================================================================================
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 June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-9977
MONTEREY HOMES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Maryland 86-0611231
(State or Other Jurisdiction) (I.R.S. Employer
of Incorporation or Organization) Identification No.)
6613 North Scottsdale Road, Suite 200 85250
Scottsdale, Arizona (Zip Code)
(Address of Principal Executive Offices)
(602) 998-8700
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No .
--- ---
As of August 14, 1998; 5,317,192 shares of Monterey Homes Corporation common
stock were outstanding.
================================================================================
<PAGE>
MONTEREY HOMES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997.......................................... 3
Consolidated Statements of Earnings for the Three and Six
Months ended June 30, 1998 and 1997........................ 4
Consolidated Statements of Cash Flows for the
Six Months ended June 30, 1998 and 1997.................... 5
Notes to Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........ 14
Item 6. Exhibits and Reports on Form 8-K........................... 14
SIGNATURES ........................................................... S.1
2
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,219,267 $ 8,245,392
Real estate under development 87,925,508 63,955,330
Option deposits 4,810,371 3,070,420
Other receivables 1,153,491 985,708
Residual interests -- 1,421,754
Deferred tax asset 10,404,000 10,404,000
Goodwill 8,871,520 5,970,773
Property and equipment, net 1,920,394 2,046,026
Other assets 633,041 534,101
------------- -------------
Total Assets $ 120,937,592 $ 96,633,504
============= =============
LIABILITIES
Accounts payable and accrued liabilities $ 17,984,868 $ 21,171,301
Home sale deposits 10,127,163 6,204,773
Notes payable 33,316,533 22,892,250
------------- -------------
Total Liabilities 61,428,564 50,268,324
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share; 50,000,000 shares
authorized; issued and outstanding - 5,370,238 shares at June 30,
1998, and 5,255,440 shares at December 31, 1997 53,702 52,554
Additional paid-in capital 98,814,117 97,819,584
Accumulated deficit (38,948,508) (51,096,675)
Treasury stock - 53,046 shares (410,283) (410,283)
------------- -------------
Total Stockholders' Equity 59,509,028 46,365,180
------------- -------------
Total Liabilities and Stockholders' Equity $ 120,937,592 $ 96,633,504
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Home sales revenues $ 55,608,159 $ 24,544,107 $ 92,121,503 $ 37,116,944
Cost of home sales 45,698,437 20,882,044 75,324,372 31,828,546
------------ ------------ ------------ ------------
Gross Profit 9,909,722 3,662,063 16,797,131 5,288,398
Residual and real estate loan interest income 2,028,908 790,818 5,232,667 1,150,112
Mortgage company income, net 44,133 -- 72,790 --
Commissions and other sales costs (2,553,903) (1,243,662) (4,894,388) (1,998,710)
General and administrative expense (2,273,598) (1,183,783) (4,182,056) (2,275,469)
Interest expense (115,279) -- (195,594) --
Other income, net 202,486 130,432 213,617 305,748
------------ ------------ ------------ ------------
Earnings before income taxes 7,242,469 2,155,868 13,044,167 2,470,079
Income taxes 546,000 197,800 896,000 223,673
------------ ------------ ------------ ------------
Net earnings $ 6,696,469 $ 1,958,068 $ 12,148,167 $ 2,246,406
============ ============ ============ ============
Basic earnings per share $ 1.26 $ 0.43 $ 2.29 $ 0.50
Diluted earnings per share $ 1.10 $ 0.42 $ 1.99 $ 0.48
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 12,148,167 $ 2,246,406
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization 597,518 382,674
Stock option compensation expense 690,884 346,726
Gain on sale of residual interest (5,180,046) --
Increase in real estate under development (23,970,178) (9,361,063)
Increase in goodwill (3,103,346) --
Increase in option deposits (1,739,951) (773,241)
(Increase) decrease in other receivables and other assets (259,921) 261,694
Increase in home sale deposits 3,922,390 2,933,652
Decrease in accounts payable and accrued liabilities (3,186,433) (3,031,389)
------------ ------------
Net cash used in operating activities (20,080,916) (6,994,541)
------------ ------------
Cash flows from investing activities:
Increase in property and equipment (274,288) (157,193)
Proceeds from sale of residual interest 6,600,000 --
Principal payments received on real estate loans -- 1,476,000
Real estate loans funded -- (428,272)
Decrease in short term investments -- 4,696,495
------------ ------------
Net cash used in investing activities 6,325,712 5,587,030
------------ ------------
Cash flows from financing activities:
Borrowings 65,373,666 20,940,662
Repayment of borrowings (54,949,383) (27,644,091)
Stock options exercised 304,796 --
Dividends paid -- (194,330)
------------ ------------
Net cash provided by (used in) financing activities 10,729,079 (6,897,759)
------------ ------------
Net decrease in cash and cash equivalents (3,026,125) (8,305,270)
Cash and cash equivalents at beginning of period 8,245,392 15,567,918
------------ ------------
Cash and cash equivalents at end of period $ 5,219,267 $ 7,262,648
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and 1997
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Monterey Homes Corporation (the "Company") designs, builds and sells
distinctive single-family homes in Arizona, Texas and recently, through the
acquisition of Sterling Communities, in Northern California. (See Note 8.) The
Company builds move-up and semi-custom, luxury homes in the Phoenix and Tucson,
Arizona metropolitan areas, and entry-level and move-up homes in the Dallas/Fort
Worth, Austin and Houston, Texas metropolitan areas under the name Legacy Homes
(See Note 4). The Company has undergone significant growth in recent periods and
is pursuing a strategy of expanding the geographic scope of its operations.
Basis of Presentation. The consolidated financial statements include
the accounts of Monterey Homes Corporation and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation and certain prior period amounts have been reclassified to be
consistent with current financial statement presentation. Amounts for the three
and six months ended June 30, 1997 do not include the operations of Legacy
Homes. In the opinion of Management, the unaudited consolidated financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the Company's financial position and
results of operations for the periods presented. The results of operations for
any interim period are not necessarily indicative of results to be expected for
a full fiscal year.
NOTE 2 - REAL ESTATE UNDER DEVELOPMENT AND CAPITALIZED INTEREST
The components of real estate under development are as follows (in thousands):
(Unaudited)
June 30, 1998 December 31, 1997
------------- -----------------
Homes under contract, in production $ 45,228 $ 29,183
Finished lots and lots under development 34,046 28,471
Model homes and homes held for resale 8,652 6,301
----------- -----------
$ 87,926 $ 63,955
=========== ===========
The Company capitalizes certain interest costs incurred on homes in
production and lots under development. Such capitalized interest is allocated to
inventory and included in cost of home sales when the units are delivered. The
following tables summarize interest capitalized and interest expensed (in
thousands):
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------- ----------------
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning unamortized capitalized interest $ 2,074 $ 599 $ 1,890 $ --
Interest capitalized 856 894 1,484 1,586
Interest amortized in cost of home sales (800) (327) (1,244) (420)
------- ------- ------- -------
Ending unamortized capitalized interest $ 2,130 $ 1,166 $ 2,130 $ 1,166
======= ======= ======= =======
Interest incurred $ 971 $ 894 $ 1,679 $ 1,586
Interest capitalized (856) (894) (1,484) (1,586)
------- ------- ------- -------
Interest expense $ 115 $ -- $ 195 $ --
======= ======= ======= =======
</TABLE>
6
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 3 - NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable consists of the following:
(Unaudited)
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
$30 million bank construction line of credit, interest
payable monthly approximating prime (8.5% at June
30, 1998), plus .25%, or LIBOR (30 day LIBOR 5.748%
at June 30, 1998) plus 2.5% payable at the earlier of close
of escrow, maturity date of individual homes within the line
or June 19, 2000, secured by first deeds of trust on land $ 10,015,098 $ 4,663,973
$50 million bank construction line of credit, interest payable
monthly approximating prime, or LIBOR plus 2.5%
payable at the earlier of close of escrow, maturity
date of individual homes within the line or June 1, 1999,
secured by first deeds of trust on land 14,764,554 9,769,567
$20 million bank acquisition and development credit facility,
interest payable monthly approximating prime plus .5%, or
LIBOR plus 3.0% payable at the earlier of funding of
construction financing, the maturity date of individual
projects within the line or June 19, 2000, secured by first
deeds of trust on land 3,785,386 2,393,935
Senior subordinated unsecured notes payable, maturing October
15, 2001, annual interest of 13%, payable semi-annually,
principal payable at maturity date 4,700,000 6,000,000
Other 51,495 64,775
--------------- ---------------
Total $ 33,316,533 $ 22,892,250
=============== ===============
</TABLE>
NOTE 4 - LEGACY HOMES COMBINATION
On May 29, 1997, the Company signed a definitive agreement to combine with
Legacy Homes, Ltd., Legacy Enterprises, Inc. and John and Eleanor Landon
(together, "Legacy Homes"), which included the homebuilding and related mortgage
service business of Legacy Homes Ltd. and its affiliates. This transaction (the
"Legacy Combination" or "Combination") was effective on July 1, 1997. Legacy
Homes designs, builds and sells entry-level and move-up homes, is headquartered
in the Dallas/Forth Worth metropolitan area and was founded in 1988 by its
current President, John Landon.
In connection with the Legacy Combination, John Landon entered into a four-year
employment agreement with the Company and is currently a Managing Director of
the Company and President and Chief Executive Officer of the Company's Texas
division. Mr. Landon was also granted an option to purchase 166,667 shares of
the Company's common stock and was elected to the Company's Board of Directors.
7
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company as if the Combination had
occurred at January 1, 1997, with pro forma adjustments together with related
income tax effects. The pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
that would actually have resulted had the combination been in effect on the date
indicated (dollars in thousands except per share data).
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
Actual Pro Forma Actual Pro Forma
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Home sales revenue $ 55,608 $ 44,642 $ 91,122 $ 76,845
Net earnings $ 6,696 $ 4,820 $ 12,148 $ 7,084
Diluted earnings per share $ 1.10 $ .91 $ 1.99 $ 1.32
</TABLE>
NOTE 5 - EARNINGS PER SHARE
A summary of the reconciliation from basic earnings per share to diluted
earnings per share for the three and six months ended June 30, 1998 and 1997
follows (in thousands, except for per share amounts):
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30,
-------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $ 6,696 $ 1,958 $ 12,148 $ 2,246
Basic EPS - Weighted average shares outstanding 5,316 4,528 5,311 4,528
----------- ----------- ----------- -----------
Basic earnings per share $ 1.26 $ .43 $ 2.29 $ .50
=========== ============ =========== ===========
Basic EPS - Weighted average shares outstanding 5,316 4,528 5,311 4,528
Effect of dilutive securities:
Contingent shares 132 65 141 58
Stock options 652 136 662 141
----------- ----------- ----------- -----------
Dilutive EPS - Weighted average shares 6,100 4,729 6,114 4,727
----------- ----------- ----------- -----------
outstanding
Diluted earnings per share $ 1.10 $ .42 $ 1.99 $ .48
=========== =========== =========== ============
</TABLE>
NOTE 6 - INCOME TAXES
Income tax expense for the three and six months ended June 30, 1998 was
$546,000 and $896,000, respectively. Income tax expense for the three and six
months ended June 30, 1997 was $197,800 and $223,673, respectively. The Company
currently pays only state income tax and alternative minimum tax. Federal income
taxes are not paid due to the net operating loss (NOL) carryforward generated
when the Company operated as Homeplex Mortgage Investments Corporation prior to
December 31, 1996. The NOL will expire beginning in the year 2007.
NOTE 7 - RESIDUAL INTEREST AND REAL ESTATE LOAN INTEREST INCOME
Sale of Residual Interests
On February 2, 1998, the Company sold five of its Mortgage Securities
for approximately $4.6 million, resulting in pre-tax earnings of approximately
$3.2 million. On April 1, 1998, the Company sold the last of its Mortgage
Securities for $2 million, which resulted in pre-tax earnings of approximately
$2 million.
8
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 8 - SUBSEQUENT EVENTS
Sterling Communities Acquisition
On June 15, 1998, the Company signed a definitive agreement with
Sterling Communities, S.H. Capital, Inc., Sterling Financial Investments, Inc.,
Steve Hafener and W. Leon Pyle (together, the "Sterling Entities"), to acquire
substantially all of the assets of Sterling Communities ("Sterling"), a northern
California homebuilding business with operations in the San Francisco Bay and
Sacramento areas. The transaction was effective as of July 1, 1998.
The consideration for the assets and stock acquired consisted of $6.7
million in cash (paid out of working capital and subject to final accounting
adjustments) and deferred contingent payments for the four years following the
close of the transaction. The deferred contingent payments will be equal to 20%
of the pre-tax income of the Northern California division of the Company. In
addition, the Company assumed certain liabilities of Sterling approximating $7.4
million.
The assets purchased from the Sterling Entities principally consist of
real property and other residential homebuilding assets located in the San
Francisco Bay and Sacramento areas of California. The Company will continue the
operations of Sterling under the name Meritage Homes of Northern California.
In connection with the transactions, Steve Hafener has entered into a
four-year employment agreement with the Company, pursuant to which he has been
appointed Vice President and Division Manager of the Company's newly acquired
Northern California operations.
During the year ended December 31, 1997, Sterling closed 105 homes
generating revenues of approximately $31.0 million, and earned approximately
$2.7 million before taxes and distributions to its partners.
----------------------------------------------------------------------
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
------------------------------------------------------------------------
Of Operations
-------------
This Quarterly Report on Form 10-Q contains forward-looking statements.
The words "believe," "expect," "anticipate," and "project" and similar
expressions identify forward-looking statements, which speak only as of the date
the statement was made. Such forward-looking statements are within the meaning
of that term in Section 27A of the Securities Act of 1993, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
may include, but are not limited to, projections of revenues, income or loss,
capital expenditures, plans for future operations, financing needs or plans, the
impact of inflation, the impact of changes in interest rates, plans relating to
products or services of the Company, potential real property acquisitions, and
new or planned development projects, as well as assumptions relating to the
foregoing.
Statements in Exhibit 99 to this Quarterly Report on Form 10-Q and in
the Company's Annual Report on Form 10-K, including the Notes to the
Consolidated Financial Statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," describe factors, among others,
that could contribute to or cause such differences. Additional factors that
could cause actual results to differ materially from those expressed in such
forward-looking statements are set forth in "Business" and "Market for the
Registrant's Common Stock and Related Stockholder Matters" in the Company's
December 31, 1997 Annual Report on Form 10-K.
9
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
Results Of Operations
The following discussion and analysis provides information regarding
the results of operations of the Company and its subsidiaries for the three and
six months ended June 30, 1998 and June 30, 1997. All material balances and
transactions between the Company and its subsidiaries have been eliminated. 1997
results do not include the operations of Legacy Homes. This discussion should be
read in conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 1997. In the opinion of management, the data reflects all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the Company's financial position and results of operations for
the periods presented. The results of operations for any interim period are not
necessarily indicative of results to be expected for a full fiscal year.
Home Sales Revenue
Home sales revenue is the product of the number of units closed
during the period and the average sales price per unit. The following table
presents comparative second quarter and first six months 1998 and 1997 housing
revenues for the total Company, and the Arizona and Texas divisions individually
(dollars in thousands):
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, Dollar/Unit Percentage June 30, Dollar/Unit Percentage
-------- Increase Increase -------- Increase Increase
1998 1997 (Decrease) (Decrease) 1998 1997 (Decrease) (Decrease)
---- ---- ---------- ---------- ---- ---- ---------- ----------
Total
- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dollars $ 55,608 $ 24,544 $ 31,064 126.6% $ 92,122 $ 37,117 $ 55,005 148.2%
Units Closed 323 65 258 396.9% 528 105 423 402.9%
Average Sales Price $ 172.2 $ 377.6 $ (205.4) (54.4%) $ 174.5 $ 353.5 $ (179.0) (50.1%)
Arizona
- -------
Dollars $ 19,437 $ 24,544 $ (5,107) (20.8%) $ 33,275 $ 37,117 $ (3,842) (10.4%)
Units Closed 57 65 (8) (12.3%) 102 105 (3) (2.9%)
Average Sales Price $ 341.0 $ 377.6 $ (36.6) (9.7%) $ 326.2 $ 353.5 $ (27.3) (7.7%)
Texas*
- ------
Dollars $ 36,171 $ 20,098 $ 16,073 80.7% $ 58,847 $ 39,728 $ 19,119 48.1%
Units Closed 266 140 126 90% 426 273 153 56.0%
Average Sales Price $ 136.0 $ 143.6 $ (7.6) (5.3%) $ 138.1 $ 145.5 $ (7.4) (5.1%)
</TABLE>
*Prior year's Texas information is for comparative purposes only.
Total home sales revenue increased due to the addition of Texas
operations. Lower average sales price in 1998 is due to closing lower priced
homes in the Texas market, where the Company's focus is on entry-level and
move-up homes. The decrease in Arizona closings for the second quarter and first
six months was caused primarily by construction delays due to unseasonably wet
weather in the first part of the year. The homes with delayed starts are
expected to be completed and close during the third and fourth quarters of 1998.
Gross Profit
Gross profit equals home and land sales revenue, net of cost of sales,
which includes developed lot costs, unit construction costs, amortization of
common community costs (such as the cost of model complex and architectural,
legal and zoning costs), interest, sales tax, warranty, construction overhead
and closing costs. The following table presents comparative first quarter 1998
and 1997 housing gross profit (dollars in thousands):
10
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
---------------------- -------------------------
Percentage Percentage
1998 1997 Increase Increase 1998 1997 Increase Increase
---- ---- -------- -------- ---- ---- -------- --------
Total
- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dollars $ 9,910 $ 3,662 $ 6,248 170.6% $ 16,797 $ 5,288 $ 11,509 271.6%
Percentage of housing
revenues 17.8% 14.9% 2.9% 19.5% 18.2% 14.2% 4.0% 28.2%
</TABLE>
The dollar increase in gross profit for the three and six months ended
June 30, 1998, is attributable to the number of units closed by the Legacy
operations. The total gross profit margin increased in 1998 due to generally
higher margins generated in Texas and an improvement in overall margins in
Arizona.
Residual Interest and Real Estate Interest Income
The increase in residual interest and real estate loan interest income
is primarily due to the 1998 sale of mortgage securities, which resulted in a
gain of approximately $2 million in the second quarter of 1998, and a gain of
approximately $5 million for the six months ended June 30, 1998.
Selling, General And Administrative Expenses
Selling, general and administrative (SG&A) expenses as a percentage of
homebuilding revenues were 8.7% for the three months ended June 30, 1998
compared to 9.9% for the same period in the prior year. For the six month period
ended June 30, 1998, SG&A expenses were 9.9% of homebuilding revenues compared
to 11.5% in the prior year. The percentage decreases are principally due to the
inclusion of revenues from the Legacy Combination, without a corresponding
increase in Corporate overhead. In addition, Legacy Homes has traditionally
operated at a somewhat lower overhead burden as a percent of sales than the
Arizona division.
Liquidity And Capital Resources
The Company's principal uses of working capital are land purchases, lot
development and home construction. The Company uses a combination of borrowings
and funds generated by operations to meet its working capital requirements.
At June 30, 1998, the Company had available short-term secured
revolving construction loan facilities totaling $80 million and a $20 million
acquisition and development facility, of which approximately $24.8 and $3.8
million were outstanding, respectively. An additional $15.2 million of
unborrowed funds supported by approved collateral were available under its
credit facilities at such date. The Company also had outstanding $4.7 million in
unsecured, senior subordinated notes due October 15, 2001, which were issued in
October 1994. A provision of the senior subordinated bond indenture provided
bondholders with the option, at June 30, 1998, to require the Company to buy
back the bonds at 101% of face value. $1,300,000 of the bonds were repurchased
from the bondholders by the Company at June 30, 1998.
Management believes that the Company's current borrowing capacity, cash
on hand at June 30, 1998 and anticipated cash flows from operations are
sufficient to meet liquidity needs for the foreseeable future. There can be no
assurance, however, that amounts available in the future from the Company's
sources of liquidity will be sufficient to meet the Company's future capital
needs and the amount and types of indebtedness that the Company may incur may be
limited by the terms of the indenture governing its senior subordinated notes
and the credit agreements.
11
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
Net Orders
Net orders represent the number of units ordered by customers (net of
units canceled) multiplied by the average sales price per units ordered. The
following table presents comparative first quarter 1998 and 1997 net orders
(dollars in thousands):
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
---------------------- -------------------------
Dollar/Unit Percentage Dollar/Unit Percentage
Increase Increase Increase Increase
1998 1997 (Decrease) (Decrease) 1998 1997 (Decrease) (Decrease)
---- ---- ---------- ---------- ---- ---- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total
- -----
Dollars $ 74,069 $ 26,073 $ 47,996 184.1% $ 160,042 $ 53,941 $ 106,101 196.7%
Units ordered 382 88 294 334.1% 887 169 718 424.9%
Average sales price $ 193.9 $ 296.3 $ (102.4) (34.6%) 180.4 $ 319.2 $ (138.8) (43.5%)
Arizona
- -------
Dollars $ 34,472 $ 26,073 $ 8,699 33.3% $ 61,685 $ 53,941 $ 7,744 14.4%
Units ordered 107 88 19 21.6% 187 169 18 10.7%
Average sales price $ 325.0 $ 296.3 $ 28.7 9.7% 329.9 $ 319.2 $ 10.7 3.4%
Texas*
- ------
Dollars $ 39,597 $ 26,112 $ 13,485 51.6% $ 98,357 $ 53,349 $ 45,008 84.4%
Units ordered 275 192 83 43.2% 700 379 321 84.7%
Average sales price $ 143.0 $ 136.0 $ 7.0 5.1% $ 140.5 $ 140.8 $ (.3) **1%
</TABLE>
*Prior year's Texas information is for comparative purposes only.
**Less than 1%
Total net orders increased in the first quarter of 1998 compared to
1997 due to the expansion into Texas and the economic strengths of both the
Arizona and Texas markets.
The Company does not include sales which are contingent on the sale of
the customer's existing home as orders until the contingency is removed.
Historically, the Company has experienced a cancellation rate of less than 16%
of gross sales.
Net Sales Backlog
Backlog represents net orders of the Company which have not closed.
The following table presents comparative 1998 and 1997 net sales backlog for the
total Company, and the Arizona and Texas divisions individually (dollars in
thousands):
At June 30,
-----------
1998 1997 Dollar/Unit Percentage
---- ---- Increase Increase
Total (Decrease) (Decrease)
- ----- ---------- ----------
Dollars $166,982 $ 67,177 $ 99,805 149%
Units in backlog 831 184 647 352%
Average sales price $ 200.9 $ 365.1 $ (164.2) (50%)
Arizona
- -------
Dollars $ 85,365 $ 67,177 $ 18,188 27%
Units in backlog 253 184 69 38%
Average sales price $ 337.4 $ 365.1 $ (27.7) (8%)
Texas*
- ------
Dollars $ 81,617 $ 42,678 $ 38,939 91%
Units in backlog 578 303 275 91%
Average sales price $ 141.2 $ 140.9 $ .3 **1%
*Prior year's Texas information is included for comparative purposes only.
**Less than 1%
12
<PAGE>
MONTEREY HOMES CORPORATION AND SUBSIDIARIES
Total dollar backlog at June 30, 1998 increased 149% over the previous
year due to a substantial increase in units ordered partially offset by a
decrease in average sales price. Average sales price as a whole has decreased
due to the Legacy Combination, where the focus is on entry-level and move-up
homes. Units in total backlog have increased mainly due to the Texas expansion.
Arizona dollar backlog increased 27% over the prior year's due to
increased sales, offset slightly by a decrease in average sales price,
reflecting the lower prices of homes in currently active communities. Texas
dollar and unit backlog at June 30, 1998 is up 91% over the prior year due to
increased orders, expansion into the Houston market and the successful
introduction of new product offerings in the Austin market designed to meet the
demand for less expensive homes.
Seasonality
The Company has historically closed more units in the second half of
the fiscal year than in the first half, due in part to the slightly seasonal
nature of the market for their semi-custom, luxury product homes. Management
expects that this seasonal trend will continue in the future, but may change
slightly as operations expand within the move-up segment of the market.
Year 2000 Issue
The year 2000 issue is the result of computer programs written using
two digits (rather than four) to define the applicable year. Computer programs
that have time-sensitive software may not recognize dates beginning in the year
2000, which could result in miscalculations or system failures. The Company
believes the large majority of the computer software it uses is already year
2000 compliant. The Company is currently working to resolve any remaining
potential impact of the year 2000 on the processing of date-sensitive
information by the Company's computerized information systems. Based on current
information, the costs of addressing potential problems are not expected to have
a material adverse impact on the Company's financial position, results of
operations or cash flows in future periods. However, the failure of the Company,
its contractors, suppliers or financial institutions to resolve the year 2000
issue in a timely manner could result in a material financial risk. The Company
is assessing the effect of a failure of its contractors, suppliers or financial
institutions to adequately address the year 2000 issue.
13
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) On June 11, 1998, the Company held its Annual Meeting of
Shareholders, at which William W. Cleverly, Steven J.
Hilton, Alan D. Hamberlin and Raymond Oppel were elected
as Class I Directors to serve for a two year term which
expires at the Annual Meeting in 2000. Voting results for
these nominees are summarized as follows:
For Against
--- -------
William W. Cleverly 3,364,201 8,062
Steven J. Hilton 3,363,868 8,395
Alan D. Hamberlin 3,361,101 11,162
Raymond Oppel 3,362,660 9,603
Additionally, the Shareholders approved an amendment to
Monterey Homes Corporation Stock Option Plan which increases the number of
shares of common stock authorized for issuance thereunder from 225,000 to
475,000 shares. Voting results are as follows:
Approval of Amendment to
------------------------
Stock Option Plan
-----------------
Shares For 2,953,076
Shares Against 410,070
Shares Abstained 9,117
Shares Not Voted By Brokers 0
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Page or Method of Filing
------ ----------- ------------------------
<S> <C> <C> <C>
2.1 Agreement of Purchase and Sale of Assets, dated as of May 20, Incorporated by reference to
1997, by and among the Company, Legacy Homes, Exhibit 2 of the Form 8-K/A
Ltd., Legacy Enterprises, Inc., and John and Eleanor dated June 18, 1997.
Landon
2.2 Agreement of Purchase and Sale of Assets, dated as of June Filed herewith.
15, 1998, by and among the Company, Sterling
Communities, S.H. Capital, Inc., Sterling Financial
Investments, Inc., Steve Hafener, and W. Leon Pyle
3.1 Restated Articles of Incorporation of the Company Incorporated by reference to
Exhibit 3.1 of the Post-Effective
Amendment No. 1 to the Form S-1
Statement No. 333-29737 ("S-1
#333-29737 Amendment No. 1").
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C> <C>
3.2 Amended and Restated Bylaws of the Company Incorporated by reference to
Exhibit 3.3 to the Form S-3
Registration Statement No.
333-58793 ("S-3 #333-58793").
10.1 Amendment to Guaranty Federal Bank Loan Filed herewith.
10.2 Employment Agreement between the Company and Larry W. Seay Filed herewith.
10.3 Employment Agreement between the Company and Anthony C. Dinnell Filed herewith.
27 Financial Data Schedule Filed herewith.
99 Private Securities Reform Act of 1995 Safe Harbor Compliance Filed herewith
Statement for Forward-Looking Statements
</TABLE>
(b) Reports filed on Form 8-K
A Current Report on Form 8-K, dated July 15, 1998 was filed
with the Securities and Exchange Commission.
15
<PAGE>
MONTEREY HOMES CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized.
MONTEREY HOMES CORPORATION
A Maryland Corporation
August 14, 1998 By: \ LARRY W. SEAY
------------------
Larry W. Seay
Vice President of Finance &
Chief Financial Officer
S-1
AGREEMENT OF PURCHASE AND SALE OF ASSETS
BY AND AMONG
MONTEREY HOMES CORPORATION,
STERLING COMMUNITIES,
S.H. CAPITAL, INC.,
STERLING FINANCIAL INVESTMENTS, INC.,
STEVE HAFENER
AND
W. LEON PYLE
DATED JUNE 15, 1998
<PAGE>
AGREEMENT OF PURCHASE AND SALE OF ASSETS
ARTICLE 1
DEFINITIONS.........................................................4
1.1 DEFINITIONS.......................................4
ARTICLE 2
PURCHASE AND SALE OF ASSETS........................................11
2.1 ASSETS TO BE PURCHASED...........................11
2.2 ASSETS NOT BEING TRANSFERRED.....................15
2.3 LIABILITIES......................................15
2.4 PURCHASE PRICE...................................18
2.5 METHOD OF PAYMENT................................21
2.6 ALLOCATION OF PURCHASE PRICE.....................22
2.7 RISK OF LOSS.....................................22
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER............................22
3.1 ORGANIZATION AND QUALIFICATION...................22
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT.............22
3.3 LEGAL CAPACITY AND AUTHORITY.....................22
3.4 NO CONFLICTS.....................................23
3.5 NO CONSENTS......................................23
3.6 SEC DOCUMENTS....................................23
3.7 NO MATERIAL ADVERSE CHANGES......................23
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF SELLER, PARTNERS, AND SHAREHOLDERS..............................24
4.1 ORGANIZATION AND QUALIFICATION...................24
4.2 AUTHORITY RELATIVE TO THIS AGREEMENT.............24
4.3 LEGAL CAPACITY AND AUTHORITY OF SELLER,
PARTNERS, AND SHAREHOLDERS....................24
4.4 NO CONFLICTS.....................................25
4.5 NO CONSENTS......................................25
4.6 CAPITALIZATION...................................25
4.7 OWNERSHIP INTERESTS..............................25
4.8 FINANCIAL STATEMENTS.............................25
4.9 ABSENCE OF UNDISCLOSED LIABILITIES...............26
4.10 NO MATERIAL ADVERSE CHANGES......................26
4.11 ABSENCE OF CERTAIN DEVELOPMENTS..................26
4.12 PERMITTED LIENS..................................27
4.13 LEGAL DESCRIPTIONS OF REAL PROPERTY..............28
4.14 COMPLETED PROJECTS...............................28
4.15 OWNED PROJECTS...................................28
4.18 ACQUIRED CONTRACTS...............................36
i
<PAGE>
4.19 WARRANTIES.......................................38
4.20 ENVIRONMENTAL MATTERS............................38
4.21 TAX MATTERS......................................40
4.22 RESTRICTIONS ON BUSINESS ACTIVITIES..............41
4.23 INTELLECTUAL PROPERTY............................41
4.24 LITIGATION.......................................41
4.25 EMPLOYEES........................................42
4.26 EMPLOYEE BENEFIT PLANS...........................42
4.27 LABOR MATTERS....................................43
4.28 INSURANCE........................................43
4.29 AFFILIATE TRANSACTIONS...........................44
4.30 COMPLIANCE WITH LAWS.............................44
4.31 PERMITS..........................................44
4.32 PARTNERSHIP RECORDS; MINUTE BOOKS................45
4.33 DISCLOSURE.......................................45
ARTICLE 5
CONDUCT OF SELLERS, PARTNERS, AND SHAREHOLDERS
PENDING THE CLOSING................................................45
5.1 CONDUCT OF BUSINESS PENDING THE CLOSING..........45
5.2 BUSINESS RELATIONSHIPS...........................47
5.3 TAX ON PRIOR SALES...............................47
5.4 NOTIFICATION OF CERTAIN MATTERS..................47
5.5 TRANSFER OF PERMITS..............................47
ARTICLE 6
ADDITIONAL AGREEMENTS..............................................48
6.1 EMPLOYMENT.......................................48
6.2 BREAK-UP FEE.....................................48
6.3 NO NEGOTIATIONS..................................48
6.4 PUBLIC ANNOUNCEMENTS.............................48
6.5 CONFIDENTIALITY..................................49
6.6 BOOKS AND RECORDS................................49
6.7 ADDITIONAL AGREEMENTS............................49
6.8 NON-COMPETE......................................50
6.9 RIGHT TO ENTER AND INSPECT.......................50
6.10 ENVIRONMENTAL REVIEW.............................50
6.11 TITLE MATTERS....................................51
6.12 TAX ELECTIONS....................................52
6.13 L&R ALLOCATION...................................53
6.14 WARRANTY SERVICE.................................53
6.15 FORMATION OF STERLING COMMUNITIES CORPORATION....53
6.16 NEW PROJECTS.....................................53
6.17 WELLS FARGO PARTICIPATING LOANS..................55
6.18 PARTNERSHIP AGREEMENTS...........................55
ii
<PAGE>
ARTICLE 7
CONDITIONS..........................................................56
7.1 CONDITIONS TO OBLIGATION OF SELLER,
PARTNERS AND SHAREHOLDERS......................56
7.2 CONDITIONS TO OBLIGATION OF BUYER.................58
ARTICLE 8
THE CLOSING.........................................................60
8.1 CLOSING...........................................60
8.2 RISK OF LOSS......................................60
8.3 SELLER' OBLIGATIONS...............................60
8.4 BUYER'S OBLIGATIONS...............................62
8.5 TRANSFER FEES, TITLE COSTS, AND CLOSING COSTS
AND OTHER FEES; PRORATIONS........................63
ARTICLE 9
INDEMNITIES.........................................................64
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES........64
9.2 NATURE OF STATEMENTS..............................64
9.3 INDEMNIFICATION OF PARTIES........................64
9.4 ARBITRATION.......................................64
ARTICLE 10
TERMINATION/REMEDIES................................................65
10.1 TERMINATION.......................................65
10.2 EFFECT OF TERMINATION.............................65
10.3 SELLER' REMEDIES..................................66
10.4 BUYER'S REMEDIES..................................66
ARTICLE 11
GENERAL PROVISIONS..................................................67
11.1 NOTICES...........................................67
11.2 COUNTERPARTS......................................68
11.3 GOVERNING LAW.....................................68
11.4 ASSIGNMENT........................................68
11.5 GENDER AND NUMBER.................................68
11.6 SCHEDULES AND EXHIBITS............................68
11.7 WAIVER OF PROVISIONS..............................68
11.8 COSTS.............................................68
11.9 AMENDMENT.........................................68
11.10 SEVERABILITY......................................69
11.11 EXTENT OF OBLIGATIONS.............................69
11.12 BINDING EFFECT....................................69
11.13 CONSTRUCTION......................................69
11.14 TIME PERIODS......................................69
11.15 HEADINGS..........................................69
11.16 ENTIRE AGREEMENT..................................69
iii
<PAGE>
AGREEMENT OF PURCHASE AND SALE OF ASSETS
This AGREEMENT OF PURCHASE AND SALE OF ASSETS (the "AGREEMENT") is made
as of June 15, 1998, by and among MONTEREY HOMES CORPORATION, a Maryland
corporation ("BUYER"); STERLING COMMUNITIES, a California general partnership
("STERLING OR SELLER"); S.H. CAPITAL, INC., a California corporation ("SH");
STERLING FINANCIAL INVESTMENTS, INC., a California corporation ("SFI");
(collectively SH and SFI shall be referred to as "Partners"); STEVE HAFENER, a
married man ("HAFENER"); and W. LEON PYLE, a married man ("PYLE").
