<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 August 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-15925
CAPITAL PACIFIC HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2956559
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4100 MacArthur Blvd., Suite 200, Newport Beach, CA 92660
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 622-8400
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) 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 XX No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class and Title of Shares Outstanding as of
Capital Stock September 30, 1997
------------------ ------------------------
Common Stock, $.10 Par Value 14,995,000
<PAGE> 2
CAPITAL PACIFIC HOLDINGS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - Financial Information:
Item 1 - Financial Statements
Consolidated Balance Sheets --
August 31, 1997 and February 28, 1997 3
Consolidated Statements of Income for the Three
and Six Months Ended August 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
Six Months Ended August 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-11
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 12-17
Part II - Other Information:
Item 5 - Other Information 18-19
Item 6 - Exhibits and Reports on Form 8-K 20
</TABLE>
<TABLE>
<CAPTION>
(a) Exhibit Number Description Method of Filing
-------------- ----------- ----------------
<S> <C> <C>
27 Financial Data Schedule Filed with this document
99.1 Amended and Restated Filed with this document
Limited Liability Company
Agreement
99.2 Investment and Stockholder Filed with this document
Agreement
99.3 Registration Rights Filed with this document
Agreement
</TABLE>
(b) Reports on Form 8-K
None Filed
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
August 31, 1997 February 28, 1997
--------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 10,580 $ 11,434
Restricted cash 1,359 1,417
Accounts and notes receivable 5,056 4,801
Real estate projects 223,369 233,562
Property, plant and equipment 8,395 7,746
Prepaid expenses and other assets 10,247 12,958
--------- ---------
Total assets $ 259,006 $ 271,918
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 21,500 $ 31,216
Notes payable 67,791 73,474
Senior unsecured notes payable 100,000 100,000
--------- ---------
Total liabilities 189,291 204,690
Minority Interest 360 360
--------- ---------
Stockholders' equity:
Common stock, par value $.10 per share, 30,000,000 shares
authorized; 14,995,000 shares issued and outstanding 1,500 1,500
Additional paid-in capital 211,888 211,888
Accumulated deficit (144,033) (146,520)
--------- ---------
Total stockholders' equity 69,355 66,868
--------- ---------
Total liabilities and stockholders' equity $ 259,006 $ 271,918
========= =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months Six months
ended August 31, ended August 31,
------------------------- -------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales of homes and land $ 46,096 $ 64,251 $ 80,900 $110,543
Cost of sales 37,924 55,285 66,145 94,407
-------- -------- -------- --------
Gross margin 8,172 8,966 14,755 16,136
Selling, general and administrative expenses 6,503 7,582 12,326 14,063
-------- -------- -------- --------
Income from operations 1,669 1,384 2,429 2,073
Interest and other income, net 403 392 886 324
Minority Interest -- 248 -- 134
-------- -------- -------- --------
Income before income taxes 2,072 2,024 3,315 2,531
Provision (benefit) for income taxes 648 (42) 828 138
-------- -------- -------- --------
Net income $ 1,424 $ 2,066 $ 2,487 $ 2,393
======== ======== ======== ========
Net income per common share: $ 0.10 $ 0.14 $ 0.17 $ 0.16
======== ======== ======== ========
Weighted average number of common shares 14,995 14,995 14,995 14,995
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
CAPITAL PACIFIC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
August 31,
--------------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,487 $ 2,393
Adjustments to reconcile net income to net cash used in
operating activities:
Change in restricted cash 58 111
Depreciation and amortization 885 594
(Increase) decrease in real estate projects 11,528 (4,685)
(Increase) decrease in receivables, prepaid expenses
and other assets 2,079 (2,107)
Decrease in accounts payable and accrued liabilities (11,502) (12,432)
-------- --------
Net cash provided by (used in) operating activities 5,985 (16,126)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (1,156) (883)
Decrease (increase) in investment in joint ventures -- 1,561
-------- --------
Net cash provided by (used in) investing activities (1,156) 678
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in minority interest in joint ventures 0 (347)
Borrowings from (payments to) notes payable, net (5,683) 17,249
-------- --------
Net cash provided by (used in) financing activities (5,683) 16,902
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(854) 1,454
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
11,434 13,850
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,580 $ 15,304
======== ========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
CAPITAL PACIFIC HOLDINGS, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The unaudited financial statements presented herein have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements, and notes thereto, included in the Form 10-K/A for the fiscal year
ended February 28, 1997 of Capital Pacific Holdings, Inc. (the "Company"). In
the opinion of management, the financial statements presented herein include all
adjustments (which are solely of a normal recurring nature) necessary to present
fairly the Company's financial position and results of operations. The results
of operations for the three and six month periods ended August 31, 1997, are not
necessarily indicative of the results that may be expected for the year ending
February 28, 1998.
2. Reclassifications
Certain items in prior period financial statements have been
reclassified in order to conform with current year presentation.
3. Notes payable
Notes payable at August 31, 1997 and February 28, 1997, are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
August 31, February 28,
1997 1997
---------- -----------
<S> <C> <C>
Promissory notes collateralized by
deeds of trust, including
interest varying from 9.5 percent to
prime plus one percent $ 1,770 $ 3,680
Notes payable to banks, including interest
varying from prime plus one percent
to prime plus two percent, maturing
between October 30, 1997 and March 31,
1999 secured by certain real estate
projects on a non-recourse basis 42,534 35,656
</TABLE>
6
<PAGE> 7
3. Notes payable (continued)
<TABLE>
<CAPTION>
August 31, 1997 February 28, 1997
---------------- -----------------
<S> <C> <C>
Notes payable to banks, including interest
at prime plus one percent with terms
of the commitment reducing commencing
September 30, 1997, secured by certain
real estate inventories on a recourse basis $ 22,252 $ 32,233
Contingent promissory note payable to previous
owner of Clark Wilson secured by
Stock Pledge Agreement on a non-recourse
basis, under which the amounts due,
including interest at 8 percent, are fully
dependent on the performance of the entity
acquired 1,235 1,905
---------- ----------
$ 67,791 $ 73,474
========== ==========
</TABLE>
7
<PAGE> 8
4. Supplemental Guarantor Information
In connection with the offering in fiscal 1995 of the Senior Unsecured
Notes (the "Offering"), the Company and certain of its wholly-owned subsidiaries
(Guarantors) jointly, severally, fully and unconditionally guaranteed such
notes. Supplemental condensed combined financial information of the Company,
Guarantors and non-guarantors is presented as follows. As discussed in Note 3 in
Notes To Supplemental Guarantor Information, these financial statements are
prepared using the equity method of accounting for the Company's and the
Guarantors' investments in subsidiaries and partnerships. This supplemental
financial information should be read in conjunction with the Consolidated
Financial Statements.
As Of And For The Six Months Ended August 31, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Capital Pacific Non- Total
Holdings, Inc. Guarantors(1) Guarantors(2) Eliminations(4) Consolidated
--------------- ------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET:
ASSETS
Cash $ 10,849 $ 260 $ 830 $ 0 $ 11,939
Real estate projects 137,404 44,361 45,502 (3,898) 223,369
Investment in partnerships
and subsidiaries(3) 34,850 1,048 0 (34,680) 1,218
Intercompany advances 23,969 (13,716) (10,990) 0 (737)
Other 12,919 4,105 6,193 0 23,217
-------- -------- -------- -------- --------
Total assets $219,990 $ 36,059 $ 41,534 $(38,578) $259,006
======== ======== ======== ======== ========
LIABILITIES AND EQUITY
Accounts payable and
accrued liabilities $ 14,211 $ 3,477 $ 3,812 $ 0 $ 21,500
Intercompany advances 0 0 0 0 0
Notes payable 137,493 14,842 15,455 0 167,791
Minority interest 0 0 0 360 360
Stockholders' equity 68,286 17,739 22,267 (38,939) 69,355
-------- -------- -------- -------- --------
Total liabilities and equity $219,990 $ 36,059 $ 41,534 $(38,578) $259,006
======== ======== ======== ======== ========
</TABLE>
8
<PAGE> 9
4. Supplemental Guarantor Information (continued)
As Of And For The Six Months Ended August 31, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Capital Pacific Non- Total
Holdings, Inc. Guarantors(1) Guarantors(2) Eliminations(4) Consolidated
-------------- ------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues:
Sales of homes and land $38,106 $12,561 $30,233 $ 0 $80,900
Interest and other income, net 250 13 638 0 901
Equity in income of partnerships
and subsidiaries(3) (15) 0 0 0 (15)
------- ------- ------- ------- -------
Total Revenues 38,341 12,574 30,871 0 81,786
------- ------- ------- ------- -------
Cost of homes and land 29,939 11,378 24,828 0 66,145
Selling, general and administrative 4,668 2,369 5,289 0 12,326
Interest 0 0 0 0 0
Minority interest 0 0 0 0 0
------- ------- ------- ------- -------
Income before provision for income
taxes 3,736 (1,173) 754 0 3,315
Provision (benefit) for income taxes 824 (0) 4 0 828
------- ------- ------- ------- -------
NET INCOME (LOSS) $ 2,910 $(1,173) $ 751 $ 0 $ 2,487
======= ======= ======= ======= =======
STATEMENT OF CASH FLOWS:
Net cash from (used in)
operating activities $31,585 $(8,724) $(9,876) $(7,000) $ 5,985
Net cash from (used in)
investment activities (8,112) (24) (20) 7,000 (1,156)
Net cash from (used in)
financing activities (21,702) 7,834 8,185 (5,683)
------- ------- ------- ------- -------
Net increase (decrease) in cash 1,771 (914) (1,711) (854)
Cash--beginning of period 7,759 1,155 2,520 -- 11,434
------- ------- ------- ------- -------
Cash--end of period $ 9,530 $ 241 $ 809 $ 0 $10,580
======= ======= ======= ======= =======
</TABLE>
9
<PAGE> 10
NOTES TO SUPPLEMENTAL GUARANTOR INFORMATION
(1) Guarantors are Durable Homes, Inc., J.M. Peters Nevada, Inc., and Peters
Ranchland Company, Inc., all wholly-owned subsidiaries of Capital Pacific
Holdings, Inc.
(2) The non-guarantors are:
(a) The limited partnerships in which Peters Ranchland Company, Inc., is
general partner:
- Ranchland Alicante Development, L.P.
- Ranchland Montilla Development, L.P.
- Ranchland Fairway Estates Development, L.P.
- Ranchland Portola Development, L.P.
- Grand Coto Estates, L.P.
- M.P.E. Partners, L.P.
(b) The limited partnerships in which Capital Pacific Holdings, Inc. is a
general partner:
- J.M.P. Harbor View, L.P.
- J.M.P. Canyon Estates, L.P.
(c) The limited partnership in which J.M. Peters Nevada, Inc. and Durable
Homes, Inc. are general partners:
- Taos Estates, L.P
(d) The limited liability company in which Capital Pacific Holdings, Inc. is
a member:
- R.P.V. Associates L.L.C.
(e) The wholly-owned subsidiaries of Capital Pacific Holdings, Inc.:
- Newport Design Center, Inc.
- Capital Pacific Communities, Inc.
- Capital Pacific Homes, Inc.
- J.M. Peters Arizona, Inc.
- J.M. Peters Homes of Arizona, Inc.
- Capital Pacific Mortgage, Inc.
- Clark Wilson Homes, Inc.
- Fairway Financial Corporation
- Parkland Estates, Inc.
- J.M. Peters California, Inc.
10
<PAGE> 11
NOTES TO SUPPLEMENTAL GUARANTOR INFORMATION (continued)
(2) The non-guarantors are (continued):
(f) The fifty percent owned entity of Capital Pacific Holdings, Inc.:
- Bay Hill Escrow, Inc.
(3) Investments in partnerships and subsidiaries are accounted for by the
Company and the Guarantors on the equity method for purposes of the
supplemental combining presentation.
(4) The elimination entries eliminate investments in subsidiaries,
partnerships and intercompany balances.
11
<PAGE> 12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
OVERVIEW
The Company experienced a successful second quarter of operations. Pre-tax net
income for the quarter of $2.1 million represented a slight increase from the
corresponding period last year. Sales of homes and land decreased by 28.3% and
closings decreased by 40.4% compared to the corresponding quarter of the
previous year. This decrease is partially the result of unusually high activity
in the second quarter of fiscal 1997. The decrease in closings and the resultant
decrease in sales was also due to constraints in the existing bank lines, which
limited borrowing capacity, thus construction starts and therefore sales
releases in the past three quarters. The Company's gross profit margin on home
and lot closings increased to 17.7% during the second quarter of fiscal 1998 as
compared to 14.0% during the second quarter of fiscal 1997. The Company's
average sales price per unit has increased to $215 thousand for the first six
months of fiscal 1998 from $191 thousand for the first six months of fiscal 1997
and the inventory of completed homes has decreased from 90 homes at February 28,
1997 to 54 homes at August 31, 1997.
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
Certain statements in the financial discussion and analysis by management
contain "forward-looking" information (as defined in the Private Securities
Litigation Reform Act of 1995) that involves risk and uncertainty, including
projections and assumptions regarding the business environment in which the
Company operates. Actual future results and trends may differ materially
depending on a variety of factors, including the Company's successful execution
of internal performance strategies; changes in general national and regional
economic conditions, such as levels of employment, consumer confidence and
income, availability to homebuilders of financing for acquisitions, development
and construction, availability of financing to homebuyers for permanent
mortgages, interest rate levels and the demand for housing; supply levels of
labor and materials; difficulties in obtaining permits or approvals from
governmental authorities; difficulties in marketing homes; regulatory changes
and weather (including the predicted impact of El Nino) and other environmental
uncertainties; competitive influences; and the outcome of pending and future
legal claims and proceedings.
RESULTS OF OPERATIONS
SECOND QUARTER OF FISCAL 1998 COMPARED WITH THE SECOND QUARTER OF FISCAL 1997:
Net income decreased by $642 thousand to $1.4 million for the second quarter of
fiscal 1998 compared to net income of $2.1 million for the second quarter of
fiscal 1997. As pre-tax net income was virtually unchanged, the decrease in net
income was due almost entirely to the fact that the Company recorded a larger
tax provision in fiscal 1998 due to the anticipated utilization of the
remaining available net operating loss carryforwards in the current year.
12
<PAGE> 13
Sales of homes and land for the second quarter of fiscal 1998 decreased 28.3%
from the corresponding period of fiscal 1997 to $46.1 million from $64.3
million. Home closings for the second quarter of fiscal 1998 decreased 40.4% to
198 from 332 homes during the second quarter of fiscal 1997. The decrease in
closings and the resultant decrease in sales was partially due to an unusually
strong second quarter in fiscal 1997, as well as the Company's focus over the
past several fiscal quarters on increasing average sales prices and decreasing
focus on higher volume but lower profit sales of lower priced homes [and to
constraints in the existing bank lines, which limited borrowing capacity, thus
construction starts and sales releases in the past three quarters]. The
Company's average sales price per unit increased to $214 thousand for the second
quarter of fiscal 1998 from $195 thousand for the second quarter of fiscal 1997,
a 9.7% increase. Unconsolidated joint venture operations posted no sales during
the second quarter of fiscal 1998 compared to 13 homes during the second quarter
of fiscal 1997.
The Company's cost of sales for the three months ended August 31, 1997 decreased
to $37.9 million from $55.3 million for the three months ended August 31, 1996.
This resulted primarily from the decrease in closings. The Company's gross
margin improved to 17.7% for the three months ended August 31, 1997, from 14.0%
in the second quarter of the prior year, reflecting the Company's continued
focus on higher margin products.
The selling, general and administrative expense of $6.5 million for the second
quarter of fiscal 1998 decreased significantly as compared to the first quarter
of fiscal 1997. As a percentage of sales, selling, general and administrative
expenses increased to 14.1% in the second quarter of fiscal 1998 compared to
11.8% for the corresponding quarter of fiscal 1997. These changes are due
to the Company's cost containment efforts, offset by the effect of
lower revenues during the second quarter of fiscal 1998 as compared to the prior
year.
Minority interest expense was zero for the second quarter of fiscal 1998
compared to income of $248 thousand for the second quarter of fiscal 1997. The
change is due to the completion of previous consolidated joint venture projects.
The Company recorded a provision for income taxes of $648 thousand for the three
months ended August 31, 1997 as compared to a benefit of $42 thousand for the
three months ended August 31, 1996 due to the effect of the utilization of net
operating loss carryforwards in the previous year.
Interest incurred was $5.4 million for the second quarter of fiscal 1998
compared to $5.4 million for the second quarter of fiscal 1997. Interest
included in cost of sales was $3.5 million for the second quarter of fiscal 1998
compared to $6.3 million for the second quarter of fiscal 1997.
The Company's net new orders decreased by 5.4% to 227 in the second quarter of
fiscal 1998 compared to 240 for the corresponding quarter of fiscal 1997. The
total value of the Company's backlog increased by 42.7% to $133.7 million at
August 31, 1997 from $93.7 million at August 31, 1996. The number of homes in
backlog increased to 478 homes at August 31, 1997 from 472 homes at August 31,
1996. Although the unit count in the Company's net new orders decreased
slightly, the actual backlog value in terms of dollars increased significantly
due to higher average sales prices.
13
<PAGE> 14
The Company's unit/lot closings and revenues for the second fiscal quarter of
1998 are segregated by region as follows:
Unit/lot Closings Revenues
----------------- -------------
California 60 $19.5 million
Texas 110 13.7 million
Nevada 40 6.8 million
Arizona 23 3.0 million
--- -----
233 $43.0 million
=== =====
FIRST SIX MONTHS OF FISCAL 1998 COMPARED WITH THE FIRST SIX MONTHS OF FISCAL
1997:
Net income increased by $94 thousand to $2.5 million for the six months ended
August 31, 1997, as compared to $2.4 million for the six months ended August 31,
1996.
Sales of homes and land for the first six months of fiscal 1998 decreased by
$29.6 million or 26.8% to $80.9 million from $110.5 million for the first six
months of fiscal 1997. Home closings for the first six months of fiscal 1998
decreased by 39.6% to 353 from 584 homes during the first six months of fiscal
1997. These amounts include revenues and closings of 1 home in the
unconsolidated joint ventures for the first six months of fiscal 1998 compared
to 21 homes closed for the first six months of fiscal 1997. As an offset to the
decreased closing activity, the Company's average sales price per unit has
increased to $215 thousand for the first six months of fiscal 1998 from $191
thousand for the first six months of 1997, a 12.6% increase.
The Company's decreased closings resulted in lower cost of sales for the first
six months of fiscal 1998 of $66.1 million from $94.4 million for the first six
months of fiscal 1997. The Company's gross profit margin increased to 18.2% for
the first six months of fiscal 1998, from 14.6% for the first six months of
fiscal 1997, reflecting the Company's continued focus on higher margin projects.
Selling, general and administrative expense decreased $1.7 million or 12.4% for
the first six months of fiscal 1998, as compared to the first six months of
fiscal 1997. As a percentage of revenue, selling, general and administrative
expense increased to 15.2% for the first six months of fiscal 1998, from 12.7%
for the first six months of fiscal 1997. These changes are due mainly to the
Company's cost containment efforts, offset by the effect of lower revenues
during the first six months of fiscal 1998.
Minority interest income was zero for the first six months of fiscal 1998
compared to income of $134 thousand for the first six months of fiscal 1997. The
change is the result of the Company's completion of previous consolidated joint
venture projects.
14
<PAGE> 15
Interest incurred was $10 million for the first six months of fiscal 1998
compared to $10.7 million for the first six months of fiscal 1997. Interest
included in cost of sales was $6.2 million for the first six months of fiscal
1998 compared to $9.5 million for the first six months of fiscal 1997.
The Company has recorded an income tax provision of $828 thousand for the first
six months of fiscal 1998 on pre-tax income of $3.3 million. The provision
reflects the anticipated effective tax rate giving consideration to the net
benefit from the usage of remaining federal net operating loss carryforwards.
The Company's net new orders decreased by 24.5% to 465 for the first six months
of fiscal 1998 as compared to 616 for the corresponding period of fiscal 1997.
The Company's unit/lot closings and revenues for the first six months of fiscal
1998 are segregated by region as follows:
Unit/lot Closings Revenues
----------------- -------------
California 108 $37.9 million
Texas 183 22.1 million
Nevada 79 12.6 million
Arizona 41 4.8 million
--- -----
411 $77.4 million
=== =====
The unit/lot revenue figures for California include 1 home and $298 thousand in
revenues on projects in unconsolidated joint ventures for the first six months
of fiscal 1998.
After the end of the second quarter of fiscal 1998, in connection with the
restructuring and recapitalization of the Company discussed in Item 5 below, the
Company completed a process of reevaluating and revising its business plan.
Certain changes in the existing business plan, such as the acceleration of the
close out of certain projects, will result in lower profitability than
previously expected on those projects. This lowered expected profitability led
the Company to incur, in the third quarter of fiscal 1998, a non-cash charge of
approximately $8 million through a write-down of some of the projects in
accordance with SFAS No. 121.
15
<PAGE> 16
LIQUIDITY AND FINANCIAL CONDITION
As of August 31, 1997, the Company has in place three separate facilities
totaling $90 million (the "Facilities") with its principal bank lender (the
"Bank").
A commitment fee is payable annually on the Facilities. Availability of funds
under the Facilities is subject to, among other things, the Indenture governing
the Company's bond obligations, specific loan-to-value factors, appraisal
reports and satisfactory underwriting by the bank on a project basis. At August
31, 1997, the Company had aggregate borrowings outstanding of $36.3 million
under the Facilities.
The Facilities are secured by liens on various completed or under construction
homes and lots held by the Company. Pursuant to the Facilities, the Company is
subject to certain covenants, which require, among other things, the maintenance
of a consolidated liabilities to net worth ratio, minimum liquidity, minimum net
worth and loss limitations, all as defined in the documents that evidence the
Facilities. At August 31, 1997, the Company was in compliance with these
covenants. The Facilities also define certain events that constitute events of
default. As of August 31, 1997, no such event had occurred.
Clark Wilson, Durable and the Company's Arizona division (the latter two, now
doing business as Capital Pacific Homes) also have secured non-recourse lines of
credit to facilitate construction activity. Clark Wilson has several
non-recourse lines of credit for a total of $37.5 million with maturity dates
from October 30, 1997 to July 19, 1998. During the first quarter of fiscal year
1998, Durable secured a $30.0 million non-recourse line of credit to replace its
existing $15.0 million non-recourse line and the Company's Arizona operations
secured a $10.0 million non-recourse line of credit.
Construction activity is being financed out of Company cash, bank financing and
the existing joint ventures, including joint ventures with institutional
investors. The Company anticipates that it will continue to utilize both bank
financing and joint ventures to cover liquidity needs in excess of Company cash.
The Company expects that cash flow generated from operations and from additional
financing permitted by the terms of the Indenture will be sufficient to cover
the debt service and to fund the Company's current development and construction
activities for the reasonably foreseeable future.
Information with respect to a transaction effecting the liquidity of the
Company, which was entered into after the end of the 2nd Quarter of fiscal 1998,
is discussed in Item 5 below.
16
<PAGE> 17
BALANCE SHEET ITEMS
Cash and cash equivalents decreased to $10.6 million at August 31, 1997 from
$11.4 million at February 28, 1997 primarily due to a reduction in total
liabilities. The Company anticipates that the level of cash and financing
available is sufficient to meet its needs in the near term.
Real estate projects slightly decreased from $233.6 million at February 28, 1997
to $223.4 million at August 31, 1997. The slight decrease is due to a lesser
number of residential homes under construction, and an increase in the number of
homes in joint ventures.
Notes payable have decreased from $73.5 million at February 28, 1997 to $67.8
million at August 31, 1997, due primarily to a reduction in number of
residential homes under construction.
Accounts payable and accrued liabilities have decreased from $31.2 million at
February 28, 1997 to $21.5 million at August 31, 1997, due to a reduction in
number of homes under construction.
17
<PAGE> 18
PART II - OTHER INFORMATION
Item 5 - Other Information
Effective as of October 1, 1997, the Company consummated an equity and
restructuring transaction whereby the Company and certain of its subsidiaries
transferred to a newly formed limited liability company known as Capital Pacific
Holdings, LLC (the "New LLC") substantially all of their respective assets and
the New LLC assumed all the liabilities of the Company and its subsidiaries.
Simultaneously, a newly formed investment company, California Housing Finance,
L.P. ("CHF"), contributed to the capital of the New LLC the sum of $30,000,000
in cash. Effective as of October 1, 1997, the Company, together with its
subsidiaries, has a 67.93% interest in the New LLC and CHF has a 32.07%
interest. All future business of the Company will be conducted either within the
New LLC or through newly formed project specific entities. The Company will be
the sole managing member of the New LLC. CHF will have the right to approve
certain matters as described below. This equity and restructuring transaction
was consummated pursuant to a series of agreements as described below.
On or about September 29, 1997, CHF agreed to purchase from CPH2, L.L.C.
("CPH2") and CPH3, L.L.C. ("CPH3") (CPH3 and CPH2, collectively the "Selling
Stockholders"), entities controlled by Hadi Makarechian, the controlling
Shareholder and Chairman of the Company, a total of 2,484,340 shares (525,000
from CPH2 and 1,959,340 from CPH3) (the "Shares") of Common Stock of the Company
for an aggregate purchase price of $10,000,000. The sale of such Shares was
consummated effective as of October 1, 1997.
