fulfillment of the conditions in paragraph (a).
(c) The Merger shall quality for "pooling of interests" accounting
treatment, and the Company shall have received an update letter, dated the
Closing Date, from Arthur Andersen LLP to such effect with respect to the
Company if the Merger is consummated in accordance with the terms and
provisions of this Agreement.
(d) The Company shall have received an opinion from Cahill Gordon &
Reindel, tax counsel to the Company, to the effect that the Merger will
constitute a tax-free reorganization (except with respect to cash received
in lieu of fractional shares) within the meaning of Section 354(a)(1) and
Section 368(a) of the Code, which opinion may be based upon reasonable
representations of fact provided by officers of DRHI and the Company.
ARTICLE 9.
GENERAL PROVISIONS
9.1. Expenses.
(a) Except as otherwise provided in this Section 9.1., all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense, whether
or not the Merger is consummated.
(b) In the event that this Agreement shall be terminated:
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(i) pursuant to Section 7.1.(d) or Section 7.1.(e);
(ii) by DRHI pursuant to Section 7.1.(b)(iv) and within twelve months
thereafter the Company enters into an agreement with respect to a Third
Party Acquisition or a Third Party Acquisition occurs involving any party
(or any affiliate thereof) (x) with whom the Company (or its agents) had
negotiations with a view to a Third Party Acquisition, (y) to whom the
Company (or its agents) furnished information with a view to a Third Party
Acquisition or (z) who had submitted a proposal or expressed an interest in
a Third Party Acquisition, in the case of each of clauses (x), (y) and (z),
prior to such termination; or
(iii) pursuant to Section 7.1.(b)(i) and at the time of the Company
stockholders' meeting at which the Company failed to obtain the requisite
vote there shall be outstanding an offer by a Third Party to consummate a
Third Party Acquisition involving the payment of consideration to
stockholders of the Company with a value in excess of the Merger
Consideration and within twelve months thereafter the Company enters into
an agreement with respect to such Third Party Acquisition or such Third
Party Acquisition occurs);
the Company shall pay to DRHI the amount of $12,000,000 immediately upon the
occurrence of the event described in this Section 9.1.(b), less (in the case of
clause (iii) above) any amount theretofore paid pursuant to Section 9.1.(c).
(c) In the event this Agreement shall be terminated by DRHI or (when a
proposal for a Third Party Acquisition is pending) the Company pursuant to
Section 7.1.(b)(i), and at the time of termination DRHI is not in breach of its
material obligations hereunder, the Company shall, promptly after the
termination of this Agreement, reimburse DRHI for all documented out-of-pocket
expenses and fees (including, without limitation, fees payable to all banks,
investment banking firms and other financial institutions, and their respective
agents and counsel, and all fees of counsel, accountants, financial printers,
experts and consultants to DRHI), whether incurred prior to, on or after the
date hereof, in connection with the Merger and the consummation of all
transactions contemplated by this Agreement; provided that in no event shall the
Company be required to pay in excess of an aggregate of $1,500,000 pursuant to
this Section 9.1.(c).
(d) In the event this Agreement shall be terminated by the Company pursuant
to Section 7.1. (b)(v), and at the time of termination the Company is not in
breach of its material obligations hereunder, DRHI shall, promptly after the
termination of this Agreement, reimburse the Company for all documented
out-of-pocket expenses and fees (including, without limitation, fees payable to
all banks, investment banking firms and other financial institutions, and their
respective agents and counsel, and all fees of counsel, accountants, financial
printers, experts and consultants to the Company), whether incurred prior to, on
or after the date hereof, in connection with the Merger and the consummation of
all transactions contemplated by this Agreement; provided that in no event shall
DRHI
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be required to pay in excess of an aggregate of $1,500,000 pursuant to this
Section 9.1.(d).
9.2. Effectiveness of Representations, Warranties, Covenants and
Agreements. Except as otherwise provided in this Section 9.2., the
representations, warranties, covenants and agreements of each party hereto shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any other party hereto, any person controlling any such
party or any of their officers or directors, whether prior to or after the
execution of this Agreement. The representations, warranties, covenants and
agreements in this Agreement shall terminate at the Effective Time, except that
(i) the agreements set forth in Article 2., Section 6.3. and Section 6.7. shall
survive the Effective Time indefinitely, and (ii) the agreements in Section
6.9., Section 6.10. and Section 6.14. shall survive in accordance with their
respective terms. The Confidentiality Letters shall survive termination of this
Agreement as provided therein.
9.3. Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
if and when delivered personally or by overnight courier to the parties at the
following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
(a) If to DRHI:
D. R. Horton, Inc.
1901 Ascension Boulevard
Suite 100
Arlington, TX 76006
Telecopier No.: (817) 856-8249
Telephone No.: (817) 856-8200
Attention: Chairman and Chief Executive Officer
(b) If to the Company:
Continental Homes Holdings Corp.