RECITALS
A. Seller operates a home building business in the State of California.
B. SH and SFI are the general partners in Sterling.
C. Hafener and Pyle are the sole shareholders in SH and SFI,
respectively.
D. Upon the terms and subject to the conditions set forth herein,
Seller desires to sell to Buyer and Buyer desires to purchase from Seller and to
place in NC company (hereinafter defined), selected assets of Seller, including,
but not limited to, Seller's general partnership interest in STERLING
COMMUNITIES-LIVERMORE VENTURE, a California limited partnership ("LIVERMORE")
and STERLING COMMUNITIES-ROHNERT VENTURE, a California limited partnership
("ROHNERT"), which currently own active residential real estate developments
known as Sterling Reserve and Sterling Village, respectively.
NOW, THEREFORE, in consideration of the covenants and mutual agreements
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in reliance upon the
representations and warranties contained herein, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. The following terms shall have the meanings set forth
below where used in this Agreement and identified with initial capital letters.
"ABOVEGROUND STORAGE TANK" shall have the meaning ascribed to such term
in Sections 6901, et seq., as amended, of RCRA, or any applicable state or local
statute, law, ordinance, code, rule, regulation, order ruling, or decree
governing Aboveground Storage Tanks.
"ACCOUNTING ARBITRATOR" shall have the meaning set forth in Section
2.4.
"ACQUIRED ASSETS" shall have the meaning set forth in Section 2.1.
4
<PAGE>
"ACQUIRED CONTRACTS" shall mean collectively the Sterling Acquired
Contracts and the L&R Acquired Contracts.
"ADJUSTED GAAP" shall mean GAAP with the exception that marketing and
advertising expenses, model/sales office maintenance, portions of project
overhead, and G&A ("Management Fees") shall be capitalized and amortized as cost
of sales.
"ASSET VALUE" shall mean, with respect to any Acquired Asset excluding
the Net Book Value-L&R, the Book Value of such asset, all as set forth on the
Sterling Closing Balance Sheet.
"ASSUMED LIABILITIES" shall have the meaning set forth in Section 2.3.
"AUTHORIZED EXCEPTIONS" shall have the meaning set forth in Section
6.11.
"BONDS" shall have the meaning set forth in Section 4.26.
"BOOK VALUE" shall mean, with respect to any asset, the book value of
such asset determined in accordance with Adjusted GAAP.
"BUYER FINANCIALS" shall have the meaning set forth in Section 3.5.
"BREAK-UP FEE" shall have the meaning set forth in Section 6.2.
"BUSINESS" shall mean Seller's residential homebuilding business
related to the Acquired Assets.
"CLOSING" shall have the meaning set forth in Section 8.1.
"CLOSING BALANCE SHEET" shall have the meaning set forth in Section
2.4.
"CLOSING DATE" shall have the meaning set forth in Section 8.1.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPLETED PROJECTS" shall have the meaning set forth in Section
2.2(c).
"CONTRACT ASSIGNMENTS" shall have the meaning set forth in Section 8.3.
"CONSULTANT" shall have the meaning set forth in Section 6.10.
"CURRENT FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 4.8
"DEVELOPMENT ENTITLEMENTS" shall have the meaning set forth in Section
4.29.
5
<PAGE>
"DISCHARGE" shall mean any manner of spilling, leaking, dumping,
discharging, releasing, or emitting, as any of such terms may further be defined
in any Environmental Law, into any medium including, without limitation, ground
water, surface water, soil, or air.
"EARN-OUT PAYMENT" shall have the meaning set forth in Section 2.4.
"EARN-OUT PERIOD" shall have the meaning set forth in Section 2.4.
"ENVIRONMENTAL ASSESSMENTS" shall have the meaning set forth in Section
6.10.
"ENVIRONMENTAL LAW" shall mean all federal, state, regional, or local
statutes, laws, rules, regulations, codes, ordinances, orders, plans,
injunctions, decrees, rulings, or judicial or administrative interpretations
thereof, or similar laws of foreign jurisdictions where Seller conducts
business, whether currently in existence or hereafter enacted or promulgated,
any of which govern (or purport to govern) or relate to pollution, protection of
the environment, public health and safety, air emissions, water discharges,
hazardous or toxic substances, solid or hazardous waste, or occupational health
and safety, as any of these terms are or may be defined in such statutes, laws,
rules, regulations, codes, ordinances, orders, plans, injunctions, decrees,
rulings, or judicial or administrative interpretations thereof, including,
without limitation: the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization
Act of 1986, 42 U.S.C. Section 9601s, et seq. (collectively "CERCLA"); the Solid
Waste Disposal Act, as amended by the Resource Conversation and Recovery Act of
1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C.
Sections 6901, et seq. (collectively "RCRA"); the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. Sections 1801, et seq.; the Clean
Water Act, as amended, 33 U.S.C. Section 1311, et seq.; the Clean Air Act, as
amended, 42 U.S.C. Section 7401-7642; the Toxic Substances Control Act, as
amended, 15 U.S.C. Sections 2601, et seq.; the Federal Insecticide, Fungicide,
and Rodenticide Act as amended, 7 U.S.C. Section 136-136y ("FIFRA"); the
Emergency Planning and Community Right-to-Know Act of 1986 as amended, 42 U.S.C.
Sections 11001, et seq. (Title III of SARA) ("EPCRA"); and the Occupational
Safety and Health Act of 1970, as amended, 29 U.S.C.
Sections 651, et seq. ("OSHA").
"ERISA" shall mean Title IV of the Employee Retirement Income Security
Act of 1974, as amended.
"EXCLUDED ASSETS" shall have the meaning set forth in Section 2.2.
"EXCLUDED LIABILITIES" shall have the meaning set forth in Section
2.3(b).
"FINAL BALANCE SHEET" shall have the meaning set forth in Section 2.4.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section 4.8.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"HAFENER EMPLOYMENT AGREEMENT" shall have the meaning set forth in
Section 6.1.
6
<PAGE>
"HANDLE" shall mean any manner of generating, accumulating, storing,
treating, disposing of, transporting, transferring, labeling, handling,
manufacturing, or using, as any of such terms may further be defined in any
Environmental Law, of any Hazardous Substances or Waste.
"HAZARDOUS SUBSTANCES" shall be construed broadly to include any toxic
or hazardous substance, material, or waste, and any other contaminant,
pollutant, or constituent thereof, whether liquid, solid, semi-solid, sludge,
and/or gaseous, including without limitation, chemicals, compounds, by-products,
pesticides, asbestos containing materials, petroleum or petroleum products, and
polychlorinated biphenyls, the presence of which requires investigation or
remediation under any Environmental Laws or which are or become regulated,
listed, or controlled by, under, or pursuant to any Environmental Laws,
including, without limitation, RCRA, CERCLA, the Hazardous Materials
Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the
Clean Water Act, FIFRA, EPCRA, and OSHA, or any similar state statute, or any
future amendments to, or regulations implementing such statutes, laws,
ordinances, codes, rules, regulations, orders, rulings, or decrees, or which has
been or shall be determined or interpreted at any time by any Governmental
Authority to be a hazardous or toxic substance regulated under any other
statute, law, regulation, order, code, rule, order, or decree.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"INDEMNIFICATION AGREEMENT" shall have the meaning set forth in Section
2.4.
"INSIDERS" shall have the meaning set forth in Section 4.27.
"INTELLECTUAL PROPERTY" shall collectively mean the Sterling
Intellectual Property and the L&R Intellectual Property.
"KNOWLEDGE" with respect to New Projects and Other Projects shall mean
actual knowledge based upon any investigation or inquiry actually conducted,
including inquiry of employees and officers who have within their job
responsibilities the duty to monitor the matters at issue.
"KNOWLEDGE" with respect to Owned Projects and any other matters herein
(except New Projects and Other Projects), shall mean knowledge after reasonable
investigation, including inquiry of employees and officers who have within their
job responsibilities the duty to monitor the matters at issue.
"LAND USE ENTITLEMENTS" shall have the meaning set forth in Section
4.29.
"L&R" shall collectively mean Livermore and Rohnert.
"L&R ACQUIRED CONTRACTS" shall have the meaning set forth in Section
2.1.
"L&R INTELLECTUAL PROPERTY" shall have the meaning set forth in Section
2.1.
"L&R PARTNERSHIP CONTRACTS" shall have the meaning set forth in Section
2.1.
7
<PAGE>
"L&R REAL PROPERTY" shall have the meaning set forth in Section 2.1.
"LEASE ASSIGNMENTS" shall have the meaning set forth in Section 8.3.
"LIVERMORE CLOSING BALANCE SHEET" shall have the meaning set forth in
Section 2.4.
"LIVERMORE PARTNERSHIP AGREEMENT" shall have the meaning set forth in
Section 2.1.
"NC COMPANY" shall mean the to be formed northern California, direct or
indirect, wholly owned subsidiary of Buyer, which shall conduct all operations
of the Business, hold all of the Acquired Assets, and be Buyer's sole real
estate operating affiliate in Northern California, including, but not limited to
the interest of Sterling as general partner in L&R, the New Projects (when and
if acquired) and the Other Projects (when and if acquired), plus the Early
Purchase Property. Unless otherwise agreed in writing executed by Buyer and
Seller at or prior to Closing, Sterling Communities Corporation, a California
corporation (referred to in Section 6.16 below) shall become NC Company from and
after the Closing.
"NET BOOK VALUE - L&R" shall mean the Book Value of Sterling's general
partnership interest in each of Livermore and Rohnert as set forth on the
Livermore Closing Balance Sheet or the Rohnert Closing Balance Sheet, as the
case may be.
"NEW PROJECTS" shall mean the real estate development projects related
to those certain land purchase contracts entered into by Seller, including the
Whitney Oaks Lot Purchase and Sale Agreement, dated October 10, 1997, concerning
Units 11 and 14 of the Whitney Oaks Project, between Seller, as buyer, and
Cal-Stanford Oaks LLC, as seller, and the Purchase and Sale Agreement and Escrow
Instructions, dated February 27, 1998, between Seller, as buyer, and Wildhorse
Group LLC, as seller concerning the Wildhorse Project.
"NORTHERN CALIFORNIA" shall have the meaning set forth in Section 6.19.
"NOTICES" shall have the meaning set forth in Section 4.18.
"OFFICE LEASE" shall mean Seller's current office space lease for the
property located at 1655 N. Main Street, Walnut Creek, California.
"OTHER PROJECTS" shall mean the Foothills Project, the Lawrence Estate
(Tracy) Project, the Boncore (Tracy) Project, the Antioch Project, and the
Sonoma Projects.
"OWNED PROJECTS" shall mean (a) the 59-unit Livermore development
project known as "Sterling Reserve" and (b) the 68-unit Rohnert development
project known as "Sterling Village."
"PARTNERS" shall mean SH and SFI, and each of them, jointly and
severally.
"PERMITS" shall have the meaning set forth in Section 4.29.
"PERMITTED LIENS" shall have the meaning set forth in Section 4.12.
8
<PAGE>
"PERMITTED MATERIALS" shall mean (a) reasonable amounts of gasoline,
and oil or other vehicle lubricants stored in the vehicles and equipment used on
the Real Property, (b) reasonable amounts of fertilizers, herbicides and/or
pesticides, and ordinary, everyday painting and cleaning supplies, used only in
the ordinary course of completing and maintaining the buildings, landscaping and
improvements on the Real Property, and (c) standard building components and
materials which are properly and lawfully installed in or incorporated into the
improvements and may lawfully remain therein in accordance with applicable laws,
taking into account the nature, purpose and intended use and occupancy thereof;
provided that in all cases all such components, materials, substances and other
items referred to in clauses (d) through (e), above, are stored, transported,
used, installed, incorporated and disposed of, in accordance with all applicable
laws.
"PERSON" shall mean any natural person, corporation, general or limited
partnership, limited liability company, trust, sole proprietorship, or other
entity, organization or association of any kind.
"PRELIMINARY REPORTS" shall have the meaning set forth in Section 6.11.
"PRE-TAX INCOME" shall mean the net income of the NC Company (without
reducing net income by corporate overhead charges or amortization of goodwill
but including the reduction of net income allocable to the limited partners of
each of Livermore and Rohnert) before income taxes, determined in accordance
with GAAP (which is exclusive of the charges in (a) through (c) below), further
reduced by Construction Interest, Acquisition and Development Interest, and
Accrued Equity Interest computed in accordance with (a) through (c) below,
capitalized and amortized to cost of sales in accordance with GAAP. Construction
Interest, Acquisition and Development Interest, and Accrued Equity Interest are
computed as follows:
(a) "Accrued Construction Interest" is computed by multiplying
the per annum rate of 10% or the Prime Rate plus one percentage point,
whichever is greater, by Construction Liabilities during a particular
Earn-Out Period; provided, however, that to the extent such
Construction Liabilities are financed through non-recourse seller carry
debt, the actual accrual rate of such non-recourse Seller carry
financing shall govern. "Construction Liabilities" shall mean hard and
soft construction costs of assets, including the lot on which any home
construction has commenced multiplied by 100%;
(b) "Accrued Acquisition and Development Interest" is computed
by multiplying the per annum rate of 12%, or the Prime Rate plus three
percentage points, whichever is greater by Acquisition and Development
Liabilities during a particular Earn-Out Period; provided, however,
that to the extent such Acquisition and Development Liabilities are
financed through non-recourse seller carry debt, the actual accrual
rate of such non-recourse Seller carry financing shall govern. .
"Acquisition and Development Liabilities" shall mean land, hard and
soft costs of construction of infrastructure and other subdivision
improvements multiplied by 60%; and
(c) "Accrued Equity Interest" is computed by multiplying the
per annum rate of 15%, or the Prime Rate plus six percentage points,
whichever is greater, by the amount by which all assets exceed the
liabilities of the NC Company (including Construction Liabilities and
Acquisition and Development Liabilities) during a particular Earn-Out
Period.
9
<PAGE>
"PRIME RATE" shall mean the rate as published in the Wall Street
Journal. The Prime Rate will change on each day that the announced prime rate
changes. The prime rate is not necessarily the best or lowest rate offered by
financial institutions.
"PROCEEDING" shall mean claims, suits, actions, judgments, penalties,
fines or administrative or judicial investigations or proceedings.
"PROJECT FACT SHEET" shall have the meaning set forth in Section 4.17.
"PROPERTY LEASES" shall have the meaning set forth in Section 4.16.
"PURCHASE PRICE" shall have the meaning set forth in Section 2.4.
"PYLE NON-COMPETE AGREEMENT" shall have the meaning set forth in
Section 6.8.
"REMEDIATION STANDARD" shall have the meaning set forth in Section
6.10.
"ROHNERT CLOSING BALANCE SHEET" shall have the meaning set forth in
Section 2.4.
"ROHNERT PARTNERSHIP AGREEMENT" shall have the meaning set forth in
Section 2.1.
"SELLER" shall mean Sterling.
"SHAREHOLDERS" shall mean Hafener and Pyle.
"STERLING ACQUIRED CONTRACTS" shall have the meaning set forth in
Section 2.1.
"STERLING CLOSING BALANCE SHEET" shall have the meaning set forth in
Section 2.4.
"STERLING REAL PROPERTY" shall have the meaning set forth in Section
2.1.
"TAXES" shall mean any and all federal, state, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, payroll, employment, recapture,
disability, real property, personal property, sales, use, transfer,
registration, value-added, alternative or add-on minimum, estimated, many other
taxes, assessments, or government charges of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"TAX RETURNS" shall mean any return, declaration, report, claim to
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"TITLE COMPANY" shall have the meaning set forth in Section 6.11.
"TITLE POLICY" shall have the meaning set forth in Section 6.11.
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"UNDERGROUND STORAGE TANK" shall have the meaning ascribed to such term
in Section 6901 et seq., as amended, of RCRA, or any applicable state or local
statute, law, ordinance, code, rule, regulation, order ruling, or decree
governing Underground Storage Tanks.
"WASTE" shall be construed broadly to include agricultural wastes,
biomedical wastes, biological wastes, bulky wastes, construction and demolition
debris, garbage, household wastes, industrial solid wastes, liquid wastes,
recyclable materials, sludge, solid wastes, special wastes, used oils, white
goods, and yard trash as those terms are defined under any applicable
Environmental Laws.
"WRI LIVERMORE" shall mean WRI Livermore Sterling Investors, L.P., a
California limited partnership which is the sole limited partner of Livermore.
"WRI ROHNERT" shall mean WRI Sterling Rohnert Park Investors, a
California limited partnership which is the sole limited partner of Rohnert.
ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 ASSETS TO BE PURCHASED. Upon the terms and subject to the
conditions set forth herein, and in reliance on the respective representations
and warranties of the parties, at the Closing, Seller agrees to sell to Buyer
and Buyer agrees to purchase from Seller all right, title and interest of Seller
in and to the following:
All of the assets of Seller as of the Closing Date, as
disclosed by the Sterling Closing Balance Sheet and the Final Balance Sheets,
other than Excluded Assets (the "ACQUIRED ASSETS").
The Acquired Assets shall include, without limitation, the following:
(a) Any real property owned by Seller, including (i) all land
and buildings, fixtures, and improvements located thereon or attached
thereto; (ii) all lots under development and finished lots, and all
houses under development, completed homes, and model homes as of the
Closing Date; and (iii) easements, franchises, licenses, permits, and
rights-of-way appurtenant to or otherwise benefiting, and all
development rights, mineral rights, water rights, utility capacity
reservations, and other rights and appurtenances affecting or
pertaining to, the items described in Clauses (i) and (ii)
(collectively, the "STERLING REAL PROPERTY"). SCHEDULE 2.1(A) sets
forth a listing and description of the Sterling Real Property;
(b) All of Seller's rights and benefits in, to and under (i)
all leases, contracts, purchase escrow deposits, and option agreements,
including, but not limited to those agreements relating to the New
Projects and Other Projects, for the purchase by Seller of lots or land
for development; (ii) all purchase and sale agreements, escrow
instructions, escrow deposits, or other contracts with third parties
relating to the sales of any portion of the Sterling Real Property;
(iii) rights and benefits in all written and oral agreements,
arrangements, contracts, commitments and leases, including all
contracts with suppliers, materialmen, contractors, subcontractors and
others furnishing any work or materials to or
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for any of the Sterling Real Property; (iv) all reimbursement and
indemnity agreements pertaining to or of any improvement, performance,
payment, maintenance, fidelity, lien release, or other bonds,
undertakings or similar sureties with respect to any of the Other
Projects, New Projects or Owned Projects and any development or
construction thereof (and inclusive of any obligations of the Partners
and/or Shareholders under or by virtue of any guaranties of such
obligations); (v) all contracts with architects, designers, engineers,
planners, environmental consultants, surveyors, and other consultants
employed in connection with the Other Projects, New Projects or Owned
Projects; (vi) all vendor, supplier and equipment lessor agreements
concerning any supplies, services, equipment and furniture in premises
utilized by Seller for office purposes; (vii) all commission, listing
and brokerage agreements pertaining to any of the Sterling Real
Property, the Owned Projects, the New Projects, and the Other Projects,
and the acquisition of or sale thereof; (viii) the Office Lease; (ix)
all software licensing and equipment rental agreements associated with
computers or data processing; (x) all management service and
construction supervisor contracts or agreements between Seller and any
third party concerning that party's project, including, but not limited
to the agreement (in draft form) between Seller and Hearthstone
Advisors concerning the project known as Sterling Place; (xi) all model
home furniture, fixtures and equipment leases and any model home lease
or sale agreements pertaining to the Other Projects, New Projects or
Owned Projects; and (xii) the partnership agreements of L&R,
respectively, (collectively, the "STERLING ACQUIRED CONTRACTS").
SCHEDULE 2.1(B) sets forth a listing of the Sterling Acquired
Contracts;
(c) To the extent transferable, all the right, title, and
interest of Seller in all approvals, authorizations, certificates,
consents, franchises, licenses, permits, rights, variances,
dedications, subdivision maps, plans, entitlements, and waivers
acquired or used in connection with Seller's Business, and all
agreements with, and any waivers, licenses, permits, and approvals from
or to any governmental or quasi-governmental agency, department, board,
commission, bureau or any other entity or instrumentality, and other
authorities in the nature thereof, a list and description of which is
set forth on SCHEDULE 2.1(C);
(d) In addition to anything included in subparagraph (b)
above, all equipment, furniture, furnishings, inventory, machinery,
software, supplies, tools, vehicles, and other personal property owned
or leased by Seller, as listed and described on SCHEDULE 2.1(D);
(e) To the extent transferrable, all rights and benefits of
Seller in (i) all architectural, building, and engineering designs,
drawings, specifications, and plans; (ii) all processes, know-how,
technical data, and other trade secrets; all other proprietary
information or rights of Seller including any and all plans, names and
other project related information of prior and currently active real
estate projects of Seller; (iii) all sales forms and promotional and
advertising materials; (iv) all copyrights, patents, trademarks, and
applications, registrations, and renewals with respect thereto; (v) the
names "Sterling Homes" and "Sterling Communities," and all variations
of or derivations from such name and any and all logos used in
connection therewith (collectively, the "STERLING INTELLECTUAL
PROPERTY"); and (vi) all goodwill associated therewith.
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(f) All of Sterling's prepaid expenses, a list and description
of which is set forth on SCHEDULE 2.1(F);
(g) All rights and benefits of Seller under any
manufacturer's, subcontractor's, supplier's, merchant's, repairmen's,
or other third-party warranties, guarantees, and service or replacement
programs relating to any Acquired Asset or the Business;
(h) All of the books, instruments, papers, and records of
whatever nature and wherever located that relate to the Seller's
Business of Sterling, whether in written form or another storage
medium, including without limitation (i) accounting and financial
records; (ii) property records and reports; (iii) customer,
subcontractor, and supplier lists; (iv) environmental records and
reports; (v) personnel and labor relations records; and (vi) property,
sales, or transfer tax records and returns; PROVIDED, HOWEVER, that
such books, instruments, papers, and records shall exclude any
documents relating exclusively to the Excluded Assets;
(i) Seller's general partnership interest in (i) Livermore
pursuant to the Livermore limited partnership agreement ( the
"LIVERMORE PARTNERSHIP AGREEMENT") and (ii) Rohnert pursuant to
Rohnert's limited partnership agreement (the "ROHNERT PARTNERSHIP
AGREEMENT") which includes Seller's interest as a general partner in
all of the assets of Livermore and Rohnert as of the Closing Date, as
disclosed by the Livermore and Rohnert Closing Balance Sheets and the
Final Balance Sheets, respectively, other than Excluded Assets
(collectively, the "L&R PARTNERSHIP INTERESTS"). The L&R Partnership
Interests include, without limitation, the interest of Seller, if any,
as general partner of L&R, in and to the following:
(i) All real property owned or leased by L&R,
including (A) all land and buildings, fixtures, and
improvements located thereon or attached thereto; (B) all lots
under development and finished lots, and all houses under
development, completed homes, and model homes as of the
Closing Date; and (C) easements, franchises, licenses,
permits, and rights-of-way appurtenant to or otherwise
benefiting, and all development rights, mineral rights, water
rights, utility capacity reservations, and other rights and
appurtenances affecting or pertaining to, the items described
in Clauses (A) and (B) (collectively, the "L&R REAL
PROPERTY"). SCHEDULE 2.1(I)(I) sets forth a listing and
description of the L&R Real Property, subject to further
closing of home sales in the ordinary course of L&R's
business;
(ii) All of L&R's: (A) rights and benefits under all
contracts, purchase escrow deposits, and option agreements for
the purchase by each of Livermore and Rohnert of lots or land
for development, a list and description which is set forth on
SCHEDULE 2.1(I)(II)(A); (B) right, title, and interest in all
purchase and sale agreements, escrow instructions, escrow
deposits, or other contracts with third parties relating to
the sale of any portion of the Real Property; and (C) rights
and benefits in all other written and oral agreements,
arrangements, contracts, commitments and leases listed and
described on SCHEDULE 2.1(I)(II)(C) hereto, commitments,
contracts, leases that each of Livermore and Rohnert enters,
including all contracts with
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suppliers, materialmen, contractors, subcontractors and others
furnishing any work or materials to or for any of the L&R Real
Property; (D) all reimbursement and indemnity agreements
pertaining to or of any improvement, performance, payment,
maintenance, fidelity, lien release, or other bonds,
undertakings or similar sureties with respect to any of the
Owned Projects and any developments or construction thereof
(and inclusive of any obligations of the Partners and/or
Shareholders under or by virtue of any guaranties of such
obligations); (E) all contracts with architects, designers,
engineers, planners, environmental consultants, surveyors, and
other consultants employed in connection with the L&R Real
Property, and any development or construction thereof; (F) all
vendor, supplier and equipment lessor agreements concerning
any supplies, services, equipment and furniture in premises
utilized by Seller for office purposes; (G) all commission,
listing and brokerage agreements pertaining to any of the L&R
Real Property, and the acquisition or sale thereof; (H) all
software licensing and equipment rental agreements associated
with computers or data processing; (I) all management,
service, and construction supervision contracts or agreements
between L&R and any third party concerning that party's
project; and (J) all model home furniture, fixture and
equipment leases and any model home lease or sale agreements
pertaining to the L&R Real Property (collectively, the "L&R
ACQUIRED CONTRACTS");
(iii) To the extent transferrable, all rights and
benefits of each of Livermore and Rohnert in (A) all
architectural, building, and engineering designs, drawings,
specifications, and plans; (B) all processes, know-how,
technical data, and other trade secrets; (C) all sales forms
and promotional and advertising materials; and (D) all
copyrights, patents, trademarks, and applications,
registrations, and renewals with respect thereto; (E) all
other proprietary information or rights of each of Livermore
and Rohnert (collectively, the "L&R INTELLECTUAL PROPERTY");
and (F) all goodwill associated therewith.
(iv) All equipment, furniture, furnishings,
inventory, machinery, software, supplies, tools, vehicles, and
other personal property owned or leased by each of Livermore
and Rohnert, as listed and described on SCHEDULE 2.1(I)(IV);
(v) To the extent transferable, the rights and
benefits of each of Livermore and Rohnert in all approvals,
authorizations, certificates, consents, franchises, licenses,
permits, rights, variances, dedications, subdivision maps,
plans, entitlements, and waivers acquired or used in
connection with the business of each of Livermore and Rohnert,
and all agreements with, and any waivers, licenses, permits,
and approvals from or to any governmental or
quasi-governmental agency, department, board, commission,
bureau or any other entity or instrumentality and other
authorities in the nature thereof, a list and description of
which is set forth on SCHEDULE 2.1(I)(V);
(vi) All of the prepaid expenses of each of Livermore
and Rohnert, a list and description of which is set forth on
SCHEDULE 2.1(I)(VI);
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(vii) All rights and benefits of each of Livermore
and Rohnert under any manufacturer's, subcontractor's,
supplier's, merchant's, repairmen's, or other third-party
warranties, guarantees, and service or replacement programs
relating to any L&R asset or the business of each of Livermore
and Sterling; and
(viii) All of the books, instruments, papers, and
records of whatever nature and wherever located that relate to
the business of each of Livermore and Rohnert, whether in
written form or another storage medium, including without
limitation (A) accounting and financial records; (B) property
records and reports; (C) customer, subcontractor, and supplier
lists; (D) environmental records and reports; (E) personnel
and labor relations records; and (F) property, sales, or
transfer tax records and returns.
2.2 ASSETS NOT BEING TRANSFERRED. Seller shall retain and Buyer shall
not purchase the following ("EXCLUDED ASSETS"):
(a) All of Seller's right, title and interest under or related
to this Agreement, including, without limitation, the consideration
delivered to Seller pursuant to this Agreement;
(b) The minute books, ownership record books and information,
seals, and other documents and things relating to organizational
matters and the existence of Sterling as a general partnership, the
Partners, respectively, as corporations and the income tax returns of
Partners and Seller;
(c) Any assets of Seller relating to Seller's interest or the
interest of any of the Partners or Shareholders, directly or
indirectly, or of Sterling Homes, a general partnership consisting of
Daystar Homes, a California corporation, and Sterling Home Designs, a
California corporation, or any other investor in or to the residential
real estate developments known as Sterling Creek, Sterling Heights,
Sterling Springs, Sterling Creek II, Sterling Ridge Venture, L.P.,
Somerset, Sterling Brook, Sterling Springs Parkside Development and
Sterling Estates, Sterling Oaks ("COMPLETED PROJECTS");
(d) Any cash, cash equivalents, accounts receivable and notes
receivable of Seller; and
(e) Any interest in the Hafener Revocable Trust and the
Pyle-DeForest Trust or in any assets owned by either the Hafener
Revocable Trust or the Pyle-DeForest Trust.
2.3 LIABILITIES.
(a) ASSUMED LIABILITIES. Upon the terms and subject to the
terms of this Agreement, at the Closing, Buyer shall assume from and
after the Closing Date, and perform and pay when due, the following
liabilities of Seller and none others (the "ASSUMED LIABILITIES"),
Buyer agreeing that Buyer shall discharge the Assumed Liabilities in
accordance with their terms:
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(i) The obligations of Seller, Partners and Shareholders
under the Acquired Contracts as of the Closing Date;
(ii) All liabilities or obligations of Seller reflected
on the Sterling Closing Balance Sheet (but not including (A)
intercompany payables other than payables owing between
Sterling and L&R, and (B) loan obligations to the Partners or
Shareholders).
(iii) All contingent claims and liabilities of Seller
which arise out of or pertain to any residential units of
Seller and L&R which close escrow after the Closing Date,
whether fixed or contingent, known or unknown, matured or
unmatured, executory or non-executory, whether such liability
arises out of occurrences prior to or after the Closing,
including (A) any and all alleged or proven product liability,
construction defect, contract claims or liabilities (but not
including environmental liabilities), or liabilities or
similar claims asserted by home purchasers or their
successors, (B) any and all claims, liens and demands asserted
by design professionals, engineers, contractors,
subcontractors and materialmen involved in development or
construction of the lot or home, (C) any known liabilities
disclosed in Seller's Financial Statements prior to the
Closing Date, if any, and (D) claims and demands pertaining to
or arising out of the Acquired Assets not known to Seller and
of which Seller has no notice or reason to know prior to the
Closing and which are discovered or asserted after the
Closing. Notwithstanding any other provisions of this
Agreement to the contrary, Buyer will not assume any
environmental liabilities on residential units which close
escrow after the Closing which relate to site or land
development or remediation obligations, whether known or
unknown to Seller, under any Environmental Laws existing as of
the Closing Date.
(b) EXCLUDED LIABILITIES. Notwithstanding any other provision
of this Agreement, and except for the Assumed Liabilities specified in
Section 2.3, Seller shall remain responsible for and Buyer shall not
assume any liabilities or obligations, whether fixed or contingent,
known or unknown, matured or unmatured, executory or non-executory,
whether such liability or obligations arise out of occurrences prior
to, at or after the date hereof, including without limitation the
following (collectively, the "EXCLUDED LIABILITIES"):
(i) Liabilities (other than those arising under the
Acquired Contracts) not reflected on the Financial Statements
of Seller at the Closing Date whether fixed or contingent,
known or unknown, matured or unmatured, executory or
non-executory, whether such liability arises out of
occurrences prior to or after the Closing;
(ii) All liabilities and obligations of Seller,
Partners, and Shareholders under this Agreement or with
respect to or arising out of the consummation of the
transactions contemplated by this Agreement;
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(iii) All liabilities and obligations of Seller for
Seller's, Partners', and Shareholders' fees and expenses and
taxes incurred by Seller in connection with, relating to, or
arising out of the consummation of the transactions
contemplated by this Agreement, except as specifically
contemplated herein;
(iv) All liabilities of Seller owed to Partners,
Shareholders or any of their affiliates including, but not
limited to, all liabilities of Seller to repay loans or
advances owed to Partners, Shareholders or any affiliate of
either, it being understood that the Asset Value of Seller
used in calculating the Purchase Price will, among other
things, include the assets represented by prepaid expenses and
deposits in respect of the New Projects and Other Projects
which have been loaned or advanced by the Shareholders,
without deduction for such loans or advances as liabilities of
Seller, and that any such loans or advances shall be repaid,
if at all, from Seller's proceeds of the Purchase Price after
Closing.
(v) (A) Any liabilities, obligations or expenses for
Taxes (including property taxes for property of Seller closed
prior to the Closing Date, but not including property taxes
for property of Seller which has not closed prior to such
Date) of the Seller (regardless of when incurred) or of any
other person (regardless of when incurred) under Treas. Reg.
1502-6 (or any similar provision of state, local, or foreign
law) as a transferee or successor, by contract or otherwise;
(B) any liabilities or obligations or expenses of the Seller
related to pending or threatened litigation against Seller or
otherwise related to the business or Acquired Assets as of the
Closing Date, including any liability on obligations arising
out of occurrences prior to the Closing Date; (C) any
liabilities, obligations, or expenses arising from or relating
to or consisting of any lien, encumbrance or claim affecting
the title to the Acquired Assets, other than Permitted Liens;
(D) any liabilities, obligations, or expenses under any land
contracts arising or relating to the period prior to the
Closing Date except for liabilities, obligations or expenses
related to the Acquired Contracts; (E) any liabilities,
obligations or expenses relating to any environmental matter
or condition; and (F) any liability or obligation to or in
respect of any employees or former employees of Seller,
including without limitation (1) any employment agreement,
whether or not written, between Seller and any person, (2) any
liability under any employee plan at any time maintained,
contributed to or required to be contributed to by or with
respect to Seller or under which Seller may incur liability,
or any contributions, benefits or liabilities therefor, or any
liability with respect to Seller's withdrawal or partial
withdrawal from or termination of any employee plan, or (3)
any claim of an unfair labor practice, or any claim under any
state unemployment compensation or worker's compensation law
or regulation or under any federal or state employment
discrimination law or regulation, which shall have been
asserted on or prior to the Closing Date or is based on acts
or omissions which occurred on or prior to the Closing Date.
Anything contained in this Agreement to the contrary
notwithstanding, Seller shall remain responsible for and Buyer shall
not assume the Excluded Liabilities which Excluded Liabilities shall at
and after the Closing remain the exclusive responsibility of
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Seller, Partners, and Shareholders. Seller, Partners, and Shareholders
shall discharge all Excluded Liabilities and, without limitation of the
foregoing, if Seller or Partners shall liquidate, dissolve, or wind-up
after the Closing, Seller or Partners shall pay, post security for, or
otherwise make provision for all such liabilities to the reasonable
satisfaction of Buyer.