Also on or about September 29, 1997, the Company and certain subsidiaries
thereof, CHF, the New LLC and the Selling Stockholders agreed, pursuant to an
Investment and Stockholder Agreement (the "Investment Agreement"), that (1) the
Company and certain subsidiaries would transfer to the New LLC substantially all
of their respective assets and the New LLC would assume all the liabilities of
the Company and its subsidiaries, (2) CHF would contribute to the capital of the
New LLC the sum of $30,000,000 and (3) the Company and CHF would enter into an
Amended and Restated Limited Liability Company Agreement (the "LLC Agreement")
to govern the New LLC. The Investment Agreement requires that after the
consummation of the transactions contemplated therein, certain voting and
transfer restrictions remain on the Shares of the Company held by CHF as well as
on the remainder of the shares held by the Selling Stockholders. In addition,
the Investment Agreement includes certain ongoing voting agreement and
preemptive rights pursuant to which CHF has the right to approve various
matters, including the issuance of Common Stock except on terms which have been
offered to and not accepted by CHF, affiliate transactions and transactions
outside the ordinary course of the business of the Company and the New LLC.
The Investment Agreement requires the Company to consider in good faith any
reasonable proposal by CHF to restructure its ownership of the Shares into an
investment in a pass-through entity for tax purposes provided such
restructuring would not have an adverse effect on the Company or on the
shareholders of the Company. The Investment Agreement is filed herewith as
Exhibit 99.2.
The Investment Agreement contains certain restrictions on CHF's investment in
or other conduct of tract or production homebuilding activity within the
geographic areas of the Company's and its affiliates' homebuilding projects and
contains restrictions on CHF employment of the Company's or its affiliates'
employees. CHF and the Company have reciprocal rights to participate in the
sale by the other of any of its membership interests in the New LLC or in future
project specific entities.
Under the Investment Agreement, the Company agrees to provide CHF with the
first opportunity to provide new financing necessary for new projects, and CHF
has reasonable approval rights for the use for new projects by the Company of
capital and new recourse borrowings of the Company and its affiliates in excess
of $1 million.
Under the LLC Agreement, the business of the New LLC, which initially includes
all of the business of the Company and certain subsidiaries thereof existing
immediately prior to the consummation of the equity and restructuring
transactions, will be conducted pursuant to an annual business plan with respect
to which CHF will have reasonable approval rights. In addition, CHF will have
minority approval rights over certain types of transactions involving the New
LLC, including affiliate transactions. The Company and the subsidiaries will
18
<PAGE> 19
perform management functions for the New LLC pursuant to management agreements
which will include provisions for the reimbursement of all of the Company's and
such subsidiaries' costs, a small profit margin and indemnification of the
Company and such subsidiaries by the New LLC. Subject to applicable restrictions
under the bond Indenture and the loan agreements assumed by the New LLC,
available cash in excess of reserves shall be periodically distributed by the
New LLC to the Company and CHF. The LLC Agreement is filed herewith as Exhibit
99.1.
Simultaneous with the consummation of the equity and restructuring transactions
contemplated by the Investment Agreement, the Company and CHF entered into a
Registration Rights Agreement effective as of October 1, 1997, pursuant to which
CHF may, at any time after the date one year from the date of such agreement,
request that the Company register under the Securities Act of 1933, as amended,
any Common Stock of the Company then owned by CHF and the Company will upon such
request be obligated to use its best efforts to effect such a registration. The
Company's obligations and CHF's rights with respect to such demand registration
are subject to certain limitations. In addition, if at any time, the Company
proposes to register Common Stock for sale, it will be obligated to so notify
CHF which shall have the right to include in such offering shares of Common
Stock owned by it. CHF's rights and the Company's obligations with respect to
such incidental registrations are subject to certain limitations. Any such
demand or incidental registration made by the Company with respect to the shares
held by CHF will be made at the sole cost and expense of CHF. The Registration
Rights Agreement is filed herewith as Exhibit 99.3.
On September 22, 1997, the Company terminated the previously announced
agreement with Morgan Stanley and Company Inc. pursuant to which Morgan Stanley
was to assist the Company in seeking certain potential transactions.
19
<PAGE> 20
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit number Description Method of Filing
-------------- ----------- ----------------
<S> <C> <C>
27 Financial Data Schedule Filed with this document
99.1 Amended and Restated Filed with this document
Limited Liability Company
Agreement
99.2 Investment and Stockholder Filed with this document
Agreement
99.3 Registration Rights Filed with this document
Agreement
</TABLE>
(b) Reports on Form 8-K
None filed
20
<PAGE> 21
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.
CAPITAL PACIFIC HOLDINGS, INC.
Date: October 15, 1997 By: /s/ DALE DOWERS
---------------------------
Dale Dowers, President and
Chief Executive Officer
Date: October 15, 1997 By: /s/ MARQUIS L. CUMMINGS
---------------------------
Marquis L. Cummings,
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 10,580
<SECURITIES> 0
<RECEIVABLES> 5,056
<ALLOWANCES> 0
<INVENTORY> 223,369
<CURRENT-ASSETS> 16,995
<PP&E> 12,752
<DEPRECIATION> 4,357
<TOTAL-ASSETS> 259,006
<CURRENT-LIABILITIES> 21,500
<BONDS> 100,000
0
0
<COMMON> 1,500
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 259,006
<SALES> 80,900
<TOTAL-REVENUES> 80,900
<CGS> 66,145
<TOTAL-COSTS> 78,471
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,315
<INCOME-TAX> 828
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,487
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
<PAGE> 1
EXHIBIT 99.1
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
CAPITAL PACIFIC HOLDINGS, LLC
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - FORMATION OF COMPANY................................................................................ 1
1.1 Formation..................................................................................... 1
1.2 Name.......................................................................................... 1
1.3 Office........................................................................................ 1
1.4 Certificate................................................................................... 1
1.5 Registered Agent and Office................................................................... 2
1.6 Qualification in Other Jurisdictions.......................................................... 2
ARTICLE II - PURPOSE OF COMPANY................................................................................. 2
2.1 Purpose....................................................................................... 2
2.2 Powers........................................................................................ 2
ARTICLE III - MANAGEMENT/MEMBERS................................................................................ 4
3.1 Company Management............................................................................ 4
3.2 Business Plan................................................................................. 5
3.3 Major Decisions............................................................................... 6
3.4 Authorized Representatives.................................................................... 7
3.5 Bank Accounts................................................................................. 8
3.6 Reports and Tax Returns....................................................................... 9
3.7 Limitations and Authority..................................................................... 9
ARTICLE IV - BUY-SELL PROCEDURE; PUT/CALL....................................................................... 10
4.1 Election to Proceed........................................................................... 10
ARTICLE V - CAPITALIZATION OF THE COMPANY....................................................................... 10
5.1 Capital Contributions......................................................................... 10
5.2 Member Loans.................................................................................. 11
5.3 Capital Accounts.............................................................................. 11
5.4 Withdrawals................................................................................... 11
5.5 No Other Compensation/Expenses................................................................ 11
ARTICLE VI - PROFITS, LOSSES AND DISTRIBUTIONS.................................................................. 12
6.1 Allocation of Profits and Losses.............................................................. 12
6.2 Special Allocations........................................................................... 12
6.3 Other Allocation Rules........................................................................ 14
6.4 Tax Allocations; Section 704(c) of the Code................................................... 14
6.5 Available Cash/Distributions.................................................................. 15
6.6 Allocation and Tax Elections with Respect to
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Transferred Company Interests................................................................. 15
6.7 Certain Distribution Rules.................................................................... 15
6.8 Distributions in Kind......................................................................... 16
6.9 Limitation on Distributions................................................................... 16
ARTICLE VII - ACCOUNTING CONSIDERATIONS......................................................................... 16
7.1 Determination of Profits and Losses........................................................... 16
7.2 Fiscal Year................................................................................... 16
7.3 Books of Account; Company Accountant.......................................................... 16
7.4 Tax Controversies............................................................................. 17
7.5 Right to Make Section 754 Election............................................................ 17
7.6 Taxation as Partnership....................................................................... 17
ARTICLE VIII - TRANSFER OF COMPANY INTEREST;
ADMISSION OF NEW MEMBERS...................................................................... 18
8.1 Assignment of Interest........................................................................ 18
8.2 Effective Date of Transfer.................................................................... 19
8.3 Substitute Member(s).......................................................................... 19
8.4 Nonsubstituted Assignees...................................................................... 19
ARTICLE IX - DURATION, WITHDRAWAL AND VOLUNTARY DISSOLUTION..................................................... 19
9.1 Term of Company............................................................................... 19
9.2 No Withdrawal................................................................................. 20
9.3 Events of Dissolution......................................................................... 20
9.4 Continuity of Company Business................................................................ 20
9.5 Distribution Upon Dissolution................................................................. 20
9.6 Rights of Members Against Each Other.......................................................... 21
ARTICLE X - MATERIAL FAILURE.................................................................................... 21
10.1 Definition of Material Failure................................................................ 21
10.2 Remedies Upon Material Failure................................................................ 22
ARTICLE XI - AMENDMENTS......................................................................................... 22
11.1 Amendments.................................................................................... 22
ARTICLE XII - LIABILITY, EXCULPATION AND INDEMNIFICATION........................................................ 23
12.1 Liability..................................................................................... 23
12.2 Exculpation................................................................................... 23
12.3 Duties and Liabilities of Covered Persons..................................................... 24
12.4 Indemnification............................................................................... 24
12.5 Expenses...................................................................................... 24
12.6 Insurance..................................................................................... 25
ARTICLE XIII - MISCELLANEOUS.................................................................................... 25
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
13.1 Mailing of Notices............................................................................ 25
13.2 Outside Activities............................................................................ 25
13.3 Partition..................................................................................... 25
13.4 Entire Agreement.............................................................................. 25
13.5 Amendment and Waivers......................................................................... 26
13.6 Governing Law................................................................................. 26
13.7 Severability.................................................................................. 26
13.8 Successors and Assigns........................................................................ 26
13.9 Interpretation................................................................................ 26
13.10 Counterparts.................................................................................. 26
13.11 No Third Party Beneficiary.................................................................... 26
13.12 Failure to Pursue Remedies.................................................................... 26
13.13 Cumulative Remedies........................................................................... 27
13.14 Litigation Without Termination................................................................ 27
13.15 Attorneys' Fees............................................................................... 27
13.16 Consents...................................................................................... 27
</TABLE>
LIST OF EXHIBITS
EXHIBIT A INITIAL BUSINESS PLAN
EXHIBIT B FORMS OF DEEDS
EXHIBIT C FORMS OF GENERAL ASSIGNMENTS
EXHIBIT D PERCENTAGE INTERESTS
iii
<PAGE> 5
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
CAPITAL PACIFIC HOLDINGS, LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT of CAPITAL PACIFIC HOLDINGS,
LLC (the "AGREEMENT") is made as of October ___, 1997 by and among CAPITAL
PACIFIC HOLDINGS, INC., a Delaware corporation ("CPH"), CALIFORNIA HOUSING
FINANCE, L.P., a Delaware limited partnership ("CHF"), and the other parties
listed under "NON-MANAGING MEMBERS" on the signature page(s) of this Agreement
(collectively, the "OTHER MEMBERS"). CPH, CHF and the Other Members sometimes
are referred to in this Agreement as the "PARTIES" or individually as "MEMBER"
and collectively as "MEMBERS."
ARTICLE I
FORMATION OF COMPANY
1.1 Formation. CPH and the Other Members have formed a limited
liability company (hereinafter the "COMPANY") pursuant to the Delaware Limited
Liability Company Act, 6 Del. Co. ss. 18-101, et seq., (as amended from time to
time, the "ACT"). The Members desire to enter into this Agreement for the
purposes of amending and restating in its entirety the existing agreement
governing the Company.
1.2 Name. The name under which the Company shall do business is Capital
Pacific Holdings, LLC.
1.3 Office. The principal office and place of business of the Company
shall be c/o Capital Pacific Holdings, Inc., 4100 MacArthur Boulevard, Suite
200, Newport Beach, California 92660, or at such other location or locations as
the Members may determine from time to time.
1.4 Certificate. CPH has caused to be filed, on behalf of the Company,
with the Office of the Secretary of State of the State of Delaware pursuant to
the Act, the Certificate of Formation of the Company (the "CERTIFICATE"). CPH
further shall cause to be filed any and all amendments to the Certificate, and
restatements of the Certificate, as may be required from time to time under the
Act.
<PAGE> 6
1.5 Registered Agent and Office. The Company's registered agent and
office in Delaware shall be Corporation Service Company, 1013 Centre Road,
Wilmington, Delaware 19805. At any time, CPH may designate another registered
agent and/or registered office.
1.6 Qualification in Other Jurisdictions. CPH shall cause the Company
to be qualified, formed or registered under assumed or fictitious name statutes
or similar laws in any jurisdiction in which the Company transacts business in
which such qualification, formation or registration is required or desirable
from time to time. CPH, as an authorized person within the meaning of the Act,
shall execute, deliver and file any certificates (and any amendments and/or
restatements thereof) necessary for the Company to qualify to do business in a
jurisdiction in which the Company may wish to conduct business.
ARTICLE II
PURPOSE OF COMPANY
2.1 Purpose. Unless otherwise agreed in writing by CPH, CHF and a
majority-in-interest of the Non-Managing Members (which approval may be withheld
in the sole discretion of each Member, respectively), the business purpose of
the Company shall be to engage in homebuilding and related activities.
2.2 Powers.
(a) In furtherance of such business purposes, the Company shall
have power to have and to exercise all the powers conferred by the State of
Delaware upon limited liability companies formed under the Act. The Company
shall have the power and authority to take any and all such actions necessary,
appropriate, proper, advisable, convenient or incidental to or for the
furtherance of the purpose set forth in Section 2.1, including, but not limited
to, the power:
(i) to conduct its business, carry on its operations and have
and exercise the powers granted to a limited liability company by the Act in any
state, territory, district or possession of the United States, or in any foreign
country that may be necessary, convenient or incidental to the accomplishment of
the purpose of the Company;
(ii) to acquire by purchase, lease, contribution of property or
otherwise, own, hold, operate, maintain, finance, improve, lease, sell, convey,
mortgage, transfer, demolish or dispose of any real or personal property that
may be necessary, convenient or incidental to the accomplishment of the purpose
of the Company;
(iii) to enter into, perform and carry out contracts of any
kind, including, without limitation, contracts with any Member or any Affiliate
(as defined in Section 3.3(f))
2
<PAGE> 7
thereof, or any agent of the Company necessary to, in connection with,
convenient to, or incidental to the accomplishment of the purpose of the
Company;
(iv) to purchase, take, receive, subscribe for or otherwise
acquire, own, hold, vote, use, employ, sell, mortgage, lend, pledge, or
otherwise dispose of, and otherwise use and deal in and with, shares or other
interests in or obligations of domestic or foreign corporations, associations,
general or limited partnerships (including, without limitation, the power to be
admitted as a partner thereof and to exercise the rights and perform the duties
created thereby), trusts, limited liability companies (including, without
limitation, the power to be admitted as a member or appointed as a manager
thereof and to exercise the rights and perform the duties created thereby), or
individuals or direct or indirect obligations of the United States or of any
government, state, territory, governmental district or municipality or of any
instrumentality of any of them;
(v) to lend money for any proper purpose, to invest and
reinvest its funds, and to take and hold real and personal property for the
payment of funds so loaned or invested;
(vi) to sue and be sued, complain and defend, and participate
in administrative or other proceedings, in its name;
(vii) to appoint employees and agents of the Company, and
define their duties and fix their compensation;
(viii) to indemnify any person or entity in accordance with the
Act and to obtain any and all types of insurance;
(ix) to cease its activities and cancel the Certificate;
(x) to negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, execute, acknowledge or take any other action
with respect to any lease, contract or security agreement in respect of any
assets of the Company;
(xi) to borrow money and issue evidences of indebtedness, and
to secure the same by a mortgage, pledge or other lien on the assets of the
Company;
(xii) to pay, collect, compromise, litigate, arbitrate or
otherwise adjust or settle any and all other claims or demands of or against the
Company or to hold such proceeds against the payment of contingent liabilities;
and
(xiii) to make, execute, acknowledge and file any and all
documents or instruments necessary, convenient or incidental to the
accomplishment of the purposes of the Company.
3
<PAGE> 8
(b) The Company may merge with, or consolidate into, another
Delaware limited liability company or other business entity (as defined in
Section 18-209(a) of the Act) upon the approval of CPH, CHF and a
majority-in-interest of the Non-Managing Members, which may be withheld in the
sole discretion of each Member, respectively.
(c) Notwithstanding the foregoing, the Company shall not do
business in any jurisdiction that would jeopardize the limitation on liability
afforded to the Members under the Act or this Agreement.
ARTICLE III
MANAGEMENT/MEMBERS
3.1 Company Management.
(a) CPH As Manager. CPH shall be the sole "MANAGING MEMBER" of the
Company and, as such, shall manage the business and affairs of the Company in
accordance with this Agreement. Except as otherwise set forth in this Agreement
and subject to the limitations expressly set forth herein and in the Business
Plan, CPH shall manage and control the business and affairs of the Company,
shall make all decisions affecting the business and affairs of the Company and
shall take all such actions as CPH may deem necessary or appropriate to
accomplish the purposes of the Company as set forth herein. No Member other than
CPH shall have any power or authority to bind the Company except as expressly
set forth in this Agreement.
(b) CPH's Duties. CPH shall at all times act in a fiduciary
capacity toward the Company, CHF and each of the Other Members in exercising
CPH's power and authority under this Agreement, provided that the foregoing is
not intended to modify any other provision of this Agreement. CPH shall fully
and faithfully discharge its obligations and responsibilities and shall devote
such time and attention to the Company's affairs as may be reasonably necessary
for the proper management and supervision of the Company's operations and the
discharge of CPH's duties under this Agreement. For example, CPH's duties shall
include responsibility for overseeing the Company's real estate development
activities and preparation of development and marketing plans and strategies for
the Company. CPH shall make CPH's personnel and assets and licenses, and the
personnel and assets and licenses of CPH's Affiliates, available to the Company
in order that CPH's obligations under this Agreement may be adequately
discharged, all at the Company's expense as set forth in this Agreement but
subject to allocation pursuant to Section 6.05(c) of the Investment and
Stockholder Agreement to which the Members are parties, dated September __, 1997
(the "Investment Agreement"). CPH and each of the Other Members hereby license
all of their respective trademarks, tradenames and
4
<PAGE> 9
other proprietary rights to the Company to the extent necessary or convenient to
the Company's operation of its business pursuant to the provisions of this
Agreement.
3.2 Business Plan.
(a) Conduct of Business. CPH shall conduct the business of the
Company in accordance with the Business Plan and using CPH's good faith business
judgment. Notwithstanding the previous sentence, the Members specifically agree
and acknowledge that CPH does not represent, warrant or guaranty that any or all
of the economic or financial objectives or goals of the Business Plan will be
achieved by the Company, and CPH shall have no liability for the Company's
failure to meet such economic or financial objectives or goals, subject to CPH's
liability for its Material Failures (as defined in Section 10.1).
(b) Preparation and Approval of Business Plan. The term "Business
Plan" as used in this Agreement shall mean the business plan of the operation of
the Company's business as shall from time to time be approved by CPH, CHF and a
majority-in-interest of the Non- Managing Members. The parties agree that the
Business Plan for the remainder of the current Fiscal Year (as defined in
Section 7.2) ending February 1998 shall be the business plan attached hereto as
Exhibit "A". CPH shall cause to be prepared and delivered to Members, at least
thirty (30) days prior to the end of each Fiscal Year, a proposed revised
business plan for the next Fiscal Year for the review of the Members. The
proposed revised business plan for each Fiscal Year shall not become effective
as the "Business Plan" until it is approved by CHF and a majority-in-interest of
the Non-Managing Members (which approval may not be unreasonably withheld). In
the event that the Members do not approve a proposed revised business plan for
any Fiscal Year, CPH shall continue to conduct the business of the Company in
accordance with the then-existing Business Plan, as modified with the portions
of the proposed revised business plan for the next Fiscal Year as have been
agreed by CPH, CHF and a majority-in-interest of the Non-Managing Members (which
approval shall not be unreasonably withheld). Notwithstanding the foregoing,
each Member shall have the sole discretion to give or withhold its approval of a
proposed business plan to the extent it contemplates any of the actions
specified in Section 3.7 below. All references in this Agreement to the Business
Plan shall be interpreted to refer to the Business Plan as approved and amended
in accordance with the provisions of this Section 3.2.
(c) Intra-Year Revisions to Business Plan. During the course of any
Fiscal Year, CPH may make revisions to the Business Plan for such Fiscal Year
from time to time to reflect the actual historical performance of the Company
and changes in anticipated performance of the Company; provided, however, that,
in the event that the Company experiences (or is reasonably likely to
experience) increases in costs (which are not offset by increases in revenues)
or decreases in revenues (which are not offset by decreases in costs), which in
either case are likely to result in a decrease in the net cash flow of the
Company for a Fiscal Year in excess of 25% (determined on an aggregate basis
taking into account all prior adjustments under this
5
<PAGE> 10
paragraph) of the projected net cash flow of the Company for such Fiscal Year as
set forth in the Business Plan for such Fiscal Year before any adjustments
thereto under this paragraph (a "25% Net Cash Flow Deficit Position"), then (i)
CPH shall promptly report any such event (or CPH's belief that such event is
reasonably likely to occur) to the Members and (ii) all revisions to the
Business Plan proposed by CPH in response to any such event shall be subject to
the approval of CHF and a majority-in-interest of the Non-Managing Members
(which approval shall not be unreasonably withheld); and provided further, that
no amendment of a Business Plan shall be made (i) as to any action specified in
Section 3.3 below without the approval of CHF and a majority-in-interest of the
Non-Managing Members (which approval shall not be unreasonably withheld), or
(ii) as to any action specified in Section 3.7 below without the approval of CHF
and a majority-in-interest of the Non-Managing Members (which approval may be
withheld in the sole discretion of each Member, respectively).
(d) Acquisitions of Additional Property. The Company may not,
directly or indirectly, acquire any new properties or projects not contemplated
in the Business Plan except as permitted under Section 6.02 of the Investment
Agreement. All revisions to the Business Plan proposed by CPH, which revisions
consist of acquiring any additional project or property not already contemplated
by the Business Plan and the acquisition of which have been approved pursuant to
Section 6.02 of the Investment Agreement, shall be subject to the approval of
CHF and a majority-in-interest of the Non-Managing Members (which approval may
not be unreasonably withheld). A project or property shall be considered to be
"contemplated by the Business Plan" if such project or property is within the
geographic, economic and market parameters of a project set forth in the
Business Plan (i.e., the description of a project contemplated by the Business
Plan may be set forth by reference to an approximate number of units in a
particular market area and within an approximate price range or directed to a
particular market segment).
3.3 Major Decisions. The following decisions shall be considered "MAJOR
DECISIONS" of the Company and shall be made only upon the approval of CPH, CHF
and a majority-in-interest of the Non-Managing Members, which approval may not
be unreasonably withheld:
(a) financing or encumbering any substantial assets of the Company
other than as contemplated in the Business Plan;
(b) amending or modifying any credit agreement, loan agreement or
other evidence of indebtedness of the Company except as appropriate in the
ordinary course of implementing the Business Plan;
(c) conveyance of any substantial assets, other than as
contemplated in the Business Plan;
6
<PAGE> 11
(d) approval of all income tax elections, tax returns and audits
not otherwise provided for in this Agreement or contemplated in the Business
Plan, except as otherwise required by the provisions of the Internal Revenue
Code of 1986, as amended from time to time (the "Code"), or the regulations
promulgated thereunder (the "Treasury Regulations");
(e) making, execution or delivery on behalf of the Company any
guarantee, indemnity bond or surety bond, or obligating the Company as a surety,
guarantor or accommodation party to any obligation, except as appropriate in the
ordinary course of implementing the Business Plan or otherwise agreed to by CPH,
CHF and a majority-in-interest of the Non-Managing Members (which agreement may
not be unreasonably withheld);
(f) extension of any material credit on behalf of the Company to
any person, firm or corporation, except as appropriate in the ordinary course of
implementing the Business Plan;
(g) engagement by the Company or any delegate of the Company of any
Affiliate of a Member to provide services to the Company or entering into any
other transaction between the Company or any delegate of the Company and an
Affiliate of a Member, and the approval of the amount of any fees payable to
such Affiliate, except as provided in Section 3.4. For purposes of this
Agreement, "AFFILIATE" of a person or entity (or words of similar import,
whether or not capitalized) includes (1) any officer, director, employee,
trustee, shareholder, member, partner or relative within the third degree of
kindred of the person or entity in question; (2) any corporation, partnership,
limited liability company, trust or other entity controlling, controlled by or
under common control with the person or entity in question or any Affiliate of
the person or entity in question (whether directly or indirectly through one or
more intermediaries); and (3) any officer, director, trustee, employee,
shareholder, member or partner of any person or entity described in (2) above.