7001 N. Scottsdale Road
Suite 2050
Scottsdale, AZ 85253
Telecopier No.: (602) 483-8237
Telephone No.: (602) 483-0006
Attention: President and Chief Executive Officer
9.4. Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliate" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first
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mentioned person; including, without limitation, any partnership, limited
liability company or joint venture in which the first mentioned person (either
alone, or through or together with any other subsidiary) has, directly or
indirectly, an interest of 10% or more;
(b) "beneficial owner" with respect to any shares means a person who shall
be deemed to be the beneficial owner of such shares (i) which such person or any
of its affiliates or associates (as such term is defined in Rule 12b-2 of the
Exchange Act) beneficially owns, directly or indirectly, (ii) which such person
or any of its affiliates or associates has, directly or indirectly, (A) the
right to acquire (whether such right is exercisable immediately or subject only
to the passage of time), pursuant to any agreement, arrangement or understanding
or upon the exercise of consideration rights, exchange rights, warrants or
options, or otherwise, or (B) the right to vote pursuant to any agreement,
arrangement or understanding, or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its affiliates
or associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares;
(c) "business day" means any day other than a day on which banks in New
York are required or authorized to be closed;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "material adverse effect" means when used in connection with the
Company or any Company Subsidiary, or DRHI or any DRHI Subsidiary, as the case
may be, any change, effect or circumstance that is materially adverse to the
business, assets, financial condition, results of operations of the Company or
any Company Subsidiary, or DRHI or any DRHI Subsidiary, as the case may be.
"Material Adverse Effect" means any change, effect or circumstance that is
materially adverse to the business, assets, financial condition or results of
operations of the Company and the Company Subsidiaries, or DRHI and the DRHI
Subsidiaries, as the case may be, in each case taken as a whole, other than any
such changes, effects or circumstances: (i) set forth or contemplated by the
Company Disclosure Schedule or the DRHI Disclosure Schedule, as the case may be;
(ii) set forth or described in the Company SEC Reports or DRHI SEC Reports, as
the case may be; or (iii) affecting the home construction industry generally;
(f) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization, other entity
or group (as defined in Section 13(d)(3) of the Exchange Act);
(g) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, DRHI or any other person means any corporation, partnership, joint
venture, limited liability company, business trust or other legal entity of
which the Company, the Surviving
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Corporation, DRHI or such other person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or indirectly,
more than 50% of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
(h) "trading day" means any day on which the NYSE is open for the trading
of securities.
9.5. Amendment. This Agreement may be amended by the parties hereto by
action taken by or on behalf of their respective Boards of Directors at any time
prior to the Effective Time; provided, however, that, after approval of the
Merger by the stockholders of the Company and DRHI, no amendment may be made
which by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
9.6. Waiver. At any time prior to the Effective Time, any party hereto may
with respect to any other party hereto (a) extend the time for the performance
of any of the obligations or other acts, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, or waive compliance with any of the agreements or conditions
contained herein. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby.
9.7. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.8. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
9.9. Entire Agreement. This Agreement constitutes the entire agreement and
supersedes all prior agreements and undertakings (other than the Confidentiality
Letters), both written and oral, among the parties, or any of them, with respect
to the subject matter hereof.
9.10. Assignment. This Agreement shall not be assigned by operation of law
or otherwise, except that DRHI may assign all or any of its rights hereunder to
any affiliate
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provided that no such assignment shall relieve the assigning party of its
obligations hereunder.
9.11. Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including, without limitation, by way of subrogation, other than
Section 6.10. (which is intended to be for the benefit of the Indemnified
Parties and may be enforced by such Indemnified Parties).
9.12. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of any party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor shall any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available, except as otherwise provided herein.
9.13. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of Delaware applicable to
contracts executed and fully performed within the State of Delaware.
9.14. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
[SIGNATURES ON NEXT PAGE]
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IN WITNESS WHEREOF, DRHI and the Company have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
D. R. HORTON, INC.
By: /s/ D.R. HORTON
------------------------------
Name: D.R. HORTON
Title: PRESIDENT
CONTINENTAL HOMES HOLDING CORP.
By: /s/ W. THOMAS HICKCOX
------------------------------
Name: W. THOMAS HICKCOX
Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER
53
Exhibit 11
Continental Homes Holding Corp.
Computation of Earnings Per Share
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
------------ ------------
Fully diluted: 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 7,758 $ 7,792 $15,255 $17,028
Interest Expense on convertible
subordinated notes, net of
income taxes 875 874 1,749 1,749
------- ------- ------- -------
$ 8,633 $ 8,666 $17,004 $18,777
Weighted average number of
shares outstanding 6,862 6,978 6,858 6,991
Conversion of convertible
subordinated notes (42.105 shares
per $1,000 principal amount of notes) 3,632 3,632 3,632 3,632
Incremental shares relating to stock
options exercisable 138 46 107 53
------- ------- ------- -------
Weighted average number of shares
outstanding assuming full dilution 10,632 10,656 10,597 10,676
Fully diluted net income per share $ .81 $ .81 $ 1.60 $ 1.76
======= ======= ======= =======
</TABLE>
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0
0
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