2.4 PURCHASE PRICE.
(a) AMOUNT OF PURCHASE PRICE. In addition to assuming the
Assumed Liabilities, Buyer agrees to pay to Seller, subject to the
terms and conditions of this Agreement, a purchase price (the "PURCHASE
PRICE") equal to the sum of:
(i) An amount equal to the lesser of (A) $2,500,000
less a dollar for dollar adjustment for any general partner
distributions made by Livermore and/or Rohnert from January 1,
1998 through the Closing Date or (B) the sum of the Net Book
Value- L&R as of the Closing Date; plus
(ii) The Asset Value of each of the Acquired Assets
less any liabilities assumed in accordance with Adjusted GAAP
by Buyer as set forth in the Closing Balance Sheet; plus
(iii) $3,450,000; and
(iv) To the extent earned following the Closing Date,
the Earn-Out Payments.
With respect to payments pursuant to (i) and (ii)
above, Buyer shall pay Seller ninety percent (90%) of such portion of
the Purchase Price at Closing. With respect to payments pursuant to
(iii) above Buyer shall pay one hundred percent (100%) of such portion
of the Purchase Price at Closing. The remaining Purchase Price, but not
including (iv) above, shall be due upon resolution of the Final Balance
Sheets as set forth in Section 2.4(c)(ii).
(b) ADJUSTMENTS. Seller and Buyer acknowledge that the
Purchase Price will be computed based on the Closing Balance Sheets
which, pursuant to Section 2.4(c), will be as of a date prior to
Closing. Accordingly, items (i) and (ii) in (a) above shall be subject
to adjustment based on the Final Balance Sheets as provided in Sections
2.4(c)(ii).
(c) DETERMINATION OF NET ASSET VALUES-L&R AND NET BOOK
VALUE-STERLING.
(i) A preliminary balance sheet for each of Sterling,
Livermore and Rohnert is attached hereto as SCHEDULE 2.4(C)(I)
(the "PRELIMINARY BALANCE SHEET"). The Preliminary Balance
Sheet of each Sterling, Livermore and Rohnert, each dated as
of April 30, 1998, set forth the form of the Closing Balance
Sheet. Buyer has no obligation to review and comment on the
substance of the Preliminary Balance Sheet.
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The parties agree that the receipt by Buyer of the Preliminary
Balance Sheet shall not effect Buyer's rights regarding review
and approval of the Final Balance Sheet.
(ii) For the purpose of making an initial
determination of Asset Value and Net Book Value-L&R, Seller
shall deliver to Buyer an estimated closing balance sheet for
each of Sterling, Livermore, and Rohnert, five (5) business
days prior to the Closing for each of Sterling, Livermore and
Rohnert. The balance sheets shall be prepared in accordance
with Adjusted GAAP and shall be subject to review and approval
by Buyer. The estimated closing balance sheet for each of
Sterling, Livermore and Rohnert, as approved by Buyer, are
referred to in this Agreement as the "STERLING CLOSING BALANCE
SHEET", the "LIVERMORE CLOSING BALANCE SHEET", and the
"ROHNERT CLOSING BALANCE SHEET" (collectively, the "CLOSING
BALANCE SHEETS").
(iii) As soon as practicable but not later than 15
days after Closing, Seller, at its expense, shall prepare a
final balance sheet as of the Closing Date for each of
Sterling, Livermore, and Rohnert (collectively, the "FINAL
BALANCE SHEETS"). The Final Balance Sheets shall be prepared
in accordance with Adjusted GAAP and shall be subject to
review and approval by Buyer and its independent accountants.
The Final Balance Sheets shall be provided to all parties and
all parties shall have the right to inspect the work papers
generated by Seller in preparation of the Final Balance
Sheets. Once Buyer and Seller have approved the Final Balance
Sheets, and in any event, not later than ten (10) business
days after delivery of the Final Balance Sheet to Buyer, the
Purchase Price shall be recomputed using the Final Balance
Sheets, and the balance, if any, due to Seller shall be
promptly paid and any difference in favor of Buyer in the
recomputed Purchase Price and the amounts previously paid
shall be reimbursed by Seller to Buyer within ten (10) days of
final determination of the Purchase Price.
(iv) If Buyer and Seller cannot agree on the Closing
Balance Sheets or the Final Balance Sheets, Buyer shall pay
any undisputed balance, if any, within ten (10) days of
receipt of notice from Seller that a dispute exists and such
matter shall be resolved in the manner set forth in EXHIBIT A,
provided, however, the arbitrator shall be Deloitte & Touche
LLP (provided it is not then serving as auditor for Buyer or
for either Seller, Partners, Shareholders or Hafener) or such
other accounting firm of national repute (other than the firm
currently serving as auditor for Buyer or the firm serving as
auditor for either Seller, Partners, Shareholders, or Hafener)
as may be mutually agreed upon by Buyer and Hafener (the
"ACCOUNTING ARBITRATOR").
(v) To the extent the Closing and Final Balance
Sheets are not prepared in accordance with Adjusted GAAP the
Purchase Price shall not be adjusted for any resulting
difference of less than $50,000. If the resulting difference
exceeds $50,000, the Purchase Price shall be adjusted for any
amount exceeding $50,000.
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(d) EARN-OUT PAYMENTS.
(i) The Purchase Price includes four (4) deferred
contingent payments (each an "EARN-OUT PAYMENT") for each of
the four (4) consecutive Earn-Out Periods following the
Closing. Each Earn-Out Payment shall be equal to 20% of the
Pre-Tax Income for each Earn-Out Period. The parties
understand and agree that the Earn-Out Payments shall not be
calculated based on any performance projections which may have
been provided by Seller to Buyer prior to Closing but shall be
based on actual Pre-Tax Income of the NC Company. The first
"EARN-OUT PERIOD" shall be the twelve month period beginning
on the first day of the first month that commences following
the Closing Date and ending on the anniversary thereof, with
each subsequent Earn-Out Period being the next succeeding
twelve month period that commences immediately following the
prior Earn-Out Period.
(ii) As of the Closing, Seller hereby assigns all
rights to each Earn-Out Payment to SH, and directs Buyer to
make each Earn-Out Payment directly to SH, or its assigns.
Notwithstanding the foregoing, Seller and SH agree that each
EarnOut Payment shall be subject to Buyer's rights of set-off
under the Indemnification Agreement attached hereto as EXHIBIT
B (the "INDEMNIFICATION AGREEMENT"), to be executed by the
parties at Closing, that any adjusting payments that may be
required between Seller and SH as a result of any such set-off
shall be the sole responsibility of Seller and SH and that
Buyer shall have no liability or obligation whatsoever with
respect thereto. The set-off rights granted in this subsection
(ii) are in addition to any other right or remedy available to
Buyer at law or equity as set forth in the Indemnification
Agreement. Seller, Shareholders and Partners shall release and
indemnify Buyer in respect of the foregoing assignment and any
other allocation of the Purchase Price among the parties.
(iii) Within 60 days after the end of each Earn-Out
Period, Buyer shall deliver to SH, a reasonably detailed
calculation notice of the Pre-Tax Income for such Period and
the Earn-Out Payment due to SH. SH, shall notify Buyer within
15 days after the delivery of the calculation notice
referenced above of any dispute relating to calculation of the
Earn-Out Payment. Buyer shall, upon SH's request made within
the same 15-day period, make available to SH, the books and
records of NC Company, and any related work papers, related to
computation of the Earn-Out Payment. If SH establishes a
mistake in the calculation which Buyer does not dispute, the
Earn-Out Payment shall be adjusted accordingly and the party
in whose favor the mistake was made shall promptly pay the
other party the amount due. If Buyer and SH, are unable to
resolve any dispute regarding the calculation of an EarnOut
Payment within 30 calendar days of SH's notice under this
Section 2.4, then the parties shall arbitrate the dispute in
the manner provided in EXHIBIT A, except that the arbitrator
shall be the Accounting Arbitrator. The arbitration award
shall be final and binding on all parties, and judgment on the
arbitration award may be enforced in any court having
jurisdiction over the subject matter of the controversy. If
the Accounting Arbitrator determines that Buyer underpaid an
Earn-Out Payment by more than $50,000, Buyer shall pay the
fees and expenses of the Accounting
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Arbitrator and shall reimburse SH, for the cost of its
accounting professionals in reviewing Buyer's calculation of
the Earn-Out Payment and in participating in the arbitration
procedure. If the Accounting Arbitrator determines that Buyer
underpaid an Earn-Out Payment by less than $50,000 or overpaid
an Earn-Out Payment by less than $50,000, Buyer and SH, shall
each pay their cost of its own accounting professionals and
shall bear equally the fees and expenses of the Accounting
Arbitrator. If Buyer overpaid an Earn-Out Payment by more than
$50,000, SH, shall pay the fees and expenses of the Accounting
Arbitrator and shall reimburse Buyer for the cost of its
accounting professionals in reviewing Buyer's calculation of
the Earn-Out Payment and in participating in the arbitration
procedure. Any reimbursement amount due under this Section
shall be added to the arbitration award.
(iv) If Hafener is terminated for "Cause" as defined
in Section 1(b)(i) and (ii) of the Hafener Employment
Agreement in the form of EXHIBIT C attached hereto, Buyer's
obligations for any and all remaining Earn-Out Payments,
regardless of whom such Earn-Out Payments are being made to,
shall thereupon terminate.
(v) If Hafener terminates his employment due to a
material breach by Buyer or NC Company of the Purchase
Documents, Buyer shall remain obligated for any and all
remaining Earn-Out Payments,.
(vi) If Hafener terminates his employment under the
Hafener Employment Agreement and there is no material breach
of the Purchase Documents by Buyer or NC Company, then Buyer
shall remain obligated for the Earn-Out Payments but adjusted
as follows, regardless of whom such Earn-Out Payments are
being made to: (a) If Hafener terminates his employment within
twelve months of the Closing, Buyer's obligations for any and
all Earn-Out Payment shall terminate; (b) If Hafener
terminates his employment between thirteen and eighteen months
following the Closing, Buyer's obligations for the remaining
Earn-Out Payments (Payments two, three and four), shall
terminate; (c) if Hafener terminates his employment between
nineteen and twenty-four months following the Closing, Buyer
shall remain obligated to pay Earn-Out Payments equal to 15%
of the Pre-Tax Income for the second Earn-Out Period, 10% for
the third Earn-Out Period, and 5% for the fourth Earn-Out
Period; (d) if Hafener terminates his employment between
twenty-five and thirty-six months following the Closing, Buyer
shall remain obligated to pay Earn-Out Payments equal to 15%
of the Pre-Tax Income for the third Earn-Out Period and 10%
for the fourth Earn-Out Period; (e) if Hafener terminates his
employment between thirty-seven and forty-eight months
following the Closing, Buyer shall remain obligated to pay the
fourth Earn-Out Payment equal to 15% of the Pre-Tax Income.
2.5 METHOD OF PAYMENT. The Purchase Price shall be payable as follows:
(a) At Closing, Buyer shall pay to Seller the amounts
described in Sections 2.4(a)(i) - (iii), by wire transfer of
immediately available funds to Seller.
(b) Buyer shall make the payment of retention amounts
described in Sections 2.4(a)(i) and (ii) as provided in Section 2.4(b).
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(c) Buyer shall make the Earn-Out Payments to SH, as provided
in Section 2.4(d).
2.6 ALLOCATION OF PURCHASE PRICE. The Purchase Price and the Assumed
Liabilities shall be allocated among the Acquired Assets in accordance with
Section 197 and 1060 of the Code and the regulations thereunder. Such
allocation, which shall allocate a portion of the $3,450,000 sum to the purchase
of the goodwill of Seller, shall be reported by Buyer and Seller on Internal
Revenue Service Form 8594, Asset Acquisition Statement, which will be filed with
Buyer's and Seller' Federal income tax returns for the tax year that includes
the Closing Date. Seller's goodwill allocation is set forth on SCHEDULE 2.6.
2.7 RISK OF LOSS. All risk of loss with respect to the Acquired Assets
and the business of Seller on or before the Closing Date shall remain the sole
risk of Seller.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
As of the date hereof and as of the Closing Date, Buyer hereby
represents and warrants to Seller, Partners and Shareholders, the following:
3.1 ORGANIZATION AND QUALIFICATION. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has the requisite corporate power and authority to own and operate
its properties and to carry on its business as now conducted in every
jurisdiction where the failure to do so would have a material adverse effect on
its business, properties, or ability to conduct the business currently conducted
by it. As of the Closing Date, NC Company will be a corporation duly organized,
validly existing, and in good standing under the laws of the State of California
and will have the requisite corporate power and authority to own and operate its
properties and to carry out business in every jurisdiction where the failure to
do so would have a material adverse effect on the business, properties, or
ability to conduct its business.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Buyer has the requisite
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement by Buyer and
the consummation by Buyer of the transactions contemplated hereby have been duly
authorized by Buyer, and no other corporate proceedings on the part of Buyer are
necessary to authorize this Agreement and such transactions. This Agreement has
been duly executed and delivered by Buyer and constitutes a valid and binding
obligation of Buyer, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
or other similar laws relating to the enforcement of creditors' rights generally
and by general principles of equity.
3.3 LEGAL CAPACITY AND AUTHORITY. Buyer and NC Company possess the
legal capacity to execute and deliver each document to which it is a party, to
perform its obligations thereunder, and to consummate the transactions
contemplated thereby. Except as provided in Schedule 3.3, (a) neither Buyer nor
NC Company is subject to or obligated under, any provision or any agreement,
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arrangement or understanding or any law, regulation, order, judgment or decree,
which would be breached or violated or in respect of which a right to
termination or acceleration would arise, or pursuant to which any encumbrance on
any of their assets would be created by the execution, delivery, and performance
of this Agreement and the consummation by Buyer and NC Company of the
transactions contemplated hereby; and (b) no authorization, consent, or approval
to, or filing with, any public body, court, or authority is necessary on the
part of either Buyer or NC Company for the consummation by Buyer or NC Company
of the transactions contemplated by this Agreement. With respect to each
document to which Buyer and NC Company are a party, at the Closing, Buyer and NC
Company will duly execute and deliver such documents which will be a valid,
legal and binding obligation of Buyer and NC Company enforceable against Buyer
and NC Company in accordance with its terms, as the case may be.
3.4 NO CONFLICTS. Buyer is not subject to, or obligated under, any
provision of (a) its certificate of incorporation or bylaws, (b) any material
agreement, arrangement, or understanding (other than its lending arrangements),
(c) any material license, franchise, or permit, or (d) any law, regulation,
order, judgment, or decree, which would be breached or violated, or in respect
of which a right of termination or acceleration would arise, or pursuant to
which any encumbrance on any of its or any of its subsidiaries' material assets
would be created, by its execution, delivery, and performance of this Agreement
and the consummation by it of the transactions contemplated hereby.
3.5 NO CONSENTS. Except for such filings to be made pursuant to federal
or state securities or other laws and regulations and except for consents to be
obtained of Buyer's lenders and any permits as may be required to operate the
Acquired Assets after the Closing, no authorization, consent, or approval of, or
filing with, any public body, court, or authority is necessary on the part of
Buyer for the consummation by Buyer of the transactions contemplated by this
Agreement.
3.6 SEC DOCUMENTS. Buyer has delivered to Seller true and correct
copies of its Annual Report on Form 10-K for the fiscal year ended December 31,
1997, its Form 10-Q for the period ended March 31, 1998, and its Proxy Statement
relating to its Annual Meeting of Shareholders scheduled for June 11, 1998, all
as filed with the United States Securities and Exchange Commission ("SEC")
(collectively, "SEC Documents"). The SEC Documents contain an audited balance
sheet of Buyer as of December 31, 1997 and the related audited statements of
income and cash flow for the year then ended and the audited balance sheet of
the Buyer as of March 31, 1998 and the related audited statements of income and
cash flow for the period then ended (the "BUYER FINANCIALS"). The Buyer
Financials are correct in all material respects and have been prepared in
accordance with GAAP applied on a basis consistent throughout the periods
indicated and consistent with each other. The Buyer Financials present fairly
the financial condition and operating results and cash flows of the Buyer as of
the dates and during the periods indicated therein.
3.7 NO MATERIAL ADVERSE CHANGES. Except as set forth in SCHEDULE 3.7
hereto, since the date of the Buyer Financials, there has not been any material
adverse change in the assets, financial condition, or operating results,
customer, employee, or supplier relations, business condition or prospects, or
financing arrangements of Buyer.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF SELLER, PARTNERS, AND SHAREHOLDERS
As of the date hereof and as of the Closing Date, Seller and Partners
hereby jointly and severally represent, warrant, and agree and Pyle and Hafener
each severally represent, warrant, and agree as follows, to and for the benefit
of Buyer:
4.1 ORGANIZATION AND QUALIFICATION.
(a) Sterling is a general partnership duly organized, validly
existing, and in good standing under the laws of the State of
California and has the requisite partnership power and authority to own
and operate its properties and to carry on its business as now
conducted. Livermore and Rohnert are each limited partnerships duly
organized, validly existing, and in good standing under the laws of the
State of California, and each has the requisite partnership power and
authority to own and operate their properties and to carry on their
business as now conducted. Sterling, Livermore, and Rohnert have each
delivered to Buyer complete and correct copies of their partnership
certificate and partnership agreement, each as amended to the date
hereof, and all recorded actions of such partnerships.
(b) Partners are corporations duly organized, validly
existing, and in good standing under the laws of the State of
California and have the requisite corporate power and authority to own
and operate their properties and to carry on their business as now
conducted. Partners have delivered to Buyer complete and correct copies
of their articles of incorporation and bylaws, each as amended to the
date hereof, and all recorded actions and minutes of the Shareholders
and the board of directors of the Partners.
4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Seller and Partners have the
requisite partnership and corporate power and authority, respectively, to enter
into this Agreement and to carry out their obligations hereunder. The execution
and delivery of this Agreement by Seller and Partners and the consummation by
Seller of the transactions contemplated hereby have been duly authorized by the
Partners and the Shareholders, and no other partnership or corporate proceedings
on the part of Seller or Partners is necessary to authorize this Agreement and
such transactions. This Agreement has been duly executed and delivered by
Seller, Partners, and Shareholders and constitutes a valid and binding
obligation of Seller, Partners, and Shareholders, respectively, enforceable in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, or other similar laws relating to the
enforcement of creditors' rights generally and by general principles of equity.
4.3 LEGAL CAPACITY AND AUTHORITY OF SELLER, PARTNERS, AND SHAREHOLDERS.
Seller, Partners, and Shareholders possess the legal capacity to execute and
deliver each document to which it is a party, to perform its obligations
thereunder, and to consummate the transactions contemplated thereby. With
respect to each document to which Seller, Partners, or Shareholders are a party,
at the Closing, Seller, Partners, or Shareholders will duly execute and deliver
such documents which will be a valid, legal and binding obligation of Seller,
Partners, and Shareholders enforceable against Seller, Partners, and
Shareholders in accordance with its terms, as the case may be.
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4.4 NO CONFLICTS. Except as set forth in SCHEDULE 4.4, neither Seller,
Partners nor Shareholders are subject to, or obligated under, any provision of
(a) either their certificate of partnership or partnership agreement, in the
case of Seller, or articles of incorporation or bylaws, in the case of Partners,
(b) any agreement, arrangement, or understanding, (c) any license, franchise, or
permit, or (d) any law, regulation, order, judgment, or decree, which would be
breached or violated, or in respect of which a right of termination or
acceleration would arise, or pursuant to which any encumbrance on any of its
assets would be created, by its execution, delivery, and performance of this
Agreement and the consummation by it of the transactions contemplated hereby.
4.5 NO CONSENTS. Except as set forth in SCHEDULE 4.5, no authorization,
consent, or approval of, or filing with, any public body, court, or authority or
pursuant to any Acquired Contract is necessary on the part of Seller, Partners,
and Shareholders for the consummation by Seller, Partners, and Shareholders of
the transactions contemplated by this Agreement.
4.6 CAPITALIZATION.
(a) All of the outstanding partnership interests of Sterling
are owned free and clear by the Partners and there are no other
interests in Sterling outstanding. There are no outstanding
subscriptions, options, rights or other agreements or commitments,
obligating Sterling or the Partners to issue or transfer any
partnership interest in Sterling.
(b) All of the outstanding general partnership interests of
Livermore and Rohnert are owned free and clear by Sterling and there
are no other interests in either Livermore or Rohnert outstanding,
except for the limited partnership interests held by WRI Livermore and
WRI Rohnert, respectively. Except as set forth in the Livermore
Partnership Agreement or in the Rohnert Partnership Agreement, there
are no outstanding subscriptions, options, rights or other agreements
or commitments, obligating Livermore and Rohnert or Sterling to issue
or transfer any partnership interest in either Livermore or Rohnert.
(c) All of the issued and outstanding shares of capital stock
of Partners are owned free and clear by the Shareholders and there are
no other shares of capital stock of Partners outstanding. There are no
outstanding subscriptions, options, rights, warrants, convertible
securities, or other agreements or commitments obligating Partners to
issue or to transfer from treasury any additional shares of its capital
stock.
4.7 OWNERSHIP INTERESTS. Except as disclosed in SCHEDULE 4.7, Seller,
Partners and Shareholders do not own, any stock, partnership interest, joint
venture interest, or any other security issued by or equity interest in any
other corporation, organization, association, or entity whose business is
residential real estate related.
4.8 FINANCIAL STATEMENTS. Seller has provided the unaudited financial
statements of Seller and Partners for and as of the fiscal years ended December
31, 1995, 1996, and 1997, and of L&R for and as of the fiscal years ended
December 31, 1996 and 1997 (the "FINANCIAL STATEMENTS") and Seller's, Partners'
and L&R's unaudited balance sheets as of March 31, 1998 and the related
unaudited statements of income and cash flow for the three month period then
ended (collectively,
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the "CURRENT FINANCIAL STATEMENTS") have been prepared in accordance with
Adjusted GAAP (except as set forth on Schedule 4.8) throughout the periods
involved and fairly present the financial position of Seller and Partners,
respectively, as of the dates thereof and the results of its operations and cash
flows for the periods then ended. The Financial Statements and the Current
Financial Statements have been delivered to Buyer and are attached hereto as
SCHEDULE 4.8.
4.9 ABSENCE OF UNDISCLOSED LIABILITIES. Seller has no Knowledge of any
obligations or liabilities (whether accrued, absolute, contingent, liquidated,
unliquidated, or otherwise, whether due or to become due and regardless of when
asserted), except (a) liabilities reflected in the Financial Statements, (b)
liabilities which have arisen in the ordinary course of business after the date
of the Financial Statements, and (c) liabilities specifically disclosed in
SCHEDULE 4.9, and in any other Schedules to this Agreement.
4.10 NO MATERIAL ADVERSE CHANGES. Except as set forth in SCHEDULE 4.10,
since the date of the Financial Statements, there has not been any material
adverse change in the assets, financial condition, or operating results,
customer, employee, or supplier relations, business condition or prospects, or
financing arrangements of Seller or Partners.
4.11 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth in SCHEDULE
4.11 or except as contemplated in and consistent with the terms of this
Agreement, since the date of the Financial Statements, neither Seller, L&R, nor
Partners have:
(a) Changed their accounting methods or practices (including
any change in depreciation or amortization policies or rates) or
revalued any of their assets;
(b) Declared or paid any distributions with respect to any
general partnership interest;
(c) Borrowed any amount under existing lines of credit, or
otherwise incurred or become subject to any indebtedness, except as is
reasonably necessary for the ordinary operation of its business and in
a manner and in amounts that are in keeping with its historical
practice, or except as is consistent with the transactions contemplated
hereby;
(d) Discharged or satisfied any lien (other than property
taxes and assessments, business and personal property taxes, mechanic's
liens and similar items discharged in the ordinary course of business
consistent with past practices) or encumbrance or paid any liability,
(other than current liabilities, current installments due on
intermediate or long-term liabilities, and payments on account of
indebtedness of release prices of lots or homes sold and closed) paid
in the ordinary course of business and consistent with past practices;
(e) Except as is reasonably necessary for the ordinary
operation of its business and in a manner and in amounts that are in
keeping with its historical practice, mortgaged, pledged, or subjected
to any lien, charge, or other encumbrance, any of its assets with a
fair market value in excess of $5,000, except liens for current
property taxes not yet due and payable;
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(f) Sold, assigned, or transferred (including, without
limitation, transfers to any employees, shareholders, or affiliates)
any assets or canceled any debts or claims, except in the ordinary
course of business;
(g) Sold, assigned, or transferred (including, without
limitation, transfers to any employees, shareholders, or affiliates)
any patents, trademarks, trade names, copyrights, trade secrets, or
other intangible assets, except in the ordinary course of business, or
disclosed any proprietary or confidential information to any person
other than Buyer;
(h) Suffered any extraordinary loss or waived any right or
claim, whether or not in the ordinary course of business or consistent
with past practice, including any write-off or compromise of any
contract or other account receivable not in the ordinary course of
business;
(i) Taken any other action or entered into any other
transaction other than in the ordinary course of business and in
accordance with past custom and practice, or entered into any
transaction with any related party of Seller or Partners;
(j) Suffered any theft, damage, destruction, or loss of or to
any property or properties owned or used by it, whether or not covered
by insurance;
(k) Increased the annualized level of compensation of or
granted any extraordinary bonuses, benefits, or other forms of direct
or indirect compensation to any employee, officer, director, or
consultant, or increased, terminated, or amended or otherwise modified
any plans for the benefit of employees, except in the ordinary course
of business and consistent with historical adjustments to such
compensation and benefits;
(l) Except as is reasonably necessary for the ordinary
operation of its business and in a manner and in amounts that are in
keeping with its historical practice, and except with respect to
contracts related to Other Projects, made any capital expenditures or
commitments for property, plant and equipment that aggregate in excess
of $25,000;
(m) Engaged or agreed to engage in any extraordinary
transactions or distributions, or except as is reasonably necessary for
the ordinary operation of its business and in keeping with its
historical practice, entered into any contract, written or oral, that
involves consideration or performance by it of a value exceeding
$25,000 or a term exceeding one year;
(n) Other than as provided in Section 2.3(b)(iv), made any
loans or advances to, or guarantees for the benefit of, any persons; or
(o) Made charitable contributions or pledges which in the
aggregate exceed $1,000.
4.12 PERMITTED LIENS; GOOD TITLE TO AND CONDITION OF ACQUIRED ASSETS.
Seller's title to the Acquired Assets and, to the Knowledge of Seller, L&R's
title to the L&R Real Property, is free and
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clear of all liens other than (a) those liens and encumbrances described in the
Preliminary Reports, (b) inchoate mechanic liens which have not been filed and
served upon in Seller or L&R, and (c) the liens listed on SCHEDULE 4.12
(collectively, the "PERMITTED LIENS"). All of the Acquired Assets and L&R
tangible personal property are in good condition and repair, ordinary wear and
tear excepted, and are usable in the ordinary course of business. The Acquired
Assets to be acquired by Buyer represent all of the assets of Seller necessary
or required by Buyer to continue to operate the Business of Sterling and L&R as
presently conducted. Seller owns, or leases under valid leases, all property,
machinery, equipment, and other tangible and intangible assets necessary for the
conduct of its business. Shareholders and Partners do not directly or indirectly
own any assets, licenses, permits or other authorizations relating to the
Business, other than assets or authorizations held by Seller to be transferred
hereunder.
4.13 LEGAL DESCRIPTIONS OF REAL PROPERTY. SCHEDULE 2.1(A) and SCHEDULE
2.1(I)(I) set forth the description of each parcel of Real Property as of the
date thereof, excepting any sales of homes or lots which close on or after the
date thereof in the ordinary course of Seller's or L&R's business.
hereof.
4.14 COMPLETED PROJECTS. Seller has no continuing business operations
in connection with the Completed Projects except for continuing warranty claims
and litigation defense.
4.15 OWNED PROJECTS.
(a) Livermore and Rohnert have title insurance policies
reflecting their ownership of good and marketable title in fee simple
to the L&R Real Property set forth opposite their name on SCHEDULE
2.1(I)(I), as the case may be, subject only to the Permitted Liens and
Authorized Exceptions.
(b) Except as set forth on SCHEDULE 4.15, with respect to any
agreements, arrangements, contracts, covenants, conditions, deeds,
deeds of trust, rights-of-way, easements, mortgages, restrictions,
surveys, title insurance policies, and other documents granting to
Livermore and Rohnert title to or an interest in or otherwise affecting
the Owned Projects, to the Knowledge of Seller no breach or event of
default exists, and no condition or event has occurred that with the
giving of notice, the lapse of time, or both would constitute a breach
or event of default, by Seller, Livermore or Rohnert or, to the
Knowledge of Seller, Partners, and the Shareholders, any other person.
(c) The Owned Projects, each have all necessary access to and
from public highways, streets, and roads and no pending or, to the
Knowledge of Seller, Partners, and Shareholders, threatened Proceeding
or other fact or condition exists that could limit or result in the
termination of such access.
(d) The Owned Projects and each completed home therein, are
connected to and serviced by electric, gas (if applicable), sewage,
telephone, and water facilities, which facilities are in compliance, in
all material respects, with all applicable laws and all installation
and connection charges with respect thereto have been paid in full,
except insofar
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as such charges are in the ordinary course of business paid upon
issuance of building permits or occupancy approvals which have not yet
been procured.
(e) Except as provided for in any Land Use Entitlements with
respect to the Owned Projects, no condemnation, eminent domain, or
similar proceeding exists, is pending or, to Seller's, Partners' and
Shareholders' Knowledge, is threatened with respect to, or that could
affect, any of the Owned Projects.
(f) The buildings and improvements on the Owned Projects and
the subdivision and improvements of the undeveloped real property of
such Owned Projects to the extent installed or constructed by Seller
(and to Seller's Knowledge, if not installed or constructed by Seller),
do not violate, in any material respect, (i) any applicable law,
including any building, set-back, or zoning law, ordinance, regulation,
or statute, or other governmental restriction in the nature thereof, or
(ii) any restrictive covenant affecting any such property.
(g) There are no parties in possession of any portion of the
Owned Projects as lessees, tenants at sufferance, or to the Knowledge
of Seller, Partners, or Shareholders, trespassers.
(h) Except as set forth on SCHEDULE 4.15, there are no unpaid
charges, debts, liabilities, claims, or obligations arising from the
construction, occupancy, ownership, use, or operation of the Owned
Projects (other than those being assumed by Buyer pursuant to Section
2.3). Except as set forth on SCHEDULE 4.15, no such Owned Project is
subject to any condition or obligation to any governmental entity or
other person requiring the owner or any transferee thereof to donate
land, money or other property or to make off-site public improvements
other than as may be contemplated by the conditions of approval
contained in the Land Use Entitlements for such Projects.
(i) Except as set forth on SCHEDULE 4.15, no developer-related
charges or assessments for public improvements or otherwise made
against the Owned Projects or any lots included therein are unpaid,
including without limitation those for construction of sewer lines,
water lines, storm drainage systems, electric lines, natural gas lines,
streets (including perimeter streets), roads and curbs other than as
may be required in the ordinary course of completing such Project from
its current (incomplete) status or as may be contemplated in the
conditions of approval and contained in the Land Use Entitlements for
such Projects.
(j) There is no moratorium applicable to any of the Owned
Projects on (i) the issuance of building permits for the construction
of houses, or certificates of occupancy therefor, or (ii) the purchase
of sewer or water taps.
(k) To the Knowledge of Seller, each of the lots included in
the Owned Projects is stable and otherwise suitable for the
construction of a residential structure suitable to the soil conditions
thereon, as set forth in the soil report related to each Owned Project,
without extraordinary site preparation measures.
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(l) The Owned Projects do not contain wetlands, or to the
Knowledge of Seller, Partners, and Shareholders a level of radon above
action levels of the U.S. Environmental Protection Agency and are not
located within a "critical", "preservation", "conservation" or similar
type of area. No portion of the Owned Projects is situated within a
"noise cone" such that the Federal Housing Administration will not
approve mortgages due to the noise level classification of such real
property.
(m) To the Knowledge of Seller, the Owned Projects have not
been used as a gravesite and/or landfill area.
(n) Except as set forth on SCHEDULE 4.24, no legal Proceeding
is pending or, to Seller's, Partners', or Shareholders' Knowledge,
threatened which involves any of the Owned Projects, or against Seller
with respect to any of the Owned Projects; all of the developed Owned
Projects and the lots included therein are in material compliance, with
all applicable zoning and subdivision ordinances and the Owned Projects
are zoned to permit single family home construction; to the Knowledge
of Seller, Partners, and Shareholders none of the development-site
preparation and construction work performed on the Owned Projects has
concentrated or diverted surface water or percolating water improperly
onto or from the Owned Projects.
(o) Seller has not granted to any person any contract or other
right to the use of any portion of the Owned Projects or to the
furnishing or use of any facility or amenity on or relating to the
Owned Projects.
(p) Neither Seller, Partners, nor Shareholders are a "foreign
person" within the meaning of Sections 1445 and 7701 of the Code.
(q) To the extent installed or constructed by Seller or L&R or
their agents, all of the improvements and buildings on the Owned
Projects were constructed in a good and workmanlike manner, are
structurally sound, are in good and proper working condition and
repair, normal wear and tear, normal maintenance and normal warranty
and customer services matters excepted, and are useful for their
intended purposes.
(r) To the Seller's Knowledge, (i) the legal description of
the Owned Projects included in the Schedules to this Agreement conform
with the description in Seller's title policies for, and accurately and
completely describes the real property which Seller, Livermore and
Rohnert own and which Buyer is purchasing or acquiring an interest in
under this Agreement; (ii) any improvements and buildings included
within the Owned Projects are located within the boundary lines of the
Owned Projects and do not encroach upon the land of any adjacent owner;
(iii) no improvements of any third person encroach upon the Owned
Projects; and (iv) no person has any unrecorded right, title or
interest in the real property constituting the Owned Projects, whether
by right of adverse possession, prescriptive easement or otherwise.
(s) The recorded easements, rights-of-way, covenants, and
other title exceptions and survey matters do not adversely affect the
current beneficial use of the Owned Projects.
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The Owned Projects are being developed and used in compliance with all
covenants, easements, and restrictions affecting the Owned Projects,
and all obligations of the Seller, Livermore or Rohnert on the Owned
Projects with regard to such covenants, easements, and restrictions
have been and are being performed in a proper and timely manner.
(t) Except as set forth on SCHEDULE 4.20, to the Knowledge of
Seller, Partners and Shareholders:
(i) All property adjacent to the Owned Projects is
free from Hazardous Substances (other than Permitted
Materials), and is not in violation of any Environmental Law.