For the purpose of this definition, "CONTROL" means the possession, directly or
indirectly, of the power to direct or cause the direction of management and
policies, whether through the ownership of voting securities or by contract or
otherwise; and
(h) distribution of any property in kind to any Member, except as
appropriate in the ordinary course of implementing the Business Plan.
3.4 Authorized Representatives and Engagement of Affiliates.
(a) Delegation to Affiliates. Each Member may authorize, as may be
reasonably appropriate, other persons or entities who are Members or are not
Members to perform any action falling within the scope of such Member's
responsibilities, provided that the delegatee is an Affiliate directly or
indirectly wholly-owned by the delegating Member. The consideration or other
financial benefits payable to a delegatee shall not exceed an amount equal to
reimbursement of costs actually incurred by the delegatee in good faith
furtherance of the Business Plan plus a nominal fee specifically set forth in
the Business Plan or otherwise agreed
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by CPH, CHF and a majority-in-interest of the Non-Managing members (which
approval may be withheld in the sole discretion of each Member, respectively).
No delegation of a duty by a Member shall relieve such Member of its obligations
under this Agreement for performance of such duty. CPH, in its discretion, will
cause the Company to indemnify, defend and hold harmless each delegatee, as
agent of the Company, for all liability that the delegatee may incur in
connection with performing the delegated duties provided that as the delegatee
acts in good faith and in a manner that the delegatee reasonably believes to be
within the scope of authority conferred upon the delegatee.
(b) Transactions with Affiliates. Except as otherwise specifically
set forth in the Business Plan or in Section 3.4(a) or (c), the Company shall
not enter into any transactions with any of its Affiliates or the Affiliates of
any other Member (each, an "Affiliate Transaction"). In the event that the
Company does enter into such an Affiliate Transaction, the consideration or
other financial benefits payable to such Affiliate shall not exceed an amount
equal to reimbursement of costs actually incurred by such Affiliate in good
faith furtherance of the Business Plan in connection with such Affiliate
Transaction plus a nominal fee specifically set forth in the Business Plan or
otherwise agreed by CPH, CHF and a majority-in-interest of the Non-Managing
Members (which approval may be withheld in the sole discretion of each Member,
respectively).
(c) Bayhill Escrow. Notwithstanding the provisions of Section
3.4(b) above, the Company shall be entitled to enter into transactions with
Bayhill Escrow, an Affiliate of CPH, on terms contemplated in the Business Plan
or otherwise on terms which CPH in good faith reasonably believes to be fair to
the Company and competitive with terms available to the Company from
non-Affiliates.
3.5 Bank Accounts. All Company funds shall be deposited in the
Company's name in such account or accounts ("ACCOUNTS") as may be selected by
CPH. Such funds shall be subject to withdrawal or disbursement only upon the
signature of signatories designated from time to time by CPH. CPH shall be
authorized to make expenditures from the Accounts on behalf of the Company only
if such expenditures are with respect to the Company's Business, are in the
ordinary course of implementing the Business Plan or otherwise approved by CHF
and a majority-in-interest of the Non-Managing Members (which approval may not
be unreasonably withheld) or are expenditures made in emergency circumstances in
which CPH believes in good faith that the expenditures are necessary in order to
protect the business interests of the Company or prevent serious personal injury
or property damage (in which event CPH shall promptly notify each Member of the
emergency expenditure and supply such information with respect thereto as the
Members may reasonably request). The funds within the Accounts shall be
segregated from, and not commingled with, any accounts of any Member or
Affiliate thereof.
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3.6 Reports and Tax Returns.
(a) CPH shall prepare and distribute to the Members the following
financial information:
(i) When reasonably available from the Company's Accountants
after the end of the Company's tax year (and any short tax period) and
completion of the Company's audit, federal and state Company income tax returns
and Forms K-1. CPH agrees to use reasonable efforts to complete and deliver such
reports within seventy-five (75) days after the end of the Fiscal Year. If CPH
cannot reasonably deliver such reports within that time frame, CPH shall
promptly notify the Members and file for any necessary tax filing extensions
with respect thereto, and deliver evidence thereof to the Members, prior to the
applicable filing deadline.
(ii) Within forty-five (45) days after the end of each fiscal
quarter, CPH shall provide the Members with a balance sheet and statement of
income of the Company for such quarter, and CPH's calculation of the amount of
Available Cash, if any, to be distributed to the Members.
(iii) Within ninety (90) days after the end of each Fiscal
Year, CPH shall provide the Members with a balance sheet and statement of income
of the Company for such Fiscal Year, audited by the Company Accountant (as
defined in Section 7.3).
(iv) CPH shall supply the Member with copies of CPH's
management reports and similar documents and other information as may be
reasonably requested from time to time.
(v) In addition, CPH shall cause to be prepared and filed on
behalf of the Company income, sales, use, property, payroll and other tax
returns required of the Company in accordance with all applicable statutes and
regulations and tax accounting principles, consistently applied.
3.7 Limitations and Authority. Notwithstanding any other provision of
this Agreement, no Member shall have any authority to do or cause the Company to
do any of the following, and the Company shall not do any of the following,
unless provided in the Business Plan or approved by CPH, CHF and a
majority-in-interest of the Non-Managing Members (which approval may be withheld
in the sole discretion of each Member, respectively, whether such following
matter is proposed for inclusion in the Business Plan or an amendment thereof or
otherwise): (1) commit a material violation of this Agreement or do any act
which would make it impossible to carry on the business of the Company; (2)
allow any Member to possess any Company assets or assign the rights of the
Company in specific Company assets for other than a Company purpose; (3) admit a
person or entity as a Member or issue any additional
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membership interests or rights to acquire membership interests in the Company or
cause the Company to repurchase or redeem any membership interests; (4) permit
the Company to merge or consolidate with any other entity; (5) make, execute or
deliver on behalf of the Company any assignment for the benefit of creditors;
(6) commence, settle or compromise of any lawsuit or any other action or
proceeding affecting the Company other than in the ordinary course of business
or as otherwise contemplated in the Business Plan; (7) file any petition, or
consent to the appointment of a trustee or receiver or any judgment or order,
under the federal bankruptcy laws; or (8) take any action outside the purposes
specified in Section 2.1; or (9) take any action or make any expenditure that
would violate any material covenants of the Company to third parties, including
lenders, partners or bondholders (collectively, the "Third Party Limitations").
ARTICLE IV
BUY-SELL PROCEDURE; PUT/CALL
Election to Proceed. Either CPH or CHF may elect to resort to the
buy-sell procedure pertaining to the Members' interests in the Company as set
forth in Section 7.03 of the Investment Agreement.
ARTICLE V
CAPITALIZATION OF THE COMPANY
5.1 Capital Contributions. Prior to the execution of this Agreement,
CPH and each of the Other Members have contributed to the Company as capital
contributions all of their respective properties, contracts, rights and other
assets of every kind, including without limitation, both tangible and intangible
assets (and the Company has assumed all of their respective liabilities)
pursuant to deeds and general assignments in the forms attached hereto as
Exhibit "B" and Exhibit "C" and other documents of transfer and assumption.
Notwithstanding the foregoing, the Members acknowledge that CPH and each of the
Other Members have not contributed to the Company their respective business
licenses, trademarks and tradenames (subject to the licenses thereof set forth
in Section 3.1(b) above), nor has CPH contributed the stock of the Other Members
owned by CPH (collectively, the "Excluded Assets"), and, in addition, the
Members acknowledge that the employees of CPH and the Other Members shall remain
employees of those entities, respectively, and shall not become the employees of
the Company. The Members further acknowledge that future costs of the Members
will be allocated among the Company and related entities pursuant to Section
6.05(c) of the Investment Agreement. The agreed values of the capital
contributions of CPH and each of the Other Members, respectively, shall be
credited to the respective capital accounts of CPH and the Other Members. Upon
execution of this Agreement, CHF shall contribute to the Company as a capital
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contribution the sum of $30,000,000 which shall be credited to CHF's capital
account. Except as may be provided by applicable Delaware law, no Member shall
be required to make any additional capital contributions to the Company.
5.2 Member Loans. Except as otherwise specified in this Agreement or
contemplated in the Business Plan, a Member may make a loan to the Company only
upon such terms and conditions as may be determined and approved by CPH, CHF and
a majority-in-interest of the Non-Managing Members, which approval may be given
or withheld in the sole discretion of each Member, respectively. No loan to the
Company by a Member shall either increase the capital account of the lending
Member or entitle the lending Member to any increased share in the Company's
profits. Any such loan shall be payable and collectible only out of Company
assets, and the other Members shall not be personally obligated to repay any
part thereof.
5.3 Capital Accounts. An individual capital account shall be
established for each Member and shall be determined and maintained throughout
the full term of the Company in accordance with the provisions of Section
1.704-1(b) of the Treasury Regulations. Except as otherwise provided in Section
1.704-1(b) of the Treasury Regulations, the capital account of each Member shall
consist of capital contributions made by such Member to the Company, increased
by the amount of any Net Profits, as defined in Section 6.1(a), allocated to
such Member and any items in the nature of income or gain specially allocated to
such Member pursuant to Section 6.2, and decreased by any distributions in
reduction of Company capital to such Member and further decreased by the amount
of any Net Losses, as defined in Section 6.1(a), allocated to such Member. The
Members shall make such adjustments to the capital account of the Members they
shall reasonably deem necessary to comply with the Code and the Treasury
Regulations.
5.4 Withdrawals. The capital contributions of the Members shall not be
subject to withdrawal except by the agreement of CPH, CHF and a
majority-in-interest of the Non- Managing Members (which may be given or
withheld in the sole discretion of each Member, respectively) or as expressly
provided for in this Agreement.
5.5 No Other Compensation/Expenses. No Member shall be entitled to any
interest, salary or drawing with respect to its capital contribution nor shall
any Member or Affiliate be entitled to any fees or other compensation except as
expressly set forth in this Agreement or contemplated in the Business Plan.
Notwithstanding the foregoing, each Member shall be entitled to be reimbursed
for actual expenses incurred by such Member in good faith furtherance of the
Business Plan plus a nominal fee specifically set forth in the Business Plan, to
the extent such expenses are contemplated by the Business Plan or otherwise
approved by CPH, CHF and a majority-in-interest of the Non-Managing Members,
which approval may be withheld in the sole discretion of each Member,
respectively.
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ARTICLE VI
PROFITS, LOSSES AND DISTRIBUTIONS
6.1 Allocation of Profits and Losses.
(a) Definition of Net Profits and Net Losses. For purposes of this
Agreement, the terms "NET PROFITS" and "NET LOSSES" shall mean net taxable
income and gains, and net losses and deductions, respectively, of the Company,
determined in accordance with the Treasury Regulations promulgated pursuant to
Section 704 of the Code, excluding any items specifically allocated pursuant to
Section 6.2.
(b) Net Losses. After giving effect to the special allocations set
forth in Sections 6.2 and 9.5(a) below, Net Losses for any Fiscal Year shall be
allocated to the Members in proportion to their respective "PERCENTAGE
INTERESTS" as specified in Exhibit "A" attached hereto.
(c) Net Profits. After giving effect to the special allocations set
forth in Sections 6.2 and 9.5(a), Net Profits for any Fiscal Year shall be
allocated to the Members in proportion to respective their Percentage Interests.
6.2 Special Allocations. The following special allocations shall be
made in the following order:
(a) Loss Limitations. Notwithstanding Section 6.1(b), no Net Losses
shall be allocated to a Member to the extent it would increase or cause such
Member to have an Adjusted Capital Account Deficit (as defined in Section 6.2(b)
below). Any such Net Losses shall be specially allocated to the other Members
proportional to their Percentage Interests. Notwithstanding Section 6.1(c), if
any Net Losses are specially allocated pursuant to the preceding sentence,
subsequent allocations of Net Profits shall be made to offset, in reverse order,
such prior special allocations of Net Losses.
(b) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations or distributions described in Treasury
Regulations 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company income and
gain (consisting of a pro rata portion of each item of Company income, including
gross income, and gain for such year) shall be specially allocated to such
Member in an amount and manner sufficient to eliminate, to the extent required
by the Treasury Regulations, the Adjusted Capital Account Deficit of such Member
as quickly as possible, provided that an allocation pursuant to this Section
6.2(b) shall be made if and only to the extent that such member would have an
Adjusted Capital Account Deficit after all other allocations provided for in
this Article VI have been tentatively made as if this Section 6.2(b) were not in
the Agreement. For purposes of this Agreement, an "ADJUSTED
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CAPITAL ACCOUNT DEFICIT" shall mean any deficit in a Member's capital account
balance after (x) reducing such balance by the amounts set forth in Treasury
Regulations Sections 1.704-1(b)(2(ii)(d)(4), (5) or (6), and (y) increasing such
balance by any amounts such Member is obligated to restore or is deemed to be
obligated to restore pursuant to the penultimate sentence of Treasury
Regulations Sections 1-704.2(g)(1) and 1.704-2(i)(5).
(c) Nonrecourse Deductions. Nonrecourse deductions for any Fiscal
Year shall have the meaning set forth in Section 1.704-2(b)(1) of the Treasury
Regulations and shall be allocated among the Members in proportion to their
Percentage Interests.
(d) Member Nonrecourse Deductions. Any Member nonrecourse
deductions for any Fiscal Year shall be specially allocated to the Member who
bears the economic risk of loss with respect to the Member nonrecourse debt to
which the Member nonrecourse deductions are attributable in accordance with
Section 1.704-2(i)(1) of the Treasury Regulations.
(e) Member Minimum Gain Chargeback. In order to comply with the
"minimum gain chargeback" requirements of Sections 1.704-2(f)(1) and
1.704-2(i)(4) of the Treasury Regulations, and notwithstanding any other
provision of this Agreement, in the event there is a net decrease in a Member's
share of Company minimum gain or Member nonrecourse debt minimum gain as those
terms are defined in Section 1.704-2 of the Treasury Regulations, such Members
shall be allocated items of income and gain, for that year (and if necessary,
other years) as required by and in accordance with Sections 1.704-2(f)(1) and
1.704-2(1)(4) of the Treasury Regulations before any other allocation is made.
(f) Conforming Allocations. The allocations set forth above in this
Section 6.2 (the "REGULATORY ALLOCATIONS") are intended to comply with certain
requirements of the Treasury Regulations. It is the intent of the Members that,
to the extent possible, all Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special allocations of other items of
Company income, gain, loss or deduction pursuant to this Section 6.2. Therefore,
notwithstanding any other provision of this Article VI (other than the
Regulatory Allocations), the Members shall make such offsetting special
allocations of Company income, gain, loss and deduction in whatever manner CPH
determines to be appropriate (but only to the extent consistent with Section
514(c)(9)(E) of the Code and the Treasury Regulations thereunder) so that, after
such offsetting allocations are made, each Member's capital account balance is,
to the extent possible, equal to the capital account balance each Member would
have if the Regulatory Allocations were not part of the Agreement and all
Company items were allocated pursuant to Sections 6.1.
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6.3 Other Allocation Rules.
(a) For purposes of determining Net Profits, Net Losses and any
other items allocable to any period, Net Profits, Net Losses and any such other
items shall be determined on a daily, monthly or other basis, as determined by
CPH using any method permissible under Section 706 of the Code and the Treasury
Regulations thereunder, subject to approval by CHF which shall not be
unreasonably withheld.
(b) Except as otherwise provided in this Agreement, all items of
Company income, gain, loss, deduction and any other allocations not otherwise
provided for shall be divided among the Members in the same proportions as they
share Net Profits and Net Losses, as the case may be, for the year.
(c) The Members are aware of the income tax consequences of the
allocations made by this Article VI and hereby agree to be bound by the
provisions of this Article VI in reporting their shares of Company income and
loss for income tax purposes.
6.4 Tax Allocations; Section 704(c) of the Code.
(a) In accordance with Section 704(c) of the Code and the Treasury
Regulations thereunder, income, gain, loss and deduction with respect to any
property contributed to the capital of the Company shall, solely for income tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to the Company for federal income
tax purposes and its book value as reflected in the capital accounts.
(b) In the event the book value as reflected in the capital
accounts of any Company asset is adjusted as permitted under Treasury
Regulations Section 1.704-1(b)(2)(iv)(f), subsequent allocations of income,
gain, loss and deduction with respect to such asset shall take account of any
variation between the adjusted basis of such asset for federal income tax
purposes and its adjusted book value in the same manner as under Section 704(c)
of the Code and the Treasury Regulations thereunder.
(c) Any elections or other decisions relating to allocations under
this Section 6.4, including the selection of any allocation method permitted
under Treasury Regulations 1.704-3, shall be made by CPH in any manner that
reasonably reflects the purpose and intention of this Agreement, subject to
approval by CHF which will not be unreasonably withheld. Allocations pursuant to
this Section 6.4 are solely for purposes of federal, state and local taxes and
shall not affect, or in any way be taken into account in computing, any Member's
capital account or share of Net Profits, Net Losses, other items or
distributions pursuant to any provision of this Agreement.
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6.5 Available Cash/Distributions.
(a) Available Cash. "AVAILABLE CASH" means, on any given date, all
proceeds received by the Company (or released from reserves) (including, without
limitation, all sales proceeds, interest income, rental income, investment
income and loan proceeds or other financing proceeds), whether pursuant to
operations or capital transactions or otherwise, as reduced by (i) all costs and
expenses incurred, including, without limitation, expenses incurred in any sale
or disposition transaction and interest expense on third-party and Member loans,
(ii) payments of any indebtedness or liabilities of the Company for which such
proceeds are required or contemplated in the Business Plan to be used (including
any release payments or other amortization payments required to be made in
respect of any third-party or Member loan), (iii) repayment in full of the
principal balance of any loans from Members, with interest thereon, (iv) the
setting aside of reserves in amounts contemplated in the Business Plan, (v) the
setting aside of reserves appropriate or desirable for working capital and other
future expenses and the discharge of liabilities or obligations of the Company
as CPH may reasonably deem necessary from time to time (provided that CHF shall
have the right to approve the setting aside of such additional reserves in
excess of amounts contemplated in the Business Plan, which approval shall not be
unreasonably withheld), and (vi) any amount that cannot be distributed to the
Members due to Third-Party Limitations.
(b) Cash Distributions. All Available Cash shall be distributed
quarterly to the Members on a pari passu basis in accordance with their
respective Percentage Interests.
6.6 Allocation and Tax Elections with Respect to Transferred Company
Interests. If, pursuant to this Agreement, interests in the Company are
transferred at any time other than at the end of a Fiscal Year of the Company,
the Company's Net Profits and Net Losses and, subject to prior distribution,
Available Cash for such Fiscal Year attributable to the interest transferred
shall be allocated between the transferor and transferee of such interests in a
manner which is consistent with the provisions of Code Section 706(d)(1). At the
sole discretion of CPH, the Members shall make the election referred to in
Section 754 of the Code, as amended, or any corresponding or similar provisions
of any subsequent revenue act, or under any similar state statute. Each Member
agrees to supply the Company promptly with the information necessary to give
effect to such election.
6.7 Certain Distribution Rules.
(a) All distributions pursuant to this Article VI shall be at such
times and in such amounts as otherwise set forth in this Article VI; provided,
however, that CPH shall cause the Company to distribute to the Members
(including CHF) (in proportion to their Percentage Interests) an amount of cash
from time to time as shall be sufficient such that the pro rata portion of such
distributions to CPH and the Other Members shall enable CPH and its subsidiaries
to fund their federal and state income and franchise tax liabilities.
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(b) All amounts withheld pursuant to the Code or any provision of
any state or local tax law with respect to any payment, distribution or
allocation to the Company or the Members shall be treated as amounts distributed
to the Members pursuant to this Article VI for all purposes of this Agreement.
CPH is authorized to withhold from distributions and to pay over to any federal,
state or local government any amounts required to be so withheld pursuant to the
Code or any provision of any other federal, state or local law and shall
allocate such amounts to those Members with respect to which such amounts were
withheld. Any foreign taxes withheld in connection with operations of the
Company outside of the United States shall be a deduction from the Members'
capital accounts.
6.8 Distributions in Kind. In making distributions to the Members, upon
the agreement of CPH, CHF and a majority-in-interest of the Non-Managing Members
(which may not be unreasonably withheld), any portion or interest in any Company
property, whether real or personal, tangible or intangible, may be distributed
in kind to a Member in lieu of a distribution of cash (but only with the
agreement of such Member, which agreement may not be unreasonably withheld).
CPH, CHF and a majority-in-interest of the Non-Managing Members shall agree upon
the net fair market value (gross market value less encumbrances assumed or taken
subject to by the distributee Member) of such in kind distribution, and as
between the Members such net fair market value shall be deemed the equivalent of
a cash distribution of Company profits. The capital accounts of the Members
prior to any distribution in kind shall be adjusted, to the extent necessary, in
accordance with the provisions of Section 1.704-1(b) of the Treasury Regulations
in the manner set forth in this Article VI.
6.9 Limitation on Distributions. Notwithstanding any other provision of
this Agreement, no distribution shall be made to a Member on account of its
interest in the Company if such distribution would violate Section 18-607 of the
Act or other applicable law.
ARTICLE VII
ACCOUNTING CONSIDERATIONS
7.1 Determination of Profits and Losses. Net Profits and Losses shall
be determined as soon as practicable after the close of the Company's Fiscal
Year.
7.2 Fiscal Year. The fiscal year of the Company shall be first day of
March through the last day of February (the "FISCAL YEAR").
7.3 Books of Account; Company Accountant. CPH, at the Company's
expense, shall cause complete and accurate accounts of all transactions of the
Company to be kept in proper books at the Company's principal place of business.
The accounting records shall be maintained in accordance with generally accepted
accounting principles, consistently applied ("GAAP").
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CPH shall, at the Company's expense, cause the Company to employ an independent
certified public accountant for the Company (the "COMPANY ACCOUNTANT"). The
Company Accountant shall be Arthur Andersen LLP or such other qualified firm as
CPH may propose subject to the approval of CHF and a majority-in-interest of the
Non-Managing Members, which approval shall not be unreasonably withheld. CPH
shall cause the Company Accountant to perform on behalf of the Company an annual
audit of the Company's books and to provide certified copies of such audit to
each of the Members. Notwithstanding the foregoing, any Member shall have the
right, at its own expense, to cause an audit of the Company's books at any
reasonable time, but not more often than once each year. In addition, the
Members shall have the right, at any reasonable time and without disturbing the
business or operations of the Company, to inspect and copy the Company's books
and records at the Company's principal place of business or other reasonable
place specified by CPH.
7.4 Tax Controversies. For the purposes of receiving notices from the
Internal Revenue Service (the "IRS") on behalf of the Company, keeping each
Member informed of all administrative and judicial proceedings relating to
adjustment of Company's items at the Company level, and for all other relevant
purposes, CPH shall hereby be designated the Tax Matters Member ("TMM"), for
purposes of Section 6231(a)(7) of the Code, with all of the rights, duties,
powers and obligations incident thereto; provided, however, in no event shall
any agreement be made with the IRS affecting the calculation of the taxes of a
Member without the consent of such Member, which consent shall not be
unreasonably withheld. The TMM shall keep the other Members fully informed of
all matters in which it is involved as TMM. All expenses of the TMM in its
capacity as such will be paid by the Company. In no case shall the TMM or the
Company be liable for any additional tax payable by a Member or for any costs of
separate counsel chosen by such Member to represent the Member with respect to
any aspects of such challenge.
7.5 Right to Make Section 754 Election. Subject to Section 6.6 hereof,
the Tax Matters Member may, in its sole discretion, make or revoke, on behalf of
the Company, an election in accordance with 754 of the Code, so as to adjust the
basis of Company property in the case of a distribution of property within the
meaning of 734 of the Code, and in the case of a transfer of a Company interest
within the meaning of 743 of the Code. Each Member shall, upon request of the
Tax Matters Member, supply the information necessary to give effect to such an
election.
7.6 Taxation as Partnership. The Company shall be treated as a
partnership for U.S. federal income tax purposes, and CPH shall take all
reasonable actions, at the Company's expense, necessary to preserve such tax
treatment. No change in such tax status of the Company shall be made without the
prior written consent of CPH, CHF and a majority-in-interest of the Non-Managing
Members, which approval may be withheld in the sole discretion of each Member,
respectively.
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ARTICLE VIII
TRANSFER OF COMPANY INTEREST;
ADMISSION OF NEW MEMBERS
8.1 Assignment of Interest.
(a) Consent Required. No Member shall (voluntarily, involuntarily
or by operation of law), without the prior express written consent of CPH, CHF
and a majority-in-interest of the Non-Managing Members (which consent may be
given or withheld in the sole discretion of each Member, respectively), give,
sell, assign, transfer, mortgage, hypothecate, encumber, bequeath or devise its
interest in the Company (any such disposition is hereinafter referred to as a
"TRANSFER"). The Members specifically agree that in the event a Member is
willing to give its consent to a transfer in its sole and absolute discretion,
such consent may be subject to any condition such Member may specify in its sole
discretion, including without limitation, the transfer by the proposed assignor
to the proposed assignee of an identical interest in each Mirror Company (as
defined in the Investment Agreement) such that at all times the respective
percentage interests of the Members in the Company and in each Mirror Company
shall be identical. Any purported transfer of all or any portion of an interest
in the Company (the "SPECIFIED INTEREST") without such written consent shall be
void and of no effect against the Company, the other Members, any creditor of
the Company or any claimant against the Company. Should a Member elect not to
give its express written consent to a transfer as described above, such Member
shall state in writing that he does not so consent, in order that the Company
shall have a record of his decision. Such Member need not give any reason for
his decision. If a Member does not consent in writing to a transfer as described
above, but fails to memorialize such decision in writing, such failure shall not
be construed as a consent to the transfer.
(b) Certain Permissible Transfers. Notwithstanding the provisions
of Section 8.1(a), but subject to the provisions of Section 8.3(a) and (b), a
Member shall have the right, without compliance with the foregoing terms of this
Section 8.1, to transfer its Specified Interest to any person or entity that
directly or indirectly controls, or is controlled by, or is under common control
with, a Member (a "CONTROL AFFILIATE"). For the purposes of determining the
existence of a Control Affiliate, "CONTROL" shall mean beneficial ownership of
fifty percent (50%) or more of the entity in question or the possession of
direct or indirect power to direct or cause the direction of the management and
policies of an entity, whether through the ownership of voting securities or by
contract or otherwise.
(c) Managing Member Ownership. Notwithstanding any other provision
of this Agreement, no transfer of an interest in the Company shall result in the
reduction of the Percentage Interest of CPH or its successor "Managing
Member(s)" below twenty percent (20%).
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8.2 Effective Date of Transfer. Every transfer of a Specified Interest
shall be deemed to be effective as of the close of business on the day in which
such event shall have occurred.
8.3 Substitute Member(s). Subject to Section 8.1, no transferee of a
Specified Interest, other than one who is already a Member, shall have the right
to become a Member ("SUBSTITUTE MEMBER") in place of his transferor unless and
until all of the following conditions are satisfied:
(a) The transferor and transferee have executed and delivered to
the remaining Member a written instrument of assignment, fully executed and
acknowledged, setting forth the intention of the transferor and transferee that
the transferee become a Substitute Member in place of the transferor;
(b) The transferor and transferee have executed and acknowledged
such other instruments as CPH may deem necessary or advisable to effect the
admission of such person as a substituted Member in accordance with the
provisions of applicable Delaware law, including, without limitation, the
written acceptance and adoption by such person of the provisions of this
Agreement; and
(c) CPH, CHF and a majority-in-interest of the Non-Managing Members
have consented in writing to the admission of such person as a Substitute Member
(which consent may be given or withheld in the sole discretion of each Member,
respectively).
8.4 Nonsubstituted Assignees. Subject to the provisions of Section 8.1,
any transferee who has not become a Substitute Member pursuant to this Article
shall be deemed to take only the right of his assignor or transferor to share in
profits, losses and distributions of the Company and shall acquire no right to
any legal interest in the Company nor the right to exercise any right or power
granted to a Member under this Agreement.
ARTICLE IX
DURATION, WITHDRAWAL AND VOLUNTARY DISSOLUTION
9.1 Term of Company. The Company became operative upon the filing of
the Certificate with the Secretary of the State of Delaware and shall continue
until the Company is dissolved by written election of CPH, CHF and a
majority-in-interest of the Non-Managing Members (which approval may be withheld
in the sole discretion of each Member, respectively), or December 31, 2050,
whichever shall first occur; provided, however, the term may be extended beyond
such date by the agreement of CPH, CHF and a majority-in-interest of the
Non-Managing Members (which agreement may be given or withheld in the sole
discretion of each Member, respectively).
19
<PAGE> 24
9.2 No Withdrawal. A Member shall not be permitted to withdraw from the
Company except upon the transfer of his Interest pursuant to Article IV or
Article VIII or Article X.
9.3 Events of Dissolution. The Company shall be dissolved and its
affairs wound up upon the happening of any of the following events:
(a) The expiration of the term of the Company;
(b) The written election to dissolve the Company executed by CPH,
CHF and a majority-in-interest of the Non-Managing Members, which approval may
be withheld in the sole discretion of each Member, respectively;
(c) The entry of a judicial decree of dissolution under Section
18-802 of the Act;
(d) The bankruptcy, withdrawal or dissolution of CPH (or its
successor "Managing Member") or CHF or another event under the Act that
terminates the continued membership of CPH (or its successor "Managing Member")
or CHF (a Member referred to in this subsection (d) being herein called a
"DISSOLUTION MEMBER"); or
(e) The sale or disposition of all of the Company's assets.
9.4 Continuity of Company Business. In the event of (a) any transfer of
a Member's interest in the Company pursuant to Article IV, Article VIII or
Article X (whether or not such transferee is admitted as a new Member), or (b)
an occurrence under Section 9.3(d) above, the Company shall not dissolve if
there remain at least two Members, and a majority-in-interest of the remaining
Members, as the case may be, elect to continue the business of the Company, in
which event the Company shall continue to be governed by all of the terms of
this Agreement.
9.5 Distribution Upon Dissolution.
(a) Upon dissolution of the Company, CPH (or CHF in the case of
dissolution pursuant to Section 9.3(d) hereof in circumstances in which CPH is
the Dissolution Member) shall cause the Company's business to be wound up and
all its assets distributed in liquidation. Subject to Section 6.2 hereof, during
the period of liquidation, the Members shall allocate Net Profits and Net Losses
and all gain realized from the sale or other disposition of the Company's assets
in a manner such that the balances in the Members' capital accounts equal, as
nearly possible, each Member's respective Percentage Interest;
(b) The proceeds from liquidation of the Company after payment of
the costs of liquidation shall be applied in the order of priority as follows:
20
<PAGE> 25
(i) Secured debts to third parties, unless such secured
indebtedness is assumed by a purchaser of the Company's encumbered property or
the conveyance of such encumbered property to such purchaser is made subject to
such indebtedness;
(ii) Unsecured debts of the Company to third parties;
(iii) To establish any reserves which CPH (or other liquidating
party selected by the Members) may deem necessary, appropriate or desirable for
any liabilities, obligations, or debts of the Company or of the Members arising
out of or in connection with the Company which are not yet payable or have not
yet been paid, whether known or unknown, foreseen or unforeseen;
(iv) To the Members, an amount up to the unpaid principal and
interest under any loans made by the Members to the Company pursuant to Section
5.2, in proportion to the amount owing in respect of each such loan made; and
(v) The balance, if any, to the Members in accordance with
their respective positive capital account balances.
(c) If any Member has a negative capital account balance upon
liquidation, such Member shall not be required to make any contribution to
reduce such negative capital account balance.
9.6 Rights of Members Against Each Other. Except as set forth in
Article X below, no Member shall have any claim or recourse against any other
Member in the event that the assets of the Company are insufficient to repay all
sums advanced to the Company or are insufficient to repay any capital
contribution to the Company or interest thereon.
ARTICLE X
MATERIAL FAILURE
10.1 Definition of Material Failure. "MATERIAL FAILURE" shall mean any
material violation of this Agreement by any Member (such Member, the "FAILING
MEMBER"); provided, however, that in the event such violation is curable, such
violation shall only be a "MATERIAL FAILURE" if such violation is not cured
within the Cure Period (as defined below) or the Failing Member shall cease to
actively and diligently pursue the cure of such material violation. For purposes
of this Agreement, the term "CURE PERIOD" shall mean a period of (a) in the
event of the first material violation of this Agreement by a Failing Member
during any 12-month period, a period of thirty (30) days after such Failing
Member becomes aware of such violation, and (b) for each subsequent material
violation by such Failing Member during such 12-month period,
21
<PAGE> 26
a period of ten (10) days after such Failing Member becomes aware of such
violation; provided further, however, that the failure to cure such a curable
violation within the applicable Cure Period shall not constitute a Material
Failure if and to the extent such delay is caused by acts of God or the public
enemy, expropriation or confiscations of facilities, compliance with any order
or request of any governmental authority, acts of war, rebellion or sabotage,
fires, floods, explosions, accidents, riots, strikes or concerted acts of
workers or other causes not within the reasonable control of such Member.
"MATERIAL FAILURE" also shall include a "BANKRUPTCY INSOLVENCY EVENT" which, as
used herein, means the dissolution, termination of existence, insolvency,
business failure, cessation of business, appointment of receiver of all or any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding under any bankruptcy, insolvency or similar
federal or state laws (or any private proceeding customarily considered one
relating to insolvency) by a Member, or the filing of any involuntary petition
of bankruptcy against such entities which shall not be contested and discharged
within ninety (90) days, or the entry of a decree or order adjudging such
entities bankrupt or insolvent or approving a petition seeking the
reorganization or such persons or entities under any bankruptcy, insolvency or
similar federal or state law, or the occurrence of any action similar to the
foregoing under any state or federal law.
10.2 Remedies Upon Material Failure. Upon the occurrence of any
Material Failure, as defined in Section 10.1, the Non-Failing Member(s) may
pursue any remedy available at law or in equity.
ARTICLE XI
AMENDMENTS
11.1 Amendments. Any amendment to this Agreement shall be adopted and
be effective as an amendment hereto if approved by CPH, CHF and a
majority-in-interest of the Non-Managing Members (which approval may be withheld
in the sole discretion of each Member, respectively); provided, however, that no
amendment reducing a Member's Percentage Interest or other financial interest in
the Company shall be effective against such Member without its approval (which
approval may be withheld in the sole discretion of such Member), and no
amendment shall be made, and any such purported amendment shall be void and
ineffective, to the extent the result thereof would be to cause the Company to
be treated as anything other than a partnership for purposes of United States
income taxation without the approval of CPH and a majority-in-interest of the
Non-Managing Members (which approval may be withheld in the sole discretion of
each Member, respectively). Notwithstanding the foregoing, the Members agree not
to unreasonably withhold their consent to amendments reasonably requested by CPH
or CHF in order for the Company to comply with tax or other laws or regulations
applicable to the Company from time to time or ministerial or other non-
22
<PAGE> 27
material amendments reasonably requested by CPH or CHF which will not adversely
impact a Member's rights, privileges or preferences under this Agreement.
ARTICLE XII
LIABILITY, EXCULPATION AND INDEMNIFICATION
12.1 Liability.
(a) Except as otherwise provided by the Act, the debts, obligations
and liabilities of the Company, whether arising in contract, tort or otherwise,
shall be solely the debts, obligations and liabilities of the Company, and no
Member, Affiliate of a Member or officer, director, partner, shareholder,
employee or agent of a Member or Affiliate (each, a "COVERED PERSON") shall be
obligated personally for any such debt, obligation or liability of the Company
solely by reason of being a Covered Person.
(b) Except as otherwise expressly required by law, a Member shall
have no liability in excess of (i) its share of any assets and undistributed
profits of the Company, and (ii) the amount of any distributions improperly or
erroneously distributed to it. Specifically, no Member shall have any liability
for the repayment of any capital contribution of any other Member.
12.2 Exculpation.
(a) No Covered Person shall be liable to the Company or any other
Covered Person for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Covered Person in good faith on behalf of
the Company and in a manner believed by the Covered Person in good faith to be
within the scope of authority conferred on such Covered Person by this Agreement
(or a delegation of such authority as permitted under this Agreement), except
that a Covered Person shall be liable for any such loss, damage or claim
incurred by reason of such Covered Person's Material Failure, bad faith or
willful misconduct.
(b) A Covered Person shall be fully protected in relying in good
faith upon the records of the Company and upon such information, opinions,
reports or statements presented to the Company by any person or entity as to
matters the Covered Person reasonably believes are within such other person's or
entity's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Company, including information, opinions,
reports or statements as to the value and amount of the assets, liabilities,
profits, losses, or any other facts, unless such Covered Person is aware that
any such information is untrue or incorrect.
23
<PAGE> 28
12.3 Duties and Liabilities of Covered Persons.
(a) To the extent that, at law or in equity, a Covered Person has
duties (including fiduciary duties) and liabilities relating thereto to the
Company or to any other Covered Person, a Covered Person acting under this
Agreement shall not be liable to the Company or to any other Covered Person for
its good faith reliance on the provisions of this Agreement. The provisions of
this Agreement, to the extent that they restrict the duties and liabilities of a
Covered Person otherwise existing at law or in equity, are agreed by the parties
hereto to replace such other duties and liabilities of such Covered Person.
(b) Unless otherwise expressly provided herein, (i) whenever a
conflict of interest exists or arises between Covered Persons, or (ii) whenever
this Agreement or any other agreement contemplated herein provides that a
Covered Person shall act in a manner that is fair and reasonable to the Company
or under terms that are fair and reasonable to the Company, the Covered Person
shall resolve such conflict of interest, taking such action or providing such
terms based upon a consideration in each case of the relative interests of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. Unless otherwise expressly provided herein, in the
absence of Material Failure, bad faith or willful misconduct by the Covered
Person, the resolution, action or term so made, taken or provided by the Covered
Person shall not constitute a breach of this Agreement or any other agreement
contemplated herein or of any duty or obligation of the Covered Person at law or
in equity or otherwise.
12.4 Indemnification. To the fullest extent permitted by applicable
law, the Company shall indemnify, defend and hold harmless each Covered Person
for any loss, damage, claim or expenses incurred by such Covered Person by
reason of any act or omission performed or omitted by such Covered Person in
good faith on behalf of the Company and in a manner reasonably believed to be
within the scope of authority conferred on such Covered Person by this
Agreement, except that no Covered Person shall be entitled to be indemnified in
respect of any loss, damage or claim incurred by such Covered Person by reason
of Material Failure, bad faith or willful misconduct with respect to such acts
or omissions; provided, however, that any indemnity under this Section 12.4
shall be provided out of and to the extent of Company assets only, and no
Covered Person shall have any personal liability on account thereof.
12.5 Expenses. To the fullest extent permitted by applicable law,
expenses (including reasonable legal fees) incurred by a Covered Person in
defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by the Company prior to the final disposition of such claim,
demand, action, suit or proceeding upon receipt by the Company of an undertaking
by or on behalf of the Covered Person to repay such amount if it shall be
determined that the Covered Person is not entitled to be indemnified as
authorized in Section 12.4 hereof.
24
<PAGE> 29
12.6 Insurance. CPH shall cause the Company to purchase and maintain
liability, property and other insurance to the extent and in such amounts as
contemplated in the Business Plan or as otherwise suggested from time to time by
CPH or CHF, subject to approval by CPH and CHF (which shall not be unreasonably
withheld), providing coverage for such persons and entities as the Members shall
determine, regardless of whether the Company would have the power to indemnify
such persons or entities against such liability under the provisions of this
Agreement or applicable law.
ARTICLE XIII
MISCELLANEOUS
13.1 Mailing of Notices. Any notice, request, demand, report, offer,
acceptance, contract, certificate or other instrument which may be required or
permitted to be delivered to or served upon the Members hereto shall be deemed
sufficiently given or furnished to or served upon any such party provided that
(a) it is in writing and addressed to any such party at the address set forth
below, or at such other address of which any Member may notify the other Members
in accordance with this Section, and (b) it is delivered personally to such
party, sent by telecopy (with a copy by prepaid overnight courier), or mailed to
such party by prepaid overnight courier or certified mail, return receipt
requested. Until changed pursuant to a written notice thereof sent to all
Members, the mailing address of each Member as shown on Exhibit "D" attached
hereto. All notices required or permitted to be given pursuant to this Agreement
shall be deemed effective and given upon receipt.
13.2 Outside Activities. Notwithstanding any provision of this
Agreement to the contrary, the Members shall be entitled to engage in any other
business activity not specifically prohibited by or inconsistent with the
provisions of the Investment Agreement.
13.3 Partition. No Member shall have the right to partition any
property of the Company, nor shall a Member make application to any court or
authority having jurisdiction over such matters or commence or prosecute any
action or proceeding for partition and the sale thereof. Upon any breach of the
provisions of this Section by a Member, each other Member (in addition to all
rights, remedies at law and in equity that he may have) shall be entitled to a
decree or order restraining and enjoining such application, action or
proceeding.
13.4 Entire Agreement. This Agreement, together with the Investment
Agreement and other agreements entered into in connection therewith, shall
constitute the entire agreement of the Members with respect to the Company. All
prior agreements with respect to the Company between the Members, whether
written or oral, are merged herein and shall be of no force and effect.
25
<PAGE> 30
13.5 Amendment and Waivers. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by each person who is
then a Member. No waiver of any of the provisions of this Agreement shall be
deemed to constitute a waiver of any other provisions, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
13.6 Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, including all matters regarding the interpretation or effect
of this Agreement, without regard to the conflict of laws provisions.
13.7 Severability. The parties hereto agree that if any paragraph,
section, sentence, clause or phrase contained in this Agreement shall become
illegal, null and void or against public policy, for any reason, or shall be
held by any court of competent jurisdiction to be incapable of being construed
or limited in a manner to make it enforceable, or is otherwise held by such
court to be illegal, null or void or against public policy, the remaining
paragraphs, sections, sentences, clauses or phrases contained in this Agreement
shall not be affected thereby.
13.8 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns, but the rights and obligations of the parties hereto shall not be
assignable by any party hereto except as expressly provided otherwise in this
Agreement.
13.9 Interpretation. All uses of the words "Articles(s)" and
"Section(s)" in this Agreement are references to articles and sections of this
Agreement, unless otherwise specified. The headings of this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement. Throughout this Agreement, nouns, pronouns and
verbs shall be construed as masculine, feminine, neuter, singular or plural,
whichever shall be applicable.
13.10 Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of identical original counterparts, each
of which shall for all purposes be deemed an original, and all of such
counterparts shall together constitute but one and the same agreement.
13.11 No Third Party Beneficiary. Any agreement to pay any amount and
any assumption of liability herein contained, express or implied, shall be only
for the benefit of the Members and their respective heirs, successors and
permitted assigns, and such agreements and assumptions shall not inure to the
benefit of the obligees of any indebtedness or any other party whomsoever.
13.12 Failure to Pursue Remedies. The failure of any party to seek
redress for violation of, upon the strict performance of, any provision of this
Agreement shall not prevent a
26
<PAGE> 31
subsequent act, which would have originally constituted a violation from having
the effect of an original violation.
13.13 Cumulative Remedies. The rights and remedies provided by this
Agreement are cumulative and the use of any one right or remedy by any party
shall not preclude or waive its rights to use any or all other remedies. Said
rights and remedies are given in addition to any other rights the parties may
have by law, statute, ordinance or otherwise.
13.14 Litigation Without Termination. Any Member shall be entitled to
maintain, on its own behalf or on behalf of the Company, any action or
proceeding against any other Member or the Company (including any action for
damages, specific performance or declaratory relief) for or by reason of breach
of such party of this Agreement or any other agreement entered into in
connection with the same, notwithstanding the fact that any or all of the
parties to such proceeding may then be Members in the Company, and without
resulting in a termination of the Company.
13.15 Attorneys' Fees. If the Company or any Member obtains a judgment
against any other Member in connection with a dispute arising under or in
connection with this Agreement, such party shall be entitled to recover its
costs and reasonable attorneys' fees (including the reasonable value of in-house
attorney services) and disbursements incurred in connection therewith and in any
appeal or enforcement proceeding thereafter, in addition to all other
recoverable costs.
13.16 Consents. Whenever in this Agreement a Member is permitted or
required to make a decision (including a decision whether to give or withhold
its consent, approval or agreement), then (i) if such decision may be made in
its "sole discretion" or under a grant of similar authority or latitude, the
Member shall be entitled to consider only such interests and factors as it
desires, including its own interests, and shall have no duty or obligation to
give any consideration to any interest of or factors affecting the Company or
any other person or entity, (ii) if no standard is stated, then the Member shall
act reasonably, and (iii) if the Member is to act reasonably or in its
"reasonable discretion" or under a similar standard, the Member shall act under
such reasonable standard and shall not be subject to any other or different
standard imposed by this Agreement or other applicable law. Whenever in this
Agreement a Member is permitted or required to make a decision (including a
decision whether to give or withhold its consent, approval or agreement), such
decision shall be made and communicated without unreasonable delay.
27
<PAGE> 32
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first written above, which date for all purposes shall be
considered to be the date of this Agreement.
CPH:
CAPITAL PACIFIC HOLDINGS, INC., a
Delaware corporation
By:
-----------------------------------
Hadi Makarechian, Chairman of the
Board
NON-MANAGING MEMBERS:
CHF:
CALIFORNIA HOUSING FINANCE, L.P.:
By: CALIFORNIA HOUSING FINANCE, L.L.C.,
a Delaware limited liability
company, its General Partner
By: FARALLON CAPITAL MANAGEMENT,
LLC, a Delaware limited
liability company, its Manager
By:
--------------------------
Other Members:
CAPITAL PACIFIC HOMES, INC., a Delaware
corporation (formerly Durable Homes of
California, Inc.)
By:
----------------------------------
Hadi Makarechian, Chairman of the
Board
28
<PAGE> 33
CAPITAL PACIFIC HOMES, INC.,
a Nevada corporation (formerly Durable
Homes, Inc.)
By:
-----------------------------------
Hadi Makarechian, Chairman of
the Board
CAPITAL PACIFIC MORTGAGE, INC., a
Delaware corporation (doing business as
Capital Communities Mortgage)
By:
----------------------------------
Hadi Makarechian, Chairman of
the Board
CLARK WILSON HOMES, INC., a Texas
corporation
By:
----------------------------------
Hadi Makarechian, Chairman of
the Board
FAIRWAY FINANCIAL COMPANY, a Texas
corporation
By:
----------------------------------
Clark N. Wilson, Chairman of
the Board
J.M. PETERS CALIFORNIA, INC., a Delaware
corporation
By:
----------------------------------
Hadi Makarechian, Chairman of
the Board
29
<PAGE> 34
J.M. PETERS HOMES OF ARIZONA, INC.,
a Delaware corporation
By:
----------------------------------
Hadi Makarechian, Chairman of
the Board
J.M. PETERS NEVADA, INC., a Delaware
corporation
By:
----------------------------------
Hadi Makarechian, Chairman of
the Board
NEWPORT DESIGN CENTER, a California
corporation
By:
----------------------------------
Hadi Makarechian, Chairman of
the Board
PARKLAND ESTATES COMPANY, INC., a
Delaware corporation
By:
----------------------------------
Hadi Makarechian, Chairman of
the Board
PETERS RANCHLAND COMPANY, INC., a
Delaware corporation
By:
----------------------------------
Hadi Makarechian, Chairman of
the Board
30
<PAGE> 35
EXHIBIT "A"
-----------
INITIAL BUSINESS PLAN
A-1
<PAGE> 36
EXHIBIT "B"
-----------
FORMS OF DEEDS
B-1
<PAGE> 37
EXHIBIT "C"
-----------
FORMS OF GENERAL ASSIGNMENTS
C-1
<PAGE> 38
EXHIBIT "D"
-----------
PERCENTAGE INTERESTS
AND INITIAL CAPITAL ACCOUNTS
----------------------------
PERCENTAGE
MANAGING MEMBER INTEREST
- --------------- ----------
Capital Pacific Holdings, Inc. __________%
4100 MacArthur Blvd., Suite 200
Newport Beach, CA 92660
NON-MANAGING MEMBERS
- --------------------
California Housing Finance, L.P. __________%
c/o Farallon Capital Management, L.L.C.
One Maritime Plaza, Suite 1325
San Francisco, California 94111
Capital Pacific Homes, Inc. __________%
(formerly Durable Homes
California, Inc.)
4100 MacArthur Blvd., Suite 200
Newport Beach, CA 92660
Capital Pacific Homes, Inc. __________%
(formerly Durable Homes, Inc.)
3200 Soaring Gulls Drive
Suite 7
Las Vegas, NV 89129
Capital Pacific Mortgage, Inc. __________%
(doing business as Capital
Communities Mortgage)
4100 MacArthur Blvd., Suite 200
Newport Beach, CA 92660
Clark Wilson Homes, Inc. __________%
1717 West 6th St., Suite 140
Austin, TX 78703
D-1
<PAGE> 39
Fairway Financial Company __________%
1717 West 6th St., Suite 140
Austin, TX 78703
J.M. Peters California, Inc. __________%
4100 MacArthur Blvd., Suite 200
Newport Beach, CA 92660
J.M. Peters Homes of Arizona, Inc. __________%
4100 MacArthur Blvd., Suite 200
Newport Beach, CA 92660
J.M. Peters Nevada, Inc. __________%
4100 MacArthur Blvd., Suite 200
Newport Beach, CA 92660
Newport Design Center __________%
1500 Quail Street, Suite 100
Newport Beach, CA 92660
Parkland Estates Company, Inc. __________%
4100 MacArthur Blvd., Suite 200
Newport Beach, CA 92660
Peters Ranchland Company, Inc. __________%
4100 MacArthur Blvd., Suite 200
Newport Beach, CA 92660
INITIAL CAPITAL ACCOUNTS
------------------------
Capital Pacific Holdings, Inc.
and the Other Members in
the aggregate $63,538,000*
California Housing Finance, L.P. $30,000,000
- --------------------
* The parties agree that the initial capital account of CPH and the Other
Members shall in the aggregate be $63,538,000 but that if assets with a book
value in excess of such amount are contributed by CPH and the Other Members,
such additional value shall not increase the aggregate capital account or
Percentage Interest of CPH and the Other Members and CPH may effect post
contribution writedowns of the book value of such assets up to the amount of
such additional value without decreasing such capital account.