(ii) No environmental lien in favor of any
governmental entity has attached to any of the Owned Projects.
(u) To the Knowledge of Seller , there are no historical or
archeological materials or artifacts of any kind or any Indian ruins of
any kind located on the Sterling Real Property.
(v) No part of the Owned Projects is "critical habitat" as
defined in the Federal Endangered Species Act, 16 U.S.C. ss.ss.1531 et
seq., as amended, or in regulations promulgated thereunder, nor are any
"endangered species" or "threatened species" located on the Owned
Projects, as defined therein.
(w) The Owned Projects are not within a flood plain, flood way
or flood control district as reflected in the currently adopted 100
year flood plain of the Federal Emergency Management Agency.
(x) Neither Seller nor L&R have any liability for any Taxes,
or any interest or penalty in respect thereof, of any nature that may
be assessed against Buyer or that are or may become a lien against the
Owned Projects, other than the lien for current real property taxes,
special taxes and assessments paid with taxes not yet delinquent or as
set forth on SCHEDULE 4.15.
(y) No work has been performed on or about the Owned Projects
or to any improvements located thereon within six (6) months prior to
the date of this Agreement that has not been paid for or otherwise
included in the cost to complete or in the liabilities being assumed
pursuant to Section 2.3.
4.16 NEW PROJECTS
(a) Except as set forth on SCHEDULE 4.16, with respect to any
agreements, arrangements, contracts, covenants, conditions, deeds,
deeds of trust, rights-of-way, easements, mortgages, restrictions,
surveys, title insurance policies, and other documents granting to
Seller an interest in or otherwise affecting the New Projects, to the
Knowledge of Seller, no breach or event of default exists, and no
condition or event has occurred that with the giving of notice, the
lapse of time, or both would constitute a breach or event of
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default, by Seller or, to the Knowledge of Seller, Partners, and the
Shareholders, any other person.
(b) Except as set forth on SCHEDULE 4.16, to the Knowledge of
Seller, the New Projects each have or are expected to have all
necessary access to and from public highways, streets, and roads and to
the Knowledge of Seller, Partners, and Shareholders, no pending or
threatened Proceeding or other fact or condition exists that could
limit or result in the termination of such access.
(c) To the Knowledge of Seller, the New Projects will, in the
ordinary course of business, be connected to and serviced by electric,
gas (if applicable), sewage, telephone, and water facilities, which
facilities are in compliance, in all material respects, with all
applicable laws and all installation and connection charges with
respect thereto have been paid in full.
(d) To the Knowledge of Seller, no condemnation, eminent
domain, or similar proceeding exists or, to Seller's, Partners' and
Shareholders' Knowledge, is pending or threatened with respect to, or
that could affect, any of the New Projects other than as may be
contemplated in the Land Use Entitlements.
(e) To the Knowledge of Seller, the subdivision and
improvements of the undeveloped real property of the New Projects will
not violate, in any material respect, (i) any applicable law, including
any building, set-back, or zoning law, ordinance, regulation, or
statute, or other governmental restriction in the nature thereof, or
(ii) any restrictive covenant affecting any such property.
(f) To the Knowledge of Seller, there is no moratorium
applicable to any of the New Projects on (i) the issuance of building
permits for the construction of houses, or certificates of occupancy
therefor, or (ii) the purchase of sewer or water taps.
(g) To the Knowledge of Seller, each of the lots included in
the New Projects, is stable and otherwise suitable for the construction
of a residential structure as set forth in the soil report related to
each New Project.
(h) To the Knowledge of Seller the New Projects do not contain
wetlands or a level of radon above action levels of the U.S.
Environmental Protection Agency and are not located within a
"critical", "preservation", "conservation" or similar type of area. To
the Knowledge of Seller no portion of the New Projects is situated
within a "noise cone" such that the Federal Housing Administration will
not approve mortgages due to the noise level classification of such
real property.
(i) To the Knowledge of Seller the New Projects have not been
used as a gravesite and/or landfill area.
(j) Except as set forth on SCHEDULE 4.24, to the Knowledge of
Seller, no legal Proceeding is pending or threatened which involves any
of the New Projects, or against Seller with respect to any of the New
Projects; to the Knowledge of Seller all of the
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developed New Projects, and the lots included therein are in
compliance, with all applicable zoning and subdivision ordinances and
the New Projects are, zoned to permit single family home construction;
to the Knowledge of Seller none of the development-site preparation and
construction work performed on the New Projects, has concentrated or
diverted surface water or percolating water improperly onto or from the
New Projects.
(k) Other than as provided in the respective land acquisition
contract for the respective New Project, Seller has not granted to any
person any contract or other right to the use of any portion of the New
Projects or to the furnishing or use of any facility or amenity on or
relating to the New Projects.
(l) To the Knowledge of Seller, the legal description of the
New Projects, included in the Schedules to this Agreement accurately
and completely describes the real property subject to any New Project
contract and which Buyer is purchasing or acquiring an interest in
under this Agreement. To the Knowledge of Seller, any improvements and
buildings included within the New Projects are located within the
boundary lines of the New Projects and do not encroach upon the land of
any adjacent owner. To the Knowledge of Seller no improvements of any
third person encroach upon the New Projects. To the Knowledge of
Seller, other than as provided in the land acquisition contract for the
respective New Project, no person has any unrecorded right, title or
interest in the real property constituting the New Projects, whether by
right of adverse possession, prescriptive easement or otherwise.
(m) To the Knowledge of Seller, the recorded easements,
rights-of-way, covenants, and other title exceptions and survey matters
do not adversely affect the planned beneficial use of the New Projects.
(n) Except as set forth on Schedule 4.20, to the Knowledge of
Seller:
(i) All property adjacent to the New Projects is free
from Hazardous Substances (other than Permitted Materials),
and is not in violation of any Environmental Law.
(ii) No environmental lien in favor of any
governmental entity has attached to any of the New Projects.
(o) To the Knowledge of Seller, there are no historical or
archeological materials or artifacts of any kind or any Indian ruins of
any kind located on the New Projects.
(p) To the Knowledge of Seller no part of the New Projects is
"critical habitat" as defined in the Federal Endangered Species Act, 16
U.S.C. ss.ss.1531 et seq., as amended, or in regulations promulgated
thereunder, nor are any "endangered species" or "threatened species"
located on the New Projects, as defined therein.
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(q) To the Knowledge of Seller, the New Projects are not
located within a flood plain, flood way or flood control district as
reflected in the currently adopted 100 year flood plain of the Federal
Emergency Management Agency.
(r) To the Knowledge of Seller, other than as contemplated in
the respective land acquisition agreements, no work has been performed
on or about the New Projects or to any improvements located thereon
within six (6) months prior to the date of this Agreement that has not
been paid for or otherwise included in the liabilities assumed pursuant
to Section 2.3.
4.17 OTHER PROJECTS.
(a) Attached to this Agreement as SCHEDULE 4.17 is a fact
sheet (the " Project Fact Sheet") for each of the Other Projects which
are specifically identified in the list of Other Projects set forth in
the definitions provided in Article 1.
(b) Included in the respective Fact Sheet of Schedule 4.17 is
a list of due diligence materials for each of such Other Projects (the
"Due Diligence"), including but not limited to the following: (i) the
applicable Other Project contracts, with any and all amendments,
modifications and supplements thereto through the date hereof, true
copies of which have been furnished to Buyer, (ii) the Preliminary
Report for such Other Project, which includes the legal description
thereof (to the extent, known to Seller) and a list of all exceptions
to title included by the Title Company issuing the same, true copies of
each of which has been furnished to Buyer, (iii) a schedule of all
written due diligence reports and investigations received to date by
Seller with respect to such Other Project, including (A) any Land Use
Entitlements which currently exist therefor, (B) a Level One
environmental study, if applicable, and any related testing reports or
follow-up analysis, (C) any site plans, development plans, engineered
drawings, or similar materials pertaining to improvements installed or
to be installed in, upon, or for such Other Project, (D) a soils
report, if available, (E) preliminary engineer's estimate with respect
to improvement costs for such Other Project (if available), which is
the most recent updated engineer's estimate if Seller has received more
than one, for such Other Project, and (F) Seller's current pro forma
project budget for the Other Project, if available, (iv) a list of
consultants (inclusive of civil and soils engineers, environmental
consultants, architects and other design professionals) which have been
engaged by Seller or others to evaluate, plan, design or implement such
Other Project or the due diligence investigation thereof, with
addresses, telephone numbers, and principal contacts, (v) an appraisal
of the Other Project, if available, (vi) Seller's proposed house plans
for the Other Project, if available, and (vii) any other material
reports, studies or data in written form received or prepared by Seller
in connection with such Other Project.
(c) Seller does not absolutely warrant any aspect of the Other
Project or the related Due Diligence, which shall be reviewed and
evaluated by Buyer for its own account, but Seller does make the
following representations with respect to each Other Project:
(i) Seller has not breached, defaulted in, canceled or
terminated the Other Project contract or allowed it to lapse
as of the date hereof;
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(ii) Neither Seller nor, to the Knowledge of Seller,
any other party, currently is in breach or default of any
material contract, easement, title insurance policy,
covenants, conditions and restrictions, or other instrument or
agreement affecting the Other Projects, inclusive of the Other
Projects contract (except for any third party breaches
identified in Schedule 4.17);
(iii) To Knowledge of Seller except as otherwise
noted in materials referred to in Schedule 4.17, adequate
arrangements exist for the provision of public streets and
utility rights of way to serve the Other Projects, which are
to be installed as provided in the Due Diligence, the Land Use
Entitlements, and the Other Project contracts for such Other
Project; provided, however, that any projection of timing or
cost of installation of actual improvements is not warranted
by Seller and shall be verified to Buyer's satisfaction
through Buyer's review of Due Diligence and such other
inquiries as Buyer may choose to make;
(iv) Seller has no current Knowledge or belief that
the Other Projects cannot, in the ordinary course of
development, be connected to and serviced by electric, gas (if
applicable), sewage, telephone and water facilities in
compliance in all material respects with all applicable laws,
subject to payment of in-lieu fees, impact fees, mitigation
fees, and installation charges and connection fees as required
by applicable governmental authorities and public utilities or
as specified in the applicable Land Use Entitlements, if any;
(v) To the Knowledge of Seller, no moratorium
applicable to such Other Project will affect (A) the issuance
of building permits for the construction of houses or
certificates of occupancy therefor, or (B) the purchase of
sewer or water for such Project;
(vi) Seller has no Knowledge that the lots (if
constructed and complete) in such Other Projects are not, or
(if not yet constructed and completed) cannot be made stable
or otherwise suitable for construction of a residential
structure by customary means and site preparation measures
common in the area or as may be otherwise contemplated in the
Due Diligence;
(vii) Except as otherwise noted in the Project Fact
Sheet or in the relevant Other Project contract, the Other
Projects, to the Knowledge of Seller, Partners and
Shareholders, do not contain (A) wetlands, (B) a level of
radon above action levels of the U.S. Environmental Protection
Agency, (C) a "critical", "preservation", "conservation" or
similar type of area as designated by any state or federal
law, (D) areas located within "noise cone" such that the
Federal Housing Administration will not approve mortgages due
to the noise level classification thereof, (E) a gravesite,
(F) landfill, (G) "critical habitat", as defined in the
Federal Endangered species Act, 86 U.S.C. ss.ss. 1531, et
seq., as amended, or in regulations promulgated thereunder,
(H) Hazardous Substances (other than Permitted Materials) or
the site of any past or present violation of Environmental
Law, (I) Indian burials, (J) protected
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archaeological or historic resources, or (K) a 100-year flood
plain as designated on maps published by the Federal Emergency
Management Agency;
(viii) Seller has no Knowledge that the Other
Projects are subject to (A) any environmental lien in favor of
any governmental entity not reflected in the relevant
Preliminary Report, (B) any recorded easements, rights of way,
covenants and other title matters which would materially
adversely affect the anticipated development and sales thereof
for residential purposes, (C) any zoning or land use
restriction which would materially adversely affect the
anticipated development thereof for residential purposes (but
subject to Section 4.29, below, concerning availability or
existence of Land Use Entitlements not yet available or
issued), (D) any encroachments by improvements on adjoining
property, any encroachment onto adjoining property by
improvements on the Other Project, or any rights of possession
or parties in possession (whether as lessees, tenants at
sufferance or otherwise) who are not by the terms of the
relevant Other Project contract required to be removed at the
sole cost and expense of the land seller under the Other
Project contract, or (E) any pending or threatened
condemnation, action for eminent domain, or similar proceeding
or threatened proceeding, other than as may be contemplated in
the Land Use Entitlements or otherwise disclosed in the Other
Project contract or other Due Diligence for such Other
Project.
(d) Prior to the Closing, Seller shall provide an updated and
amended Other Project Fact Sheet for any Other Projects for which the
current Other Project Fact sheet becomes inaccurate in any material
respect to Seller Knowledge, whereupon the foregoing representations
shall likewise.
4.18 ACQUIRED CONTRACTS.
(a) SCHEDULE 2.1(B)(I), SCHEDULE 2.1(B)(III), SCHEDULE
2.1(I)(I), and SCHEDULE 2.1(I)(II)(C) list as of the date hereof all of
the Acquired Contracts. The provisions of this Section 4.18 shall apply
to all Acquired Contracts entered into following the date of this
Agreement.
(b) Each of the Acquired Contracts is valid, binding, and in
full force and effect on Seller or L&R and to the Knowledge of Seller
is valid, binding, and in full force and effect on third parties to the
Acquired Contract. Except as set forth on the relevant Schedules to
this Agreement, if applicable, no Acquired Contract has been amended or
supplemented in any way and neither Seller nor L&R has and to the
Knowledge of Seller no party no third party thereto has, assigned any
of its rights or delegated any of its duties thereunder. True and
complete copies of the Acquired Contracts have been delivered to Buyer.
(c) Except as set forth on SCHEDULE 4.18, no breach or default
exists under any Acquired Contract and no event has occurred with
respect thereto that with the lapse of time or action or inaction by
Seller or, to the Knowledge of Seller, Partners, or Shareholders, any
other party thereto, would result in a breach thereof or a default
thereunder.
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(d) Except as specifically disclosed in SCHEDULE 4.18: (i)
since the date of the Financial Statements, no supplier or materialman
has indicated that it will stop or decrease the rate of business done
with Seller or L&R, except for changes in the ordinary course of the
business of Seller or L&R; (ii) Seller and L&R have performed in all
material respects the obligations required to be performed by them in
connection with the Acquired Contracts and neither Seller nor L&R have
been advised of or received any claim of default under any Acquired
Contract; (iii) Seller has no present expectation or intention of not
fully performing any obligation pursuant to any Acquired Contract; and
(iv) there has been no material breach and, to the Knowledge of Seller,
there is no anticipated material breach by any other party to any
Acquired Contract.
(e) Upon the assignment of each Acquired Contract to Buyer
pursuant hereto, and subject to any consent requirements contained
therein, all rights of Seller, Livermore or Rohnert with respect to
each Acquired Contract will inure to Buyer and each Acquired Contract
will be enforceable by Buyer in the same manner as such Acquired
Contract is enforceable by Seller.
(f) The assignment to Buyer of all of Seller's right, title,
and interest in, to and under each Acquired Contract pursuant hereto
will be free and clear of any lien except for Permitted Liens.
(g) Except as set forth in the Acquired Contracts, as of the
Closing Date, neither Seller, nor L&R will owe any amount (whether
absolute, contingent, or otherwise) with respect to any Acquired
Contract, other than amounts incurred in the ordinary course of
business consistent with past practices and this Agreement, which
amounts will be properly recorded in the accounts payable ledger of
Seller, Livermore or Rohnert and disclosed in the Closing Balance
Sheets.
(h) Except as disclosed therein, no Acquired Contract (i)
except with respect to Acquired Contracts relating to New Projects and
Other Projects requires Seller or L&R to make purchases or pay for
services in excess of the requirements of its business, or (ii)
guarantees any obligation of another person or provides any type of
indemnification whatsoever.
(i) Seller and L&R have paid all rental and other payments due
under each personal property lease and real property lease
(collectively, the "PROPERTY LEASES") under which Seller or L&R are the
lessee in accordance with its terms. With respect to each such Property
Lease, Seller and L&R have been in peaceable possession of the
buildings, equipment, machinery, real property, vehicles, or other
tangible property covered thereby since the commencement of the
original term of such Property Lease. No indulgence, postponement, or
waiver of Seller's or L&R's obligations under any such Property Lease
has been granted by the lessor. Subject to the terms of the Property
Leases, Seller and L&R possess full right and power to occupy or
possess, as the case may be, all of the buildings, equipment,
machinery, real property, vehicles, and other tangible property covered
by such Property Leases.
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(j) With respect to any written or oral agreement,
arrangement, commitment, contract, or lease that Seller or L&R enter
into, or entered into on behalf thereof, after the date hereof, such
agreement, arrangement, commitment, contract, or lease will satisfy all
the representations and warranties set forth in this Section 4.18.
4.19 WARRANTIES. Except as set forth on SCHEDULE 4.19 and except for
the standard warranties contained in Seller's marketing and sale materials for
completed homes sold in the ordinary course of business, neither Seller,
Livermore nor Rohnert have given or made any other express warranties to third
parties with respect to any property or products sold or services performed by
Seller and there are no facts or the occurrence of any event forming the basis
of any present claim against Seller, Livermore or Rohnert for liabilities due to
any express or implied warranty. SCHEDULE 4.19 also lists Seller's residential
sales or contracts containing applicable guaranty, warranty, and indemnity
provisions, copies of which have been provided to Buyer.
4.20 ENVIRONMENTAL MATTERS.
(a) To their Knowledge, Seller, Partners, Shareholders and L&R
have at all times been in compliance with all Environmental Laws
governing their business, operations, properties, and assets,
including, without limitation: (i) all requirements relating to the
Discharge and Handling of Hazardous Substances; (ii) all requirements
relating to notice, record keeping, and reporting; (iii) all
requirements relating to obtaining and maintaining Permits for the
ownership of its properties and assets and the operation of their
business, including Permits relating to the Handling and Discharge of
Hazardous Substances; or (iv) all applicable writs, orders, judgments,
injunctions, governmental communications, decrees, informational
requests, or demands issued pursuant to, or arising under, any
Environmental Laws.
(b) Except as set forth on SCHEDULE 4.20 there are no (and to
the Knowledge of the Shareholders, Partners, or Seller, there is no
basis for any) orders, warning letters, notices of violation
(collectively "NOTICES") or Proceedings pending or, to Seller's,
Partners', and Shareholders' Knowledge, threatened against or involving
Seller, Seller's Business, L&R or the Acquired Assets issued by any
Governmental Authority or third party with respect to any Environmental
Laws or Permits issued to Seller or L&R thereunder in connection with,
related to, or arising out of the ownership by Seller or L&R of their
properties or assets or the operation of their business which have not
been resolved to the satisfaction of the issuing Governmental Authority
or third party in a manner that would not impose any obligation,
burden, or continuing liability on Buyer in the event that the
transactions contemplated by this Agreement are consummated, or which
could have a material adverse effect on Seller's business, financial
condition, or results of operations including, without limitation: (i)
Notices or Proceedings related to Seller or L&R being a potentially
responsible party for a federal or state environmental cleanup site or
for corrective action under any applicable Environmental Laws; (ii)
Notices or Proceedings in connection with any federal or state
environmental cleanup site, or in connection with any of the real
property or premises where Seller or L&R has transported, transferred,
or disposed of Hazardous Substances; (iii) Notices or Proceedings
relating to Seller or L&R being responsible to undertake any response
or remedial actions or clean-up actions of any kind; or (iv) Notices or
Proceedings related
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to Seller being liable under any Environmental Laws for personal
injury, property damage, natural resource damage, or clean up
obligations.
(c) Except for the Permitted Materials and except as set forth
on SCHEDULE 4.20, Seller has not Handled or Discharged, nor to the
Knowledge of Shareholders, Partners, or Seller, allowed or arranged for
any third party to Handle or Discharge, Hazardous Substances to, at, or
upon: (i) any location other than a site lawfully permitted to receive
such Hazardous Substances; (ii) any of the Real Property; or (iii) any
site (x) which, pursuant to CERCLA or any similar state law has been
placed on the National Priorities List or its state equivalent; or (y)
with respect to which the Environmental Protection Agency or the
relevant state agency or other governmental authority has notified
Seller that such governmental authority has proposed or is proposing to
place on the National Priorities List or its state equivalent. There
has not occurred, nor is there presently occurring, a Discharge, or
threatened Discharge, of any Hazardous Substance on, into, or beneath
the surface of, or to the Knowledge of Shareholders, Partners, or
Seller, adjacent to, any of the Real Property in an amount or otherwise
requiring a Notice or report to be made to a Governmental Authority or
in violation of any applicable Environmental Laws.
(d) SCHEDULE 4.20 identifies the operations and activities,
and locations thereof, if any, which have been conducted and are being
conducted by Seller and L&R on any of the Real Property which have
involved the Handling or Discharge of Hazardous Substances, other than
Permitted Materials.
(e) Except as set forth on SCHEDULE 4.20, Seller or L&R do not
use, and have never used, any Aboveground Storage Tanks or Underground
Storage Tanks, and there are not now nor, to the Knowledge of Seller,
have there ever been any Underground Storage Tanks beneath any of the
Real Property that are required to be registered and/or upgraded under
applicable Environmental Laws.
(f) SCHEDULE 4.20 identifies (i) all environmental audits,
assessments, or occupational health studies undertaken since January 1,
1994 by Seller and L&R or their agents, or to their Knowledge,
undertaken by any governmental authority or any third party, relating
to or affecting Seller or any of the Owned Projects; (ii) the results
of any ground, water, soil, air, or asbestos monitoring undertaken by
Seller and L&R or their agents or, to the Knowledge of Seller and to
the extent available or made known to Seller, undertaken by any
governmental authority or any third party, relating to or affecting
Seller, L&R or any of the Owned Projects which indicate the presence of
Hazardous Substances at levels requiring a notice or report to be made
to a governmental authority or in violation of any applicable
Environmental Laws; (iii) all material written communications between
Seller, Partners, or Shareholders and any governmental authority
arising under or related to Environmental Laws; and (iv) all
outstanding citations issued under OSHA, or similar state or local
statutes, laws, ordinances, codes, rules, regulations, orders, rulings,
or decrees, relating to or affecting either Seller or L&R or any of the
Owned Projects.
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4.21 TAX MATTERS.
(a) Except for current filings which are the subject of
extensions under applicable procedures and which are identified in
Schedule 4.21, Seller has filed all Tax Returns that Seller was
required to file prior to the date hereof. All such Tax Returns were
correct and complete in all material respects. Except as set forth in
Schedule 4.21, all Taxes owed by Seller (whether or not shown on any
Tax Return) with respect to Tax Returns the due date of which preceded
the date hereof have been paid. Except as set forth in Schedule 4.21,
all other Taxes due and payable by Seller with respect to periods
ending on or as of the date of the Closing (whether or not a Tax Return
is due on such date) have been paid or are accrued on the applicable
Financial Statements or will be accrued on the books and records of
Seller as of the Closing and made available to Buyer.
(b) Except as set forth on SCHEDULE 4.21, with respect to each
taxable period for Seller ending prior to the date hereof or prior to
the date of the Closing, (i) except for taxable periods which are open
either such taxable period has been audited by the relevant taxing
authority or the time for assessing or collecting Taxes with respect to
each such taxable period has closed and each taxable period is not
subject to review by an relevant taxing authority; (ii) no deficiency
or proposed adjustment which has not been settled or otherwise resolved
for any amount of Taxes has been asserted or assessed by any taxing
authority against Seller; (iii) Seller has not consented to extend the
time in which any Taxes may be assessed or collected by any taxing
authority; (iv) Seller has not requested or been granted an extension
of the time for filing any Tax Return to a date later than the Closing;
(v) there is no action, suit, taxing authority proceeding, or audit or
claim for refund now in progress, pending or threatened against or with
respect to Seller regarding Taxes; (vi) Seller has not made an election
or filed a consent under Section 341(f) of the Code (or any
corresponding provision of state, local or foreign law); (vii) there
are no liens on the assets of Seller relating or attributable to Taxes
(other than liens for sales and payroll Taxes not yet due and payable
and liens for non-delinquent current real property taxes, special
taxes, and assessments paid with real property taxes), and Seller,
Partners, and the Shareholders have no knowledge of any reasonable
basis for the assertion of any claim relating or attributable to Taxes
which, if adversely determined, would result in any such lien (other
than those noted in the preceding parenthetical) on the assets of
Seller; (viii) to Seller's Knowledge, Seller will not be required (A)
as a result of a change in method of accounting for a taxable period
ending on or prior to the date of the Closing, to include any
adjustment under Section 481 of the Code (or any corresponding
provision of state, local or foreign law) in taxable income for any
taxable period (or portion thereof) beginning after the date of the
Closing or (B) as a result of any "closing agreement," as described in
Section 7121 of the Code (or any corresponding provision of state,
local or foreign law), to include any item of income or exclude any
item of deduction from any taxable period (or portion thereof)
beginning after the date of the Closing; (ix) Seller has not been a
member of an affiliated group (as defined in Section 1504 of the Code)
or filed or been included in a combined, consolidated or unitary income
Tax Return; (x) Seller are not a party to or bound by any tax
allocation or tax sharing agreement and has no current or potential
contractual or other obligation to indemnify any other person with
respect to Taxes; (xi) to Seller's Knowledge, no taxing authority will
claim or assess any additional Taxes against Seller for any period for
which Tax Returns have been
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filed; (xii) no claim has ever been made by a taxing authority in a
jurisdiction where Seller does not file Tax Returns that Seller is or
may be subject to Taxes assessed by such jurisdiction; (xiii) Seller
does not have a permanent establishment in any foreign country, as
defined in the relevant tax treaty between the United States of America
and such foreign country; (xiv) true, correct and complete copies of
all income and sales Tax Returns filed by or with respect to Seller for
the past three years have been furnished or made available to Buyer;
(xv) Seller has disclosed on each Tax Return filed by Seller all
positions taken thereon that could give rise to a substantial
understatement of penalty of federal income Taxes within the meaning of
Code Section 6662; and (xvi) except as set forth on Schedule 4.21, no
sales or use tax will be payable by Seller as a result of this
transaction, and there will be no non-recurring intangible tax,
documentary stamp tax, or other excise tax (or comparable tax imposed
by an governmental entity) as a result of this transaction.
(c) Seller and L&R have each been treated as a partnership for
federal, state and local tax purposes since its organization, and each
will be a partnership for federal, state and local income tax purposes
up to and including the Closing Date.
(d) Any reference to the term "Seller" in this Section 4.21
shall refer to Seller and any subsidiary of Seller (whether or not such
subsidiary qualifies as a "qualified subchapter S subsidiary" within
the meaning of Code Section 1361(b)(3)(B)) and shall include Livermore
and Rohnert.
4.22 RESTRICTIONS ON BUSINESS ACTIVITIES. With the exception of express
provisions concerning such matters as house plan approvals, design, construction
and marketing contained in the partnership agreements of L&R and with respect to
the Owned Projects, New Projects, and Other Projects, there are no agreements
(non-compete or otherwise), commitment, judgment, injunction, order, or decree
to which Seller, Partners, or Shareholders are parties or otherwise binding on
Seller which has or reasonably could be expected to have the effect of
prohibiting or impairing any business practice of Seller, any acquisition of
property (tangible or intangible) by Seller, or the conduct of the business of
Seller.
4.23 INTELLECTUAL PROPERTY. SCHEDULE 4.23 sets forth a description of
the Intellectual Property for which Seller and L&R have rights to use in the
conduct of their business. To the Knowledge of Seller, the conduct of Seller's
and L&R's business as presently conducted and the conduct and the use and
exploitation of the Intellectual Property do not infringe or misappropriate any
rights held or asserted by any person, and to the Knowledge of the Shareholders,
Partners, and Seller, no person is infringing on the Intellectual Property.
Except as set forth in the Acquired Contracts, no payments are required for the
continued use of the Intellectual Property. None of the Intellectual Property
has ever been declared invalid or unenforceable, or is the subject of any
pending or to the Knowledge of Seller, threatened action for opposition,
cancellation, declaration, infringement, invalidity, unenforceability, or
misappropriation or like claim, action, or proceeding.
4.24 LITIGATION. Except as set forth on SCHEDULE 4.24, there are no
suits, claims, actions, arbitrations, investigations, or proceedings entered
against, now pending, or to Seller's, Partners', or Shareholders' Knowledge,
threatened against Seller, Partners, Shareholders, and L&R before any court,
arbitration, administrative or regulatory body, or any governmental agency which
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may result in any judgment, order, award, decree, liability, or other
determination which will or could reasonably be expected to have any material
effect upon Seller and L&R, the Acquired Assets, or their businesses. Except as
set forth on SCHEDULE 4.24, neither Seller nor L&R is subject to any continuing
court or administrative order, writ, injunction, or decree applicable to them or
their business, or to their property or employees, and neither Seller nor L&R is
in default with respect to any order, writ, injunction, or decree of any court
or federal, state, municipal, or other governmental department, commission,
board, agency, or instrumentality.
4.25 EMPLOYEES. Attached as SCHEDULE 4.25 is a list of names, current
annual rates of salary, bonus, employee benefits, accrued vacation and sick
time, sick pay, and other compensation and benefits and perquisites, including
the provision of company owned automobiles, of all the employees and agents of
Seller and L&R whose work relates, directly or indirectly, to the operation of
the business of Seller and L&R. To the Knowledge of Seller, Partners, and
Shareholders, no key employee of Seller and L&R, and no group of Seller's and
L&R's employees, has any plans to terminate his, her, or its employment, Seller
and L&R have no material labor relations problems pending, and Seller's and
L&R's labor relations are satisfactory in all material respects. Seller and L&R
have complied in all material respects with all laws relating to the employment
of labor, including provisions thereof relating to wages, hours, equal
opportunity, collective bargaining, and the payment of social security and other
taxes. Except as set forth in SCHEDULE 4.25, Seller and L&R may terminate any
employee, with or without cause, without liability or obligation other than for
salary and bonuses accrued through the date of any such termination and for the
obligations of Seller and L&R referred to in Section 4.26 below.
4.26 EMPLOYEE BENEFIT PLANS.
(a) With respect to all employees and former employees of
Seller and L&R, except as set forth in SCHEDULE 4.26, Seller and L&R do
not presently maintain, contribute to, or have any liability (including
current or potential multi-employer plan withdrawal liability under
ERISA) under any: (i) non-qualified deferred compensation or retirement
plan or arrangement which is an "employee pension benefit plan" as such
term is defined in Section 3(2) of ERISA; (ii) defined contribution
retirement plan or arrangement designed to satisfy the requirements of
section 401(a) of the Code, which is an employee pension benefit plan,
(iii) defined benefit pension plan or arrangement designed to satisfy
the requirements of Section 401(a) of the Code, which is an employee
pension benefit plan; (iv) "multi-employer plan" as such term is
defined in Section 3(37) of ERISA; (v) unfunded or funded medical,
health, or life insurance plan or arrangement for present or future
retirees or present or future terminated employees which is an
"employee welfare benefit plan" as such term is defined in Section 3(1)
of ERISA, except as required by Section 4980B of the Code or Sections
601 through 609 of ERISA; or (vi) any other employee welfare benefit
plan.
(b) With respect to each of the employee benefit plans listed
in SCHEDULE 4.26, Seller has furnished to Buyer true and complete
copies of: (i) the plan documents (including any related trust
agreements); (ii) the most recent determination letter received from
the Internal Revenue Service; (iii) the latest actuarial valuation;
(iv) the latest financial statement; (v) the last Form 5500 Annual
Report; and (vi) all related trust agreements,
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insurance contracts, or other funding agreements which implement such
employee benefit plan. Neither Seller nor L&R, nor any of their
respective officers, partners, employees or any other "fiduciary", as
such term is defined in Section 3(21) of ERISA, has any liability for
failure to comply with ERISA or the Code for any action or failure to
act in connection with the administration or investment of such plans.
(c) With respect to each plan listed in SCHEDULE 4.26: (i)
Seller and L&R have performed all obligations required to be performed
by them under each such plan and each such plan has been established
and maintained in accordance with its terms and in compliance with all
applicable laws, statutes, rules, and regulations, including but not
limited to the Code and ERISA; (ii) there are no actions, suits, or
claims pending or threatened or anticipated (other than routine claims
for benefits) against any such plan; (iii) each such plan can be
amended or terminated after the Closing in accordance with its terms,
without liability to Seller, L&R or Buyer; and (iv) there are no
inquiries or proceedings pending or threatened by the Internal Revenue
Service or the Department of Labor with respect to any such plan.
(d) With respect to the insurance contracts or funding
agreements which implement any of the employee benefit plans listed in
SCHEDULE 4.26, such insurance contracts or funding agreements are fully
insured or the reserves under such contracts are sufficient to pay
claims incurred.
(e) Each plan listed in SCHEDULE 4.26 that is intended to be
qualified under Section 401(a) of the Code has been determined by the
Internal Revenue Service to so qualify and each trust created
thereunder has been determined by the Internal Revenue Service to be
exempt from tax under Section 501(a) of the Code and nothing has
occurred since the date of the most recent determination that would be
reasonably likely to cause any such plan or trust to fail to qualify
under Section 401(a) of the Code.
4.27 LABOR MATTERS. Seller and L&R are not parties to any collective
bargaining agreement with any labor union or association. There are no
discussions, negotiations, demands, or proposals that are pending or that have
been conducted or made with or by any labor union or association, and there are
no pending or, to the Knowledge of Seller and L&R, threatened labor disputes,
strikes, or work stoppages that may have a material and adverse effect upon
Seller and L&R, the Acquired Assets, or the business of Seller and L&R. Seller
and L&R are in material compliance with all federal and state laws respecting
employment and employment practices, terms and conditions of employment, and
wages and hours, and are not engaged in any unfair labor practices.
4.28 INSURANCE. SCHEDULE 4.28 lists and briefly describes each
insurance policy and fidelity bond, including performance improvement bonds,
maintenance bonds, labor and material bonds and other bonds related to the Owned
Projects and New Projects (collectively, the "BONDS"), maintained by Seller and
L&R with respect to their respective properties, assets, employees, officers,
and partners and sets forth the date of expiration of each such insurance
policy. All of such insurance policies and Bonds are in full force and effect
and Seller and L&R are not in default with respect to their obligations under
any of such insurance policies or Bonds. Except as set forth on SCHEDULE 4.28,
there is no claim of Seller and L&R pending under any of such policies or Bonds
as to which
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coverage has been questioned, denied, or disputed by the underwriters of such
policies or Bonds and there has been no threatened termination of, or material
premium increase with respect to, any of such policies. To the Knowledge of the
Shareholders, Partners, and Seller, the insurance coverage of Seller and L&R is
customary for entities of similar size engaged in similar lines of business.
4.29 AFFILIATE TRANSACTIONS. Except as set forth on SCHEDULE 4.29, and
except for each Partner's interest in Seller, no officer or partner of Seller or
any member of the immediate family of any such officer or partner, or any entity
in which any of such persons owns any beneficial interest (other than a publicly
held corporation whose stock is traded on a national securities exchange or in
the over-the-counter market and less than 1% of the stock of which is
beneficially owned by any of such persons) (collectively "INSIDERS") has any
agreement with Seller or any interest in any property (real, personal, or mixed,
tangible or intangible) used in or pertaining to the business of Seller. For
purposes of the preceding sentence, the members of the immediate family of an
officer or partner shall consist of the spouse, parents, children, siblings,
mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and
sisters-in-law of such officer, director, or shareholder.
4.30 COMPLIANCE WITH LAWS. Seller and L&R and their officers, partners,
agents, and employees have complied in all material respects with all material
applicable laws and regulations of foreign, federal, state, and local
governments and all agencies thereof which affect their business or the Acquired
Assets and to which Seller and L&R may be subject. No claims have been filed
against Seller and L&R alleging a violation of any such law or regulation,
except as set forth in SCHEDULE 4.30. Without limiting the generality of the
foregoing, Seller and L&R have not violated, or received a notice or charge
asserting any violation of, OSHA, or any other state or federal acts (including
rules and regulations thereunder) regulating or otherwise affecting employee
health and safety. Seller and L&R have not given or agreed to give any money,
gift, or similar benefit (other than incidental gifts of articles of nominal
value) to any actual or potential customer, supplier, governmental employee, or
any other person in a position to assist or hinder Seller and L&R in connection
with any actual or proposed transaction.
4.31 PERMITS.
(a) Seller and L&R possess all approvals, authorizations,
certificates, consents, franchise, licenses, Department of Real Estate
("DRE") reports, and permits necessary for the lawful conduct of their
business, the absence of which would materially and adversely affect
the business of Seller and L&R (collectively, the "Permits"); SCHEDULE
4.31 sets forth a list (including the expiration dates available to
Buyer each of the Permits for Buyer's review. Such permits are in full
force and effect, no violations have occurred with respect thereto, and
to the best knowledge of Seller, no basis exists for any limitation,
revocation or withdrawal thereof.
(b) Seller and L&R also possess (or there have been granted by
the applicable governmental authorities with respect to each of the
Owned Projects and, to the Knowledge of Seller, the New Projects
(collectively, the "Projects")) the subdivision, development,
construction and sale permits, DRE reports and other authorizations,
approvals, and entitlements set forth in the schedules referred to
herein (collectively "LAND USE ENTITLEMENTS"). Seller specifically
discloses that with respect to each of the New Projects,
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additional such approvals and entitlements are required, except that
with respect to the Owned Projects no further discretionary approvals
are required from any governmental agency to complete the development
and construction of homes and the sale thereof in the respective Owned
Project, there are in full force and effect validly issued building
permits for each home under construction or completed in each Owned
Project through and including the date hereof, and Seller has is no
notice of any pending or to the Knowledge of Seller threatened
moratorium or other restriction that would preclude the obtaining of
building permits for any homes in such Owned Project not yet under
construction or for which building permits have not been obtained. With
respect to New Projects or Other Projects Seller does not warrant or
guaranty that all necessary Land Use Entitlements will be obtained,
since these are discretionary entitlements subject to approval by
planning commissions and other legislative bodies whose
decisions-making can be neither controlled nor predicted by Seller,
except that, to Seller's Knowledge, no decision-making body has denied
or withheld any material Land Use Entitlements, nor has Seller been
advised by any such governmental agency or authority that the necessary
Development Entitlements for such New Projects or Other Projects cannot
or will not be issued.
4.32 PARTNERSHIP RECORDS; MINUTE BOOKS. The partnership records of
Seller and L&R made available to counsel for Buyer are the only partnership
records of Seller and L&R and contain an accurate summary of all partnership
meetings to the extent recorded. The minute books of Partners made available to
counsel for Buyer are the only minute books of Partners and contain an accurate
summary of all meetings of directors (or committees thereof) and shareholders or
actions by written consent since the time of incorporation of SH and SFI to the
extent available.
4.33 DISCLOSURE. Neither this Agreement nor any of the Schedules or
Exhibits hereto contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they were made, not misleading,
and there is no fact which has not been disclosed to Buyer which materially
adversely affects or could reasonably be anticipated to materially adversely
affect the assets, including the Acquired Assets, financial condition or results
of operations, customer, employee or supplier relations, business condition,
prospects, or financing arrangements of Seller and L&R.
ARTICLE 5
CONDUCT OF SELLERS, PARTNERS, AND SHAREHOLDERS
PENDING THE CLOSING
Seller, Partners, and Shareholders hereby covenant and agree that from
the date hereof to the Closing Date:
5.1 CONDUCT OF BUSINESS PENDING THE CLOSING. Except as specifically
contemplated in this Agreement, the business of Seller and L&R shall be
conducted only in, and Seller shall take no action except in, the ordinary
course, on an arm's length basis, and in accordance with all applicable laws,
rules, and regulations and past custom and practice, including, without
limitation, making any loans or any cash payments, or transferring any other
assets or properties of Seller (for itself and as general partner of L&R) to any
employee, officer, shareholder, or director of Seller; and Seller (for
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itself and as general partner of L&R) shall maintain their facilities in good
operating condition, ordinary wear and tear excepted; and Seller and L&R will
not, directly or indirectly, do or permit to occur any of the following without
the prior written consent of Buyer, which shall not be unreasonably withheld or
delayed:
(a) Cancel or terminate or permit to be canceled or terminated
their current insurance (or reinsurance) policies or permit any of the
coverage thereunder to lapse, unless simultaneous with such
termination, cancellation, or lapse, replacement policies providing
coverage equal to or greater than the coverage under the canceled,
terminated, or lapsed policies for substantially similar premiums are
in full force and effect;
(b) Sell, lease, encumber, or otherwise dispose of any of the
Acquired Assets, other than, in the case of lots and homes held for
sale in the ordinary course, the sale of such lots or homes in the
ordinary course of Seller's and L&R's business as previously conducted;
(c) Default under any material contract, agreement,
commitment, or undertaking;
(d) Knowingly violate or fail to comply with any laws
applicable to it or their business;
(e) Commit any act or permit the occurrence of any event or
the existence of any condition of the type described in Section 4.11;
(f) Fail to maintain and repair their assets and properties in
accordance with good standards of maintenance and as required in any
leases or other agreements pertaining thereto;
(g) Except in the ordinary course of business consistent with
historical practices enter into or modify any employment, severance, or
similar agreements or arrangements with, or grant any bonuses, salary
increases, or severance or termination pay to, any officers, directors,
employees, or consultants, or adopt or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment, or other benefit plan, trust, fund, or group arrangement
for the benefit or welfare of any officers, directors, or employees;
(h) Except in the ordinary course of business consistent with
historical practices modify or terminate any of the Acquired Contracts
or enter into any new Acquired Contract;
(i) Acquire (by merger, exchange, consolidation, acquisition
of stock or assets, or otherwise) any corporation, partnership, joint
venture, or other business organization or division or material assets
thereof;
(j) Amend Sterling's, Livermore's, or Rohnert's Partnership
Agreement other than as contemplated by this Agreement;
(k) Issue or create any additional partnership interests in
Seller;
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(l) Issue or create any warrants, obligations, subscriptions,
options, or other commitments under which any additional partnership
interests might be directly or indirectly authorized, issued, or
transferred, or incur any indebtedness for borrowed money or issue any
debt securities except the borrowing of working capital in the ordinary
course of business and consistent with past practice;
(m) Except in the ordinary course of business consistent with
historical practices (or as provided in existing loan or partnership
documentation of L&R to be paid at the time of closing of sales of
residential units) pay any obligation or liability, fixed or
contingent, other than current liabilities;
(n) Waive or compromise any right or claim (other than as
required to resolve any pending or threatened litigation disclosed in
the Schedules attached hereto) or warranty claims within the limits of
the Warranty Reserve; or
(o) Agree to do any of the actions described in the preceding
clauses (a) through (n).
5.2 BUSINESS RELATIONSHIPS. Seller (for itself and as general partner
of L&R), Partners, and Shareholders will exercise their best efforts to (a)
preserve intact their business organization and goodwill, (b) keep available the
services of their officers and employees as a group (except as otherwise
provided in Section 6.1), and (c) maintain satisfactory relationships with
suppliers, distributors, customers, and others having business relationships
with it.
5.3 TAX ON PRIOR SALES. To the extent such certificates are prepared by
the applicable state taxing authority, if applicable, Seller (for itself and as
general partner of L&R) agrees to furnish to Buyer certificates from the state
taxing authorities and any related certificates that Buyer may reasonably
request as evidence that all sales and use tax liabilities of Seller accruing
before the Closing Date have been fully satisfied or provided for.
5.4 NOTIFICATION OF CERTAIN MATTERS. Seller (for itself and as general
partner of L&R) shall (a) confer on a regular basis with representatives of
Buyer and report operational matters and the general status of ongoing
operations; (b) notify Buyer of any material adverse change in the normal course
of their business or in the operation of their properties and of any
governmental or third party complaints, investigations, or hearings (or
communications indicating that the same may be contemplated); (c) not take any
action which would render, or which reasonably may be expected to render, any
representation or warranty made by it in this Agreement untrue at, or at any
time prior to, the Closing; and (d) promptly notify Buyer if Seller shall
discover that any representation or warranty made by it in this Agreement was
when made, or has subsequently become, untrue.
5.5 TRANSFER OF PERMITS. Seller, Partners, and Shareholders will use
their best efforts to assist Buyer to effect the assignment or other transfer of
Permits, to the extent such Permits are transferable, from Seller to Buyer as of
or as soon as practicable after the Closing Date.
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ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 EMPLOYMENT. All employees of Seller (and such employees of L&R who
are on Seller's payroll and can be terminated consistent with the terms of the
partnership agreements of L&R) will be terminated by Seller and L&R on and as of
the Closing Date. Seller and L&R shall be responsible for any severance and/or
other payments, including, but not limited to, other compensation, benefits, and
perquisites, incurred in connection therewith and during the period prior to the
Closing Date. After the Closing Date, Buyer will agree to hire such employees of
Seller and L&R on an "at will" basis as Buyer determines in its sole discretion,
and Seller and L&R will cooperate with Buyer to that end; PROVIDED, HOWEVER,
that Buyer hereby agrees to engage Hafener as an employee of Buyer and as
President or General Manager of NC Company pursuant to the terms of that certain
employment agreement, to be entered into, by and between Buyer and Hafener, in
the form attached hereto as EXHIBIT C (the "HAFENER EMPLOYMENT AGREEMENT").
6.2 BREAK-UP FEE. If the transactions contemplated by this Agreement
are not consummated due to (a) termination by Seller pursuant to Section
10.1(b)(iii) or (b) Seller's refusal to close the transaction contemplated
hereby in the absence of a breach by either party and within twelve months of
May 1, 1998, Seller and/or L&R signs a letter of intent or other agreement
relating to the acquisition of a material portion of its assets or business, in
whole or in part, including the assets of L&R whether through direct purchase,
merger, consolidation, or other business combination (other than sales of
inventory or immaterial portions of its assets in the ordinary course) and such
transaction is ultimately consummated, then immediately upon such closing,
Seller shall pay to Buyer the sum of $250,000 plus an amount necessary to
reimburse Buyer for all reasonable fees and expenses (not to exceed $100,000)
incurred in connection with the transaction contemplated by this Agreement (the
"BREAK-UP FEE"). Seller shall use its best efforts to obtain all consents
required to transfer the Acquired Assets by June 22, 1998. If Seller is unable
to obtain such consents, and exercises its option to terminate this Agreement
pursuant to Section 10.1, Seller shall be relieved of any Break-Up Fee.
6.3 NO NEGOTIATIONS. Seller, Partners, or Shareholders shall not,
directly or indirectly, through any officer, director, agent, or otherwise,
solicit, initiate, or encourage submission of any proposal or offer from any
person or entity (including any of their officers, directors, partners,
employees, or agents) relating to any liquidation, dissolution,
recapitalization, merger, consolidation, or acquisition or purchase of all or a
material portion of the assets of, or any equity interest in, Seller or other
similar transaction or business combination involving Seller or L&R, or
participate in any negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or assist,
participate in, facilitate, or encourage, any effort or attempt by any other
person or entity to do or seek any of the foregoing. Seller shall promptly
notify Buyer if any such proposal or offer, or any inquiry from or contact with
any person with respect thereto, is made and shall promptly provide Buyer with
such information regarding such proposal, offer, inquiry, or contact as Buyer
may request.
6.4 PUBLIC ANNOUNCEMENTS. The parties hereto shall not issue any press
release or public announcement, including announcements by any party for general
reception by or dissemination to employees, agents, or customers, with respect
to this Agreement and the other transactions
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contemplated by this Agreement without the prior written consent of the other
parties hereto (which consent shall not be withheld unreasonably); PROVIDED,
HOWEVER, that Buyer may make any disclosure or announcement that, in the opinion
of its counsel, it is obligated to make pursuant to applicable law or regulation
of the New York Stock Exchange or any national securities exchange, as
applicable, in which case Buyer shall reasonably consult with Seller prior to
making such disclosure or announcement; PROVIDED FURTHER, that, upon execution
of this Agreement, Buyer may make a public announcement of such occurrence in a
press release reviewed by Seller prior to publication.
6.5 CONFIDENTIALITY. Each party hereto, and its officers, directors,
partners, agents, and affiliates, will hold in strict confidence, and will not
divulge, communicate, use to the detriment of any other party hereto or for the
benefit of any other person or persons, or misuse in any way, any financial
information or other data obtained in connection with this Agreement, including,
without limitation, any confidential information or trade secrets of such other
party, personnel information, secret processes, know how, customer lists,
formulas, or other technical data; and if the transactions contemplated by this
Agreement are not consummated, each party hereto, and its officers, directors,
agents, and affiliates, will return to each other party all such data and
information as such other party may reasonably request, including, without
limitation, work sheets, test reports, manuals, lists, memoranda, and other
documents prepared by or made available in connection with this transaction. The
parties hereto may disclose such information to their respective attorneys,
accountants and other agents so long as they agree to keep such information
confidential.
6.6 BOOKS AND RECORDS. Seller and Buyer will each make available to the
other party, at the other party's request and expense, from time to time, for
copying by the other party at any reasonable time for a six-year period after
the Closing Date, any and all books and records of Seller and L&R relating,
directly or indirectly, to the business of Seller or L&R or the Acquired Assets
which are reasonably necessary with respect to Buyer's ongoing operations for
inspection or for the prosecution or defense of any litigation, arbitration,
proceeding or audit of Seller, L&R and Partners or Shareholders or in which they
are or may become a party.
6.7 ADDITIONAL AGREEMENTS. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper, or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, including obtaining all necessary
waivers, consents, and approvals and effecting all necessary registrations and
filings and submissions of information requested by governmental authorities.
Seller, at any time before or after the Closing, will execute, acknowledge, and
deliver any further deeds, assignments, conveyances, and other assurances,
documents, and instruments of transfer reasonably requested by Buyer, and will
take any other action consistent with the terms of this Agreement that may
reasonably be requested by Buyer, for the purpose of assigning, transferring,
granting, conveying, and confirming to Buyer, or reducing to possession, any or
all property to be conveyed and transferred by this Agreement. If requested by
Buyer, Seller further agrees to prosecute or otherwise enforce in its own name
for the benefit of Buyer, any claims, rights, or benefits that are transferred
to Buyer by this Agreement and that require prosecution or enforcement in
Seller' names. Any prosecution or enforcement of claims, rights, or benefits
under this Section shall be solely at Buyer's expense, unless the prosecution or
enforcement is made necessary by a breach of this Agreement by Seller.
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6.8 NON-COMPETE. Pyle shall enter into a four (4) year Non-Compete
Agreement with Buyer pursuant to which Pyle shall agree not to compete with
Buyer; such Non-Compete Agreement to be in the form of EXHIBIT D attached hereto
(the "PYLE NON-COMPETE AGREEMENT"). For a period of four (4) years following the
Closing, Seller and SH Capital likewise shall not engage in any business (other
than the winding up, settling and closing of its affairs, the payment and
discharge of Excluded Liabilities, the disposition of Excluded Assets, the
defense and settlement of litigation, and the performance of its obligations
under this Agreement), including, but not limited to, the home-building or
residential lot development business, after the Closing.
6.9 RIGHT TO ENTER AND INSPECT. From time to time prior to the Closing,
Buyer may enter the Real Property and other property of Seller with Buyer's
representatives, contractors, and agents to examine the Real Property and the
Acquired Assets, conduct soil tests, environmental studies, engineering
feasibility studies, and other tests and studies, and otherwise to evaluate,
inspect and examine the Acquired Assets and the business operations and affairs
of Seller. Buyer hereby agrees to indemnify, defend and hold Seller and L&R
harmless from and against any and all loss, expense, claim, damage and injury to
person or property resulting from the negligent acts of Buyer, its employees,
consultants, engineers, agents and contractors in connection with the
performance of any investigations, tests and studies as contemplated herein,
provided, however, that nothing herein shall be construed as imposing upon Buyer
any obligation or liability for the fact of its discovery or disclosure of any
defect or problem with any of the Acquired Assets or Real Property. Buyer
further shall pay all of its consultants, agents and contractors and shall
indemnify, defend and hold harmless Seller and L&R from any and all liens and
liabilities to any of Buyer's vendors, employees, officers and directors by
reason of every such entry, testing, studies or inspections.
6.10 ENVIRONMENTAL REVIEW.
(a) ENVIRONMENTAL ASSESSMENTS. Buyer may select a consultant
(the "CONSULTANT") to perform Phase I environment site assessments with
respect to the Real Property. Upon its availability, Buyer will deliver
the final report of such assessments to Seller. If any such assessment
recommends the performance of additional investigation (including,
without limitation, Phase II environmental site assessments), such
additional investigation shall, if requested by Buyer, be undertaken
promptly and delivered to each of Seller and Buyer. The environmental
assessments and investigations undertaken pursuant to this SECTION 6.10
are collectively referred to herein as the "ENVIRONMENTAL ASSESSMENTS".
The costs of the Environmental Assessments shall be paid by Buyer.
(b) REMEDIATION REPORTS. If any of the Environmental
Assessments reveals any remediation work or other actions which must be
completed in order to bring the Real Property into compliance with
applicable Environmental Laws or to eliminate any potential
environmental liability, the Consultant shall be directed to prepare
and to deliver to each Seller and Buyer a written proposal setting
forth in reasonable detail the scope of required remediation and an
estimate of the cost of completing such remediation. For the purposes
of SECTION 6.10, "required remediation" shall mean any action necessary
to (i) comply with any governmental order, (ii) comply with any
Environmental Law effective at the Closing or (iii) eliminate a
potential environmental liability (collectively the "REMEDIATION
STANDARD"), as applicable to the Real Property or the operation thereof
by Seller as of the
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Closing Date. For the purposes of SECTION 6.10 and with respect to any
Underground Storage Tanks at the Real Property, "required remediation"
also shall include obtaining a closure letter from the governing state
agency confirming that the state agency has approved closure of the
Underground Storage Tanks and will not take any further action related
to any liability associated with any Underground Storage Tank on the
Real Property.
(c) REMEDIATION WORK. Promptly upon completion of the
Consultant's proposal referred to in SECTION 6.10(B), Seller, in its
sole and absolute discretion, may, by written notice, notify Buyer
either (i) that it will not undertake such remediation work, or (ii)
that it will do so. If Seller notifies Buyer that it will not undertake
the remediation work, Buyer may then either (i) notify Seller that it
will not purchase such Real Property or (ii) elect to close and assume
the responsibility for such work at Buyer's sole expense following the
Closing. If Seller instead notifies Buyer that it will undertake the
remediation work, Seller shall engage a reliable environmental
engineering firm reasonably acceptable to Buyer and authorized by any
applicable federal, state, or local law, policy, or regulation to
perform any required remediation. Seller shall use its best efforts to
cause such required remediation to be completed on or before the
Closing Date, and Seller shall bear all costs of such required
remediation; provided that the completion of all such required
remediation shall be a condition to Buyer's obligations to consummate
the transactions contemplated by this Agreement. Buyer may, in its sole
discretion, authorize Seller to defer any portion of the required
remediation which Seller and its contractors are unable to complete
prior to Closing, in which case Seller shall cause the portion of the
required remediation so deferred to be completed as promptly as
practicable, but in no event later than 60 days following Closing, at
Seller's sole expense. Buyer may monitor the performance of the
required remediation and application of the Remediation Standard, and
at its election may cause the Consultant to review the performance of
the required remediation. If Buyer directs the Consultant to undertake
such review, the required remediation shall be deemed completed only
upon certification of its completion by the Consultant. If, however,
there is a dispute as to the performance of the required remediation or
the application of the Remediation Standard, any such dispute shall be
settled by a mutually agreed-upon environmental expert not otherwise
involved in the required remediation, whose determination shall be
final and binding on the parties.
6.11 TITLE MATTERS.
(a) At Closing, Seller shall cause to be delivered to Buyer a
California Land Title Association owner's policy of title insurance (a
"Title Policy") naming Buyer as insured, in a policy amount as follows:
(i) for each New Project an optionee or contract buyer's policy in the
policy amount set forth in Schedule 6.11(b) hereof, provided that NC
Company has not already obtained title policy with respect to Early
Purchase Property; and (ii) for the Owned Projects held by L&R, if
available an endorsement to the existing respective owner's title
policies of L&R reflecting the acquisition by Buyer of the general
partner's interest in L&R, respectively, and confirming continued
effect of such title policy or, in the alternative, a new policy naming
Livermore and Rohnert, respectively, as insured, showing the
substitution of Buyer as general partner of the respective partnership
(Livermore or Rohnert), and otherwise conforming to the requirements
hereof.
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(b) With respect to each Title Policy, the condition of title
insured shall be subject to the Approved Conditions of Title, as herein
provided. For purposes of this Agreement, the term "Approved Conditions
of Title" shall mean the following:
(i) All ad valorem and other real property taxes and
assessments paid with taxes for the current tax year that have
not yet become delinquent.
(ii) Any exceptions for mechanic's and other liens
occurring by reason of work of improvement under construction
or in progress on the respective property (provided nothing
herein shall relieve Seller of Seller's obligations under
other provisions of this Agreement with regard to pre-Closing
payables.
(iii) The liens for future assessments and taxes,
including, but not limited to, taxes resulting form changes of
ownership and assessments related from the court to the
recording of special tax lien notices and other matters of
record shown in the Preliminary Report, and
(iv) Any and all other exceptions and exclusions of
record as reflected in the respective Preliminary Report other
than solely (A) any deed of trust or security instrument
securing a loan to Seller or to L&R which is to be paid off
and retired at closing under other provisions of this
Agreement, or (B) matters (such as identification affidavits,
corporate resolutions, and other evidences of authority or
capacity on the part of Seller and/or L&R) which are required
by the Title Company to be satisfied prior to Closing.
It is specifically understood and agreed that Seller
shall have no obligation, either with respect to the Owned
Projects or with respect to the New Projects, to remove or
cause to be removed any exceptions, liens or exclusions from
title other than as stated in clause (iv) of the preceding
sentence, or to procure any amendment thereto, and that
Buyer's sole remedy with regard to any condition of title not
acceptable to Buyer, shall be to cancel and terminate this
Agreement under the terms of Section 10.1(c) or 10.4, below.
It is further understood and agreed that with regard to any of
the New Projects, various liens and encumbrances on the
interest of the respective land seller thereunder may exist
and not be removed or reconveyed of record notwithstanding the
terms of the respective New Project Contract (which may
require such land seller to do so at or prior to the Closing
of the respective land acquisition thereunder), and nothing
herein shall require Seller to procure from any such land
seller any change or alteration in the condition of title of
such land seller except as, when and to the extent Seller has
a current, present right to obtain such removal or change
under the terms of the respective contract as of the date such
removal is so required.
6.12 TAX ELECTIONS. At Buyer's option, and to the extent permitted
under the respective partnership agreements of Livermore and Rohnert, (a) Buyer
may make an election under Section 754 of the Code and Treasury Regulations
ss.1.754-1 to adjust the basis of the property of Livermore
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and Rohnert under Section 743(b) of the Code with respect to Buyer's purchase of
Seller's general partnership interest in L&R.
6.13 L&R ALLOCATION. The parties agree that any gains and losses
related to the general partner of each of Livermore and Rohnert shall be
allocated prior to Closing to Seller and after Closing to Buyer.
6.14 WARRANTY SERVICE. Buyer shall perform continuing warranty service
as directed and approved by Seller for home closings of Seller which occurred
prior to Closing. Such warranty service shall continue for the shorter of (i)
ten years or (ii) the applicable statute of limitations with respect to warranty
claims. Seller shall pay directly for all out-of-pocket costs to repair the
home, including the cost of materials and laborers, and shall reimburse Buyer
for Buyer's actual cost in performing supervision of such warranty service,
including but not limited to all employee overhead costs. The projects of Seller
for which such warranty service shall apply are the Completed Projects
identified in Section 2.2(c) and residential units located in the Owned Projects
which close prior to Closing.
6.15 FORMATION OF STERLING COMMUNITIES CORPORATION. Promptly following
the execution of this Agreement Buyer shall duly form and organize "Sterling
Communities Corporation" under California law; Sterling shall assign the right
to such name to Buyer. If after the formation of Sterling Communities
Corporation, Seller provides a Purchase Notice to Buyer as defined below, Seller
shall transfer and assign the New Projects to Sterling Communities Corporation
and Buyer through Sterling Communities Corporation shall comply with the
provisions of Section 6.16(a) below.
6.16 NEW PROJECTS.
(a) NOTICE OF ACCELERATED PURCHASE OF LAND UNDER THE NEW
PROJECTS . Buyer acknowledges that, prior to the Closing Date, Seller
may be required under the terms of the New Projects to purchase some or
all of the real property subject to the New Projects (such property
being referred to in this Agreement as the "EARLY PURCHASE PROPERTY").
A detailed list of lots and their respective price with respect to the
Early Purchase Property is set forth on Schedule 6.16(a). If Seller is
required to purchase any Early Purchase Property, Seller shall give
notice (a "PURCHASE NOTICE") of such fact to Buyer at least five (5)
business days prior to the date that Buyer would be required to make
such purchase, specifying in detail the Early Purchase Property to be
purchased and the terms of such purchase, including the date such
purchase is to be closed (an "EARLY CLOSING DATE"). If, under a New
Project, Seller is entitled to extend the date for purchase of any
Early Purchase Property subject thereto until after the Closing,
without default, penalty, or increase in the purchase price for the
Early Purchase Property, Seller shall timely exercise its rights to so
extend.
(b) BUYER'S OBLIGATION TO PURCHASE EARLY. If Seller gives a
Purchase Notice to Buyer as permitted by this Section 6.16, Buyer
(either through NC Company which shall be Sterling Communities
Corporation or through a land banking entity) agrees to purchase the
Early Purchase Property designated in the Purchase Notice on the Early
Closing Date,
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directly from the seller of such Early Purchase Property, on and
subject to the following terms and conditions:
(i) Prior to the Early Closing Date, Buyer shall have
completed its due diligence with respect to the Early Purchase
Property and the related New Projects, and Buyer shall be
satisfied with the results of such due diligence, in Buyer's
sole discretion;
(ii) All of the conditions precedent to the purchase
of the Early Purchase Property at the Closing, as if such
Early Purchase Property were Real Property, shall have been
satisfied in Buyer's sole discretion or otherwise waived by
Buyer as of the Early Closing Date;
(iii) All of the representations, warranties and
covenants of Seller with respect to Early Purchase Property,
as if such Early Purchase Property were Real Property, shall
be true and correct as of the Early Closing Date;
(iv) The seller under the applicable New Projects
shall have consented in writing to:
(1) The assignment of the rights of Seller,
as buyer, under the applicable New Projects to Buyer
or Sterling Communities Corporation and the
assumption by Buyer or Sterling Communities
Corporation of the obligations of Seller under the
New Projects, as they relate to the Early Purchase
Property; and
(2) The terms of the Stock Purchase
Agreement described in SECTION 6.16(B)(VIII),
and, in addition, the seller shall have agreed that, upon the
closing of the Stock Purchase Agreement by Seller, Buyer is
fully released from all further obligation or liability under
the New Projects or otherwise with respect to the Early
Purchase Property, such consents and agreements to be in form
and substance satisfactory to Buyer in Buyer's sole
discretion;
(v) The purchase of the Early Purchase Property shall
be on the terms and conditions set forth in the applicable New
Projects, and, to the extent not inconsistent with the terms
of this SECTION 6.16, the terms of this Agreement as they
relate to Real Property, as if the Early Purchase Property
were Real Property;
(vi) The entire amount shall be paid by Buyer to
purchase the Early Purchase Property and any deposits shall be
retained by Buyer;
(vii) At the closing of the purchase of the Early
Purchase Property, Seller shall assign to Buyer, and Buyer
shall assume, all of the rights and obligations of
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Seller, as buyer, under the applicable New Projects as they
relate to the Early Purchase Property; and
(viii) Upon the execution of this Agreement, Seller
and Buyer will enter into a stock purchase agreement with
Buyer obligating Seller to purchase all the capital stock of
Sterling Communities Corporation on the terms and conditions
set forth in the form of stock purchase agreement attached
hereto as EXHIBIT F (the "STOCK PURCHASE AGREEMENT"). The
effective date of the Stock Purchase Agreement shall be the
date in which the Buyer exercises its rights to not close this
transaction under Section 7.2 of this Agreement.
(c) FAILURE TO ACQUIRE EARLY PURCHASE PROPERTY. If Buyer for
any reason fails to acquire an Early Purchase Property under the terms
of this Section 6.16, regardless of cause, on or before the date
designated by Seller for such acquisition, then (i) Seller shall have
the option either to close and acquire such New Project utilizing the
proceeds of a Wells Fargo Participation Loan referred to in Section
6.17, below, or (ii) not to close such Early Purchase Project, thereby
waiving and forfeiting to the Seller thereunder any forfeitable option
consideration or deposits thereunder. No such action or election by
Seller, regardless of cause shall give rise to any liability or
obligation the part of Seller to Buyer. In the event that Seller so
utilizes a Wells Fargo Participating Loan to acquire such property, the
parties acknowledge that Wells Fargo will have a continuing participant
interest in such New Project following the Closing hereunder, and
Seller shall not be in breach of any representation or warranty by
reason of the existence of such Wells Fargo loan nor of the
participation interest of Wells Fargo therein. In the event that Seller
acquires such property using the Wells Fargo Participation Loan, such
loan shall be treated as an Acquired Contract, provided Seller obtains
consent to transfer such contract.
6.17 WELLS FARGO PARTICIPATING LOANS. Wells Fargo, N.A. has committed
to finance Whitney Oaks and Wildhorse with certain participating loans, which
require a $159,720 and $158,884, respectively, commitment fee for availability
of each loan. Prior to Closing, Buyer or Sterling Communities Corporation shall
make such payment for either Whitney Oaks or Wildhorse, but not both. The
payment of the first commitment fee by Buyer shall not be deducted from the
Purchase Price. At Closing, Wells Fargo shall have either (i) waived the other
payment, (ii) converted the remaining participating loan into a pure acquisition
and development loan without participating rights, or (iii) if (i) or (ii) have
not been completed, then Buyer shall make such additional payment; provided,
however, that the Purchase Price as set forth in Section 2.4 shall be reduced by
the payment Buyer makes.
6.18 PARTNERSHIP AGREEMENTS. From and after the Closing, Buyer shall
succeed to and shall be responsible for the performance and discharge of all of
the obligations of the general partner under the respective partnership
agreement of Rohnert and Livermore, shall cause to be filed in the Office of the
Secretary of State of the State of California, an LP-2 Certificate of Amendment
for each of Livermore and Rohnert, which shall be countersigned by both Seller
and Buyer providing for the substitution of NC Company for Seller as the general
partner of such partnership. Excepting solely claims for pre-Closing breaches or
default by Seller under the terms of the respective partnership agreement of
Livermore and Rohnert, Seller shall have no obligations or liabilities as
general partner
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of the respective partnership and from and after the Closing, NC Company shall
be solely responsible for the performance and conduct of all of the obligations
and undertaking of the general partner under the respective partnership
agreement.
6.19 NC COMPANY. From and after the Closing, Buyer shall not, nor shall
any entity or entities owned or controlled by Buyer or in which Buyer has more
than a ten percent (10%) interest (a "Buyer Affiliate") conduct any residential
real estate development or construction business in Northern California (defined
as any location north of the east-west line passing through the southernmost
point of the city limits of the City of Fresno) other than through NC Company.
All of the Acquired Assets and any and all new residential real estate
development projects acquired by Buyer in Northern California from any source
shall be held and operated in NC Company. If Buyer or any Buyer Affiliate
violates the terms of this Section 6.19, the Earn-Out Payment shall be increased
to incorporate the results of operations and assets in Northern California not
so held and operated in NC Company, unless Seller otherwise elects in writing.
If Buyer should discontinue it Northern California operations and Hafener's
employment is terminated, Hafener shall be relieved of the non-compete
provisions of the Hafener Employment Agreement.
ARTICLE 7
CONDITIONS
7.1 CONDITIONS TO OBLIGATION OF SELLER, PARTNERS AND SHAREHOLDERS. The
obligations of Seller, Partners, and Shareholders to close this transaction are
subject to the satisfaction, in their sole and absolute discretion (or waiver by
them in writing), of the following conditions on and as of the Closing:
(a) ABSENCE OF CERTAIN ACTIONS AND EVENTS.
(i) There shall not be threatened, instituted, or
pending any action or proceeding, before any court or
governmental authority or agency, domestic or foreign: (A)
challenging or seeking to make illegal, or to delay or
otherwise directly or indirectly to restrain or prohibit, the
consummation of the transactions contemplated hereby, or
seeking to obtain damages in connection therewith; or (B)
invalidating or rendering unenforceable any material provision
of this Agreement (including without limitation any of the
Exhibits or Schedules hereto); and there shall not be any
action taken, or any statute, rule, regulation, judgment,
order, or injunction proposed, enacted, entered, enforced,
promulgated, issued, or deemed applicable to the transactions
contemplated hereby by any federal, state, or foreign court,
government, or governmental authority or agency, which may,
directly or indirectly, result in any of the consequences
referred to in clauses (A) and (B) or otherwise prohibit
consummation of the transactions contemplated hereby; and
(ii) There shall not have occurred any of the
following events having a material adverse effect on Buyer:
(A) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any
limitation by United States authorities on the extension of
credit by lending institutions; (B) a commencement of war,
armed hostilities, or other international or national calamity
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directly or indirectly involving the United States; or (C) in
the case of any of the foregoing existing at the date hereof,
a material acceleration or worsening thereof.