D-2
<PAGE> 1
EXHIBIT 99.2
- --------------------------------------------------------------------------------
INVESTMENT AND STOCKHOLDER AGREEMENT
BY AND AMONG
CALIFORNIA HOUSING FINANCE, L.P.
CAPITAL PACIFIC HOLDINGS, INC.
CAPITAL PACIFIC HOLDINGS, L.L.C.,
THE SUBSIDIARIES OF CAPITAL PACIFIC HOLDINGS, INC.
SET FORTH ON THE SIGNATURE PAGES HERETO,
AND
THE STOCKHOLDERS OF
CAPITAL PACIFIC HOLDINGS, INC. NAMED HEREIN
DATED SEPTEMBER 29, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
THIS INVESTMENT AND STOCKHOLDER AGREEMENT (this "Agreement"), dated
September 29, 1997, is by and among CAPITAL PACIFIC HOLDINGS, INC., a Delaware
corporation (the "Company"), CAPITAL PACIFIC HOLDINGS, L.L.C., a Delaware
limited liability company, THE SUBSIDIARIES OF THE COMPANY SET FORTH ON THE
SIGNATURE PAGES HERETO (the "Subsidiaries"), CALIFORNIA HOUSING FINANCE, L.P.,
a Delaware limited partnership (the "Purchaser") and CPH2, L.L.C. and CPH3,
L.L.C., each a Delaware limited liability company (CPH2, L.L.C. and CPH3,
L.L.C. are herein sometimes individually referred to as a "Stockholder" and
collectively as the "Stockholders.)"
WHEREAS, simultaneously with the execution of this Agreement, the
Stockholders and the Purchaser have entered into a Stock Purchase Agreement
(the "Stock Purchase Agreement"), pursuant to which the Stockholders shall
sell, and the Purchaser shall buy, 2,484,340 shares (the "Shares") of Common
Stock, $.10 par value, of the Company (the "Common Stock") for $10,000,000 (the
"Purchase Price") and the Purchasers, the Stockholders and Nationsbank, N.A. as
escrow agent have entered into an Escrow Agreement (the "Escrow Agreement")
pursuant to which the Stock and the Purchase Price are escrowed pending the
consummation of the transactions contemplated by this Agreement;
WHEREAS, the Company, the Subsidiaries and the Purchaser have agreed
that on the terms and conditions contained herein the Company and the
Subsidiaries shall transfer substantially all of their respective assets to
Capital Pacific Holdings L.L.C., a newly organized Delaware limited liability
company (the "New L.L.C.") and the Purchaser shall contribute $30,000,000 to
the capital of the New L.L.C. and execute a counterpart of the Amended and
Restated Limited Liability Company Agreement of the New L.L.C. in the form of
Exhibit A (the "New L.L.C. Agreement") in return for a 32.07% membership
interest in the New L.L.C.;
WHEREAS, simultaneously with the execution of this Agreement the
Purchaser and the Company have entered into a Registration Rights Agreement in
the form of Exhibit B with respect to the Shares (the "Registration Rights
Agreement" and together with the Stock Purchase Agreement, the New L.L.C.
Agreement, this Agreement, and all other documents pursuant to which the
Company and the Subsidiaries contribute their assets to the New L.L.C. and the
Escrow Agreement, the "Related Agreements");
WHEREAS, the Company, the Subsidiaries and the Stockholders have
agreed to conduct all of the Company's and the Subsidiaries' future and
existing business activities in the New L.L.C. or in future limited liability
companies or limited partnerships in which Purchaser shall have a 42.76%
interest (32.07% directly through its ownership of such future interests and
10.69% indirectly through its ownership of the Shares (subject to adjustment as
provided herein)) as the result of its capital investment in the New L.L.C. and
the purchase of the Shares;
WHEREAS, the Company, the Subsidiaries and the Stockholders have
agreed to grant Purchaser the opportunity to provide equity, construction and
development financing for future
<PAGE> 3
projects of the Company and its future affiliates for which outside financing
in excess of $1 million is required;
WHEREAS, the Company, the Purchaser and the Stockholders desire to
impose certain restrictions on the disposition and transfer of all of the
shares of Common Stock owned by the Purchaser and the Stockholders, and the
limited liability company interests in the New L.L.C. and each future limited
liability company or limited partnership owned by the Company, the Subsidiaries
and the Purchaser, and the purchase of further Common Stock in the Company and
to set forth certain voting agreements with respect to such Common Stock and
limited liability company and partnership interests and to create certain
purchase and sale rights and options with respect to such Common Stock and
limited liability interests.
NOW, THEREFORE, in consideration of the premises, and the
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE I
THE TRANSACTION
SECTION 1.01 THE TRANSACTION. On the terms and subject to the
conditions set forth in this Agreement:
(a) on or prior to the Closing Date (defined below), the Company
and each of the Subsidiaries shall transfer all of their respective properties,
contracts, rights and other assets of every kind, both tangible and intangible,
excluding only the Excluded Assets (as defined in Section 5.1 of the New L.L.C.
Agreement) (the assets to be so transferred are referred to herein as the
"Transferred Assets") to the New L.L.C. in exchange for 100% of the membership
interests in the New L.L.C., and the New L.L.C. will assume all of the
liabilities of the Company and the Subsidiaries (whether known or unknown)
provided that liabilities arising with respect to the period after the Closing
Date shall be allocated among the New L.L.C., the Mirror Companies and the
Future Affiliate in accordance with Section 6.05(c) below;
(b) after completion of the transfers set forth in paragraph (a),
on the Closing Date the Purchaser shall contribute to the capital of the New
L.L.C. the sum of $30,000,000 in exchange for newly issued membership interests
in the New L.L.C. equal to 32.07% of the outstanding membership interests in
the New L.L.C. after taking into account such issuance (and the membership
interests of the Company and the Subsidiaries shall be diluted accordingly to
67.93%);
(c) immediately after completion of the contribution described in
clause (b) above, the Purchaser shall consummate the purchase from the
Stockholders of the Shares for the Purchase Price pursuant to the Stock
Purchase Agreement and the Escrow Agreement;
(d) on the Closing Date, the parties hereto shall execute and
deliver the documents and consummate the transactions described in Section 5.02
of this Agreement.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY,
THE SUBSIDIARIES AND THE NEW L.L.C.
Each of the Company, the Subsidiaries, the New L.L.C., jointly and
severally represents and warrants to the Purchaser as of the date hereof and as
of the Closing Date:
SECTION 2.01 ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER. Each of the
Company, the New L.L.C. and each Subsidiary is a corporation or limited
liability company duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization. Each of the Company, the
Subsidiaries and the New L.L.C. (a) has or will have all on the Closing Date
necessary power and authority and all governmental licenses, authorizations and
consents and approvals required to own its properties now owned or proposed to
be owned immediately after the Closing Date and to carry on its business as now
conducted, (b) is or will be on the Closing Date duly qualified under the laws
of each jurisdiction in which qualification is required to own, lease or
license its properties so owned, leased or licensed or proposed to be owned,
leased or licensed immediately after the Closing Date or to carry on its
business as now conducted or so proposed to be conducted immediately after the
Closing Date except where the failure to so qualify will not have a Material
Adverse Effect and (c) has all necessary power and authority to execute and
deliver each of the Related Agreements to which it is or may become a party and
to consummate the transactions contemplated thereby.
SECTION 2.02 INTEREST OWNERSHIP. Immediately before the consummation of
the transactions contemplated to take place on the Closing Date, the Company
and one or more of its wholly-owned subsidiaries will be collectively the
beneficial and record owner of all of the outstanding membership interests of
the New L.L.C. Immediately after the consummation of the transactions
contemplated by this Agreement to take place on the Closing Date, the persons
and entities listed on Schedule 2.02 will be the sole legal, record and
beneficial owners of the number and percentage of issued and outstanding shares
of each class of the Company's Common Stock and membership interests in the New
L.L.C. set forth opposite its name on Schedule 2.02. The Subsidiaries and
Bayhill Escrow shall immediately before the Closing Date constitute all of the
direct and indirect subsidiaries of the Company.
SECTION 2.03 AUTHORIZATION OF AGREEMENTS. The execution and delivery by
each of the Company, the Subsidiaries and the New L.L.C. of the Related
Agreements to which they are party and the performance of their respective
obligations under the Related Agreements to which they are party have been duly
authorized by all necessary corporate or limited liability company action on
the part of the Company, the Subsidiaries and the New L.L.C.
SECTION 2.04 VALIDITY. This Agreement has been, and each other Related
Agreement to which they are party upon its execution and delivery as provided
herein will be, duly executed and delivered by the Company, the Subsidiaries,
and the New L.L.C. and this Agreement constitutes and each other Related
Agreement upon its execution and delivery as provided herein will be, the
legal, valid and binding obligation of such entity, enforceable against such
entity in
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accordance with its terms, except as the enforceability hereof may be limited
(i) by bankruptcy, insolvency, reorganization or other similar laws affecting
the enforcement of creditors' rights generally and (ii) by general equitable
principles regardless of whether considered in a proceeding in equity or at
law.
SECTION 2.05 GOVERNMENTAL APPROVALS. Subject to the continued accuracy of
the representations and warranties of the Purchaser set forth in Section 3.04
of the Stock Purchase Agreement, no registration or filing with, or consent or
approval of, or other action by, any Federal, state or other governmental
agency or instrumentality or regulatory body is necessary for the valid
execution, delivery and performance by the Company, the Subsidiaries, or the
New L.L.C. of the Related Agreements, other than (i) satisfaction by the
Company of its future periodic reporting obligations under the Securities
Exchange Act of 1934 and the associated regulations and (ii) revisions to the
Subdivision Approvals as defined in Schedule 2.08 to reflect the transactions
contemplated by this Agreement which will be obtained prior to or following the
Closing in the ordinary course of business the failure to obtain which prior to
Closing will not (except in the case of any Subdivision Approval marked with an
asterisk in Schedule 2.08, if any) have a Material Adverse Effect.
SECTION 2.06 ASSET TRANSFER AND ASSUMPTION OF LIABILITIES. At or prior to
the Closing, the Company and the Subsidiaries will have transferred all of
their respective assets to the New L.L.C. and the New L.L.C. shall have assumed
all of the Company's and such Subsidiaries' liabilities, provided, however,
that the Excluded Assets will not be transferred to the New L.L.C.
SECTION 2.07 CONTRAVENTION. Neither the execution, delivery and
performance of any Related Agreement by the Company, any Subsidiary, or the New
L.L.C. nor the consummation of the transactions contemplated hereby or thereby
will (with or without notice or lapse of time or both) conflict with, violate
or breach (a) any provision of the Company's, any Subsidiaries', or the New
L.L.C.'s organizational documents, (b) any law, rule, regulation or order by
which the Company, any Subsidiary, or the New L.L.C. or any of the Transferred
Assets or any of their properties may be bound or affected, or (c) subject to
obtaining the Approvals, any material agreement to which the Company, any
Subsidiary, or the New L.L.C. is a party or by which the Company, the New
L.L.C., any Subsidiary, or the Transferred Assets or any of their other
properties may be bound or affected.
SECTION 2.08 THIRD-PARTY APPROVALS. Other than as set forth in Schedule
2.08, no authorization, consent, order or approval of, notice to or
registration or filing with, or any other action by any person or entity (each
an "Approval") is required in connection with the valid execution, delivery and
performance by the Company, the Subsidiaries, or the New L.L.C. of this
Agreement or any of the Related Agreements. All Approvals will be obtained on
or prior to the Closing Date other than Approvals the failure to obtain which
will not have a Material Adverse Effect. Schedule 2.08 sets forth a list of
all material Approvals.
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SECTION 2.09 FINANCIAL INFORMATION.
(a) The audited consolidated balance sheets of the Company and the
Subsidiaries dated as of February 28, 1997, February 29, 1996 and February 28,
1995 and the unaudited consolidated balance sheet of the Company and the
Subsidiaries dated May 31, 1997 were prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis in
accordance with the past practice of the Company and fairly present the
consolidated financial position of the Company and the Subsidiaries as of their
respective dates.
(b) The audited consolidated statements of operations, statements
of changes in shareholder's equity and statements of cash flows of the Company
and the Subsidiaries for the 12-month periods ended February 28, 1997, February
29, 1996 and February 28, 1995, and the unaudited consolidated statement of
operations, statement of changes in shareholders equity and statement of cash
flows of the Company and the Subsidiaries for the three (3) month period ended
May 31, 1997 were prepared in accordance with GAAP applied on a consistent
basis in accordance with the past practice of the Company and fairly present
the consolidated results of operations, changes in shareholder's equity and
cash flows of the Company and the Subsidiaries for such period.
SECTION 2.10 LITIGATION. There is no pending or threatened litigation,
suit, action or proceeding that (a) questions the validity of any of the
Related Agreements or that seeks to prohibit or restrain the consummation of
the transactions contemplated by this Agreement or any of the Related
Agreements or (b) could reasonably be expected to have a Material Adverse
Effect.
SECTION 2.11 LICENSES. The Company, each Subsidiary and the New L.L.C.
owns, holds or possess all material permits, licenses, franchises,
registrations, qualifications or other authorizations ("Licenses") necessary to
in all material respects entitle the Company, each Subsidiary and the New
L.L.C. to use its respective name, to own or lease, operate and use its
respective assets and properties and to carry on and conduct its business, as
contemplated by the provisions of the New L.L.C. Agreement, including without
limitation the delegations of functions by the Company to the Subsidiaries
contemplated thereby, and all such Licenses are validly held and in full force
and effect. Subject to obtaining the Subdivision Approvals, no such License
will under its current terms be subject to suspension, modification,
revocation, cancellation or non-renewal as a result of the execution, delivery
or performance of any of the Related Agreements.
SECTION 2.12 COMPLIANCE WITH LAWS. Each of the Company, the Subsidiaries,
and the New L.L.C. are in compliance with each law, rule or regulation
applicable to their respective business, properties or operations except where
non-compliance will not have a Material Adverse Effect.
SECTION 2.13 NO MATERIAL ADVERSE EFFECT. Since February 28, 1997, there
has not occurred any event, act, condition or occurrence, which has (a) had a
material adverse effect upon the business, results of operations, contracts,
assets (whether tangible or intangible),
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liabilities, obligations, condition (financial or otherwise), or prospects of
the Company, the Subsidiaries or the New L.L.C. taken as a whole or (b)
impaired, hindered or adversely affected in any material respect the ability of
the Company, any Subsidiary or the New L.L.C. to perform any of their
obligations under the Related Agreements (each of (a) and (b), a "Material
Adverse Effect").
SECTION 2.14 THE TRANSFERRED ASSETS.
(a) As of the Closing Date, the New L.L.C. will have good and
marketable title to each of the Transferred Assets, subject only to liens and
encumbrances of record and other customary liens and encumbrances.
(b) The transactions contemplated to take place on the Closing
Date shall not create any liens or encumbrances on any of the Transferred
Assets other than amendments and substitutions for existing liens and
encumbrances to reflect the transfer of Transferred Assets to, and assumption
of liabilities by, the New L.L.C.
(c) The Transferred Assets together with the Excluded Assets
comprise all real property and personal property, tangible or intangible, owned
or used by the Company and the Subsidiaries (i) used or useful in the business
of the Company and the Subsidiaries as conducted immediately prior to the
Closing Date and (ii) reflected in the financial statements referred to in
Section 2.09, and immediately after the Closing the New L.L.C. shall have the
right to utilize such Transferred Assets subject to no material restrictions
(other than those to which the Company and its Subsidiaries are subject
immediately prior to the Closing).
SECTION 2.15 RESTRICTED PAYMENTS. Since February 28, 1997, neither the
Company nor the New L.L.C. has made (a) any dividend or other distribution on
(i) any shares of the Company's capital stock or (ii) any of the New L.L.C.'s
membership interests or (b) any payments in cash or otherwise, on account of
the purchase, redemption, retirement or acquisition of (i)(x) any shares of the
Company's capital stock or (y) any of the New L.L.C.'s membership interests or
(ii) any option, warrant or other right to acquire (x) shares of the Company's
capital stock or (y) any of the New L.L.C.'s membership interests.
SECTION 2.16 MISSTATEMENTS. No representation or warranty of the Company,
the Subsidiaries or the New L.L.C. contained in any Related Agreement contains
any material misstatement of fact or omits to state a material fact necessary
to make the statement contained therein not materially misleading. None of the
information regarding the actual assets, operations or liabilities of the
Company, the Subsidiaries or the New L.L.C. provided by the Company to the
Purchaser in writing prior to the date hereof, including without limitation,
the business plan set forth as Exhibit A to the New L.L.C. Agreement and
related documents (the "Information Documents") contains a material
misrepresentation of fact or omitted to state a material fact necessary to make
the information set forth in such writing at the level of detail there set
forth not materially misleading at the time of such delivery, provided,
however, that (a) the Company makes no representation whatsoever regarding any
projection of future activity of the Company other than that at the time of
such projection it represented the good faith
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expectations of the Company based upon assumptions the Company believed
reasonable at the time, (b) the Company has made available to the Purchaser
full access to all Company records in its possession or in the possession of
its consultants which records include information which provides an additional
level of detail (but does not contradict) the Information Documents.
SECTION 2.17 TAXES. Each of the Company and the Subsidiaries has filed all
material federal, state, local and foreign tax returns that are required to be
filed by it and have paid all taxes due pursuant to those returns or pursuant
to any assessment received by it.
SECTION 2.18 ENVIRONMENTAL VIOLATIONS. The Company and the Subsidiaries
have no knowledge that the Company or the Subsidiaries or their business or
properties are in violation of any applicable federal, state or local
environmental law, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, the
Resource Conservation and Recovery Act of 1976, as amended and the Toxic
Substances Control Act (collectively "Environmental Laws"), except violations
which will not have a Material Adverse Effect.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company, the
Subsidiaries, and the New L.L.C. that:
SECTION 3.01 ORGANIZATION AND CORPORATE POWER.
(a) The Purchaser is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Purchaser has the partnership power and authority to execute, deliver and
perform all of the Related Agreements to which it is a party.
(b) California Housing Finance L.L.C. is the sole general partner
of the Purchaser and is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the company power and authority to execute and deliver the Related Agreements
on behalf of the Purchaser.
SECTION 3.02 AUTHORIZATION OF AGREEMENTS, ETC. The execution and delivery
by the Purchaser of the Related Agreements and by its general partner on behalf
of the Purchaser and the performance by the Purchaser of its obligations
thereunder have been duly authorized by all requisite limited partnership and
limited liability company action.
SECTION 3.03 VALIDITY. This Agreement has been and each other Related
Agreement upon its execution and delivery as provided herein will be duly
executed and delivered by the Purchaser and constitutes and each other Related
Agreement upon its execution and delivery as provided herein will be, the
legal, valid and binding obligation of the Purchaser, enforceable in accordance
with its terms except as the enforceability thereof may be limited (i) by
bankruptcy,
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insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and (ii) by general equitable principles regardless
of whether considered in a proceeding in equity or at law.
SECTION 3.04 INVESTMENT REPRESENTATIONS.
(a) The Purchaser is an "accredited investor" within the meaning
of Rule 501(a) under the Securities Act and has, together with its Affiliates,
sufficient knowledge and experience in investing in companies similar to the
New L.L.C. so as to be able to evaluate the risks and merits of its investment
in the New L.L.C. and it is able financially to bear the risks thereof;
(b) The Purchaser has had an opportunity to discuss the Company's
and the New L.L.C.'s business, management and financial affairs with the
Company's management to its satisfaction and, except for reliance on the
representations and warranties contained in the Related Agreements and the
Information Documents, has relied solely upon its own diligence with respect to
the business and properties of the Company and the New L.L.C.; and
(c) The Purchaser has had full access to records of the Company in
the possession of the Company and its consultants and accountants and the
Purchaser has availed itself of such access to the extent it believed necessary
in connection with determining to effect the transactions contemplated by the
Related Agreements.
SECTION 3.05 CONTRAVENTION. Neither the execution, delivery or performance
of any Related Agreement nor the consummation of the transactions contemplated
hereby or thereby will (with or without notice or lapse of time or both)
conflict with, violate or breach (a) any provision of the Purchaser's
organizational documents, (b) any law, rule regulation or order by which the
Purchaser or any of its properties may be bound or affected, or (c) any
material agreement to which the Purchaser is a party or by which the Purchaser
or any of its properties may be bound or affected.
SECTION 3.06 THIRD-PARTY APPROVALS. No authorization, consent, order or
approval of, notice to or registration or filing with, or any other action by
any person or entity is required in connection with the valid execution,
delivery and performance by the Purchaser of any of the Related Agreements
other than any filings necessary pursuant to Sections 13 and 16 of the
Securities Exchange Act of 1934 and associated regulations.
SECTION 3.07 FINANCIAL CAPACITY. The Purchaser will on the Closing Date
have the financial capacity to carry out its obligations under the Related
Agreements.
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SECTION 3.08 LITIGATION. There is no litigation, suit, action or
proceeding arising out of any action or inaction of Purchaser (a) that
questions the validity of any of the Related Agreements or that involves or
relates to any of the transactions contemplated by any of the Related
Agreements, (b) that could reasonably be expected to adversely affect the
Purchaser's ability to perform its obligations under the Related Agreements to
which it is a party.
SECTION 3.09 MISSTATEMENTS. No representation or warranty of Purchaser
contained in any Related Agreement contains any material misstatement of fact
or omits to state a material fact necessary to make the statement contained
therein not materially misleading.
ARTICLE IV
THE CONDITIONS TO THE CLOSING
SECTION 4.01 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY, THE NEW L.L.C.
AND THE SUBSIDIARIES. The obligations of the Company, the New L.L.C. and the
Subsidiaries to perform their respective obligations set forth below to be
performed on the Closing Date are subject to the satisfaction or waiver on or
before the Closing Date of the following conditions:
(a) Representations and Warranties of the Purchaser to be True and
Correct. The representations and warranties of the Purchaser contained in the
Related Agreements shall be true, complete and correct in all material respects
on and as of the Closing Date, with the same effect as though such
representations and warranties had been made on and as of such date, and the
general partner of the Purchaser shall have certified in writing to the Company
to such effect.
(b) The Purchaser's Performance. The Purchaser shall have
performed and complied in all material respects with all covenants and
agreements contained in the Related Agreements required to be performed or
complied with by it prior to or at the Closing Date and the general partner of
the Purchaser shall have certified to the Company in writing to such effect and
to the further effect that the conditions set forth in clauses (a) and (b) of
this Section 4.01 have been satisfied.
(c) Supporting Documents. The Company shall have received copies
of the following documents:
(i) (A) the Certificates of Limited Partnership and the
Limited Partnership Agreement, both certified as of a recent date by a member
of the Purchaser and (B) certificates of the Secretary of State of the State of
Delaware dated as of a recent date as to the due organization and good standing
of the Purchaser and its general partner.
(ii) such additional supporting documents and other
information with respect to the operations and affairs of Purchaser as the
Company or its counsel may reasonably request.
(d) Litigation. As of such Closing Date, there shall not (i) be
in effect any judgment, order, injunction or decree of any court of competent
jurisdiction, the effect of which is to
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prohibit or restrain the consummation of the transactions contemplated by this
Agreement or award any material damages (after taking into account any damages
for which full insurance coverage is not in dispute) with respect to the
transactions contemplated by this Agreement or (ii) be pending any action or
proceeding by a governmental authority which seeks any of the foregoing.
(e) No Change in Law. There shall not have been any action, or
any statute enacted, by any government or agency thereof which would in any
material respect prohibit or render the parties unable to consummate the
transactions contemplated hereby or make the transactions contemplated hereby
illegal.
(f) Approvals. All of the Approvals set forth in Schedule 2.08
hereto and bearing an asterisk shall have been received.
(g) Stock Purchase Agreement Conditions. The conditions to the
obligations of the Stockholders to be performed at the Closing of the
transactions contemplated by the Stock Purchase Agreement shall have been
satisfied.
(h) Related Agreements. The Company, the Subsidiaries, the New
L.L.C. and the Stockholders party thereto shall have received each of the
Related Agreements, duly executed, to which the Purchaser is party.
(i) Deliveries. The Purchaser shall have made, or stand willing
to make all of the deliveries required by Section 5.02(a) below.
SECTION 4.02 CONDITIONS TO THE OBLIGATIONS OF THE STOCKHOLDERS. The
obligations of the Stockholders to perform their obligations set forth below on
the Closing Date are subject to the satisfaction or waiver in writing, on or
before the Closing Date, of the conditions to the obligations of the
Stockholders to be performed at the closing of the transactions contemplated by
the Stock Purchase Agreement.
SECTION 4.03 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. The
obligation of the Purchaser to perform its obligations set forth below on the
Closing Date is subject to the satisfaction or waiver in writing, on or before
the Closing Date, of all of the following conditions:
(a) Representations and Warranties of the Company, the
Subsidiaries, and the New L.L.C. to be True and Correct. The representations
and warranties of the Company, the Subsidiaries, the Stockholders and the New
L.L.C. contained in the Related Agreements shall be true, complete and correct
in all respects on and as of the Closing Date, with the same effect as though
such representations and warranties had been made on and as of such date, and
an officer of the Company, the Subsidiaries, the Stockholders and the New
L.L.C. shall have respectively certified in writing to the Purchaser to such
effect.