(b) TRUTHFULNESS OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Buyer set forth in Article 3 shall be
true and correct as of the Closing Date as if made at and as of the
Closing Date.
(c) COMPLIANCE. Buyer shall in all material respects have
performed each obligation and agreement and complied with each covenant
to be performed and complied with by it hereunder at or prior to the
Closing.
(d) RELEASE OF GUARANTIES. Buyer and Seller shall work
together to obtain the release of Seller, Partners and Shareholders of
and from any and all liabilities under (i) loan documents, guarantees
and surety bonds with respect to all existing construction financing by
Bank of the West for Livermore and Rohnert, (ii) the partnership
agreements of Livermore and Rohnert, and (iii) the loan documents,
guarantees, and surety bonds, if any, for the Wells Fargo participation
loans referred to in Section 6.17; and (iv) any other guarantees and
surety bonds related to the Acquired Assets; provided, however of the
parties are unable to obtain such releases, Buyer shall indemnify and
hold harmless the Seller, Partners and Shareholders from any
liabilities or losses.
(e) BOARD APPROVAL. Buyer on or before June 12, 1998, shall
have received the consent of its Board of Directors to consummate the
transactions pursuant to this Agreement and shall have provided
evidence of the same to Seller no later than June 15, 1998.
(f) CONSENT AND ESTOPPEL OF LENDERS. With respect to the two
construction deeds of trust on the property of Livermore and Rohnert,
which is to be an Assumed Liability and shall remain in place following
the Closing and not to be paid off in full at Closing, the lender under
such financing shall have expressly consented and agreed to waive
acceleration under the due-on transfer provision concerning entity
interests in such loan documents without charge or fee. In the
alternative, at Buyer's election, Buyer may utilize cash to pay off
such loans in full (without deduction or offset against the Purchase
Price).
(g) CONSENT AND ESTOPPEL OF WEYERHAEUSER. The respective
limited partners of Livermore and Rohnert shall have executed a consent
to the substitution of NC Company for Seller under the terms of the
partnership agreement, which consent shall further (i) authorize the
amendment of the partnership agreement to reflect such substitution as
of the Closing, (ii) authorized the filing of an LP-2 Certificate of
Amendment to reflect the change in the general partner as of Closing,
(iii) release Seller from any further obligations under such
partnership agreement as of the Closing, and (iv) provide for the
execution by NC Company of the partnership agreement of Rohnert and
Livermore, respectively, and the assumption of liabilities and
obligations of the general partner under such partnership agreement
from and after the Closing.
(h) INSURANCE. Seller shall have been able to obtain
discontinued business operation insurance to cover losses in the
aggregate of $10,000,000. The cost, not exceeding
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$200,000, in obtaining such insurance shall be borne by Seller. In the
event such cost is more than $200,000, Seller may, in its sole
discretion, pay such excess or terminate this Agreement. If this
Agreement is terminated by Seller pursuant to this Section 7.1(h),
neither party shall be liable for a Termination Fee nor shall Seller be
liable for a Breakup Fee.
(i) FORMATION OF NC COMPANY. Buyer shall have caused the
formation of NC Company and shall have delivered to Seller true,
correct and complete copies of (i) the articles of incorporation, (ii)
the bylaws, (iii) evidence of payment of the shares of NC Company
issued to Buyer, and (iv) organizational minutes of NC Company
authorizing the transactions and undertakings of NC Company
contemplated under the terms of this Agreement.
(j) CONSENTS AND APPROVALS. Buyer and Seller shall have
obtained all necessary consents to the transactions contemplated
hereby.
(k) ABSENCE OF CERTAIN EVENTS. None of the events referred to
in Paragraph 7.2(i), below, shall have occurred.
If any of the foregoing conditions is not fulfilled to the satisfaction of
Seller, Partners, and Shareholders, in their sole and absolute discretion (or
otherwise waived by them in writing), on or before the date by which such
contingency is to have been satisfied, they may, in addition to any right or
remedy otherwise available to them, by written notice to Buyer, cancel this
Agreement.
7.2 CONDITIONS TO OBLIGATION OF BUYER. Buyer's obligations to close
this transaction are subject to the satisfaction, in Buyer's sole and absolute
discretion (or waiver by Buyer in writing), of the following conditions on and
as of the Closing:
(a) DUE DILIGENCE REVIEW. Buyer shall have conducted its due
diligence investigation, including but not limited to Seller, L&R,
Partners, and Shareholders, and shall have determined, in its sole and
absolute discretion, that all aspects of such businesses are
satisfactory.
(b) CONSENTS AND APPROVALS. Seller shall have obtained all
consents and approvals set forth in SCHEDULE 4.5 hereto.
(c) ABSENCE OF ADVERSE DEVELOPMENTS. Buyer shall not have
discovered any fact or circumstance existing as of the date of this
Agreement which has not been disclosed by Seller or L&R or as of the
date of this Agreement regarding the business, assets, including the
Acquired Assets, properties, condition (financial or otherwise),
results of operations, or prospects of Seller and L&R which is or could
be, individually or in the aggregate with other such facts and
circumstances, materially adverse to Seller or L&R, their business or
the Acquired Assets.
(d) NO DAMAGE OR DESTRUCTION. There shall have been no damage,
destruction, or loss of or to any property or properties owned or used
by Seller, whether or not covered
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by insurance, which in the aggregate may have a material adverse effect
on the business, financial condition, or results of operations of
Seller.
(e) ENVIRONMENTAL MATTERS. Buyer shall be satisfied with the
results of all Environmental Assessments and all required remediation
under Section 6.10(c) shall have been completed or waived under the
terms of Section 6.10(c).
(f) PRELIMINARY REPORTS AND TITLE INSURANCE. Buyer shall have
completed its review of the Preliminary Reports, including the
Authorized Exceptions, and not have terminated this Agreement prior to
June 22, 1998, and the Title Company shall be prepared to issue each
Title Policy (or an endorsement thereto) in the form required by
Section 6.11.
(g) CLOSING BALANCE SHEETS. Buyer, at least two (2) business
days prior to the Closing Date, shall have approved the Closing Balance
Sheets.
(h) BOARD APPROVAL. The board of directors of Buyer, on or
before June 12, 1998, shall have approved the transactions contemplated
by this Agreement.
(i) ABSENCE OF CERTAIN ACTIONS AND EVENTS.
(i) There shall not be threatened, instituted, or
pending any action or proceeding, before any court or
governmental authority or agency, domestic or foreign: (A)
challenging or seeking to make illegal, or to delay or
otherwise directly or indirectly to restrain or prohibit, the
consummation of the transactions contemplated hereby, or
seeking to obtain damages in connection therewith; (B) seeking
to prohibit direct or indirect ownership or operation by Buyer
or any of its subsidiaries of all or a material portion of the
business or the Acquired Assets of Seller, or to compel Buyer
or any of its subsidiaries to divest of or to hold separately
all or a material portion of the business or the Acquired
Assets of Seller as a result of the transactions contemplated
hereby; (C) seeking to impose or confirm limitations on the
ability of Buyer effectively to exercise directly or
indirectly full rights of ownership of any of the Acquired
Assets; (D) seeking or causing any material diminution in the
direct or indirect benefits expected to be derived by Buyer as
a result of the transactions contemplated by this Agreement;
(E) invalidating or rendering unenforceable any material
provision of this Agreement (including without limitation any
of the Exhibits or Schedules hereto); or (F) which otherwise
might materially adversely affect Buyer or any of its
subsidiaries as determined by Buyer;
(ii) There shall not be any action taken, or any
statute, rule, regulation, judgment, order, or injunction
proposed, enacted, entered, enforced, promulgated, issued, or
deemed applicable to the transactions contemplated hereby by
any federal, state, or foreign court, government, or
governmental authority or agency, which may, directly or
indirectly, result in any of the consequences referred to in
Section 7.2(i)(i) or otherwise prohibit consummation of the
transactions contemplated hereby; and
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(iii) There shall not have occurred any of the
following events having a material adverse effect on Buyer:
(A) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any
limitation by United States authorities on the extension of
credit by lending institutions; (B) a commencement of war,
armed hostilities, or other international or national calamity
directly or indirectly involving the United States; (C) any
suspension of trading of Buyer's common stock or any material
adverse change in the United States' stock markets generally;
or (D) in the case of any of the foregoing existing at the
date hereof, a material acceleration or worsening thereof.
(j) TRUTHFULNESS OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Seller, Partners and Shareholders in
this Agreement and in any certificate or other instrument delivered
pursuant to the provisions hereof or in connection with the
transactions contemplated hereby shall be true and correct as of the
Closing Date as if made at and as of the Closing Date.
(k) COMPLIANCE. Seller, Partners, and Shareholders shall in
all material respects have performed each obligation and agreement and
complied with each covenant to be performed and complied with by them
hereunder at or prior to the Closing.
(l) INSURANCE. Seller shall obtain discontinued business
operation insurance to cover losses in the aggregate of $10,000,000.
The cost, but not exceeding $200,000, in obtaining such insurance shall
be borne by Seller. In the event such cost is more than $200,000, Buyer
may in its sole discretion pay such excess or terminate this Agreement.
(m) SCHEDULES. Seller shall be obligated to update the
information set forth on the Schedules included herein and shall
deliver such updated Schedules to Buyer immediately prior to Closing.
If any of the foregoing conditions is not fulfilled to the satisfaction of
Buyer, in its sole and absolute discretion (or otherwise waived by Buyer in
writing), on or before the date by which such contingency is to have been
satisfied, they may, in addition to any right or remedy otherwise available to
Buyer, by written notice to Seller, Partners, and Shareholders, cancel this
Agreement.
ARTICLE 8
THE CLOSING
8.1 CLOSING. The closing (the "CLOSING") of the transactions
contemplated herein shall be held on or before July 1, 1998 (the "CLOSING
DATE"), or on such other date at a time and place as the parties shall mutually
agree by written instrument executed by their authorized officers.
8.2 RISK OF LOSS. All risk of loss with respect to the Acquired Assets
and the business of Seller and L&R on or before the Closing Date shall remain
the sole risk of Seller.
8.3 SELLER' OBLIGATIONS. In addition to any other documents required to
be delivered by Seller, Partners, and Shareholders at Closing, Seller, Partners
and Shareholders shall deliver to Buyer
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at Closing the following documents, all in form and substance reasonably
satisfactory in all respects to Buyer and its counsel:
(a) PRELIMINARY CHANGE OF OWNERSHIP FORM; OTHER GOVERNMENTAL
FILINGS. A preliminary change of ownership form, if applicable, under
California law and a Nonresident Withholding Exemption Certificate for
Real Estate Sales, Form 590-RE.
(b) BILL OF SALE. An executed Bill of Sale and Assumption
Agreement dated as of the Closing Date, conveying to Buyer all of
Seller's right, title, and interest in and to the Acquired Assets,
including its general partnership interest in each of Livermore and
Rohnert in the form attached hereto as Exhibit F.
(c) ACQUIRED CONTRACTS. Executed assignments of all Acquired
Contracts (with consents if required) (the "CONTRACT ASSIGNMENTS").
(d) LEASE ASSIGNMENTS. Lease assignments (the "LEASE
ASSIGNMENTS") with respect to each parcel of real estate or any item of
personal property which is leased by Seller and which is to be assumed
by Buyer hereunder, including the Office Lease, properly executed and
acknowledged by Seller, and accompanied by all consents and estoppels
of lessors required by this Agreement and the Property Leases and other
leases being assigned.
(e) HAFENER EMPLOYMENT AGREEMENT. The Hafener Employment
Agreement executed by Hafener and SH Capital.
(f) PYLE NON-COMPETE AGREEMENT. The Pyle Non-Compete Agreement
executed by Pyle and SFI.
(g) INDEMNIFICATION AGREEMENT. The Indemnification Agreement,
executed by each of the parties other than Buyer.
(h) PERMITS. Executed assignments of all assignable Permits
issued to Seller by any governmental entity or vendor, to the extent
assignable.
(i) BOOKS AND RECORDS. All books, records, and other data
relating to the Business (other than organization records).
(j) RESOLUTIONS. Copies of the texts of the resolutions by
which the partnership action on the part of Seller and the corporate
action on the part of Partners and its Shareholders necessary to
approve this Agreement and the transactions contemplated hereby were
taken and certificates executed on behalf of Seller by its partners and
Partners by their corporate secretaries or of their assistant corporate
secretaries certifying to Buyer that such copies are true, correct and
complete copies of such partnership action or resolutions and that such
partnership action and resolutions were duly adopted and have not been
amended or rescinded.
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(k) GENERAL PARTNER CERTIFICATE. A certificate from the
general partners of Seller and from the general partner of Livermore
and Rohnert (which is Seller), dated the Closing Date, that on the
basis of a review (not an audit) of the latest available accounting
records of Seller, consultations with other responsible officers of
Seller, and other pertinent inquiries that he or she may deem
necessary, he or she has no reason to believe that during the period
from the date of the Financial Statements to the Closing Date, except
as may otherwise be set forth on any Schedule hereto, there has been
any change in the financial condition or results of operations of the
Business, except changes incurred in the ordinary and usual course of
business during that period that in the aggregate are not materially
adverse, and other changes or transactions, if any, contemplated by
this Agreement.
(l) LEGAL OPINION. Buyer shall have received an opinion from
Miller, Starr & Regalia, counsel to Seller, addressed to Buyer in a
form reasonably acceptable to Buyer and its counsel.
(m) CONSENTS. The consents contemplated by Section 7.2(b).
(n) TITLE POLICIES. The Title Policies contemplated by Section
6.11.
(o) SUBSTITUTION AGREEMENT. Copies of the instruments whereby
WRI Livermore and WRI Rohnert shall have each consented to the
substitution of Buyer as the general partner in each of Livermore and
Rohnert, together with countersigned LP-2 Certificates of Amendment as
provided in Section 7.1(g), above, executed by WRI Livermore, WRI
Rohnert, and Seller, as applicable.
(p) OTHER DOCUMENTS. Such other documents as Buyer or its
counsel or any lender of Buyer may reasonably request in order to
effectuate the transactions contemplated under this Agreement.
8.4 BUYER'S OBLIGATIONS. Buyer shall deliver to Seller at Closing the
following, all in form and substance reasonably satisfactory in all respects to
Seller and their counsel:
(a) PURCHASE PRICE. The Purchase Price contemplated by Section
2.4, to the extent payable on the Closing.
(b) PRELIMINARY CHANGE OF OWNERSHIP FORM; OTHER GOVERNMENTAL
FILINGS. A preliminary change of ownership form, if applicable, under
California law and a Nonresident Withholding Exemption Certificate for
Real Estate Sales, Form 590-RE, if applicable.
(c) INDEMNIFICATION AGREEMENT. Counterpart originals of the
Indemnification Agreement, duly executed by Buyer.
(d) CONTRACT ASSIGNMENTS AND LEASE ASSIGNMENTS. Executed
counterparts of the Contract Assignments and the Lease Assignments,
assuming the obligations of Seller under the Acquired Contracts and
Property Leases thereby assigned.
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(e) ASSUMPTION AGREEMENT. An agreement pursuant to which Buyer
assumes the obligations for the Assumed Liabilities in the form of
Exhibit E attached hereto.
(f) PYLE NON-COMPETE AGREEMENT. The Pyle Non-Compete Agreement
duly executed by Buyer.
(g) SUBSTITUTION AGREEMENT. Copies of the instruments whereby
WRI Livermore and WRI Rohnert shall have each consented to the
substitution of Buyer as the general partner in each of Livermore and
Rohnert, together with countersigned LP-2 Certificates of Amendment as
provided in Section 7.1(g) above, executed by Buyer or NC Company, as
applicable.
(h) HAFENER EMPLOYMENT AGREEMENT. The Hafener Employment
Agreement duly executed by Buyer.
(i) OTHER AGREEMENTS. Counterparts of such of the closing
documents of Seller as shall require acceptance by Buyer including,
without limitation, the Hafener Employment Agreement and the Pyle
Non-Compete Agreement.
(j) RESOLUTIONS. Copies of the text of the resolutions by
which the corporate action on the part of Buyer necessary to approve
this Agreement and the transaction contemplated herein were taken and a
certificate executed on behalf of Buyer by its corporate secretary or
one of its assistant corporate secretaries certifying to Seller that
such copy is a true, correct, and complete copy of such resolutions and
that such resolutions were duly adopted and have not been amended or
rescinded.
(k) OTHER DOCUMENTS. Such other documents as Seller or their
counsel may reasonably request in order to effectuate the transactions
contemplated under this Agreement.
8.5 TRANSFER FEES, TITLE COSTS, AND CLOSING COSTS AND OTHER FEES;
PRORATIONS.
(a) TITLE POLICY FEES. Seller will pay the entire premium for
each Title Policy.
(b) DOCUMENTARY TAXES AND TRANSFER TAXES. Seller will pay any
documentary transfer tax, stamp tax, real estate conveyance tax or
similar tax or fee due and payable in connection with this transaction.
(c) RECORDING AND OTHER FEES. Recording fees for the grant
deed, if any, will be paid by Seller. Seller shall also pay all fees
and expenses, including assumption and transfer fees actually incurred
by Seller in obtaining any consents and approvals required to be
obtained by Seller under this Agreement or otherwise in consummating
the transactions contemplated by this Agreement; (provided nothing
herein shall require Seller to pay any cost or incur any expense with
respect to (i) HSR Act notification or consent requirements, (ii)
Buyer's organizational approvals or consents, or (iii) the assumption
of any loan or waiver of any due-on sale clause by any lender, and
provided, further, that wherever this Agreement may require exercise of
"best efforts" to obtain a consent it shall not be deemed
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to impose upon Seller a duty to pay any consideration, fee or other sum
of an inducement nature to such party).
(d) PRORATIONS.
(i) TAXES AND ASSESSMENTS. Real estate ad valorem
taxes and assessments, utilities, rents, and payments on
Acquired Contracts will be prorated as of the Closing Date,
based upon the most current information then available. If, at
the Closing, actual tax or assessment information is not
available, then, following the Closing and within twenty (20)
days of receipt by either Buyer or Seller of the actual tax or
assessment information, Buyer and Seller will re-prorate real
estate taxes and assessments among themselves and make any
necessary adjusting payments.
(ii) BASIS OF PRORATIONS. All prorations and/or
adjustments called for in this Agreement will be made on the
basis of a 30-day month unless otherwise specifically
instructed in writing by Seller and Buyer.
(e) TAXES. Seller shall pay any sales or similar taxes or
assessments relating to the sale of the Acquired Assets by Seller to
Buyer.
(f) OTHER FEES. Subject to Section 6.2 and except as otherwise
specifically provided in this Agreement, each party shall bear its own
legal and accounting fees and other expenses relating to the
transactions contemplated by this Agreement.
ARTICLE 9
INDEMNITIES
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
investigation at any time made by or on behalf of any party hereto, or of any
information any party may have in respect thereof, all representations, and
warranties made hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall survive the Closing.
9.2 NATURE OF STATEMENTS. All statements contained herein, in any
Schedule or Exhibit hereto, or in any certificate or other written instrument
delivered by or on behalf of Seller, Shareholders, Partners or Buyer pursuant to
this Agreement, or in connection with the transactions contemplated hereby,
shall be deemed representations and warranties by Seller, Shareholders,
Partners, or Buyer, as the case may be.
9.3 INDEMNIFICATION OF PARTIES. After the Closing, the parties agree
that the Indemnification Agreement shall contain the sole and exclusive remedies
of the parties hereunder for any breach of any representation or warranty (and
certain covenants as referenced in the Indemnification Agreement) made by the
parties under this Agreement.
9.4 ARBITRATION. Except for the provisions of the Indemnification
Agreement which shall govern certain rights and remedies of the Parties after
Closing, any other dispute, controversy or claim, whether contractual or
non-contractual, between Buyer and Seller or Shareholders arising
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directly or indirectly out of or connected with this Agreement, relating to the
breach or alleged breach of any representation, warranty, agreement, or covenant
under this Agreement or otherwise relating to this Agreement (including the
Earn-Out provisions) unless mutually settled by Buyer and Seller or
Shareholders, shall be resolved in accordance with the Dispute Resolution
Procedures attached as EXHIBIT B, except for the Accounting Arbitration
procedures which shall apply where applicable.
ARTICLE 10
TERMINATION/REMEDIES
10.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing:
(a) By mutual written consent of duly authorized officers of
Buyer and Seller;
(b) By either Buyer or Seller if the other party breaches any
of its material representations, warranties, or covenants contained
herein and, if such breach is curable, such breach is not cured within
ten (10) business days after notice thereof and the notifying party is
not then in a similar breach situation; , subject, however, to the
following: (i) Buyer shall not terminate this Agreement or be entitled
to any other remedy (other than a Closing Balance Sheet adjustment to
the Asset Value) by reason of any breach of representation or warranty
by Seller, Partners or Shareholders which is discovered prior to the
Closing, unless the loss attributable to such breach exceeds $250,000,
in the aggregate; (ii) if the amount at issue in such breach or
breaches exceeds $250,000 but is less than $500,000, then Buyer, as
Buyer's sole and exclusive remedy, may either cancel this Agreement or
require that Seller absorb the first $250,000 of such amount plus
one-half of such amount over $250,000 (not to exceed $125,000) as an
adjustment to the Purchase Price but only to the extent such
adjustments would otherwise not be accounted for by the adjustments of
the Asset Value; and (iii) if the amount at issue in such breach or
breaches is more than $500,000, then Buyer, as Buyer's sole and
exclusive remedy, or Seller as its sole and exclusive remedy, may
terminate this Agreement. Upon termination of this Agreement by Buyer
or Seller pursuant to Section 10.1(b)(iii), Seller shall pay a
termination fee of $250,000 to Buyer.
(c) By Buyer, no later than June 22, 1998, if in its sole and
absolute discretion it is not satisfied with its due diligence
investigation; or
(d) By Seller, by June 22, 1998, if it is not satisfied in its
sole and absolute discretion that it will receive all consents and
approvals set forth in SCHEDULE 4.5 prior to Closing.
10.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in SECTION 10.1(A), (B), (C) OR (D), this Agreement shall
become void and there shall be no liability or further obligation hereunder on
the part of Buyer or Seller or their respective shareholders, partners,
officers, or directors, except (i) Buyer shall continue to be obligated under
its indemnity obligations in Section 6.9 above, (ii) each party shall remain
obligated for its obligations under Section 6.5, and
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(iii) the parties shall have the obligations set forth in the Stock Purchase
Agreement. Without limiting the generality of the foregoing, Seller shall have
no liability for the $250,000 termination fee, except such termination fee
obligations shall continue if the cancellation is by reason of Seller's election
to cancel under Section 10.1(b)(iii) only. If Seller elects to cancel this
Agreement pursuant to Section 10.1(b)(iii) and within twelve months of May 1,
1998, Seller or L&R signs a letter of intent or other agreement relating to the
acquisition of a material portion of its assets or business, in whole or in
part, including the assets of L&R whether through direct purchase, merger,
consolidation, or other business combination and such transaction is ultimately
consummated, then immediately upon such closing, Seller shall pay Buyer the
Break-Up Fee.
10.3 SELLER' REMEDIES.
(a) If Buyer fails to close the transactions contemplated
hereby after confirmation of its due diligence review, Seller's,
Shareholders', and Partners' sole and exclusive remedy will be to
cancel this Agreement, such cancellation to be effective immediately
upon such parties giving written notice of cancellation to Buyer.
(b) Upon cancellation of this Agreement pursuant to Section
10.3(a), then any obligation of Seller for the Breakup Fee shall be
deemed extinguished and canceled and there shall be no further
liability on the part of Buyer or Seller or their respective
shareholders, partners, officers or directors except (i) Buyer shall
continue to be obligated under its indemnity obligations under Section
6.9 above, (ii) each party shall be obligated for it obligations under
Section 6.5, (iii) the parties shall have the obligations provided in
the Stock Purchase Agreement, and (iv) Buyer shall pay to Seller a
$250,000 termination fee, as Sellers's sole and exclusive remedies.
10.4 BUYER'S REMEDIES.
(a) Other than as provided in Section 10.1 hereto, if after
June 22, 1998, but prior to the Closing Seller, Shareholders, or
Partners fail to perform when due any act required by this Agreement to
be performed or otherwise breaches this Agreement in any material
respect, then Buyer's sole and exclusive remedy will be to cancel this
Agreement, such cancellation to be effective immediately upon Buyer
giving written notice of cancellation to Seller.
(b) Upon a cancellation of this Agreement pursuant to Section
10.4(a), Seller agrees to pay to Buyer a termination fee of $250,000.
In addition, if within twelve months of May 1, 1998, Seller or L&R
signs a letter of intent or other agreement relating to the acquisition
of a material portion of its assets or business, in whole or in part,
including the assets of L&R whether through direct purchase, merger,
consolidation, or other business combination and such transaction is
ultimately consummated, then immediately upon such closing, Seller
shall pay Buyer the Break-Up Fee.
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ARTICLE 11
GENERAL PROVISIONS
11.1 NOTICES. All notices, consents, and other communications hereunder
shall be in writing and deemed to have been duly given when (a) delivered by
hand, (b) sent by telecopier (with receipt confirmed), provided that a copy is
mailed by registered mail, postage pre-paid return receipt requested, or (c)
when received by the addressee, if sent by Express Mail, Federal Express, or
other express delivery service (postage pre-paid return receipt requested), in
each case to the appropriate addresses and telecopier numbers set forth below
(or to such other addresses and telecopier numbers as a party may designate as
to itself by notice to the other):
If to Buyer: Monterey Homes Corporation
6613 North Scottsdale Road, Suite 200
Scottsdale, Arizona 85250
Phone: (602) 998-8700
FAX: (602) 998-9162
Attn: Chief Financial Officer
With a copy to: Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
Phone: (602) 382-6252
FAX: (602) 382-6070
Attn: Steven D. Pidgeon, Esq.
If to Seller, Hafener, or Sterling Communities
SH Capital 1655 N. Main Street, Suite 240
Walnut Creek, California 94596
Phone: (925) 935-0823
FAX: (925) 935-0823
Attn: Mr. Steve Hafener
If to Pyle or SFI W. Leon Pyle
3559 South Silver Springs Road
Lafayette, California 94549
Phone (925) 283-7271
Fax: (925) 283-9026
With a copy to: Miller Starr & Regalia
1331 N. California Blvd., Suite 500
Walnut Creek, California 94596
FAX: (925) 933-4126
Phone: (925) 935-9400
Attn: Karl Geier, Esq.
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11.2 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each counterpart shall constitute an original instrument, but
all such separate counterparts shall constitute one and the same agreement.
11.3 GOVERNING LAW. The validity, construction, and enforceability of
this Agreement shall be governed in all respects by the laws of the State of
California, without regard to its conflict of laws rules.
11.4 ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise, except that Buyer may assign all or any portion of its rights
under this Agreement to any wholly owned subsidiary, but no such assignment
shall relieve Buyer or its Corporate Successor (as herein defined) of its
primary liability for all obligations of Buyer hereunder, and except that this
Agreement may be assigned by operation of law to any corporation or entity (a
"Corporate Successor") with or into which Buyer may be merged or consolidated or
to which Buyer transfers all or substantially all of its assets, and such
corporation or entity assumes this Agreement and all obligations and
undertakings of Buyer hereunder. Any assignment in violation of the provisions
of this Agreement shall be null and void.
11.5 GENDER AND NUMBER. The masculine, feminine, or neuter pronouns
used herein shall be interpreted without regard to gender, and the use of the
singular or plural shall be deemed to include the other whenever the context so
requires.
11.6 SCHEDULES AND EXHIBITS. The Schedules and Exhibits referred to in
this Agreement and attached to this Agreement are incorporated in this Agreement
by such reference as if fully set forth in the text of this Agreement. At
Closing, Seller shall update all Schedules, specifically identifying any
variance from the original Schedules delivered hereunder.
11.7 WAIVER OF PROVISIONS. The terms, covenants, representations,
warranties, and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time to require performance of any provisions hereof shall, in no manner,
affect the right at a later date to enforce the same. No waiver by any party of
any condition, or breach of any provision, term, covenant, representation, or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation, or warranty of this Agreement.
11.8 COSTS. If any legal action or any arbitration or other proceeding
is brought for the enforcement of this Agreement, or because of an alleged
dispute, breach, default, or misrepresentation in connection with any of the
provisions of this Agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees, accounting fees, and
other costs incurred in that action or proceeding, in addition to any other
relief to which it or they may be entitled.
11.9 AMENDMENT. This Agreement may not be amended except by an
instrument in writing approved by the parties to this Agreement and signed on
behalf of each of the parties hereto.
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11.10 SEVERABILITY. If any term, provision, covenant, or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired, or invalidated and the court shall modify this
Agreement or, in the absence thereof, the parties shall negotiate in good faith
to modify this Agreement to preserve each party's anticipated benefits under
this Agreement.
11.11 EXTENT OF OBLIGATIONS. All covenants, representations,
warranties, indemnities, and agreements made by Seller, Shareholders, and
Partners shall be deemed joint and several as to each of them, except as
otherwise provided herein.
11.12 BINDING EFFECT. Subject to the provisions and restrictions of
Section 11.4, the provisions of this Agreement are binding upon and will inure
to the benefit of the parties and their respective heirs, personal
representatives, successors and assigns.
11.13 CONSTRUCTION. References in this Agreement to "Sections",
"Articles", "Exhibits", and "Schedules" are to the Sections and Articles in, and
the Exhibits and Schedules to, this Agreement, unless otherwise noted.
11.14 TIME PERIODS. Except as expressly provided for in this Agreement,
the time for performance of any obligation or taking any action under this
Agreement will be deemed to expire at 5:00 o'clock p.m. (Phoenix, Arizona time)
on the last day of the applicable time period provided for in this Agreement. If
the time for the performance of any obligation or taking any action under this
Agreement expires on a Saturday, Sunday or legal holiday, the time for
performance or taking such action will be extended to the next succeeding day
which is not a Saturday, Sunday or legal holiday.
11.15 HEADINGS. The headings of this Agreement are for purposes of
reference only and will not limit or define the meaning of any provision of this
Agreement.
11.16 ENTIRE AGREEMENT. This Agreement, which includes the following
Exhibits and Schedules:
Exhibit A Dispute Resolution Procedures
Exhibit B Indemnification Agreement
Exhibit C Hafener Employment Agreement
Exhibit D Pyle Non-Compete Agreement
Exhibit E Bill of Sale and Assumption
Exhibit F Stock Purchase Agreement
Schedule 2.1(a) Sterling Real Property
Schedule 2.1(b) Sterling Acquired Contracts
Schedule 2.1(c) List of Sterling Approvals, Permits, Etc.
Schedule 2.1(d) List of Sterling Equipment, Fixtures,
Furnishings, and other Personal
Property
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Schedule 2.1(f) Sterling Prepaid Expenses
Schedule 2.1(i)(i) L&R Real Property
Schedule 2.1(i)(ii)(A) and (C) L&R Acquired Contracts
Schedule 2.1(i)(iv) List of L&R Equipment, Fixtures,
Furnishings, and other Personal
Property
Schedule 2.1(i)(v) List of L&R Approvals, Permits, Etc.
Schedule 2.1(i)(vi) L&R Prepaid Expenses
Schedule 2.4(c)(i) Preliminary Balance Sheet
Schedule 2.6 Allocation to Goodwill
Schedule 3.7 Buyer's Material Adverse Changes
Schedule 4.4 Conflicts
Schedule 4.5 Consents and Approvals
Schedule 4.7 Ownership Interests
Schedule 4.8 Financial Statements
Schedule 4.9 Liabilities
Schedule 4.10 Seller's Material Adverse Changes
Schedule 4.11 Certain Developments
Schedule 4.12 Permitted Liens
Schedule 4.15 Owned Project Matters
Schedule 4.16 New Project Matters
Schedule 4.17 Other Project Matters
Schedule 4.18 Acquired Contract Matters
Schedule 4.19 Warranty Matters
Schedule 4.20 Environmental Matters
Schedule 4.21 Tax Matters
Schedule 4.23 Intellectual Property
Schedule 4.24 Litigation
Schedule 4.25 Employees
Schedule 4.26 ERISA Matters
Schedule 4.28 Insurance Policies
Schedule 4.29 Affiliate Matters
Schedule 4.30 Violations
Schedule 4.31 Permits
constitutes the entire agreement between the parties pertaining to the subject
matter contained in this Agreement. All prior and contemporaneous agreements,
representations and understandings of the parties, oral or written, are
superseded by and merged in this Agreement. No supplement, modification or
amendment of this Agreement will be binding unless in writing and executed by
the parties to this Agreement.
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IN WITNESS WHEREOF, Buyer, Seller, Partners, and Shareholders have
caused this Agreement to be executed on the date first written above by their
respective officers thereunder duly authorized.
MONTEREY HOMES CORPORATION,
a Maryland corporation
By: /s/ Larry W. Seay
---------------------------------
Name: Larry W. Seay
-------------------------------
Title: Vice President
------------------------------
STERLING COMMUNITIES,
a California general partnership
By: S.H. CAPITAL, INC., a California
corporation
By: /s/ Steve Hafener
------------------------------
Steve Hafener, President
By: STERLING FINANCIAL
INVESTMENTS, INC., a California
corporation
By: /s/ W. Leon Pyle
------------------------------
W. Leon Pyle, President
STERLING FINANCIAL
INVESTMENTS, INC.,
a California corporation
By: /s/ W. Leon Pyle
---------------------------------
Name: W. Leon Pyle
-------------------------------
Title: President
------------------------------
S.H. CAPITAL, INC.,
a California corporation
By: /s/ Steve Hafener
---------------------------------
Name: Steve Hafener
-------------------------------
Title: President
------------------------------
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/s/ Steve Hafener
-----------------------------------
STEVE HAFENER
/s/ W. Leon Pyle
-----------------------------------
W. LEON PYLE
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EXHIBIT A
DISPUTE RESOLUTION PROCEDURES
All claims, disputes and other matters in controversy (herein called
"dispute") arising directly or indirectly out of or related to this Agreement,
or the breach thereof, whether contractual or noncontractual, and whether during
the term or after the termination of this Agreement, shall be resolved
exclusively according to the procedures set forth in this EXHIBIT A.
A. NEGOTIATION. The parties shall attempt to settle disputes arising
out of or relating to this Agreement or the breach thereof by a meeting of two
designated representatives of each party within five (5) days after a request by
either of the parties to the other party asking for the same.
B. MEDIATION. If such dispute cannot be settled at such meeting either
party within five (5) days of such meeting may give a written notice (a "DISPUTE
NOTICE") to the other party setting forth the nature of the dispute. The parties
shall attempt in good faith to resolve the dispute by mediation in San
Francisco, California under the Commercial Mediation Rules of the American
Arbitration Association ("AAA") in effect on the date of the Dispute Notice. The
parties shall select a person who will act as the mediator under this Paragraph
B within 60 days of the date of the Agreement. If the dispute has not been
resolved by mediation as provided above within thirty (30) days after delivery
of the Dispute Notice, then the dispute shall be determined by arbitration in
accordance with the provisions of Paragraph C hereof.
C. ARBITRATION. Any dispute that is not settled through mediation as
provided in Paragraph B above shall be resolved by arbitration in Phoenix,
Arizona, governed by the Federal Arbitration Act, 9 U.S.C. ss. 1 et seq, and
administered by the AAA under its Commercial Arbitration Rules in effect on the
date of the Dispute Notice, as modified by the provisions of this Section C, by
a single arbitrator. The arbitrator selected, in order to be eligible to serve,
shall be a lawyer with at least 15 years experience specializing in either
general commercial litigation or general corporate and commercial matters. In
the event the parties cannot agree on a mutually acceptable single arbitrator
from the list submitted by the AAA, the AAA shall appoint the arbitrator who
shall meet the foregoing criteria. The arbitrator shall base the award on
applicable law and judicial precedent and, unless both parties agree otherwise,
shall include in such award the findings of fact and conclusions of law upon
which the award is based. Judgment on the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof.
Notwithstanding the foregoing:
(a) Upon the application by either party to a court for an
order confirming, modifying or vacating the award, the court shall have the
power to review whether, as a matter of law based on the findings of fact
determined by the arbitrator, the award should be confirmed, modified or vacated
in order to correct any errors of law made by the arbitrator. In order to
effectuate such judicial review limited to issues of law, the parties agree (and
shall stipulate to the court) that the findings of fact made by the arbitrator
shall be final and binding on the parties and shall serve as the facts to be
submitted to and relied on by the court in determining the extent to which the
award should be confirmed, modified or vacated.
<PAGE>
(b) Either party shall have the right to apply to any court
for an order to enforce any of the ownership and confidentiality provisions
contained in the Agreement.
D. COSTS AND ATTORNEYS' FEES. If either party fails to proceed with
mediation or arbitration as provided herein or unsuccessfully seeks to stay such
mediation or arbitration, or fails to comply with any arbitration award, or is
unsuccessful in vacating or modifying the award pursuant to a petition or
application for judicial review, the other party shall be entitled to be awarded
costs, including reasonable attorneys' fees, paid or incurred by such other
party in successfully compelling such arbitration or defending against the
attempt to stay, vacate or modify such arbitration award and/or successfully
defending or enforcing the award.
E. TOLLING OF STATUTE OF LIMITATIONS. All applicable statutes of
limitations and defenses based upon the passage of time shall be tolled while
the procedures specified in this EXHIBIT A are pending. The parties will take
such action, if any, required to effectuate such tolling.
May 19. 1998
Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
Dallas, Texas 75225
Re: Modification and $10,000,000.00 increase of an existing $40,000,000.00
guidance line from Guaranty Federal Bank, F.S.B. (Lender") to
Legacy/Monterey Homes L.P., an Arizona corporation ("Borrower'); such
loan and other indebtedness being guaranteed by Monterey Homes
Corporation, a Maryland corporation, MTH-Texas UP, Inc., an Arizona
corporation and MTH-Texas LP, Inc., an Arizona corporation
(collectively referred to as "GUARANTOR")
Gentlemen:
Reference is made to that certain Master Loan Agreement dated as of
January 31, 1993 (and all amendments thereto, if any) (the "LOAN AGREEMENT")
between Lender and Borrower governing a $40,000,000.00 loan (as increased) (the
"Loan") for the acquisition and/or refinancing of residential lots located in
certain counties in the State of Texas as described therein, and the
construction of single-family residences thereon. Unless otherwise expressly
defined herein, each term used herein with its initial letter capitalized shall
have the meaning given to such term in the Loan Agreement. As used in this
letter agreement, the term "LOAN INSTRUMENTS" shall mean and include (i) the
`Loan Instruments" as defined in the Loan Agreement, (ii) the Second
Modification Agreement dated as of the date hereof, executed by and between the
parties hereto, and (iii) this letter agreement and all other documents executed
in conjunction herewith (and all amendments thereto, if any).
Borrower and Lender desire to increase the Loan Amount to the stated
principal amount of $50,000,000.00 and to amend and modify certain terms and
provisions of the Loan and the Loan Instruments as follows:
1. The Loan Amount is hereby increased from $40,000,000.00 to
$50,000,000.00. All references in the Loan Instruments to the amount of
$40,000,000.00 are hereby increased to $50,000,000.00.
2. The stated maturity date of the Note is hereby extended to and
including July 31, 1999, when the entire unpaid principal balance of the Note,
together with all accrued and unpaid interest shall be due and payable;
provided, however, such date may be extended as set forth in PARAGRAPH 9 of the
Loan Agreement (as amended hereby).
3. EXHIBIT A to the Loan Agreement is hereby modified by deleting such
exhibit in its entirety and replacing it with EXHIBIT A attached hereto.
<PAGE>
Guaranty Federal Bank. F.S.B.
May 19. 1998
Page 2
4. All Loan Instruments hereby are amended and modified in a manner
consistent with the modifications, terms and/or provisions contained herein.
Except as modified hereby, all the terms, provisions and conditions of the Loan
Instruments shall remain in full force and effect.
5. The terms and provisions of this letter agreement may not be
modified, amended. altered or otherwise affected except by instrument in writing
executed by Lender and Borrower.
6. Each Guarantor by its execution hereof agree to the amendments and
modifications to the Loan Instruments set forth herein and in the prior
amendments and modifications to the Loan Instruments and agree that all of such
modifications do not and will not waive, release or in any manner modify either
Guarantor's obligations and liabilities under and pursuant to the Guaranty.
(The balance of this page is intentionally left blank.)
<PAGE>
Guaranty Federal Bank. F.S.B.
May 19, 1998
Page 3
If this letter agreement correctly sets forth our understanding of the
subject matter contained herein. please indicate this by executing this letter
agreement in the space furnished below and then return a fully-executed copy to
the undersigned.
Very truly yours,
BORROWER:
---------
LEGACY/MONTEREY HOMES L.P.,
an Arizona limited partnership
BY: MTH-TEXAS GP, INC.,
an Arizona corporation,
General Partner
By: /s/ Rick Morgan
-----------------------------
Name: Rick Morgan
------------------------
Title: Vice President
-----------------------
GUARANTOR:
----------
MONTEREY HOMES CORPORATION,
a Maryland corporation
By: /s/ John R. Landon
---------------------------------
Name: John R. Landon
----------------------------
Title: Co-Chief Executive Officer
---------------------------
MTH-TEXAS GP, INC.,
an Arizona corporation,
By: /s/ Rick Morgan
---------------------------------
Name: Rick Morgan
----------------------------
Title: Vice President
---------------------------
<PAGE>
Guaranty Federal Bank. F.S.B.
May 19, 1998
Page 4
MTH-TEXAS LP, INC.,
an Arizona corporation,
By: /s/ Rick Morgan
-------------------------------
Name: Rick Morgan
--------------------------
Title: Vice President
-------------------------
ACCEPTED AND AGREED TO:
LENDER:
- -------
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By: /s/ Sam A. Meade
------------------------------
Name: Sam A. Meade
-------------------------
Title: Vice President
------------------------
<PAGE>
EXHIBIT A
---------
TO LOAN AGREEMENT
1. Introductory Paragraph. RESIDENCE AND INVENTORY LOT LIMITATIONS. At any
given time. Residences and Inventory Lots financed under the Loan shall be
limited to the following numbers, unless modified by Lender in writing:
Total Residences: Six Hundred Twenty-five (625).
Specs: Eighty (8O).
Models: Forty-five (45).
Inventory Lots: Two Hundred Fifty (250).
Borrower may increase the number of Specs allowed above by the same number
by which Borrower is short of Models allowed above. Borrower covenants and
agrees not to allow, and is prohibited from allowing, any more than ten
(IC) Specs or three (3) Models to exist in any Approved Subdivision (as
hereinafter defined).
The outstanding aggregate amount of the Loan Allocations for all Specs and
Models at any time shall never exceed $12,000,000.00.
The outstanding aggregate amount of the Loan Allocations for all Inventory
Lots at any time shall never exceed $4,000,000.00.
The term "SPECS" means a Residence which is not a Model and is not Under
Contract. The term "MODEL" means a Residence specifically utilized for the
purposes of marketing other residential products. The term "UNDER CONTRACT"
shall mean Residences under written contract to sell to bona fide third
parties unrelated to Borrower, having no contingency or any other
conditions not reasonably susceptible to being satisfied, providing for
earnest money deposits of at least $2,000.00, and for which Lender has
received preliminary loan approval from a bona fide residential permanent
lender.
The term "INVENTORY RESIDENCE" means any Residence which is not a Model.
2. Introductory Paragraph. APPROVED SUBDIVISIONS. The following subdivisions
and any additional subdivisions approved in writing by Lender (the
"APPROVED SUBDIVISIONS") are approved by Lender for the Residences and
Inventory Lots:
SUBDIVISION COUNTY
----------- ------
Stone Canyon (Fern Bluff) Williamson
Oakmont Forest Williamson
Settlers Ridge/Creekside Travis
Round Rock Ranch Williamson
The Meadows (Thunderbird Est.) Collin
Brighton Estates - Arlington Tarrant
Bristol Park (Fountain Creek) Collin
Chase-Oaks Collin
Cottonwood Bend Collin
Country Club Park Dallas
Creekwood Estates Denton
Crestwood Collin
Cross Creek West Collin
Eden Road Estates Tarrant
El Dorado Heights Collin
Heritage Park - Allen Collin
Highland Parkway Collin
Hillcrest Estates Collin
Hunters Glen Collin
EXHIBIT A, - Page 1
<PAGE>
Independence Hill Collin
Meadow Glen PH 11B Denton
Oakwood Glen Collin
Orchard Valley Estates Denton
Parkdale - PIano Collin
Shadow Lakes Collin
Shadow Lakes North Collin
Lakes of Valley Ranch Dallas
Vista Ridge Estates Denton
Windhaven Farms (Carelle Custom) Collin
Ravenglass Estates Collin
Frankford Meadows Dallas
Hunter Trail Tarrant
Fossil Beach Tarrant
3. Introductory Paragraph. APPROVED PRICE RANGE. The Residences shall be in
the $70,000.00 to $350,000.00 price range.
4. Paragraph 1(c). GUARANTOR. Guarantor of the Loan shall be: Monterey Homes
Corporation, a Maryland corporation; MTH-Texas G.P., Inc., an Arizona
corporation; and MTH-Texas L.P., Inc., an Arizona corporation.
5. Paragraph 2(h). LOAN FINANCE CHARGE. None.
6. Paragraph 2(k) and 6(g). INSPECTION FEE. An inspection fee of $30.00 per
Residence shall be paid to Lender on the day the Mortgage pertaining to
such Residence is recorded in the Real Property Records.
7. Paragraph 4(c). LOAN RATIOS. The Loan Allocation shall not exceed the
lesser of (1) one hundred percent (100%) of the direct costs of a Property,
as determined by Lender or, (2) seventy percent(70%) of the lowest of the
values as provided in PARAGRAPH 4(C) (I), (II' AND (iii) of this Loan
Agreement.
8. Paragraph 6(q). OTHER ENTITIES. The Mortgages shall additionally secure all
other indebtedness now or hereafter owed by the following entities to
Lender: None.
9. Paragraph 6(s). REQUIRED RELEASES. Borrower shall cause: (a) Inventory
Residences to be released from a Mortgage nine (9) months from the day such
Mortgage is recorded in the Real Property Records, (b) Models to be
released from a Mortgage twenty-four (24) months from the day such Mortgage
is recorded in the Real Property Records, and (c) Inventory Lots to be
released from a Mortgage twelve (12) months from the day such Mortgage is
recorded in the Real Property Records; provided, however, if no default
then exists under any Loan Instruments, Lender may, at its option, extend
the Required Release Date for periods of three (3) months (the `EXTENDED
RELEASE DATE") provided, such Extended Release Date shall in no event go
beyond the Stated Maturity Date (as hereinafter defined) or the Extended
Maturity Date (as hereinafter defined), if applicable.
10. Paragraph 7. REQUIRED PRINCIPAL REDUCTIONS. Prior to the date that Lender
gives Borrower the notice described in PARAGRAPH 4(FL above, the following
shall apply: in the event a Property has been granted an Extended Release
Date (as provided in PARAGRAPH 9 of this EXHIBIT A) and a Mortgage remains
covering such Property beyond the following periods from the date such
Mortgage is recorded, then Borrower shall make a principal payment of the
Note in an amount equal to ten percent (10%) of the Loan Allocation with
respect to such Property (and the Loan Allocation for such Property shall
be reduced by the same amount). as determined by Lender:
Inventory Residences: Fifteen (15) months.
Models: Twenty-four (24) months.
Inventory Lots: Twelve (12) months.
EXHIBIT A, - Page 2
<PAGE>
From and after the date that Lender gives Borrower the notice described in
PARAGRAPH 4 (F) of the Loan Agreement, the following shall apply: in the
event a Property has been granted an Extended Release Date, as provided in
PARAGRAPH 9 of this EXHIBIT A. Borrower shall make a principal payment on
the Note of ten percent (10%) of that portion of the Loan advanced by
Lender for such Propert5. within the Following periods From the date a
Mortgage covering such Property is recorded in the Real Property Records:
Inventory Residences: Fifteen (IS) months.
Models: Twenty-four (24) months.
Inventory Lots: Twelve (12) months.
11. Paragraph 9. MATURITY AND EXTENSION. The maturity date of the Note shall be
the later of the maturity date as provided in the Note (July 31, 1999) (the
"STATED MATURITY Date"), or nine (9) months after the recording in the Real
Property Records of the last Mortgage (the "EXTENDED MATURITY DATE")
approved by Lender and recorded prior to the expiration of the Stated
Maturity Date. After the Stated Maturity Date, no additional Mortgage shall
be recorded.
12. Paragraph 10. ADDITIONAL DEFAULTS. In addition to the events of default
stipulated in the Loan Instruments, it shall be a default under this Loan
Agreement if Borrower fails to comply with any of the following: None.
13. Paragraph 11 ADDITIONAL LOAN COVENANTS. Borrower shall fully perform and
satisfy the following "ADDITIONAL LOAN COVENANTS":
(a) The aggregate net worth of Borrower (determined in accordance with
generally accepted accounting principles, consistently applied)
shall not fall below $7,500,000.00.
(b) The ratio of total liabilities to equity (as determined by Lender)
shall not exceed 4.0 to 1.0.
(c) John Landon shall at all times retain management control of
Borrower.
(d) In no event shall Monterey Homes Corporation, a Maryland
corporation, be in default under any secured indebtedness.
If Borrower or Guarantor (if applicable to Guarantor) breaches any of the
Additional Loan Covenants then, at Lender's election, no additional
Mortgages shall be recorded in the Real Property Records; provided,
however, that a breach of any Additional Loan Covenants shall not be
considered a default under the Loan Instruments.
14. Paragraph 16(d). RELEASE PRICE. The partial release price shall be a cash
amount equal to the Loan Allocation for the Property multiplied by the
Stage (expressed as a percentage) of the Property, all as determined by
Lender; provided, however, if Lender shall have given Borrower the notice
described in PARAGRAPH 4(F) of the Loan Agreement, then the partial release
price shall be an amount in cash equal to one hundred and one hundred
percent (100%) of the outstanding balance of the Loan advanced by Lender
for the Property.
15. Paragraph 16(e). EXTENSION FEE. If Lender extends the Required Release
Date. as provided in Paragraph 9 of this Exhibit A Borrower shall pay to
Lender an extension fee of one percent (1%) of that portion of the Loan
advanced by Lender for each such Property times a fraction, the numerator
of which is the number of days the Required Release Dare is extended and
the denominator of which is 365.
EXHIBIT A, - Page 3
<PAGE>
SECOND MODIFICATION AGREEMENT
-----------------------------
This SECOND MODIFICATION AGREEMENT (this `Agreement') is made and
entered into as of May 19, 1998, by and between LEGACY/MONTEREY HOMES L.P., an
Arizona limited partnership ("Borrower"), and GUARANTY FEDERAL BANK, F.S.B., a
federal savings bank organized and existing under the laws of the United States
("Lender").
W I T N E S S E T H:
WHEREAS, pursuant to a certain Master Loan Agreement (the "Loan
Agreement") dated as of January 31, 1993, between Lender and Borrower, Lender
made a loan (the "Loan") to Borrower, evidenced by a certain Revolving
Promissory Note (the "Note") dated as of January 31, 1993, payable to Lender in
the stated principal amount of FORTY MILLION AND NO/100 DOLLARS
($40,000,000.00)(as increased), with interest and principal payable as set forth
therein; and
WHEREAS, to secure the Note and Loan, Master Form Deed(s) of Trust
(With Security Agreement and Assignment of Rents and Leases) (hereinafter
collectively referred to as the "Master Deeds of Trust," whether one or more),
which Master Deeds of Trust have been recorded in certain counties in the State
of Texas as more particularly described on Exhibit A attached hereto; and which
Master Deeds of Trust are incorporated by reference pursuant to the terms and
provisions of certain Deeds of Trust Incorporating by Reference a Master Form
Deed of Trust (With Security Agreement and Assignment of Rents and Leases)
(hereafter collectively referred to as the `Supplemental Deeds of Trust,"
whether one or more) recorded in such counties and encumbering certain real and
other property (the "Property") described in such Supplemental Deeds of Trust
(such Master Deeds of Trust and Supplemental Deeds of Trust hereafter
collectively referred to as the "Deeds of Trust whether one or more); and
WHEREAS, the Deeds of Trust were modified pursuant to a Modification
Agreement (the "First Modification") dated ___________, 1997, and recorded in
various counties in Texas, which First Modification modified certain terms and
provisions of the Loan as set forth therein; and
WHEREAS, the Note and the Loan are guaranteed pursuant to that certain
Guaranty Agreement dated as of June 30, l997 (the `Guaranty'), executed by
MTH-Texas GP, Inc., an Arizona corporation, MTH-Texas LP, Inc., an Arizona
corporation, and Monterey Homes Corporation, a Maryland corporation
("Guarantor," whether one or more); and
WHEREAS, the Loan Agreement, the Note, the First Modification, the
Deeds of Trust and all other documents evidencing and/or securing the Loan are
hereinafter collectively called the "Loan Instruments"; and
WHEREAS, Lender, the owner and holder of the Note and the Deeds of
Trust and all rights and titles evidenced thereby, and Borrower, the record
owner of the Property and being liable for the payment of the Note and Loan,
desire to modify the Loan Instruments as herein provided
NOW, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. The stated maturity date of the Note is hereby extended to and
including July 31, 1999, when the entire unpaid principal balance of the Note,
together with all accrued and
SECOND MODIFICATION AGREEMENT - Page 1
- -----------------------------
<PAGE>
unpaid interest shall be due and payable: provided, however, such date may be
extended as set forth in the Loan Agreement.
2. The Loan is hereby increased from $40,000,000 to 50,000,000.00 All
references in the Loan Instruments to the amount of 40,000,000.00 are hereby
increased to 50,000,000.00
3. Borrower shall execute and deliver to Lender a letter agreement (in
form and substance satisfactory to Lender in its sole discretion) (the "Letter
Agreement") dated as of the date hereof amending certain other terms and
provisions of the Loan Instruments. (Hereafter. this Agreement and the Letter
Agreement shall be included in the defined term "Loan Instruments.")
4. Borrower acknowledges and agrees, that as an accommodation to
Borrower. Exhibit A hereto (which exhibit describes the recording information of
the Master Deeds of Trust) shall be attached to this Agreement (and to any and
all other documents which may require the attachment of a description of the
recording information of the Master Deeds of Trust) after Borrower's execution
of same. Accordingly, Borrower hereby authorizes and directs Lender to attach
such Exhibit A to this Agreement.
5. Notwithstanding anything to the contrary contained in the Deeds of
Trust or other Loan Instruments, with respect to any amendment to the Master
Deeds of Trust, the following terms and provisions shall apply:
With respect to any amendment or modification of the Master Deeds of
Trust now or hereafter executed by Borrower (or any future owner of the
Property if different from Borrower) and duly recorded in the
appropriate official public records, Borrower acknowledges and agrees
that such amendment or modification of the Master Deeds of Trust shall
constitute an amendment or modification to the terms and provisions of
any such Supplemental Deeds of Trust (and shall be incorporated into
any such Supplemental Deeds of Trust and made a part thereof for all
purposes, as though such amendment or modification of the Master Deeds
of Trust specifically referred to such Supplemental Deeds of Trust)
without the necessity of any specific reference in such amendment or
modification to any such Supplemental Deeds of Trust; and no such
amendment or modification of the Master Deeds of Trust shall impair the
obligations of Borrower under any such Supplemental Deeds of Trust or
any other of the Loan Instruments.
6. Borrower hereby expressly promises to pay to the order of Lender,
the principal amount of the Note (as modified and increased) and all accrued and
unpaid interest now or hereafter to become due and payable under the Note, and
Borrower hereby expressly promises to perform all of the obligations of Borrower
under the Loan Instruments (as modified and increased).
7. The liens of the Deeds of Trust are hereby acknowledged by Borrower
to be good, valid and subsisting liens, and such liens are hereby renewed and
extended so as to secure the payment of the Note and Loan (as modified and
increased).
8. Borrower hereby represents and warrants to Lender that (a) Borrower
is the sole legal and beneficial owner of the Property; (b) Borrower has the
full power and authority to make the agreements contained in this Agreement
without joinder or consent of any other party; (c) the execution, delivery and
performance of this Agreement will not contravene or constitute an event which
itself or which with the passing of time or giving of notice or both would
constitute a default under any deed of trust, loan agreement, indenture or other
agreement to which Borrower or Guarantor is a party or by which Borrower or any
of its property is bound; and 4) there exists no default under the Loan
Instruments (as modified). BORROWER HEREBY AGREES TO INDEMNIFY AND HOLD LENDER
HARMLESS AGAINST ANY LOSS, CLAIM, DAMAGE, LIABILITY OR EXPENSE (INCLUDING
WITHOUT LIMITATION, ATTORNEYS' FEES) INCURRED AS A RESULT OF ANY REPRESENTATION
OR WARRANTY MADE BY BORROWER HEREIN PROVING TO BE UNTRUE IN ANY MATERIAL
RESPECT.
SECOND MODIFICATION AGREEMENT - Page 2
- -----------------------------
<PAGE>
9. The terms and conditions hereof may not be modified, amended,
altered or otherwise affected except by instrument in writing executed by Lender
and Borrower.
10. All Loan Instruments are hereby amended and modified in a manner
consistent with the modifications, terms and/or provisions contained herein.
Except as expressly modified hereby. the terms and conditions of the Loan
Instruments are and shall remain in full force and effect.
11. Borrower agrees to pay to Lender, contemporaneously with the
execution and delivery hereof, all costs and expenses incurred in connection
with this transaction, title insurance endorsement premiums, reasonable fees of
Lender's counsel and recording fees.
12. Borrower hereby agrees to execute and deliver to Lender such
further documents and instruments evidencing or pertaining to the Loan, as
modified and increased hereby, as may be reasonably requested by Lender from
time to time so as to evidence the terms and conditions hereof.
[The balance of this page is intentionally left blank.]
SECOND MODIFICATION AGREEMENT - Page 3
- -----------------------------
<PAGE>
EXECUTED on the date(s) set forth in the acknowledgment(s) below to be
EFFECTIVE as of the date first above written.
BORROWER
--------
LEGACY/MONTEREY HOMES L.P.,
an Arizona limited partnership
BY: MTH-TEXAS GP, INC.,
an Arizona corporation,
General Partner
By: /s/ Rick Morgan
-----------------------------
Name: Rick Morgan
------------------------
Title: Vice President
-----------------------
LENDER:
-------
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By: /s/ Sam A. Meade
--------------------------------
Name: Sam A. Meade
---------------------------
Title: Vice President
--------------------------
STATE Texas }
}
COUNTY OF COLLIN }
This instrument was ACKNOWLEDGED before me on May 19, 1998, by Rick
Morgan, Vice President of MTH-TEXAS GP, INC., an Arizona corporation, as General
Partner of LEGACY/MONTEREY HOMES L.P., an Arizona limited partnership, on behalf
of said limited partnership.
Ana Patterson
[S E A L] -----------------------------
Notary Public
My Commission Expires:
- ----------------------
-----------------------------
Printed Name of Notary Public
ANA PATTERSON
NOTARY PUBLIC
STATE OF TEXAS
My Commission Expires 8-28-99
SECOND MODIFICATION AGREEMENT - Page 4
- -----------------------------
<PAGE>
STATE Texas }
}
COUNTY OF DALLAS }
This instrument was ACKNOWLEDGED before me on the 20th day of May,
1998, by Sam A. Meade, Vice President of GUARANTY FEDERAL BANK, F.S.B., a
federal savings bank, on behalf of said federal savings bank.
LESLIE RUTH REYNOLDS Leslie Ruth Reynolds
Notary Public -----------------------------
STATE OF TEXAS Notary Public in and for the
My Comm. Exp. 02-04-2001 above county and state
My Commission Expires:
02/04/2001 Leslie Ruth Reynolds
- ---------------------- -----------------------------
Printed Name of Notary
SECOND MODIFICATION AGREEMENT - Page 5
<PAGE>
CONSENT OF GUARANTOR
Each of the undersigned, as a guarantor ("Guarantor," whether one or
more) of the loan (the "Loan"), evidenced by the Note and secured by the Deeds
of Trust described in the foregoing Second Modification Agreement (the
"Agreement") to which this Consent is attached, hereby acknowledge and consent
(jointly and severally) to the terms of the Agreement and agree (jointly and
severally) that the execution and delivery of the Agreement will in no way
change or modify Guarantor's respective obligations under their respective
Guaranty (as defined in the Agreement): and each Guarantor acknowledges and
agrees (jointly and severally) that the Indebtedness (as defined in the
respective instruments comprising the Guaranty) includes the Loan (as increased
and set forth in the Agreement), together with any and all other Indebtedness
now or at any time hereafter owing by Guarantor to Lender; and each Guarantor
(jointly and severally) hereby unconditionally and absolutely guarantees to
Lender the payment when due of such Indebtedness, and hereby acknowledge and
agree that their respective Guaranty is in full force and effect, and that there
are no claims, counterclaims, offsets or defenses to their respective Guaranty;
and each Guarantor acknowledges and consents (jointly and severally) to the
terms of any and all prior modifications to the terms of the Loan (including,
without limitation, any and all extensions of the term thereof and increases in
the principal thereof prior to the date hereof, if any).
EXECUTED on the date(s) set forth in the acknowledgment(s) below to be
EFFECTIVE as of the ____ day of _____________,1998.
GUARANTOR:
----------
MONTEREY HOMES CORPORATION,
a Maryland corporation
By: /s/ John R. Landon
---------------------------------
Name: John R. Landon
----------------------------
Title: Co-Chief Executive Officer
---------------------------
MTH-TEXAS GP, INC.,
an Arizona corporation,
By: /s/ Rick Morgan
---------------------------------
Name: Rick Morgan
----------------------------
Title: Vice President
---------------------------
MTH-TEXAS LP, INC.,
an Arizona corporation,
By: /s/ Rick Morgan
---------------------------------
Name: Rick Morgan
----------------------------
Title: Vice President
---------------------------
SECOND MODIFICATION AGREEMENT - Page 6
- -----------------------------
<PAGE>
STATE Texas }
}
COUNTY OF COLLIN }
This instrument was ACKNOWLEDGED before me on May 19, 1998, by John R.
Landon, Co Chief Executive Officer of MONTEREY HOMES CORPORATION, a Texas
corporation, on behalf of said corporation.
Ana Patterson
[S E A L] ----------------------------
Notary Public
My Commission Expires:
- ----------------------
-----------------------------
Printed Name of Notary Public
ANA PATTERSON
NOTARY PUBLIC
STATE OF TEXAS
My Commission Expires 8-28-99
STATE Texas }
}
COUNTY OF COLLIN }
This instrument was ACKNOWLEDGED before me on May 19, 1998, by Rick
Morgan, Vice President of MTH-TEXAS GP, INC., an Arizona corporation, on behalf
of said corporation.
Ana Patterson
[S E A L] ----------------------------
Notary Public
My Commission Expires:
- ----------------------
-----------------------------
Printed Name of Notary Public
ANA PATTERSON
NOTARY PUBLIC
STATE OF TEXAS
My Commission Expires 8-28-99
STATE Texas }
}
COUNTY OF COLLIN }
This instrument was ACKNOWLEDGED before me on May 19, 1998, by Rick
Morgan, Vice President of MTH-TEXAS LP, INC., an Arizona corporation, on behalf
of said corporation.
Ana Patterson
[S E A L] ----------------------------
Notary Public
My Commission Expires:
- ----------------------
-----------------------------
Printed Name of Notary Public
ANA PATTERSON
NOTARY PUBLIC
STATE OF TEXAS
My Commission Expires 8-28-99
SECOND MODIFICATION AGREEMENT - Page 7
- -----------------------------
<PAGE>
EXHIBIT A
---------
Description of the Deed(s) of Trust
-----------------------------------
LEGACY/MONTEREY, L.P.
- ---------------------
Collin County Recorded September 4, 1996, Clerk File 96--0075977
- -------------
Dallas Recorded September 5, 1996, Volume 96175 Page 00192
- ------
Denton Recorded September 5, 1996, Clerk File 96--R0061921.
- ------
Harris Recorded August 6, 1997, Clerk File No. 5579911
- ------
Rockwall Recorded August 19, 1997, Clerk File No. 176219
- --------
Tarrant Recorded September 5, 1996, Clerk File D19E175179
- -------
Travis Recorded September 6, 1996,Volume 12766, Page 1157
- ------
Williamson Recorded September 9, 1996, Clerk File 9648096
- ----------
EXHIBIT A, Description of the Deeds of Trust - Page 1
---------------------------------
<PAGE>
LOAN NO. ______
REVOLVING PROMISSORY NOTE
-------------------------
(Second Amended and Restated)
$50,000,000.00 As of May 31,1993
FOR VALUE RECEIVED, the undersigned (sometimes referred to herein as
"Maker"). jointly and severally if more than one, promise to pay to the order of
GUARANTY FEDERAL BANK, F.S.B., a federal savings bank organized and existing
under the laws of the United States (sometimes referred to herein as `Payee'),
at its principal offices at 5333 Douglas Avenue, Dallas, Texas 75225, or at such
other place as the holder hereof may from time to time designate, the principal
sum of FIFTY MILLION AND NO/100 DOLLARS ($50,000,000.00), or so much thereof as
may be advanced, with interest on the principal balance from time to time
remaining unpaid prior to default or maturity at the rate hereinafter provided,
interest only being payable on the first day of each month commencing June,
1993, and continuing until and including July31, I 999, when, unless extended
pursuant to the terms of Loan Agreement (hereafter defined), the unpaid
principal balance of this Note, together with all accrued and unpaid interest,
shall be due and payable. The principal of this Note shall otherwise be payable
in accordance with the Loan Agreement. All payments due under this Note shall be
delivered to the holder hereof not later than twelve o'clock, noon, Dallas,
Texas time, on the date such payment becomes due and payable (or the date any
voluntary prepayment of this Note is made), in immediately available funds. Any
payment received by the holder hereof after such time will be deemed to have
been made on the next following business day.
As herein provided, the unpaid Principal Amount (hereafter defined) of
this Note (or portions thereof) from time to time outstanding shall bear
interest prior to maturity at a varying rate per annum equal to, at Maker's
option, (i) the Commercial Base Rate (hereafter defined), or (ii) the applicable
LIBOR Base Rate (hereafter defined) (as elected in the manner specified in this
Note), provided that in no event shall the Applicable Rate (hereafter defined)
exceed the Maximum Rate (hereafter defined). Notwithstanding the foregoing, if
at any time the Applicable Rate exceeds the Maximum Rate, the rate of interest
payable under this Note shall be limited to the Maximum Rate, but any subsequent
reductions in the Commercial Base Rate or the LIBOR Base Rate, as the case may
be, shall not reduce the Applicable Rate below the Maximum Rate until the total
amount of interest accrued on this Note equals the total amount of interest
which would have accrued at the Applicable Rate if the Applicable Rate had at
all times been in effect. Interest on this Note shall be calculated at a daily
rate equal to 1/360 of the annual percentage rate stated above, subject to the
provisions hereof specifying the maximum amount of interest which may be charged
or collected hereunder.
As used in this Note, the following terms shall have the meanings
indicated opposite them:
"Additional Costs" -- Any costs, losses or expenses incurred by Payee
which it determines are attributable to its making or maintaining the Loan
(hereafter defined), or it5 obligation to make any Loan advances, or any
reduction in any amount receivable by Payee under the Loan or this Note.
"Applicable Rate" -- The Commercial Base Rate (as to that portion of
Principal Amount bearing interest at the Commercial Base Rate); provided,
however from and after May 15, 1998, the Applicable Rate shall be either the
Commercial Base Rate (as to that portion of the Principal Amount bearing
interest at the Commercial Base Rate) or the LIBOR Base Rate (as to each
Euro-Dollar Amount) as elected in the manner specified in this Note.
"Assessments" -- Any impositions and assessments imposed on Payee with
respect to any Euro-Dollar Amount for insurance or other fees, assessments and
surcharges.
"Commercial Base Rate" --One percent (1%) per annum in excess of the
base rate announced or published from time to time by Guaranty Federal Bank,
F.S.B., which rate may not be the lowest
<PAGE>
rate charged by Guaranty Federal Bank. F.S.B.: it being understood arid agreed
that the Commercial Base Rate shall increase or decrease. as the case may be,
from time to time as of the effective date of each change in such rate;
provided, however, from and after August 1. I 995 die Commercial Base Rate"
shall be the base rate announced or published from time to time by Guaranty
Federal Bank. F.S.B.
Euro-Dollar Amount' -- Each portion of the Principal Amount bearing
interest at the applicable LIBOR Base Rate pursuant to a Euro-Dollar Rate
Request. There shall be no more than five (5) portions of the Principal Amount
bearing interest at an applicable LIBOR Base Rate outstanding at any time, each
such portion shall be in amounts of not less than $1,000,000.00 each and in no
event shall the total portions of the Principal Amount bearing interest at the
LIBOR Base Rate exceed seventy percent (70%) of the Principal Amount of the time
of any Euro-Dollar Rate Request.