(b) The Company's, the Subsidiaries', and the New L.L.C.'s
Performance. The Company, the Subsidiaries, the Stockholders and the New
L.L.C. shall have performed and
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complied in all material respects with all covenants and agreements contained
in this Agreement and Related Agreements to be performed prior to the Closing
Date, and an officer of the Company, the Subsidiaries and the Stockholders
shall have respectively certified to the Purchaser in writing to such effect
and to the further effect that the conditions set forth in clauses (a) and (b)
of this Section 4.03 have been satisfied.
(c) Supporting Documents. The Purchaser shall have received
copies of the following documents:
(i) (A) the Second Restated Articles of Incorporation (as
amended) and Second Amended and Restated Bylaws of the Company, both certified
as of a recent date by an officer of the Company and (B) certificates of the
Secretary of State of the State of Delaware and of the State of California
dated as of a recent date respectively certifying as to the due organization
and good standing in Delaware and qualification in California of the Company.
(ii) (A) the Certificate of Formation and the Limited
Liability Company Agreement of the New L.L.C., both certified as of a recent
date by a member of the New L.L.C. and (B) certificates of the Secretary of
State of the State of Delaware and of the State of California dated as of a
recent date respectively certifying as to the due organization and good
standing in Delaware and qualification in California of the New L.L.C.
(iii) a certificate of the Secretary or an Assistant
Secretary of the Company and the Subsidiaries dated the Closing Date and
certifying: (A) that attached thereto is a true and complete copy of all
resolutions adopted by the Board of Directors of the Company and the
Subsidiaries, as required, authorizing the execution, delivery and performance
by the Company and the Subsidiaries of this Agreement and (B) that such
resolutions are in full force and effect.
(iv) such additional supporting documents and other
information with respect to the operations and affairs of the Company and the
Subsidiaries or the New L.L.C. as the Purchaser or its counsel may reasonably
request.
(d) Litigation. As of the Closing Date, there shall not (i) be in
effect any judgment, order, injunction or decree of any court of competent
jurisdiction, the effect of which is to prohibit or restrain the consummation
of the transactions contemplated by this Agreement or award any material
damages (after taking into account any damages for which full insurance
coverage is not in dispute) with respect to the transactions contemplated by
this Agreement or (ii) be pending any action or proceeding by a governmental
authority which seeks any of the foregoing.
(e) No Change in Law. There shall not have been any action, or
any statute enacted, by any government or agency thereof which would in any
material respect prohibit or render the parties unable to consummate the
transactions contemplated hereby or make the transactions contemplated hereby
illegal.
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(f) No Material Adverse Change. There shall have occurred since
February 28, 1997 (the "Balance Sheet Date") no Material Adverse Effect
provided, however, that a writeoff of up to Eight Million Dollars ($8,000,000)
of the book value of the Company shall not be considered in determining whether
there has been a Material Adverse Effect.
(g) Stock Purchase Agreement Conditions. The conditions to the
obligations of the Purchaser to be performed at the Closing of the transactions
contemplated by the Stock Purchase Agreement shall have been satisfied.
(h) Related Agreements. The Purchaser shall have received each of
the Related Agreements, duly executed and delivered by the Company, the
Subsidiaries, the New L.L.C. and the Stockholders party thereto.
(i) Asset Transfer. The New L.L.C. shall have received good and
marketable title to each of the Transferred Assets subject only to liens and
encumbrances of record and other customary liens and encumbrances and free of
any additional liens resulting from the transactions contemplated to take place
at the Closing other than those described in Section 2.14(b) above.
(j) Approvals. The Purchaser shall have received certified copies
of all Approvals set forth on Schedule 2.08 and bearing an asterisk.
(k) Deliveries. The Company and the Stockholders shall have made,
or stand willing to make, all of the deliveries required by Sections 5.02(b)
and (c) below.
(l) Makarechian Agreement. Hadi Makarechian ("Makarechian") shall
have executed and delivered the side letter agreement (the "Makarechian
Agreement") between Makarechian and the Purchaser in the form previously
negotiated. The representations and warranties of Makarechian contained in the
Makarechian Agreement shall be true, complete and correct in all respects on
and as of the Closing Date, with the same effect as though such representations
and warranties had been made on and as of such date. Makarechian shall have
performed and complied in all material respects with all covenants and
agreements contained in the Makarechian Agreement to be performed prior to the
Closing Date.
ARTICLE V
THE CLOSING
SECTION 5.01 CLOSING DATE.
The Closing Date shall be the later of (i) October 1, 1997 and (ii)
the date upon which the conditions to the respective obligations of the Company
and the Purchaser have been satisfied or waived in writing.
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SECTION 5.02 DELIVERIES AT CLOSING. On the Closing Date on the terms and
subject to the conditions of this Agreement:
(a) The Purchaser shall:
(i) contribute, by wire transfer of immediately available
funds, the sum of Thirty Million Dollars ($30,000,000) to an account of the New
L.L.C. specified in writing by the Company;
(ii) deliver to the Escrow Agent a signed counterpart of
the joint escrow instructions in the form of Exhibit A to the Escrow Agreement
(the "Joint Escrow Instructions");
(iii) execute and deliver a signed counterpart of the New
L.L.C. Agreement in the form of Exhibit A, provided however, that Exhibit D to
such New L.L.C. Agreement is subject to change in the discretion of the Company
to reflect the writeoff described in Section 2.13 hereof (or any portion
thereof) provided that there shall be no change in the aggregate Percentage
Interest (as defined therein) of the Company and the Subsidiaries;
(iv) execute and deliver a signed counterpart of the
Registration Rights Agreement;
(v) execute and deliver such other documents, agreements
and certificates as are reasonably necessary to document the transactions
contemplated by this Agreement.
(b) The Stockholders shall deliver to the Escrow Agent an executed
counterpart of the Joint Escrow Instructions.
(c) The Company shall:
(i) deliver an executed counterpart of the New L.L.C.
Agreement in the form of Exhibit A (with any change contemplated by Section
5.02(a)(iii) above);
(ii) execute and deliver a signed counterpart of the
Registration Rights Agreement;
(iii) cause Hadi Makarechian to execute and deliver the
Makarechian Agreement; and
(iv) execute and deliver such other documents, agreements
and certificates as are reasonably necessary to document the transactions
contemplated by this Agreement.
(d) The New L.L.C. shall execute and deliver to the Company such
documents, agreements and certificates including assumptions of liabilities as
are reasonably necessary to document the transactions contemplated by this
Agreement.
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ARTICLE VI
CERTAIN AGREEMENTS BETWEEN THE COMPANY
AND THE PURCHASER AND FARALLON
SECTION 6.01 NON-COMPETE AND NON-SOLICITATION.
In consideration of the access to confidential and proprietary information
regarding the business operations of the Company to which Purchaser shall have
access as the result of the transactions contemplated by the Related
Agreements, the Purchaser agrees that during the Restrictions Period (as
defined below) (i) it shall not, directly or indirectly, conduct or invest in
any tract homebuilding or production homebuilding activity (but excepting any
land development activity even if for the ultimate purpose of homebuilding)
within a 100 mile radius of any current or future project of the Company, the
New L.L.C. or any Future Affiliate or Mirror Company or of any real property
which is the subject of any purchase agreement or option contract to which the
Company or any of the Subsidiaries or the New L.L.C. or any Future Affiliate or
Mirror Company is at any time a party provided however, that in the event any
such activity by the Purchaser was commenced prior to the acquisition of any
such project or the entering into of such purchase agreement or option contract
of the Company, the New L.L.C., any Future Affiliate or any Mirror Company, the
continuation of such activity of the Purchaser shall not be a breach of this
Section 6.01; and (ii) it shall not directly or indirectly hire or solicit the
hiring of any current or future employee of the Company, the New L.L.C. or any
Future Affiliate or Mirror Company. The Purchaser shall cause all of its
affiliates directly or indirectly controlled by Farallon Capital Management,
L.L.C. ("Farallon Controlled Affiliate") to comply with the foregoing
restrictions. The Purchaser acknowledges that the breach of this Section 6.01
shall cause irreparable harm to the Company, the New L.L.C. or a Future
Affiliate or Mirror Company as the case may be, which harm cannot be
reasonably, adequately or fully redressed by the payment of damages.
Accordingly, the Company shall be entitled, in addition to any other right it
may have in law or in equity, to an injunction enjoining the Purchaser and the
Farallon Controlled Affiliates from any breach or threatened breach of this
Agreement. Purchaser hereby waives the defense in any equitable proceeding
that there is an adequate remedy at law for any such breach and Purchaser shall
cause the Farallon Controlled Affiliates described above to waive such defense.
The "Restrictions Period" shall mean the period from the Closing Date until one
year from the date on which the Purchaser is entitled to a direct and indirect
interest in any Mirror Company as the result of Section 6.02(d) below which is
less than ten percent (10%).
SECTION 6.02 CONDUCT OF COMPANY BUSINESS.
(a) Existing Business. The Company and the Subsidiaries agree
that they will, and the Stockholders will cause the Company and the
Subsidiaries to, conduct all of the business of the Company and the
Subsidiaries and all other subsidiaries of the Company existing as of the
Closing Date (the "Existing Business") exclusively through the New L.L.C.
(which conduct of business shall for the purposes of this Section 6.02 include
the delegations of functions to certain Subsidiaries of the Company
contemplated by Section 3.4(a) of the New L.L.C. Agreement).
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<PAGE> 16
(b) Future Business. The Company and the Subsidiaries agree that
they will, and the Stockholders will cause the Company and the Subsidiaries and
all other subsidiaries of the Company and the Subsidiaries to, conduct all
business (for avoidance of doubt, this shall include all future business
activities of the Company and the Subsidiaries) other than the Existing
Business ("New Business") exclusively through the New L.L.C. or through one or
more Mirror Companies as further set forth in Section 6.02(c) below. The
Company, the Subsidiaries and the Stockholders agree that a "Mirror Company"
shall mean a limited liability company (or limited partnership for projects in
Texas or other states in which a substantial tax or other benefit to the
Purchaser or the Company makes use of a limited partnership more reasonable)
formed by the Purchaser and the Company and the Subsidiaries. The Company, the
Subsidiaries and the Stockholders agree that (1) each Mirror Company operating
agreement shall be in the form of the operating agreement attached hereto as
Exhibit C (appropriately conformed if the entity is a limited partnership) and
that the Company, the Subsidiaries and the Purchaser shall enter into each such
operating agreement, and (2) each Mirror Company will be structured so as to be
a pass-through entity for federal and state tax purposes. The Company, the
Subsidiaries and the Stockholders acknowledge and agree the Purchaser's right
to an interest in each Mirror Company as set forth in Exhibit C and Section
6.02(d) in consideration of the capital contribution of $30,000,000 by the
Purchaser to the New L.L.C.
(c) Structure of New Business. The parties agree that:
(i) New Business which consists of a new project requiring $1
million or less in New Capital (as defined below) shall be (x) subject to the
approval of the Purchaser, which approval shall not be unreasonably withheld
or delayed (provided, however, that in the event that the New L.L.C. is in a
25% Net Cash Flow Deficit Position as defined in the New L.L.C. Agreement, then
such consent may be withheld by Purchaser in its sole discretion) and (y), if
the Purchaser consents as provided in clause (x), conducted in the New L.L.C.
or, where it is commercially reasonable to do so (taking into account without
limitation the acquisition, development and construction financing needs of the
New L.L.C. and such project), in a Mirror Company or a wholly-owned limited
liability company or limited partnership subsidiary of the New L.L.C.;
(ii) New Business not approved by the Purchaser as provided in
clause (i)(x) and New Business in each case which consists of a new project
which requires New Capital in excess of $1 million which the Purchaser declines
to provide pursuant to Section 6.03 below shall be (x) conducted through a
limited liability company or limited partnership (a "Future Affiliate") in
which a Mirror Company and the source of such New Capital shall be the members
or partners, and (y) the form of limited liability company or partnership
agreement of the Future Affiliate and the terms on which such New Capital is
obtained shall be as agreed between the Company and the source of such New
Capital; and
(iii) which consists of a new project which requires Outside
Capital in excess of $1 million which the Purchaser elects to provide shall be
conducted through a Future Affiliate (x) in which a Mirror Company and the
Purchaser shall be the members or partners, and (y) which is governed by an
operating agreement substantially in the form of Exhibit D hereto
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<PAGE> 17
and on economic terms determined in accordance with Section 6.03 below. For
purposes of this Agreement, the term "New Capital" means any and all financing,
whether debt or equity, including borrowings by the Company, guaranties and
other recourse financial obligations, other than credit lines available from
time to time (other than any credit lines or amendments obtained with respect
to such specific New Business).
(d) Ownership. The percentage membership or partnership interest
of the Purchaser and the Company and the Subsidiaries in any Mirror Company
shall be identical at all times to such entity's membership interest in the New
L.L.C., i.e., immediately upon the consummation of the transactions
contemplated to take place on the Closing Date, 32.07% for the Purchaser and
67.93% for the Company and the Subsidiaries collectively. In the event of any
transaction in which any Company Interests of either the Company and the
Subsidiaries, on the one hand, or the Purchaser on the other are transferred or
any new membership or partnership interests in the New LLC or any Mirror
Company are issued or redeemed, the Company and the Purchaser shall agree in
writing on the effect of such transaction on (x) the foregoing percentages, and
(y) the percentages set forth in Sections 7.02(a) and 7.03 hereof. In the
event of any transaction in which any Common Stock owned by the Purchaser or
the Stockholders is transferred, or any Common Stock is issued or redeemed, the
Company Percentage described in Section 7.03 shall be adjusted accordingly. In
addition to the foregoing direct ownership of any Mirror Company, the Purchaser
shall indirectly participate in any Mirror Company through its then ownership
of Common Stock (immediately upon the consummation of the transactions
contemplated to take place on the Closing Date, the indirect participation
shall equal 10.69%).
(e) The "Company Interests." The membership and partnership
interests of either the Company and the Subsidiaries or the Purchaser in the
New L.L.C. and any Mirror Company shall collectively be referred to herein as
their respective "Company Interests."
SECTION 6.03 RIGHT OF FIRST OPPORTUNITY ON FINANCING.
(a) In the event the Company wishes to pursue any New Business
opportunity requiring New Capital in excess of $1 million (a "Financing
Opportunity") it shall give Purchaser a reasonable opportunity to furnish such
financing provided the Company shall have no obligation to Purchaser whatsoever
in connection with any Financing Opportunity which was brought to the Company's
attention by a third party willing, and in the Company's reasonable judgment,
such third party is financially able to provide all of such financing.
(b) With respect to such Financing Opportunities, the Company
shall advise the Purchaser promptly thereof and shall provide Purchaser such
reasonably available information in respect of the Financing Opportunity as is
reasonably requested by Purchaser. Purchaser shall have a fifteen (15)
Business Day period from the receipt of such information in which to make an
offer with respect to any Financing Opportunity. If Purchaser makes an offer
in respect of an Financing Opportunity and if such offer is acceptable to the
Company in its sole discretion, then Purchaser shall be granted such Financing
Opportunity.
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<PAGE> 18
(c) In the event (i) Purchaser declines or does not accept any such
Financing Opportunity within fifteen (15) Business Days of Purchaser's having
received all information available to the Company as is reasonably necessary to
Purchaser's determination whether to express or decline interest in such
Financing Opportunity; or (ii) the Company declines the offer which Purchaser
makes to accept such Financing Opportunity, the Company shall be free to
pursue such Financing Opportunity within sixty (60) days of the events
described in subparagraphs (i) or (ii), as the case may be, on such terms and
with such financing as it shall determine in its sole discretion, provided,
however, that the Company may not without complying again with the terms of
this Section 6.03 accept terms which are on balance less favorable to the
Company than any terms offered by the Purchaser within such fifteen (15)
Business Day period.
(d) This Section 6.03 shall have no further force or effect after the
end of the Restrictions Period.
SECTION 6.04 POTENTIAL TAX RESTRUCTURING.
The Stockholders, the New L.L.C. and the Company agree to consider in
good faith any reasonable proposal which may be made by Purchaser to
restructure its ownership interest in the Company into an equity interest in a
pass-through entity for federal and state tax purposes provided that any such
restructuring shall be at Purchaser's expense and shall not adversely affect
the interests of the shareholders of the Company (including the Stockholders)
or the respective rights of the Stockholders and the Company under the Related
Agreements.
SECTION 6.05 MINORITY CONTROLS.
(a) Business Plan. The Company shall conduct its operations through
the New L.L.C. pursuant to the New L.L.C.'s Business Plan as described in the
New L.L.C. Agreement. The "Business Plan" as referred to herein shall be the
New L.L.C.'s Business Plan as defined in the New L.L.C. Agreement and the
respective business plans of the Mirror Companies and Future Affiliates as
described in their respective operating or partnership agreements.
(b) LLC Vetoes. The Company shall not, and shall cause the New L.L.C.
and each Mirror Company not to, take any action for which consent of the
Purchaser is required under the terms of the New L.L.C. Agreement or under the
similar terms of any Mirror Company's operating or partnership agreement
without the consent of the Purchaser, which consent shall not, except as
otherwise expressly provided in any such agreement, be unreasonably withheld or
delayed.
(c) Overhead Allocation. It is contemplated in the New L.L.C.
Agreement that the Company and the Subsidiaries shall perform certain
management and construction services for the New L.L.C. and the Company and the
Purchaser contemplate that such services shall also be provided by the Company
and the Subsidiaries (or by the New L.L.C.) to Mirror Companies and Future
Affiliates under the corresponding provisions of each such entity's operating
or partnership agreement. All such services to the New L.L.C. and any Mirror
Company are to be provided at the Company's, such Subsidiaries' and, if
applicable, the New L.L.C.'s respective
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costs plus a nominal fee. The Company and the Subsidiaries agree that they
shall allocate or cause to be allocated such costs and nominal fees among such
entities and the Future Affiliates on a commercially reasonable basis.
(d) Minority Provisions with Respect to the Company. The Company, the
New L.L.C., the Stockholders, the Subsidiaries and the Purchaser agree that the
Company shall not, nor shall the Stockholders permit the Company to, do any of
the following without the consent of the Purchaser:
(i) financing or encumbering any material assets of the
Company other than in the course of the business of any New L.L.C., any Future
Affiliate or any Mirror Company;
(ii) acquiring or disposing of any material assets, licenses
or other property other than in the course of the business of any New L.L.C.,
any Future Affiliate or any Mirror Company, and other than the acquisition or
disposal of membership interests in the New L.L.C. or Mirror Company or any
Future Affiliate or Mirror Company (the transfer of which is subject to
separate restrictions in the New L.L.C. Agreement and Section 6.06 above);
(iii) making, executing or delivering any guarantee, indemnity
bond, or surety bond, or obligating the Company as surety, guarantor or
accommodation party financing or encumbering any material assets of the Company
other than in the course of the business of any New L.L.C., any Future
Affiliate or any Mirror Company;
(iv) extending any credit on behalf of the Company to any
person, firm or corporation other than in the ordinary course of business of
the New L.L.C., any Future Affiliate or any Mirror Company;
(v) entering into any transaction with any affiliate of the
Company, the Subsidiaries, the Stockholders or the New L.L.C. except which are
separately addressed in this Section 6.05(d), (x) as contemplated by any of the
Related Agreements, (y) transactions in the ordinary course of the business of
the Company reasonably consistent with its past practices, or (z) transactions
which are not material to the Company;
(vi) making any distribution or dividend of any property
(other than cash) or allow any shareholder to possess any Company assets for a
legitimate Company purpose;
(vii) issue any shares of capital stock or other rights to
acquire any capital stock of the Company or repurchase or redeem any shares of
the Company's capital stock or other securities of the Company other than
issuances of Common Stock on terms which have been offered to and not accepted
by the Purchaser;
(viii) permit the Company to merge or consolidate with any
other entity except for any such transaction in which the Company is the
surviving entity or which does not materially adverse affect the shareholders
of the Company;
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(ix) increase the base salary paid by the Company to any
person employed by the Company, or by the New L.L.C., by any Mirror Company or
by any Future Affiliate, who owns or controls in excess of three percent (3%)
of the total equity of the Company by a factor in excess of five percent (5%)
of the amount paid to such person in the immediately preceding fiscal year of
the Company or change the basis on which any bonus or similar compensation is
paid to any such person in a manner which would increase such bonus or similar
compensation in any material respect.
(e) Limitations. Section 6.05(d) shall have no further force or
effect after the end of the Restrictions Period. Nothing in any of the Related
Agreements is intended to in any way restrict the Company's discretion over any
cash of the Company (or the proceeds thereof) which is available for
dividending to its shareholders (including available cash which has been
distributed from the New L.L.C., or any Mirror Company) or to create in
Purchaser any interest in any such cash (or the proceeds thereof) other than
its interest as a shareholder of the Company.
SECTION 6.06 L.L.C. INTEREST TAG-ALONG.
(a) The definitions set forth in this Section 6.06 shall apply only to
this Section and not generally in this Agreement.
(b) Subject to the limitations set forth below, in the event the
Purchaser, on the one hand, or the Company and the Subsidiaries, on the other
hand, (the Company and the Subsidiaries collectively, or the Purchaser, being
the "Prospective L.L.C. Seller") shall receive a bona fide offer (an "Offer")
from a third party (a "Third Party") to purchase all or a portion of the
Company Interests (the "Owned Interests") owned by such Prospective L.L.C.
Seller and such Prospective L.L.C. Seller shall be willing to accept such
Offer, such Prospective L.L.C. Seller shall give notice thereof (the "Third
Party Notice") to the Purchaser or the Company, as the case may be (the
"Offeree"), describing the price and all other material terms and conditions of
the Offer. Each Offeree shall have the right and option, for a period of
twenty (20) business days after the Third Party Notice is deemed given as
herein provided, by giving the Prospective L.L.C. Seller written notice (the
"Notice of Election"), to sell to the Third Party a pro rata portion of its
Owned Interests based on the Owned Interests owned respectively by the
Prospective L.L.C. Seller and the Offeree for the same consideration and
otherwise on the same terms and conditions as contained in the Offer. The
amount of Owned Interests to be sold by any Prospective L.L.C. Seller shall be
reduced to the extent necessary to provide for such sales of Owned Interests by
the Offeree. The Prospective Seller may not sell any Owned Interests unless
any Offeree electing to be included in the sale in accordance with the terms
hereof sells at the same time and on the same terms as the Prospective Seller.
(c) At the closing of any proposed transfer pursuant to the Offer, the
Prospective L.L.C. Seller, together with the Offeree if it has elected to sell
Owned Interests pursuant to such Offer, shall deliver to the Third Party
certificates and/or other instruments representing the Interests to be sold,
free and clear of all liens and encumbrances and shall receive in exchange
therefor the consideration to be paid or delivered by the Third Party in
respect of such Owned Interests as described in the Third Party Notice.
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(d) The Prospective L.L.C. Seller and the Offeree electing to
participate in the Offer each shall bear their respective expenses (including,
without limitation, legal expenses) incurred in connection with such sale.
(e) If an Offeree shall not have given as provided herein a Notice of
Election pursuant to this Section 6.06 with respect to any Offer Notice, such
Offeree will be deemed to have waived all its rights under this Section 6.06
with respect to the transaction specified in such Third Party Notice.
(f) This Section 6.06 shall have no application to any transfer of
Interests to an entity controlled by or under common control with the
transferor provided that such affiliate transferee agrees to be bound by this
Section 6.06 to the same extent as was the transferor as evidenced by a written
adoption of the relevant provision of this Agreement in a form satisfactory to
the Purchaser or the Company, as the case may be.
(g) Any sales subject to this Section 6.06 shall be subject to the
receipt of any consents required under the Related Agreements or under any
limited partnership, limited liability company or operating agreement governing
such entity whose interests are to be transferred.
ARTICLE VII
CERTAIN AGREEMENTS AMONG THE STOCKHOLDERS
AND THE PURCHASER
The following agreements shall have effect from and after the Closing
Date until the date on which either the Stockholders, on the one hand, or the
Purchaser, on the other, is no longer the owner of any Common Stock or Company
Interests.
SECTION 7.01 TAG-ALONG.
(a) Subject to the limitations set forth below, in the event the
Purchaser, on the one hand, or any of the Stockholders, on the other hand,
(each a "Prospective Seller") shall receive a bona fide offer (an "Offer")
from a third party (a "Third Party") to purchase all or a portion of the
Common Stock of the Company (the "Owned Stock") owned by such Prospective
Seller and such Prospective Seller shall be willing to accept such Offer, such
Prospective Seller shall give notice thereof (the "Third Party Notice") to the
Purchaser or the Stockholders, as the case may be (the "Offeree"), describing
the price and all other material terms and conditions of the Offer. Each
Offeree shall have the right and option, for a period of twenty (20) business
days after the Third Party Notice is deemed given as herein provided, by giving
the Prospective Seller written notice (the "Notice of Election"), to sell to
the Third Party a pro rata portion of its Owned Stock based on the number of
shares of Owned Stock owned respectively by the Prospective Seller and the
Offeree for the same consideration and otherwise on the same terms and
conditions as contained in the Offer or, in case the Purchaser is the Offeree,
the Purchaser shall be entitled to sell to the Third Party a pro rata portion
of (x) its Owned Stock for the same consideration and otherwise on the same
terms and conditions as set forth in the Offer, or, at the Purchaser's option,
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(y) its Company Interests (the "Owned Interests") for substantially equivalent
consideration and otherwise on the same terms and conditions as set forth in
the Offer; provided, however, that in the event the Third Party is unwilling or
unable to purchase the Owned Interests, the Stockholders, the Company, the New
L.L.C. and the Purchaser agree to use their respective best efforts to cause
the Company and the New L.L.C. to exchange the Owned Interests for 32.07% (as
reduced to take into account that Purchaser would be selling only its pro rata
portion of such transaction with the Third Party and adjusted pursuant to the
terms of this Agreement and to take into account any future issuance of Common
Stock by the Company) of the outstanding Common Stock in a commercially
reasonable tax-efficient manner at the Purchaser's expense, in which case the
Purchaser shall be entitled to sell such shares of Common Stock to the Third
Party Offeree for the same consideration and otherwise on the same terms and
conditions as set forth in the Offer. The amount of Owned Stock to be
transferred by the prospective Seller shall be reduced to the extent necessary
to provide for such sales by the Offeree. The Prospective Seller may not sell
any Owned Stock or Owned Interests unless any Offeree electing to be included
in the sale in accordance with the terms hereof sells at the same time.
(b) At the closing of any proposed transfer pursuant to the Offer, the
Prospective Seller, together with the Offeree if it has elected to sell Owned
Stock or Owned Interests pursuant to such Offer, shall deliver to the Third
Party certificates and/or other instruments representing the Stock or Owned
Interests to be sold, free and clear of all liens and encumbrances, together
with stock or other appropriate powers duly endorsed therefor, and shall
receive in exchange therefor the consideration to be paid or delivered by the
Third Party in respect of such Stock or Owned Interests as described in the
Third Party Notice.
(c) The provisions of this Section 7.01 shall not apply to any
transfer of Owned Stock to any person pursuant to (i) a public offering by the
Company which includes a secondary offering by a Prospective Seller or a
secondary offering by the Purchaser in accordance with its registration rights
pursuant to the Registration Rights Agreement; (ii) a transaction effected
pursuant to Rule 144 promulgated under the Securities Act of 1933; (iii) a
transaction involving a gift or for estate or personal financial planning
purposes not involving any cash or other financial consideration provided that
any transferee agrees to be bound by this Agreement to the same extent as was
the transferor as evidenced by a written adoption of the relevant provisions of
this Agreement by such transferee in a form reasonably satisfactory to the
Purchaser if the Stockholder is transferring, or the Stockholder if the
Purchaser is transferring, as the case may be (a "Transferee Adoption"); (iv) a
transaction involving a transfer to an entity controlled by or under common
control with the Prospective Seller (other than the Company, the Subsidiaries,
the New L.L.C. or any Future Affiliate) or (v) a transaction which results in
proceeds which in the aggregate with all other transfers after the Closing Date
by such Prospective Seller are not in excess of Three Million Dollars
($3,000,000). The Prospective Seller and the Offeree electing to participate
in the Offer each shall bear their respective expenses (including, without
limitation, legal expenses) incurred in connection with such sale.
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(d) If an Offeree shall not have given as provided herein a Notice of
Election pursuant to this Section 7.01 with respect to any Offer Notice, such
Offeree will be deemed to have waived all its rights under this Section 7.01
with respect to the transaction specified in such Third Party Notice.
(e) Except as expressly provided in this Section 7.01, the Prospective
Seller shall not have any obligation to any Offeree with respect to the sale of
any Owned Stock owned by such Prospective Seller in connection with this
Section 7.01. Anything herein to the contrary notwithstanding and irrespective
of whether any Notice of Election shall have been given as herein provided, the
Prospective Seller shall not have any obligation to any Offeree to sell any
Owned Stock or Owned Interests pursuant to this Section 7.01 if such
Prospective Seller decides not to accept or consummate any Offer with respect
to its Owned Stock (it being understood that any and all such decisions shall
be made by such Prospective Seller in its sole discretion).
SECTION 7.02 RIGHT OF FIRST NEGOTIATION.
(a) If at any time the Purchaser or any Farallon Controlled Affiliate
purchases from any Third Party or on an exchange or the over-the-counter market
shares of Common Stock, the Purchaser shall, simultaneously with the
consummation of such purchase, give written notice to the Stockholders
specifying the total number of shares the Purchaser or such Farallon Controlled
Affiliate purchased and the purchase price for such number of shares. Such
written notice shall constitute an offer to purchase (the "Offer to Purchase")
two times the amount of such shares from the Stockholders at the same prices
paid by Purchaser or such Farallon Controlled Affiliate for such shares, who
shall have ten Business Days to accept or decline such Offer to Purchase. If
the Stockholders accept such Offer to Purchase, the transaction shall be
consummated within ten Business Days of such acceptance and allocated between
the Stockholders as specified by CPH3, L.L.C. If the Stockholders decline or
fail to accept such Offer to Purchase such shares, then the Purchaser shall be
free for a ninety (90) day period to purchase the number of shares of Common
Stock as were the subject of the Offer to Purchase from any Third Party or on
an exchange or the over-the counter market or otherwise, but in each case, on
terms no less favorable to the Purchaser as the terms of such Offer to
Purchase, provided, however, that in the event of any such purchases on an
exchange or the over-the counter market, such purchases may be at a price of up
to 120% of the price specified in the Offer to Purchase. Any purchases by
Purchaser not completed within such ninety (90) day period or on such terms
shall be completed only through compliance again with the provisions of this
Section 7.02(a).
(b) If at any time the Stockholders or any affiliate controlled by or
under common control with any Stockholder shall have purchased any additional
shares of Common Stock, the Stockholders shall give written notice to the
Purchaser of such purchase specifying the total number of shares the
Stockholders have purchased and the purchase price for such number of shares.
Such notice shall constitute an offer to purchase (the "Stockholder Offer to
Purchase") two times the amount of such shares from the Purchaser at the same
prices as for the shares so purchased, who shall have ten Business Days to
accept or decline such Stockholder Offer to Purchase. If the Purchaser accepts
such Stockholder Offer to Purchase, the transaction shall be consummated within
ten Business Days of such acceptance. If the Purchaser declines or fails to
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accept such Stockholder Offer to Purchase, then the Stockholders shall be free
for a ninety (90) day period to sell such shares of Common Stock to any Third
Party or on an exchange or the over-the-counter market on terms no less
favorable to the Stockholder as the terms of such Stockholder Offer to
Purchase, provided, however, that in the event of any such purchases on an
exchange, such purchases may be at a price of up to 120% of the price specified
in the Stockholder Offer to Purchase. Any purchases by Stockholders not
completed within such ninety (90) day period or on such terms shall be
completed only through compliance again with the provisions of this Section
7.02(b).
SECTION 7.03 BUY-SELL AGREEMENT.
(a) Defined Terms. For the purposes of this Section 7.03, the
Purchaser and the Stockholders are referred to collectively as the "Parties"
and individually as a "Party," the Company, the New LLC and each Mirror Company
and Future Affiliate and any entity in which the New LLC or any Mirror Company
or Future Affiliate may own stock, membership interests, partnership interests
or other ownership interests as of the date that an Election Notice (as defined
below) is given are referred to collectively as the "Entities" and individually
as an "Entity," and all right, title and interest in the Company, the New LLC,
each Future Affiliate and each Mirror Company owned by the Stockholders and
their affiliates (other than the Company or any of the Subsidiaries or any
Mirror Company or Future Affiliate) on one hand, and by the Purchaser and its
affiliates (other than the Company or any of the Subsidiaries or any Mirror
Company or Future Affiliate) on the other hand, as of the date that an Election
Notice is given are referred to collectively as the "Entity Interests."
(b) Buy-Sell Election. Either the Stockholders or the Purchaser may
elect to resort to the buy-sell procedure set forth in this Section 7.03 at any
time after the expiration of thirty-six (36) months following the date of this
Agreement (the "Buy-Sell Date"). At any time from and after the Buy-Sell Date,
either the Stockholders or the Purchaser (the "Offering Party") may elect to
trigger the provisions of this Section 7.03 by delivering a written notice of
its election (the "Election Notice") to the other Party (the "Non-Offering
Party"). The Election Notice shall set forth the aggregate value of the
Entities (the "Value") determined in the Offering Party's sole discretion. The
date on which the Election Notice is received by the Non-Offering Party is the
"Election Date."
(c) Non-Offering Party's Election. Within 30 days after the Election
Date, the Non-Offering Party shall elect by written notice to the Offering
Party either to (i) purchase the Entity Interests of the Offering Party and its
affiliates (other than the Company or any of the Subsidiaries or any Mirror
Company or Future Affiliate) for a cash purchase price equal to the Purchase
Price, or (ii) sell the Entity Interests of the Non-Offering Party and its
affiliates (other than the Company or any of the Subsidiaries or any Mirror
Company or Future Affiliate) to the Offering Party for a cash purchase price
equal to the product of (A) the Purchase Price, multiplied by (B) 110%. If the
Non-Offering Party shall not respond within such 30-day period, the
Non-Offering Party shall be deemed to have elected to sell its Entity Interests
to the Offering Party. The Election Notice and the Non-Offering Party's
election (or deemed election) shall constitute each such Party's waiver of any
right it may otherwise have under the Related Agreements to consent or object
to any transfer of Entity Interests which is contemplated by such notice and
election.
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<PAGE> 25
(d) Purchase Price. For purposes of this Section 7.03, the "Purchase
Price" shall mean an amount equal to the sum of:
(i) the product of (A) the Applicable Percentage, multiplied by
(B) the excess of (I) the Value, over (II) the amount of non-distributed cash
held by the Company on the Buy-Sell Transfer Date (the "Non-Distributed Cash"),
plus
(ii) the product of (A) the Company Percentage, multiplied
by (B) the amount of the Non-Distributed Cash.
(e) Percentage Definition.
(i) For purposes of this Section 7.03, the term "Applicable
Percentage" shall initially mean (A) 42.76% if the Purchaser is the seller of
its Entity Interests and (B) 37.67% if the Stockholders are the sellers of
their Entity Interests; provided, however, that the Applicable Percentages
shall be subject to change from time to time in accordance with Section
6.02(d).
(ii) For purposes of this Section 7.03, the term "Company
Percentage" initially shall mean (A) 16.57% if the Purchaser is the seller of
its Entity Interests and (B) 58.38% if the Stockholders are the sellers of
their Entity Interests; provided, however, that the Company Percentage shall be
subject to adjustment as provided above in Section 6.02(d) above including,
without limitation, as the result of exercise of the warrants described in
Section 2.06(b) of the Stock Purchase Agreement.
(f) Buy-Sell Purchase Agreement; Defaults. Immediately upon the
Non-Offering Party's election or deemed election to buy or sell pursuant to
Section 7.03(c), the selling Party(ies) and the purchasing Party shall enter
into a purchase agreement in reasonable form to carry out the provisions of
this Section 7.03 (the "Buy-Sell Purchase Agreement"). The Buy-Sell Purchase
Agreement shall contain representations and warranties as to such transactions
by each of the selling Party(ies) and the purchasing Party substantially the
same (i.e., revised to reflect the parties involved, their names, respective
type of entity and interests owned and the like) as the representations and
warranties set forth in the Stock Purchase Agreement. In the event of a
default in any material respect by the purchasing Party, the selling Party(ies)
may (i) elect, by written notice to the defaulting purchasing Party to purchase
the interest of the purchasing Party, within thirty (30) days after such
notice, for a purchase price equal to ninety percent (90%) of the Purchase
Price the purchasing Party would have received were the purchasing Party
instead the selling Party pursuant to the election made by the Non-Offering
Party pursuant to Section 7.03(c), or (ii) pursue any other remedy available
under applicable law including, without limitation, injunctive relief. In the
event of a default in any material respect by the selling Party(ies), the
purchasing Party may pursue any remedy available under applicable law
including, without limitation, injunctive relief.
(g) Closing Matters. The closing of the purchase and sale pursuant to
Section 7.03 shall be held at such place as is agreed upon by the selling
Party(ies) and purchasing Party (or, failing such agreement, at the principal
place of business of the Company) within sixty (60) days after the
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<PAGE> 26
Non-Offering Party's election or deemed election to sell or ninety (90) days
after the Non-Offering Party's election to purchase (the date of such closing
being herein called the "Buy-Sell Transfer Date"). At the closing, the selling
Party(ies) shall deliver to the purchasing Party assignments which shall be
sufficient to transfer good title to the Entity Interests being transferred,
free and clear of all liens, encumbrances, claims, rights and options of any
kind or character whatsoever and otherwise in form reasonably satisfactory to
both the selling Party(ies) and purchasing Party; the purchasing Party shall
deliver to the selling Party(ies) by certified or cashier's check or wire
transfer of immediately available federal funds the purchase price, determined
as set forth above, as adjusted by the prorations and credits set forth below,
and increased by an interest factor equal to interest on the purchase price at
the rate of 10% per annum, compounded quarterly, from the Election Date until
the Buy-Sell Transfer Date; and the parties shall split closing costs
(including any transfer taxes) in the manner prescribed by the Election Notice.
Upon the Buy-Sell Transfer Date, the purchasing Party shall release the selling
Party(ies) from all obligations of the selling Party(ies) under the applicable
agreements governing each Entity and all claims, obligations and liabilities of
the Entities as to which and to the extent recourse against the selling
Party(ies) could be had, in each case whether accruing or arising before or
after the date of the Buy-Sell Transfer Date. Notwithstanding the foregoing,
in no event shall the purchasing Party be obligated to release the selling
Party(ies) from (i) any claims, obligations and liabilities resulting from any
matter which has not been disclosed in writing by the selling Party(ies) to the
purchasing Party prior to the Election Date, or (ii) any matter the release of
which by the purchasing Party would constitute a breach of its fiduciary duty
to the other shareholders of the Company or its affiliates (provided that the
purchasing Party nevertheless shall waive any right to directly or indirectly
share in or benefit from any recovery in connection with the matters excepted
under this clause (ii) from the purchasing Party's release). The purchasing
Party may, at any time prior to such closing, assign to any person,
partnership, limited liability company, corporation or entity its right to
receive the assignment under this Section 7.03 provided such assignee can and
does make the same representations and warranties required of the purchasing
Party under the Buy-Sell Purchase Agreement, but such assignment shall not
relieve purchasing Party of its obligations and liabilities hereunder. It
shall be a condition to closing for the benefit of the purchasing Party that
the selling Party(ies) shall have continued to in all material respects
discharge their respective duties as required under the applicable agreements
governing each Entity until the Closing.
(h) Cooperation and Further Assurances. The Parties agree to
reasonably cooperate and take such actions and cause to be executed such
documents as may be reasonably necessary or appropriate in connection with
carrying out the provisions of this Section 7.03.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 EXPENSES. The Company, on the one hand, and the Purchaser, on
the other, shall each pay its own expenses in connection with the transactions
contemplated by this Agreement, whether or not such transactions shall be
consummated.
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<PAGE> 27
SECTION 8.02 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
(a) Any representation and warranty made herein, or in any certificate
or instrument delivered to the Purchaser pursuant to or in connection with this
Agreement, shall survive the execution and delivery of this Agreement, and the
sale, transfer and delivery of the Shares pursuant to the Stock Purchase
Agreement for a period of eighteen (18) months.
(b) Indemnification for Breaches.
(i) Indemnification by the Company, the Subsidiaries, and
the New L.L.C. Each of the Company, the Subsidiaries, and the New L.L.C.,
jointly and severally, will indemnify the Purchaser and its affiliates and each
of their respective shareholders, partners, members, directors, officers,
employees, agents and Affiliates (collectively, the "Purchaser Indemnified
Persons") against and hold each Purchaser Indemnified Person harmless from any
and all liabilities, losses, damages, costs, expenses (including without
limitation, reasonable attorneys' fees and expenses) (collectively "Losses")
that the Purchaser Indemnified Persons may incur or become subject to arising
out of or due to:
(x) any breach of any of the representations and
warranties of the Company, the Subsidiaries, or the New L.L.C. contained in any
Related Agreement; or
(y) the nonfulfillment of any covenant,
undertaking, agreement or other obligation of the Company, any Subsidiary, or
the New L.LC. contained in any Related Agreement.
(ii) Indemnification by the Purchaser. The Purchaser will
indemnify the Company, the Subsidiaries, and the New L.L.C. and each of their
respective shareholders, partners, members, directors, officers, employees,
agents and Affiliates (collectively, the "Company Indemnified Persons") against
and hold each Company Indemnified Person harmless from any and all Losses that
the Company Indemnified Persons may incur or become subject to arising out of
or due to:
(x) any breach of any of the representations and
warranties of the Purchaser contained in any Related Agreement; or
(y) the nonfulfillment of any covenant,
undertaking, agreement or other obligation of the Purchaser in any Related
Agreement.
(iii) Period for Claims. Notwithstanding anything to the
contrary set forth in this Agreement, any claim for indemnification under this
Section 8.02(b) must be made in a writing delivered by the Indemnified Person
to the indemnifying party within the period of 18 months from the Closing Date.
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<PAGE> 28
(c) Indemnification by the Stockholders. The Stockholders will
indemnify the Purchaser Indemnified Persons against and hold each Purchaser
Indemnified Person harmless from any and all Losses that the Purchaser
Indemnified Persons may incur or become subject to arising out of or due to:
(x) any inaccuracy or breach of any of the
representations and warranties of the Stockholders contained in any Related
Agreement; or
(y) the nonfulfillment of any covenant,
undertaking, agreement or other obligation of the Stockholders contained in any
Related Agreement.
(d) Indemnification by the New L.L.C. The New L.L.C. will indemnify
the Company and the Subsidiaries and each of their respective shareholders,
partners, members, directors, officers, employees, agents and Affiliates
(collectively, the "Assumed Liability Indemnified Persons") against and hold
each Assumed Liability Indemnified Person harmless from any and all Losses that
the Assumed Liability Indemnified Persons may incur or become subject to
arising out of or due to any of the liabilities of the Company and the
Subsidiaries assumed by the New L.L.C. as the result of the transactions
contemplated by the Related Agreements. SECTION 8.03 PARTIES IN INTEREST:
ASSIGNMENT. All representations, warranties, covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not. No party may assign its rights
hereunder without the prior written consent of the other parties hereto, except
(i) as provided in Section 7.01(c)(iii) and (iv) hereof, and (ii) the Purchaser
and any Stockholder may assign all of such rights, each to a single Affiliate.
Except as set forth in Section 7.01(c)(iii) and (iv) above, notwithstanding
anything to the contrary set forth herein, none of the representations,
warranties, covenants or agreements contained in this Agreement shall benefit
any transferee of any of the Stock or the Company Interests other than such a
single Affiliate or the parties hereto.
SECTION 8.04 WAIVER. Any of the terms or conditions of this Agreement may
be waived at any time and from time to time in writing by the party entitled to
the benefits thereof without affecting any other terms or conditions of this
Agreement.
SECTION 8.05 NOTICES, ETC. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given, if delivered in person or by courier, telegraphed, telexed or by
facsimile transmission or mailed by certified or registered mail, postage
prepaid:
If to the Stockholders: CPH2, L.L.C. or CPH3, L.L.C.
Attention: Hadi Makarechian
c/o Capital Pacific Holdings, Inc.
4100 MacArthur Blvd., Suite 200
Newport Beach, California 92660
Telecopy No.: (714) 622-8410
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<PAGE> 29
If to the Company Hadi Makarechian
or any of the Subsidiaries: Chairman of the Board
Capital Pacific Holdings, Inc.
4100 MacArthur Blvd., Suite 200
Newport Beach, California 92660
Telecopy No.: (714) 622-8410
with a copy to: Dag Wilkinson, Esq.
Wiley, Rein & Fielding
1776 K Street, N.W.
Washington, DC 20006
Telecopy No.: (202) 429-7049
If to the Purchaser: c/o Farallon Capital Management, L.L.C.
One Maritime Plaza
Suite 1325
San Francisco, California 94111
Attention: Steve Millham
Telecopy No.: (415) 421-2133
with a copy to: Richards Spears Kibbe & Orbe
One Chase Manhattan Plaza
57th Floor
New York, New York 10005
Attention: William Q. Orbe, Esq.
Telecopy No.: (212) 530-1801
Any party may, by written notice to the other parties, change the address or
telecopy number to which notices to such party are to be delivered or mailed or
sent by facsimile transmission. All such notices or other communications shall
be effective and be deemed to have been given as of the date on which such
notices are actually received.
SECTION 8.06 ENTIRE AGREEMENT: AMENDMENT. This Agreement and the Related
Agreements set forth the entire agreement and understanding of the parties in
respect of the transactions contemplated hereby and supersede all other
agreements, arrangements and understandings relating to the subject matter
hereof, both oral and written. No representation, promise, inducement or
statement of intention has been made by either of the parties hereto which is
not embodied in this Agreement, or the written statements, certificates or other
documents delivered pursuant hereto or the Related Agreements referred to above,
and neither of the parties hereto shall be bound by or liable for any alleged
representation, promise, inducement or statement of intention not so set forth.
This Agreement and the Related Agreements may be amended or modified only by a
written instrument executed by the parties hereto or by their successors and
assigns.
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<PAGE> 30
SECTION 8.07 PRESS RELEASES. None of the parties hereto shall issue any
press releases or make any public announcements of any of the transactions
contemplated by this Agreement except as may be mutually agreed to in writing by
the parties hereto; provided, however, that notwithstanding the foregoing, each
of the parties hereto shall be permitted and will cooperate with the other
party, to make such disclosures to the public or governmental authorities as
they shall deem necessary to maintain compliance with, or to prevent violation
of, applicable laws.
SECTION 8.08 GENERAL. This Agreement (i) shall be construed and enforced in
accordance with the laws of the State of Delaware without giving effect to the
choice of law principles thereof; and (ii) may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The Section and other
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
SECTION 8.09 SEVERABILITY. To the extent that any provision of this
Agreement which does not materially affect the intent of the parties hereto
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of this Agreement shall be unaffected and
shall continue in full force and effect.
SECTION 8.10 CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
(a) "Person" shall means an individual, corporation, trust,
partnership, joint venture, unincorporated organization, government agency or
any agency or political subdivision thereof, or other entity.
(b) an "Affiliate" of a person shall mean someone that directly, or
indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, such person.
(c) "Business Day" means any day on which commercial banks are open
for business in California.
(d) The following terms shall have their respective meaning as set
forth in the referenced sections of this Agreement:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
"Accredited investor" Section 3.04(a)
"Agreement" Recitals
"Applicable Percentage" Section 7.03(e)(i)
"Approval" Section 2.08
"Assumed Liability Indemnified Persons" Section 8.02(d)
</TABLE>
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<PAGE> 31
<TABLE>
<S> <C>
"Balance Sheet Date" Section 4.03(f)
"Business Plan" Section 6.05(a)
"Buy-Sell Date" Section 7.03(b)
"Buy-Sell Purchase Agreement" Section 7.03(f)
"Buy-Sell Transfer Date" Section 7.03(g)
"Common Stock" Recitals
"Company" Recitals
"Company Indemnified Persons" Section 8.02(b)(ii)
"Company Interests" Section 6.02(e)
"Company Percentage" Section 7.03(e)(ii)
"Election Date" Section 7.03(b)
"Election Notice" Section 7.03(b)
"Entity" Section 7.03(a)
"Entities" Section 7.03(a)
"Entity Interests" Section 7.03(a)
"Environmental Laws" Section 2.18
"Escrow Agreement" Recitals
"Existing Business" Section 6.02(a)
"Farallon Controlled Affiliate" Section 6.01
"Financing Opportunity" Section 6.03(a)
"Future Affiliate" Section 6.02(c)(ii)
"GAAP" Section 2.09(a)
"Information Documents" Section 2.16
"Joint Escrow Instructions" Section 5.02(a)(ii)
"Licenses" Section 2.11
"Losses" Section 8.02(b)(i)
"Makarechian" Section 4.03(l)
"Makarechian Agreement" Section 4.03(l)
"Material Adverse Effect" Section 2.13
"Mirror Company" Section 6.02(b)
"New Business" Section 6.02(b)
"New Capital" Section 6.02(c)(ii)
"New L.L.C." Recitals
"New L.L.C. Agreement" Recitals
"Non-Distributed Cash" Section 7.03(d)(i)
"Non-Offering Party" Section 7.03(b)
"Notice of Election" Section 6.06(b)
"Offer" Section 6.06(b)
"Offeree" Section 6.06(b)
"Offer to Purchase" Section 7.02(a)
"Offering Party" Section 7.03(b)
"Owned Interests" Section 7.01(a)
"Owned Stock" Section 7.01(a)
"Party" Section 7.03(a)
"Parties" Section 7.03(a)
</TABLE>
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<PAGE> 32
<TABLE>
<S> <C>
"Prospective L.L.C. Seller" Section 6.06(b)
"Prospective Seller" Section 7.01(a)
"Purchase Price" Recitals
"Purchaser" Recitals
"Purchaser Indemnified Persons" Section 8.02(b)(i)
"Registration Rights Agreement" Recitals
"Restrictions Period" Section 6.01
"Related Agreements" Recitals
"Shares" Recitals
"Subdivision Approvals" Section 2.05
"Subsidiaries" Recitals
"Stockholder(s)" Recitals
"Stockholder Offer to Purchase" Section 7.02(b)
"Stock Purchase Agreement" Recitals
"Third Party" Section 6.06(b) and 7.01
"Third Party Notice" Section 6.06(b) and 7.01
"Transferred Assets" Section 1.01(a)
"Transferee Adoption" Section 7.01(c)
"Value" Section 7.03(b)
</TABLE>
SECTION 8.11 TERMINATION. This Agreement may be terminated by either party
hereto if the Closing shall not have occurred on or before November 18, 1997,
or such later date as may have been agreed upon by the parties hereto. Upon
termination, no party shall have any liability or obligation under this
Agreement except to observe the confidentiality provisions hereof and except to
the extent a party has breached its representations, warranties, covenants or
agreements hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CAPITAL PACIFIC HOLDINGS, INC,
By:/s/ Hadi Makarechian
------------------------------
Hadi Makarechian
Chairman
CPH2, L.L.C.
By:/s/ Hadi Makarechian
------------------------------
Hadi Makarechian
Member
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<PAGE> 33
CPH3, L.L.C.
By:/s/ Hadi Makarechian
------------------------------
Hadi Makarechian
Member
CALIFORNIA HOUSING FINANCE, L.P.
By: California Housing Finance L.L.C.
Its General Partner
By: Farallon Capital Management, L.L.C.
Its Manager
By:/s/ Steve Millhan
------------------------------
Steve Millham
Managing Member
CAPITAL PACIFIC HOLDINGS, L.L.C.
By: Capital Pacific Holdings, Inc.
Member
By:/s/ Hadi Makarechian
------------------------------
Hadi Makarechian
Chairman of the Board
CAPITAL PACIFIC HOMES, INC.,
a Nevada corporation (formerly Durable Homes,
Inc.)
By:/s/ Hadi Makarechian
------------------------------
Hadi Makarechian
Chairman of the Board
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<PAGE> 34
CLARK WILSON HOMES, INC., a Texas corporation
By:/s/ Hadi Makarechian
------------------------------
Hadi Makarechian
Chairman of the Board
J.M. PETERS ARIZONA, INC.,
a Delaware corporation
By:/s/ Hadi Makarechian
------------------------------
Hadi Makarechian
Chairman of the Board
J.M. PETERS CALIFORNIA, INC.,
a Delaware corporation
By:/s/ Hadi Makarechian
------------------------------
Hadi Makarechian
Chairman of the Board
J.M. PETERS HOMES OF ARIZONA, INC.,
a Delaware corporation
By:/s/ Hadi Makarechian
------------------------------
Hadi Makarechian
Chairman of the Board
J.M. PETERS NEVADA, INC.,
a Delaware corporation
By:/s/ Hadi Makarechian
------------------------------
Hadi Makarechian
Chairman of the Board
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<PAGE> 35
PARKLAND ESTATES COMPANY, INC.,
a Delaware corporation
By:/s/ Hadi Makarechian
------------------------------
Hadi Makarechian
Chairman of the Board
NEWPORT DESIGN CENTER,
a California corporation
By:/s/ Hadi Makarechian
------------------------------
Hadi Makarechian
Chairman of the Board
PETERS RANCHLAND COMPANY, INC.,
a Delaware corporation
By:/s/ Hadi Makarechian
------------------------------
Hadi Makarechian
Chairman of the Board
CAPITAL PACIFIC HOMES, INC.,
a Delaware corporation (formerly Durable Homes
of California, Inc.)
By:/s/ Hadi Makarechian
------------------------------
Hadi Makarechian
Chairman of the Board
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<PAGE> 1
EXHIBIT 99.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT dated as of October 1, 1997, is
among CALIFORNIA HOUSING FINANCE L.P., a Delaware limited partnership, (the
"Purchaser"), and CAPITAL PACIFIC HOLDINGS, INC. (the "Company").
WHEREAS, the Purchaser is the beneficial owner of 2,484,340 shares of
common stock, per value $0.10 per share (the "Common Stock") of the Company
(the "Securities").
NOW THEREFORE, the parties hereto do hereby agree as follows:
SECTION 1. DEMAND REGISTRATION.
(a) The Purchaser may at any time after the date one year from the
date hereof request in writing that the Company register under the Securities
Act of 1933, as amended (the "Securities Act") all or any portion of the
Registrable Stock (as defined below) for sale in the manner specified in such
notice; and provided, that the aggregate purchase price to the public of such
public offering of the shares of Registrable Stock for which registration has
been requested shall reasonably be anticipated to exceed $1 million; and
provided, further that (i) the Company shall not be obligated to register
Purchaser's Registrable Stock pursuant to this paragraph (a) on more than one
occasion, and (ii) the Company shall not be obligated to effect a shelf
registration as such is defined in Rule 415 under the Securities Act.
(b) Following receipt of any notice delivered in compliance with
paragraph (a) of this Section 1 (a "Demand"), the Company shall use its best
efforts to register under the Securities Act, for public sale in accordance
with the method of disposition specified in such Demand, the number of shares
of Registrable Stock specified in such Demand. Purchaser may request a
specific managing underwriter or underwriters, which shall be of national
standing, subject to the approval of the Company, which approval shall not
unreasonably be withheld or unreasonably delayed. The Company shall be deemed
to have satisfied an obligation to register Registrable Stock pursuant to a
Demand when a registration statement covering at least 90% of the shares of
Registrable Stock specified in the Demand for sale in accordance with the
method of disposition specified in the Demand shall have become effective and
the period of distribution of the registration contemplated thereby has been
completed (determined as hereinafter provided).
(c) The Company shall be entitled to include in any registration
statement filed in response to a Demand made in accordance with this Section 1,
for sale in accordance with the method of disposition specified by the
Purchaser in such Demand, shares of Common Stock to be sold by the Company for
its own account or that of other security holders, except as and to the extent
that, in the opinion of the managing underwriters, such inclusion would
adversely affect the marketing of the Registrable Stock, or the price thereof
or the number of shares to be included for which registration has been
requested in connection with such Demand. Except for registration statements
on From S-4, S-8 or any successor forms thereto, the Company will not file with
the Securities and Exchange Commission (the "Commission") any other
registration statement with respect to its Common Stock, whether for its own
account or that of other security holders, from the date of receipt of a Demand
pursuant to this Section 1 until 45 days following the completion of the period
of distribution of the registration contemplated thereby (determined as
hereinafter provided).
(d) The Company may at its option elect that any requested
registration pursuant to Section 1(a) be delayed for a period not in excess of
90 days from the date of such Demand but only if, at the time of such request,
the Company is engaged in a transaction which is material to the Company and
the disclosure of which would have a material adverse effect on the Company.
<PAGE> 2
(e) Notwithstanding anything to the contrary contained in Section 1,
no Demand may be made within 90 days after the effective date of a registration
statement filed by the Company covering a firm commitment underwritten public
offering in which the Purchaser shall have been entitled to join pursuant to
Section 2 hereof and in which there shall have been effectively registered at
least 50% of the shares of Registrable Stock as to which registration shall, if
any, have been requested.
SECTION 2. INCIDENTAL REGISTRATION.
(a) If the Company at any time proposes to register any of its Common
Stock under the Securities Act for sale to the public, whether for its own
account or for the account of security holders or both, (excluding any
registration statement on Form S-4, S-8 or another form not available for
registering the Registrable Stock for sale to the public), it will each such
time give written notice to the Purchaser. Upon the written request received
by the Company within 20 days after the giving of any such notice by the
Company, to register any of the Registrable Stock, the Company will use its
best efforts to cause the Registrable Stock as to which registration shall have
been so requested to be included in the registration statement proposed to be
filed by the Company, all to the extent requisite to permit the sale or other
disposition (in accordance with its written request) of such Registrable Stock.
Alternatively, the Company may include the Registrable Stock as to which
registration shall have been requested by the Purchaser under this paragraph
2(a) in a separate registration statement to be filed concurrently with the
registration statement proposed to be filed by the Company. In the event any
registration statement filed pursuant to this Section 2 shall be, in whole or
in part, in connection with any underwritten public offering, the number of
shares of Registrable Stock to be included in such registration statement may
be reduced or may be excluded from such registration, to the extent that the
managing underwriter(s)shall give their written opinion that such inclusion
would adversely affect the number of shares to be included or the marketing or
price of the securities to be sold thereby the Company or by any security
holder other than Purchaser but for whose account such securities are to be
sold pursuant to the exercise of demand registration rights granted in
accordance with any separate agreement with the Company not in violation of
this Agreement. Such reduction or exclusion shall be pro rata among those
security holders "piggybacking" on such registration period. Notwithstanding
the foregoing provisions of this Section 2, the Company may withdraw any
registration statement referred to in this Section 2 without thereby incurring
any liability to the holders of Registrable Stock. Except as set forth above,
there shall be no limit to the number of registrations that may be requested
pursuant to this Section 2.
(b) In the event that a distribution of Registrable Stock covered by
a registration statement referred to in paragraph (a) above is to be
underwritten, then the distribution of Registrable Stock for the account of the
Purchase shall be underwritten by the same underwriters who are underwriting
the distribution of the securities for the account of the Company and/or any
other persons whose securities are covered by such registration statement, and
the holders of Registrable Stock that are selling shares of Registrable Stock
pursuant to such registration statement shall enter into the agreement with
such underwriters contemplated under Section 3.
(c) Purchaser agrees, if reasonably requested by the managing
underwriters in an underwritten offering to which the provision of this Section
2 apply, not to effect any public sale or distribution of securities of the
Company of the same class as the securities included in the registration
statement relating to such underwritten offering, including a sale pursuant to
Rule 144 under the Securities Act (except as part of such underwritten
offering), during the 10 day period prior to the filing of such registration
statement, and during the period required by such underwriters, not to exceed
the 180 day period beginning on the closing date of each underwritten offering
made pursuant to such registration statement, to the extent timely notified in
writing by the Company or the managing underwriters.
SECTION 3. REGISTRATION PROCEDURES.
If and whenever the Company is required by the provisions of this
Agreement to use its best efforts to effect the registration of any shares of
Registrable Stock under the Securities Act, the Company will:
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<PAGE> 3
(a) prepare and file with the Commission a registration statement
(which (i) in the case of an underwritten public offering pursuant to Section
1, shall be on Form S-1 or other form of general applicability reasonably
satisfactory to the managing underwriter selected as therein provided and (ii)
shall be filed within 75 days after receipt of requisite requests from holders
of Registrable Stock for registration) with respect to the Registrable Stock
and use its best efforts to cause such registration statement to become and
remain effective for the period of the distribution contemplated thereby
(determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for the period of distribution (determined as hereafter provided) and
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Stock covered by such registration statement in
accordance with the requesting holders' intended method of disposition set
forth in such registration statement for such period;
(c) furnish to each seller of Registrable Stock and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Registrable Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Registrable Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as each seller of Registrable Stock or, in the case of an
underwritten public offering, the managing underwriter shall reasonably request
to the extent required by applicable law, and do any and all other acts and
things which may be necessary under such securities or blue sky laws to enable
such seller to consummate the public sale or other distribution in such
jurisdiction to be sold by such seller, except that the Company shall not for
any such purpose be required to qualify generally to transact business as a
foreign corporation or qualify as a dealer in securities in any jurisdiction
where it is not so qualified or to consent to general service of process or
subject itself to taxation in any such jurisdiction;
(e) use its best efforts to list the Registrable Stock covered by
such registration statement with any securities exchange or automated quotation
system on which any security of the Company is then listed;
(f) immediately notify each seller of Registrable Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;
(g) enter into such reasonable agreements (including an underwriting
agreement, if applicable) which shall be customary in form, substance and scope
for such an arrangement between such underwriter and companies of the Company's
size and investment stature and take all such other reasonable actions in
connection therewith in order to expedite and facilitate the disposition of the
Registrable Stock to be registered;
(h) whether or not the offering is underwritten and at the request of
any seller of Registrable Stock, (i) furnish such reasonable representations
and warranties to such seller and the underwriters, if any, as are customary in
primary underwritten offerings and (ii) use best efforts to obtain (A) an
opinion of counsel representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and to such seller in form
and substance as is customarily given to underwriters in an underwritten public
offering and to such other effects as reasonably may be requested by counsel
for the underwriters or by such seller or its counsel and (B) a letter dated
such date from the independent public accountants retained by the Company,
addressed to the underwriters, if any, and to such seller, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, and such letter to
additionally cover such other financial matters
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<PAGE> 4
(including information as to the period ending no more than five business days
prior to the date of such letter) with respect to such registration as such
underwriters reasonably may request;
(i) make available upon reasonable notice for inspection at a
reasonable time and in a reasonable manner by each seller of Registrable Stock,
any underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or agent retained by such seller of
Registrable Stock or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company reasonably requested by such
Seller, underwriter, attorney, accountant or agent, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent for
use solely in connection with such registration statement and its due diligence
efforts relating thereto; provided, however, that any records, information or
documents that are designated by the Company in writing as confidential shall
be kept confidential by such seller and such seller shall inform such other
persons of the confidential nature of such information or documents unless
disclosure of such records, information or documents is required by court or
administrative order or such information or document becomes generally
available to the public through no breach of this provision; provided, further,
if such seller, underwriter, attorney, accountant or agent is ordered to
disclosure any of such records, documents or information, such seller will and
request such underwriter, attorney, accountant or agent to provide the Company
with prompt written notice of such requirement so that the Company at its
expense may seek a protective order or other appropriate remedy and/or waive
compliance with this provision; and in the event that such protective order or
other remedy is not obtained, or that the Company waives compliance with this
proviso, such seller agrees and will request such underwriter, attorney,
accountant or agent to agree to furnish only that portion of such records,
documents or information which such seller, underwriter, attorney, accountant
or agent is legally required to disclose in the opinion of the special counsel
or counsel representing such seller, underwriter, accountant or agent;
provided, further, the Company shall have no obligation to provide or make
available information to the extent such disclosure shall materially interfere
with the business or operations of the Company; and
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practical, but not later than 18 months after
the effective date of the registration statement, an earning statement covering
the period of at least 12 months beginning with the first full fiscal quarter
after the effective date of such registration statement, which earning
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 of the Commission's regulations thereunder.
For purposes of Sections 1 and 2, the period of distribution of
Registrable Stock in a firm commitment underwritten public offering shall be
deemed to extend until such underwriter has completed the distribution of all
securities purchased by it but in no event in excess of 120 days, and the
period of distribution of Registrable Stock in any other registration shall be
deemed to extend until the earlier of the sale of all Registrable Stock covered
thereby or 120 days after the effective date thereof.
In connection with each registration pursuant to this Agreement, the
sellers of Registrable Stock will furnish to the Company in writing such
information with respect to themselves and the proposed distribution by them as
shall be reasonably requested by the Company in order to assure compliance with
federal and applicable state securities laws.
In connection with each registration pursuant to Section 1 or 2
covering an underwritten public offering, the Company and each seller of
Registrable Stock agree to enter into an underwriting agreement as contemplated
by paragraph (g) above. Without limiting the generality of the foregoing, if
such underwriting agreement contains restrictions upon the sale of securities
of the Company, other than the securities which are to be included in the
proposed distribution, then such restrictions shall be binding upon the sellers
of Registrable Stock, but not for a period exceeding 180 days from the
effective date of the registration statement and, if requested by the Company,
such sellers shall enter into a written agreement to that effect.
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<PAGE> 5
SECTION 4. EXPENSES.
(a) All expenses incurred by the Company in complying with Sections 1
through 3, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., fees of a
national securities exchange, transfer taxes, fees of transfer agents and
registrars, costs of insurance of Registrable Stock and all other secondary
shares, but excluding any Selling Expenses, are called "Registration Expenses."
"Selling Expenses" as used herein means all underwriting discounts and selling
commissions applicable to the sale of Registrable Stock.
(b) Except as set forth in the next sentence, all Registration
Expenses and Selling Expenses in connection with each registration statement
prepared or filed under Section 1 shall be borne by Purchaser. All
Registration Expenses and Selling Expenses incurred in connection with each
registration statement prepared or filed under Sections 1 (only in the event
the Company elects to include other Common Stock pursuant to Section 1(c)) and
2 shall be borne by the Purchaser and the Company (and any other participating
sellers) as they are incurred (including their proportionate share of the
reasonable fees and expenses of counsel to the Company) in proportion to the
number of shares to be sold by each.
SECTION 5. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of a registration of any of the Registrable Stock
under the Securities Act pursuant to Section 1 or 2, the Purchaser shall
indemnify and hold harmless the Company, each person, if any, who controls the
Company within the meaning of the Securities Act, each officer of the Company
who signs the registration statement, each director of the Company, each
underwriter and each person who controls any underwriter within the meaning of
the Securities Act, against all losses, claims, damages or liabilities, joint
or several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Registrable Stock was registered under the Securities Act pursuant
to Sections 1 or 2, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and shall pay or reimburse the Company and each such officer,
director, underwriter and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that
Purchaser shall be liable hereunder in any such case if and only to the extent
that any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to
Purchaser, furnished to the Company by Purchaser in writing and stated
specifically for use in such registration statement or prospectus, amendment or
supplement; provided, however, that the obligation of the Purchaser hereunder
shall be limited to an amount equal to the net proceeds received by the
Purchaser from such securities sold in such registration.
(b) In the event of a registration of any of the Registrable Stock
under the Securities Act pursuant to Section 1 or 2, the Company shall
indemnify and hold harmless, to the full extent permitted by law, Purchaser,
each member, partner, officer, trustee or director of the Purchaser, each
underwriter of such Registrable Stock thereunder and each other person, if any,
who controls such Purchaser or underwriter within the meaning of the Securities
Act or the Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), against any losses, claims, damages, liabilities or expenses, joint or
several, to which such Purchaser, person, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Registrable Stock
was registered under the Securities Act pursuant to Sections 1 or 2, any
preliminary prospectus or final prospectus contained therein, or any
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<PAGE> 6
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and shall
pay or reimburse Purchaser, and each member, partner, officer, trustee or
director thereof, each such underwriter and each such controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished in writing by
Purchaser, any such underwriter or any such controlling person, as the case may
be, and stated to be specifically for use in such registration statement,
prospectus, amendment or supplement.
(c) Promptly after receipt of an indemnified party hereunder or
written notice of any claim or the commencement of any action or proceeding,
such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party hereunder, notify the indemnifying party in
writing thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party other
than under this Section 5 and shall only relieve it from any liability which it
may have to such indemnified party under this Section 5 if an to the extent the
indemnifying party is prejudiced by such omission. In case any such action
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 5 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected; provided,
however, that if the defendants in such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
materially conflict with the interests of the indemnified party, the
indemnified party shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in the defense of such
action, with the reasonable expenses and fees of such separate counsel and
other expenses related to such participation to be reimbursed by the
indemnifying party as incurred. No indemnifying party, in the defense of any
such claim or litigation against an indemnified party, shall consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation, unless such indemnified party shall otherwise consent in writing.
An indemnifying party who is not entitled to, or elects not to, assume the
defense of a claim shall not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless any indemnified party reasonably concludes that
there may be legal defenses reasonably available to such indemnified party with
respect to such claim which are different from or additional to those available
to any other such indemnified parties or that a material conflict of interest
may exist between such indemnified party and any other such indemnified parties
with respect to such claim, in which event the indemnifying party shall be
obligated to pay the reasonable fees and expenses of such additional counsel or
counsels.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder
of Registrable Stock exercising registration rights under Sections 1 or 2, or
any controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 5 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 5 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
selling holder or any such controlling person in circumstances for which
indemnification is provided under this Section 5; then, and in each such case,
the Company and such holder shall contribute to the aggregate losses, claims,
damages or liabilities including legal fees
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<PAGE> 7
and expenses incurred by such party to which they may be subject (after
contribution from others) in such proportion as is appropriate to reflect both
the relative benefit received by such holder and the relative fault of the
Company and each holder; provided, however, that, in any such case, no person
or entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
or entity who was not guilty of such fraudulent misrepresentation. For
purposes of the preceding sentence, the relative benefit received by such
holder shall be deemed to be in the same proportion as the public offering
price of such holder's Registrable Stock offered by the registration statement
bears to the public offering price of all securities offered by such
registration statement; and the relative fault of the Company and such holder
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission of a material fact
relates to information supplied by the Company, by such holder or by any
controlling person of any such holder and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The indemnity obligations herein shall survive the transfer of
the Registrable Stock by the Purchaser.
SECTION 6. DEFINITIONS.
"Person" shall mean an individual, corporation, trust, partnership,
joint venture, unincorporated organization, government agency or any agency or
political subdivision thereof, or other entity.
an "Affiliate" of a person shall mean someone that directly, or
indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, such person.
"Registrable Stock" means (a) any of the Securities and any other
securities of the Company of the same class, and (b) any securities (of the
Company or any other Person) issued or issuable with respect to any of the
Securities by way of stock dividend or stock split, a dividend or other
distribution, in connection with a combination of shares, recapitalization,
reclassification, merger, consolidation or other reorganization or otherwise.
Any Registrable Stock will cease to be Registrable Stock when (i) a
registration statement covering such Registrable Stock has been declared
effective by the SEC and the Registrable Stock has been disposed of pursuant to
such effective registration statement, or (ii) the Registrable Stock is sold
under circumstances in which all of the applicable conditions of Rule 144 (or
any similar provisions then in force) under the Securities Act are met if, as a
result of or following any sale referred to in this clause (ii), such
securities are freely transferable without restriction under the Securities
Act.
SECTION 7. MISCELLANEOUS.
(a) Parties in Interest: Assignment. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether expressed or not. No party may assign its rights
hereunder without the prior written consent of the other parties hereto, except
the Purchaser may assign all of such rights to a single Affiliate.
(b) Waiver. Any of the terms or conditions of this Agreement may be
waived at any time and from time to time in writing by the party entitled to
the benefits thereof without affecting any other terms or conditions of this
Agreement.
(c) Notices, Etc. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given, if delivered in person or by courier, telegraphed, telexed or by
facsimile transmission or mailed by certified or registered mail, postage
prepaid:
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<PAGE> 8
If to the Company: Capital Pacific Holdings, Inc.
4100 MacArthur Blvd., Suite 200
Newport Beach, California 92660
Telecopy No. (714) 622-8410
Attention: Hadi Makarechian
with a copy to:
Dag Wilkinson, Esq.
Wiley, Rein & Fielding
1776 K Street, N.W.
Washington, D.C. 20006
Telecopy No. (202) 429-7049
If to the Purchaser:
c/o Farallon Capital Management, L.L.C.
One Maritime Plaza
Suite 1325
San Francisco, California 94111
Telecopy No.: (415) 421-2133
Attention: Steve Millham
with a copy to:
Richards Spears Kibbe & Orbe
One Chase Manhattan Plaza
57th Floor
New York, New York 10005
Attention: William Q. Orbe, Esq.
Telecopy No. (212) 530-1801
Any party may, by written notice to the other parties, change the address or
telecopy number to which notices to such party are to be delivered or mailed or
sent by facsimile transmission.
All such notices or other communications shall be effective and be deemed to
have been given as of the date on which so hand-delivered or on the third
business day following the date on which so mailed, or if delivered by
facsimile transmission, when sent and the sender receives evidence of complete
transmission without error.
(d) Entire Agreement: Amendment. This Agreement sets forth the
entire agreement and understanding of the parties in respect of the subject
matter hereof and supersedes all prior agreements, arrangements and
understandings relating to the subject matter hereof, both oral and written.
No representation, promise, inducement or statement of intention has been made
by either of the parties hereto which is not embodied in this Agreement, or in
the written statements, certificates or other documents delivered pursuant
hereto and neither of the parties hereto shall be bound by or liable for any
alleged representation, promise, inducement or statement of intention not to
set forth. This Agreement may be amended or modified only by a written
instrument executed by the parties hereto or by their successors and assigns.
(e) General. This Agreement (i) shall be construed and enforced in
accordance with the laws of the State of Delaware without giving effect to the
choice of law principles thereof; and (ii) may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same
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<PAGE> 9
instrument. The Section and other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Severability. To the extent that any provision of this Agreement
which does not materially affect the intent of the parties hereto shall be
invalid or unenforceable, it shall be considered deleted therefrom and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 10
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
IN WITNESS WHEREOF, the Company and the Purchaser have executed this Agreement
as of the day and year first above written.
CAPITAL PACIFIC HOLDINGS, INC.
By: /s/ Hadi Makarechian
--------------------------------
Name: Hadi Makarechian
Title: Chairman
CALIFORNIA HOUSING FINANCE, L.P.
By: CALIFORNIA HOUSING FINANCE L.L.C.,
its General Partner
By: FARALLON CAPITAL MANAGEMENT L.L.C.,
its Manager
By: /s/ Steve Millham
----------------------------
Name: Steve Millham
Title: Managing Member
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