"Euro-Dollar Business Day" --Any day on which commercial banks are
open for domestic and international business (including dealings in U.S. Dollar
deposits) in New York City and Dallas, Texas.
"Euro-Dollar Rate Request" -- Maker's telephonic notice (to be
promptly confirmed in a written notice which must be received by Payee before
such Euro-Dollar Rate Request will be put into effect by Payee), to be received
by Payee by twelve o'clock noon (Dallas, Texas time) three (3) Euro-Dollar
Business Days prior to the Euro-Dollar Business Day specified in the Euro-Dollar
Rate Request for the commencement of the Interest Period, of (a) its intention
to have (1) all or any portion of the Principal Amount which is not then the
subject of an Interest Period (other than an Interest Period which is
terminating on such Euro-Dollar Business Day), and/or (2) all or any portion of
any advance of Loan proceeds which is to be made on such Euro-Dollar Business
Day, bear interest at the LIBOR Base Rate, and (b) the Interest Period desired
by Maker in respect of the amount specified. There shall be no more than three
(3) such requests for an election outstanding at any time.
Euro-Dollar Rate Request Amount" -- The amount, to be specified by
Maker in each Euro-Dollar Rate Request and stated in increments ofSl,000,000.00,
which Maker desires to bear interest at the LIBOR Base Rate; provided, however,
in no event shall any such amount be less than $ 1,000,000.00 in each instance.
"Euro-Dollar Reference Source" -- The display for Euro-Dollar rates
provided on The Bloomberg (a data service), viewed by accessing Page One (I) of
the global deposits segment of money-market rates (or such other page as may
replace Page One [11 for the purposes of displaying Euro-Dollar rates); or, at
the option of Payee the display for Euro-Dollar rates on such other service
selected from time to time by Payee and determined by Payee to be comparable to
The Bloomberg, which other service may include Reuters Monitor Money Rates
Service.
"Interest Period" -- The period during which interest at the LIBOR
Base Rate, determined as provided in this Note, shall be applicable to the
applicable Euro-Dollar Rate Request Amount; provided, however, that each such
period shall be either thirty (30), ninety (90), or one hundred eighty (180)
days, which shall be measured from the date specified by Maker in each
Euro-Dollar Rate Request for the commencement of the computation of interest at
the LABOR Base Rate, to the numerically corresponding day in the calendar month
in which such period terminates (or, if there be no numerical correspondent in
such month, or if the date selected by Maker for such commencement is the last
Euro-Dollar Business Day of a calendar month, then the last Euro-Dollar Business
Day of the calendar month in which such period terminates, or, if the
numerically corresponding day is not a Euro-Dollar Business Day, then the next
succeeding Euro-Dollar Business Day, unless such next succeeding Euro-Dollar
Business Day enters a new calendar month, in which case such period shall end on
the next preceding Euro-Dollar Business Day); and in no event shall any such
period be elected which extends beyond the Maturity Date.
"LABOR Base Rate" -- With respect to any Euro-Dollar Amount, the rate
per annum (expressed as a percentage) determined by Payee to be equal to the sum
of (a) the quotient of the
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LIBOR Rate for the applicable Euro-Dollar Amount and the applicable Interest
Period, divided by (1 minus the applicable Reserve Requirement). rounded up to
the nearest 1/100 of 1%. plus (b) the applicable Assessments, plus (c) two and
one-half percent (2.5%).
"LIBOR Rate" --The rate determined by Payee (rounded upward. if
necessary. to the nearest 1/16 of 1%) equal to the offered rate (and not the bid
rate) for deposits in U.S. Dollars of amounts comparable to the Euro-Dollar Rare
Request Amount for the same period of time as the Interest Period selected by
Maker in the Euro-Dollar Rate Request, as set forth on the Euro-Dollar Reference
Source at approximately I 0:00 am. (Dallas, Texas time) on the first day of the
applicable interest Period.
"Loan" -- The $50,000,000.00 loan evidenced hereby.
"Maturity Date" -- July 31, 1999, being the date this Note becomes due
and pay able in its entirety, unless extended pursuant to the terms of the Loan
Agreement.
"Maximum Rate" -- The maximum interest rate permitted under applicable
law,
"Principal Amount" -- That portion of the Loan evidenced hereby as is
from time to time outstanding.
REGULATION D --Regulation D of the Board of Governors of the Federal
Reserve System, as from time to time amended or supplemented.
"Regulation" -- With respect to the charging and collecting of
interest at the LIBOR Base Rate, any United States federal, state or foreign
laws, treaties, rules or regulations whether now in effect or hereinafter
enacted or promulgated (including Regulation D) or any interpretations,
directives or requests applying to a class of depository institutions including
Payee under any United States federal, state or foreign laws or regulations
(whether or not having the force of law) by any court or governmental or
monetary authority charged with the interpretation or administration thereof,
excluding any change the effect of which is determined by Payee to be reflected
in a change in the LIBOR Base Rate.
"Reserve Requirement" -- The average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are required to be
maintained under Regulation D by member banks of the Federal Reserve System in
New York City with deposits exceeding one billion U.S. Dollars against
"Eurocurrency Liabilities," as such quoted term is used in Regulation D. Without
limiting the effect of the foregoing, the Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks by reason of any
regulatory change against (a) any category of liabilities which includes
deposits by reference to which the LIBOR Rate is to be determined as provided in
this Note, or (b) any category of extensions of credit or other assets which
includes loans the interest rate on which is determined on the basis of rates
referred to in the definition of "LIBOR Rate" set forth above,
If Maker desires the application of the LIBOR Base Rate, it shall
submit a Euro-Dollar Rate Request to Payee. Such Euro-Dollar Rate Request shall
specify the Interest Period and the Euro-Dollar Amount and shall be irrevocable,
subject to Payee's right to convert the rate of interest payable hereunder with
respect to any Euro-Dollar Amount from the LIBOR Base Rate to the Commercial
Base Rate as hereinafter provided, In the event that Maker fails to submit a
Euro-Dollar Rate Request with respect to an existing Euro-Dollar Amount not
later than twelve o'clock noon (New York time) three (3) Euro-Dollar Business
Days prior to the last day of the relevant Interest Period, then the applicable
Euro-Dollar Amount shall bear interest, commencing at the end of such Interest
Period, at the Commercial Base Rate.
In no event shall Maker have more than five (5) Interest Periods
involving Euro-Dollar Amounts in effect at any one time, whether or not any
portion of the Principal Amount is then bearing interest at the Commercial Base
Rate.
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<PAGE>
Any portion of the Principal Amount to which the LIBOR Base Rate is
not (or pursuant to the terms hereof cannot be) applicable shall bear interest
at the Commercial Base Rate.
Maker shall pay to Payee. promptly upon demand, such amounts as are
necessary to compensate Payee for Additional Costs resulting from any Regulation
which (i) subjects Payee to any tax, duty or other charge with respect to the
Loan or this Note, or changes the basis of taxation of any amounts payable to
Payee under the Loan or this Note (other than taxes imposed on the overall net
income of Payee or of its applicable lending office by the jurisdiction in which
Payee's principal office or such applicable lending office is located), (ii)
imposes, modifies or deems applicable any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of, Payee, or (iii) imposes on Payee or on
the interbank Euro-Dollar market any other condition affecting the Loan or this
Note. or any of such extensions of credit or liabilities. Payee will notify
Maker of any event which would entitle Payee to compensation pursuant to this
paragraph as promptly as practicable after Payee obtains knowledge thereof and
determines to request such compensation.
Without limiting the effect of the immediately preceding paragraph, in
the event that, by reason of any Regulation, (i) Payee incurs Additional Costs
based on or measured by the amount of (1) a category of deposits or other
liabilities of Payee which includes deposits by reference to which the LIBOR
Rate is determined as provided in this Note and/or (2) a category of extensions
of credit or other assets of Payee which includes loans the interest on which is
determined on the basis of rates referred to in the definition of "LIBOR Rate"
set forth above, (ii) Payee becomes subject to restrictions on the amount of
such a category of liabilities or assets which it may hold, or (iii) it shall be
unlawful or impractical for Payee to make or maintain the Loan (or any portion
thereof) at the LIBOR Base Rate, then Payee's obligation to make or maintain the
Loan (or portions thereof) at the LIBOR Base Rate (and Maker's right to request
the same) shall be suspended and Payee shall give notice thereof to Maker and,
upon the giving of such notice, interest payable hereunder at the LIBOR Base
Rate shall be converted to the Commercial Base Rate, unless Payee may lawfully
continue to maintain the Loan (or any portion thereof) then bearing interest at
the LIBOR Base Rate to the end of the current Interest Period(s), at which time
the interest rate shall convert to the Commercial Base Rate. if subsequently
Payee determines that such Regulation has ceased to be in effect. Payee will so
advise Maker and Maker may convert the rate of interest payable hereunder with
respect to those portions of the Principal Amount bearing interest at the
Commercial Base Rate to the LII3OR Base Rate by submitting a Euro-Dollar Rate
Request in respect thereof and otherwise complying with the provisions of this
Note with respect thereto.
Determinations by Payee of the existence or effect of any Regulation
on its costs of making or maintaining the Loan, or portions thereof, at the
LIBOR Base Rate, or on amounts receivable by it in respect thereof, and of the
additional amounts required to compensate Payee with respect to Additional Costs
and/or Assessments, shall be conclusive; provided, however, that such
determinations are made without manifest error.
Anything herein to the contrary notwithstanding, if, at the time of or
prior to the determination of the LIBOR Base Rate in respect of any Euro-Dollar
Rate Request Amount as herein provided, Payee determines (which determination
shall be conclusive [provided that such determination is made on a reasonable
basis] absent manifest error) that (i) by reason of circumstances affecting the
interbank Euro-Dollar market generally, adequate and fair means do not or will
not exist for determining the LIBOR Base Rate applicable to an Interest Period,
or (ii) the LIBOR Rate, as determined by Payee, will not accurately reflect the
cost to Payee of making or maintaining the Loan (or any portion thereof) at the
LIBOR Base Rate, then Payee shall give Maker prompt notice thereof, and the
applicable Euro-Dollar Rate Request Amount shall bear interest. or continue to
bear interest, as the case may be, at the Commercial Base Rate. If at any time
subsequent to the giving of such notice, Payee determines that because of a
change in circumstances the LIBOR Base Rate is again available to Maker
hereunder, Payee shall so advise Maker and Maker may convert the rate of
interest payable hereunder from the Commercial Base Rate to the LIBOR Base Rate
by submitting a Euro-Dollar Rate Request to Payee and otherwise complying with
the provisions of this Note with respect thereto.
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<PAGE>
Maker shall pay to Payee, immediately upon request and notwithstanding
contrary provisions contained in the Deeds of Trust (as hereafter defined) or
other Loan instruments (as hereafter defined), such amounts as shall, in the
conclusive judgment of Payee reasonably exercised. compensate Payee for any
loss, cost or expense incurred by it as a result of ( i) any payment or
prepayment, under any circumstances whatsoever, of any portion of the principal
Amount bearing interest at the LIBOR Base Rate on a date other than the last day
of an applicable Interest Period. (ii) the conversion, for any reason
whatsoever, of the rate of interest payable hereunder from the LIBOR Base Rate
to the Commercial Base Rate with respect to any portion of the Principal Amount
then bearing interest at the LIBOR Base Rate on a date other than the last day
of an applicable Interest Period, (iii) the failure of all or a portion of an
advance, which was to have borne interest at the LABOR Base Rate pursuant to a
Euro-Dollar Rate Request, to be made under the loan Agreement, or (iv) the
failure of Maker to borrow in accordance with a Euro-Dollar Rate Request
submitted by it to Payee, which amounts shall include, without limitation, lost
profits.
Maker shall have the right to prepay, in whole or in part, the
Principal Amount of this Note accruing interest at the Commercial Base Rate,
without premium or penalty upon the payment of all accrued interest on the
amount prepaid (and any interest which has accrued at the Default Rate
(hereafter defined) and other sums that may be payable hereunder); provided,
however, that any Euro-Dollar Amount may be prepaid only on the last day of the
applicable Interest Period.
All payments of principal shall be credited first against principal
amounts bearing interest at the Commercial Base Rate and then toward the payment
of Euro-Dollar Amounts, Payments of Euro-Dollar Amounts shall be applied in such
manner as Maker shall select; provided, however, that Maker shall select
Euro-Dollar Amounts to be repaid in a manner designed to minimize any losses
incurred by virtue of such payment. If Maker shall fail to select the
Euro-Dollar Amounts to which such payments are to be applied, or if an event of
default has occurred and is continuing at the time of payment, then Payee shall
be entitled to apply the payment to such Euro-Dollar Amounts in the manner it
deems appropriate. Maker shall compensate Payee for any losses incurred by
virtue of any payment of those portions of the Loan accruing interest at the
LIBOR Base Rate prior to the last day of the relevant Interest Period, which
compensation shall be determined in accordance with the provisions set forth in
this Note, and any payment received pursuant to this paragraph shall be applied
first to losses incurred by Payee by reason of such payment.
If a default shall occur under the Deeds of Trust, interest on the
Principal Amount shall, at the option of Payee, immediately and without notice
to Maker, be converted to the Commercial Base Rate. The foregoing provisions
shall not be construed as a waiver by Payee of its right to pursue any other
remedies available to it under the Deeds of Trust or any other instrument
evidencing or securing the Loan, nor shall it be construed to limit in any way
the application of the Default Rate.
Maker hereby agrees that it shall be bound by any agreement extending
the time or modifying the above terms of payment, made by Payee and the owner or
owners of the Property, whether with or without notice to Maker, and Maker shall
continue liable to pay the amount due hereunder, but with interest at a rate no
greater than the LIBOR Base Rate or the Commercial Base Rate, as the case may
be, according to the terms of any such agreement of extension or modification.
All or any portion of the principal of this Note may be borrowed,
paid, prepaid, repaid and reborrowed, from time to time prior to maturity, in
accordance with the provisions of this Note and the other Loan Instruments (as
hereafter defined). The excess of borrowing (advances and readvances) over
repayments shall evidence the principal balance due hereon from time to time and
at any time. The aggregate of all advances made under this Note may exceed the
face amount of this Note, but the outstanding principal balance of this Note at
any time shall never exceed the face amount of this Note.
At the option of the holder hereof, the entire principal balance and
accrued interest owing hereon shall, subject to applicable laws, at once become
due and payable without notice or demand upon the occurrence at any time of any
of the following events ("events of default"):
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<PAGE>
1. Default in the payment of any installment of principal,
interest or any. other sum due hereunder or under any document
evidencing governing. securing or guaranteeing the Loan
(individually and collectively, the "Loan Instruments") and
the continuation of such default or a period of fifteen (15)
days following the due date thereof or defaults in the
performance of any of the covenants or provisions of any of
the Loan Instruments other than those covenants or provisions
involving the payment of the sums described in the preceding
clause in this paragraph 1.
2. The liquidation, termination, dissolution or (if any of the
undersigned is a natural person) the death of any of the
undersigned or any guarantor hereof
3. The bankruptcy or insolvency of, the assignment for the
benefit of creditors by. or the appointment of a receiver for
any of the property of any party liable for the payment of
this Note, whether as maker, endorser, guarantor, surety or
otherwise.
4. Default in the payment of any other indebtedness due the
holder hereof, or default in the performance of any other
obligation to the holder hereof by the undersigned or any
other party liable for the payment hereof, whether as
endorser, guarantor, surety or otherwise, it being reasonably
contemplated by the undersigned that it may incur additional
indebtedness owing to the holder hereof, from time to time,
subsequent to the date hereof
5. Notice of default given by any other lender or third party
(the "Other Lenders") to the undersigned or the acceleration
of any indebtedness owed by the undersigned to the Other
Lenders under any instruments evidencing, governing,
guaranteeing or securing any other indebtedness or obligation,
now or hereafter owed by the undersigned to the Other Lenders.
The failure to exercise the option to accelerate the maturity of this
Note upon the happening of any one or more of the events of default hereunder
shall not constitute a waiver of the right of the holder hereof to exercise the
same or any other option at that time or at any subsequent time with respect to
such uncured default or any other event of uncured default hereunder or under
any other of the Loan Instruments. The remedies of the holder hereof, as
provided in this Note and in any other of the Loan Instruments, shall be
cumulative and concurrent and may be pursued separately, successively or
together, as often as occasion therefor shall arise, at the sole discretion of
the holder hereof The acceptance by the holder hereof of any payment under this
Note which is less than payment in full of all amounts due and payable at the
time of such payment shall not constitute a waiver of or impair, reduce, release
or extinguish any of the rights or remedies of the holder hereof to exercise the
foregoing option or any other option granted to the holder hereof or in any
other of the Loan Instruments, at that time or at any subsequent time, or
nullify any prior exercise of any such option.
The unpaid principal of and, to the extent permitted by applicable
law, unpaid interest on this Note from time to time outstanding shall bear
interest from and after maturity at the rate (hereafter called the "Default
Rate") of five percent (5%) per annum above the Commercial Base Rate (as such
rate may change from time to time as provided above), provided that in no event
shall such interest rate be more than the Maximum Rate. Notwithstanding anything
to the contrary contained in this Note, at the option of the holder hereof and
upon notice to the undersigned at any time after the occurrence of a default, as
defined in the Deeds of Trust, from and after such notice and during the
continuance of such default, the unpaid principal of this Note from time to time
outstanding and all past due installments of interest shall, to the extent
permitted by applicable law, bear interest at the Default Rate (as such rate may
change from time to time with each change in the Commercial Base Rate), provided
that in no event shall such interest rate be more than the Maximum Rate.
The undersigned and all other parties now or hereafter liable for the
payment hereof whether as endorser, guarantor, surety or otherwise, severally
waive demand, presentment. notice of dishonor, notice of intention to accelerate
the indebtedness evidenced hereby, notice of the acceleration of the maturity
hereof, diligence in collecting, grace. notice and protest, and consent to all
extensions which
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from time to time may be granted by the holder hereof and to all partial
payments hereon, whether before or after maturity.
If this Note is not paid when due. whether at maturity or by
acceleration, or if it is collected through a bankruptcy, probate or other
court, whether before or after maturity the undersigned agrees to pay all costs
of collection, including but not limited to reasonable attorneys' fees and
expenses, incurred by the holder hereof.
This Note is executed pursuant to a Master Loan Agreement, dated as of
January 31. 1993. between the undersigned and the payee named herein (the "Loan
Agreement"). which Loan Agreement contains provisions for acceleration of the
maturity hereof upon the happening of certain events, and all advances made
hereunder shall be made pursuant to the Loan Agreement. This Note is secured by
one or more Deeds of Trust (With Security Agreement and Assignment of Rents and
Leases) (collectively, the `Deeds of Trust") covering certain property situated
in various Counties in Texas. The proceeds of this Note are to be used for
business, commercial, investment or other similar purposes and no portion
thereof will be used for personal, family or household use.
This Note is given in renewal, replacement and rearrangement, and not
in extinguishment of, the indebtedness evidenced by that certain (i) Revolving
Promissory Note in the amount of $17,000,000.00, dated May 31,1993, as executed
by Maker and payable to Payee, and (ii) Revolving Promissory Note (Amended and
Restated) in the amount of $40,000,000.00 (as increased), dated as of May 31,
1993, as executed by Maker and payable to Payee.
All agreements between the undersigned and the holder hereof whether
now existing or hereafter arising and whether written or oral, are hereby
limited so that in no contingency, whether by reason of acceleration of the
maturity hereof or otherwise, shall the interest contracted for, charged,
received, paid or agreed to be paid to the holder hereof exceed the Maximum
Rate. If from any circumstance the holder hereof shall ever receive anything of
value deemed interest by applicable law in excess of the Maximum Rate, an amount
equal to any excessive interest shall be applied to the reduction of the
principal hereof and not to the payment of interest, or if such excessive
interest exceeds the unpaid balance of principal hereof, such excess shall be
refunded to the undersigned. All interest paid or agreed to be paid to the
holder hereof shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full period until payment in full
of the principal so that the interest hereon for such full period shall not
exceed the Maximum Rate. This paragraph shall control all agreements between the
undersigned and the holder hereof
The undersigned acknowledges and agrees that the holder hereof may,
from time to time, sell or offer to sell interests in the Loan to one or more
participants. The undersigned authorizes the holder hereof to disseminate any
information it has pertaining to the Loan, including, without limitation,
complete and current credit information on the undersigned, any of its
principals and any guarantor of this Note, to any such participant or
prospective participant.
(The balance of this page is intentionally left blank.)
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<PAGE>
EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING, WITHOUT LIMITATION,
ANY FEDERAL USURY CEILING OR OTHER FEDERAL LAW WHICH, FROM TIME TO
TIME, IS APPLICABLE TO THE INDEBTEDNESS EVIDENCED HEREIN AND WHICH
PREEMPTS STATE USURY LAWS), THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, AND THE LAWS OF THE UNITED STATES
APPLICABLE TO TRANSACTIONS IN SUCH STATE. THE UNDERSIGNED ACKNOWLEDGES
THAT THE LIEN OF THE DEEDS OF TRUST CONSTITUTES A FIRST LIEN ON
RESIDENTIAL REAL PROPERTY WITHIN THE MEANING OF PART A, TITLE V, OF
THE DEPOSITORY INSTITUTIONS DEREGULATION AND MONETARY CONTROL ACT OF
1980, AND THE REGULATIONS PROMULGATED THEREUNDER.
MAKER:
------
LEGACY/MONTEREY HOMES L.P.
an Arizona limited partnership
BY: MTH-TEXAS UP, INC.,
an Arizona corporation,
General Partner
By: /s/ Rick Morgan
-------------------------------
Name: Rick Morgan
--------------------------
Title: Vice President
------------------------
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "AGREEMENT") is made as of this 1st day
of January, 1998, by and between MONTEREY HOMES CORPORATION, a Maryland
corporation (the "Company") and Larry W. Seay, an individual ("EXECUTIVE"). If
Executive is presently or subsequently becomes employed by a subsidiary of
Company, the term "Company" shall be deemed to refer collectively to Monterey
Homes Corporation and the subsidiary or subsidiaries which employs Executive.
RECITALS
A. COMPANY BUSINESS. The Company's principal business is homebuilding.
B. EXECUTIVE EXPERIENCE. Since April 1, 1996, Executive has served as
Vice President - Finance and Chief Financial Officer ("CFO"), Treasurer and
Secretary of the Company.
C. AGREEMENT PURPOSE. The Company desires to employ Executive, and
Executive desires to be employed by Company, on the terms and conditions set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants, agreements,
representations, and warranties contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. DEFINITIONS. As used herein:
(a) "CAUSE" shall include the following:
i) Employee's wrongful misappropriation of any money or
other assets or properties of the Company;
ii) Executive is convicted of committing a felony, or
engages in conduct involving fraud, moral turpitude, dishonesty,
gross misconduct, embezzlement, theft, or similar matters that
are detrimental to Company;
iii) Employee's willful disregard of his primary duties to
the Company or policies of the Company.
(b) "CHANGE OF CONTROL". A Change of Control of the Company
shall mean: (a) the purchase or other acquisition by any person,
entity, or group of persons, within the meaning of section 13(d) or
14(d) of the Securities Exchange Act of 1934 as amended (the "Act") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Act) of more than 50% of either the outstanding shares of
common stock of the Company or the combined voting power of the
Company's then outstanding voting securities entitled to vote
generally; (b) the approval by the stockholders of the Company of a
reorganization, merger, or consolidation, in each case with respect to
which persons who were stockholders
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<PAGE>
of the Company immediately prior to such reorganization, merger, or
consolidation do not, immediately thereafter, own more than 50% of the
combined voting power entitled to vote generally in the election of
directors of the reorganized, merged, or consolidated company's then
outstanding securities; or (c) a liquidation or dissolution of the
Company or the sale of all or substantially all of the Company's
assets.
(c) "COMPANY CONFIDENTIAL INFORMATION" shall mean
confidential, proprietary information or trade secrets of Company and
its subsidiaries, including, without limitation, the following: (1)
customer and vendor lists and customer and vendor information as
compiled by Company and its subsidiaries, including pricing, sale and
contract terms and conditions, contract expirations, and other compiled
customer and vendor information; (2) Company's and its subsidiaries'
internal practices and procedures; (3) Company's and its subsidiaries'
financial condition and financial results of operation; (4) information
relating to Company's and its subsidiaries' real estate holding or
commitments, lot positions, strategic planning, sales, financing,
insurance, purchasing, marketing, promotion, distribution, and selling
activities, whether now existing, or acquired, developed, or made
available anytime in the future to or by Company or its subsidiaries;
(5) all information which Executive has a reasonable basis to consider
confidential or which is treated by Company or its subsidiaries as
confidential; and (6) any and all information having independent
economic value to Company or its subsidiaries that is not generally
known to, and not readily ascertainable by proper means by, persons who
can obtain economic value from its disclosure or use. Executive
acknowledges that such information is Company Confidential Information
whether disclosed to or learned by Executive or originated by Executive
during his employment by Company or any of its subsidiaries. In the
event that information is not clearly and obviously publicly available,
all information about Company or its subsidiaries shall be presumed to
be confidential. In the event of a dispute or litigation, Executive
will have the burden of proof by clear and convincing evidence that
such information is not confidential.
(d) "DEMOTION EVENT" shall include a demotion or relocation of
Executive, a material change in Executive's duties without Executive's
consent, a reduction from the previous year in Executive's base salary
without Executive's consent, or any action taken by the Company
specifically to limit Executive's ability to earn a bonus comparable to
his prior year's bonus. Notwithstanding the foregoing, the assignment
of certain controller and treasury duties to a corporate controller who
shall report to Executive shall not be considered a Demotion Event.
(e) "TERMINATION" shall mean termination of Executive's
employment with Company pursuant to Sections 17 through 21 hereof.
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2. TERM OF AGREEMENT. This Agreement will commence as of January 1,
1998 and shall terminate two (2) years from such date, unless earlier terminated
in accordance with, and subject to, the other provisions hereof (the "TERM").
This Agreement will automatically renew for successive one-year terms unless one
of the parties hereto gives notice of non-renewal at least ninety (90) days
before the scheduled renewal date.
3. POSITION WITH COMPANY. During the Term, Executive shall serve as
Vice-President - Finance, CFO, Treasurer and Secretary of Company, shall devote
his full time and efforts to the affairs of Company, and shall faithfully and
diligently perform all duties commensurate with such position, including,
without limitation, those duties reasonably requested by Company's Board of
Directors. Without limitation of the foregoing, Executive shall: (i) manage
financing and capital arrangements; (ii) supervise controller function; (iii)
supervise treasury function; (iv) supervise public reporting and stockholder
relations; (v) supervise information and data processing systems, and (vi)
support merger and acquisition efforts. Executive shall be subject to and comply
with all of Company's policies and procedures.
4. SALARY. Executive shall be entitled to receive a minimum base salary
from Company in the amount of $120,750.00 annually, payable in equal
installments in accordance with Company's general salary payment policies in
effect during the Term hereof (the "MINIMUM BASE SALARY"). The Minimum Base
Salary may be increased at such times and in such amounts as Company's Board of
Directors shall determine in its sole discretion.
5. BONUS AND STOCK OPTION. The Board of Directors may, from time to
time, at its discretion, pay performance bonuses to Executive, which shall be
calculated based on the formula set forth in EXHIBIT A attached hereto. Any such
performance bonus may be paid in cash or Company stock, in the discretion of the
Board of Directors. In addition, the Board of Directors may, from time to time,
at its discretion, grant Executive options under the Company's stock option
plan.
6. VACATION AND SICK LEAVE. Executive shall be entitled to take
reasonable vacation, holiday and sick leave, subject to the Company's reasonable
limits and policies.
7. BENEFIT PLANS. Executive shall be eligible to participate in all
benefit plans made available to Company employees from time to time. Nothing
herein shall restrict Company's ability to terminate or modify any benefit plan
or arrangement.
8. EXPENSES. Company shall pay for or reimburse Executive for all
ordinary and necessary business expenses incurred or paid by Executive in
furtherance of Company's business, subject to and in accordance with Company's
policies and procedures of general application. The Company shall provide
Executive a car allowance not to exceed $350.00 per month.
9. STAFF MANUAL. All other terms of Executives employment shall be
governed by the Company employee manual (the "Employee Manual"). The Company
reserves the right to amend the Employee Manual, from time to time, and
Executive shall be subject to changes made so long as such changes are applied
to all Company employees.
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10. COVENANTS OF EXECUTIVE. (a) Executive hereby covenants and agrees
that, during the term of this Agreement, Executive will not engage, directly or
indirectly, either as principal, partner, joint venturer, consultant or
independent contractor, agent, or proprietor or in any other manner participate
in the ownership, management, operation, or control of any person, firm,
partnership, limited liability company, corporation, or other entity which
engages in the business of providing any products or services, including,
without limitation, home building products or services, which are competitive
with those products or services offered or sold by Company or its subsidiaries
within any jurisdiction in which Company or its subsidiaries does or proposes to
do business. The covenants set forth in this paragraph 10(a) shall expire upon
cessation of Executive's employment for any reason.
(b) Executive hereby covenants and agrees that, during the term of the
Agreement, and for a period of one year after the last date on which the
Executive is employed by the Company, Executive will not:
(i) Directly or indirectly solicit for employment (whether as
an employee, consultant, independent contractor, or otherwise) any
person who is an employee, independent contractor or the like of
Company or any of its subsidiaries, unless Company gives its written
consent to such employment or offer of employment.
(ii) Call on or directly or indirectly solicit or divert or
take away from Company or any of its subsidiaries (including, without
limitation, by divulging to any competitor or potential competitor of
Company or its subsidiaries) any person, firm, corporation, or other
entity who was a customer or prospective customer of the Company during
Executive's term of Employment.
11. CONFIDENTIALITY AND NONDISCLOSURE. It is understood that in the
course of Executive's employment with Company, Executive will become acquainted
with Company Confidential Information. Executive recognizes that Company
Confidential Information has been developed or acquired at great expense, is
proprietary to Company or its subsidiaries, and is and shall remain the
exclusive property of Company. Accordingly, Executive hereby covenants and
agrees that he will not, without the express written consent of Company, during
Executive's employment with Company or its subsidiaries and thereafter or until
such time as Company Confidential Information becomes generally known, or
readily ascertainable by proper means, by persons unrelated to Company or its
subsidiaries, disclose to others, copy, make any use of, or remove from
Company's or its subsidiaries' premises any Company Confidential Information,
except as Executive's duties for Company or its subsidiaries may specifically
require. In the event of dispute or litigation, Executive shall have the burden
of proof by clear and convincing evidence that the Company Confidential
Information has become generally known, or readily ascertainable by proper
means, by persons unrelated to Company or its subsidiaries.
12. ACKNOWLEDGMENT; RELIEF FOR VIOLATION. Executive hereby agrees that
the period of time provided for in Sections 10 and 11 and the territorial
restrictions and other provisions and restrictions set forth therein are
reasonable and necessary to protect Company, its subsidiaries and
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its and their successors and assigns in the use and employment of the good will
of the business conducted by Company and its subsidiaries. Executive further
agrees that damages cannot compensate Company in the event of a violation of
Section 10 or 11, and that, if such violation should occur, injunctive relief
shall be essential for the protection of Company, its subsidiaries, and its and
their successors and assigns. Accordingly, Executive hereby covenants and agrees
that, in the event any of the provisions of Sections 10 and 11 shall be violated
or breached, Company shall be entitled to obtain injunctive relief against
Executive, without bond but upon due notice, in addition to such further or
other relief as may appertain at equity or law. Obtainment of such an injunction
by Company shall not be considered an election of remedies or a waiver of any
right to assert any other remedies which Company has at law or in equity. No
waiver of any breach or violation hereof shall be implied from forbearance or
failure by Company to take action thereon. Executive hereby agrees that he has
such skills and abilities that the provisions of Sections 10 and 11 will not
prevent him from earning a living. Each party agrees to pay its own costs and
expenses in enforcing any provision of this Agreement.
13. EXTENSION DURING BREACH. Executive agrees that the time period
described in Sections 10 and 11 shall be extended for a period equal to the
duration of any breach of such provisions by Executive.
14. NO CONFLICTS OF INTEREST.
(a) During the period of Executive's employment with Company,
Executive will not independently engage in the same or a similar line
of business as Company or its subsidiaries, or, directly or indirectly,
serve, advise, or be employed by any individual, firm, partnership,
association, corporation, or other entity engaged in the same or
similar line or lines of business.
(b) Executive is not a promoter, director, employee, or
officer of, or consultant or independent contractor to, a business
organized for profit, nor will Executive become a promoter, director,
employee, or officer of, or consultant to, such a business while
employed by Company or its subsidiaries without first obtaining the
prior written approval of Company. Executive disclaims any such
relationship or position with any such business. Should Executive
become a promoter, director, employee, or officer of, or a consultant
to, a business organized for profit upon obtaining such prior written
approval, Executive understands that Executive has a continuing
obligation to advise Company at such time of any activity of Company,
or such other business that presents Executive with a conflict of
interest as an employee of Company.
(c) Should any matter of dealing in which Executive is involved,
or hereafter becomes involved, on his own behalf or as an employee of
Company, appear to present a possible conflict of interest under any
Company policy then in effect, Executive will promptly disclose the
facts to Company's Board of Directors so that a determination can be
made as to whether a conflict of interest does exist. Executive will
take whatever action is requested of Executive by Company or its Board
of Director to resolve any conflict which it finds to exist, including
severing the relationship which creates the conflict.
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(d) Notwithstanding anything herein to the contrary, Executive
may make investments in commercial properties or land development ventures
provided they are not competitive with the business of the Company, and may own
less than 1% of stock in publicly traded homebuilders.
15. RETURN OF COMPANY MATERIALS AND COMPANY CONFIDENTIAL INFORMATION.
Upon Termination, Executive shall promptly deliver to Company the originals and
all copies of any and all materials, documents, notes, manuals, or lists
containing or embodying Company Confidential Information or relating directly or
indirectly to the business of Company in the possession or control of Executive.
16. NO AGREEMENT WITH OTHERS. Executive represents, warrants, and
agrees that Executive is not a party to any agreement with any other person or
business entity, including former employers, that in any way affects Executive's
employment by Company or relates to the same subject matter of this Agreement or
conflicts with his obligations under this Agreement, or restricts Executive's
services to Company.
17. TERMINATION FOR CAUSE. The Company may terminate this Agreement for
Cause by giving written notice of Termination and, with respect to a purported
violation of Section 1(a)(i), (ii) or (iii) of this Agreement that is curable in
such time period, shall afford Executive an opportunity to cure or disprove the
purported violation for the thirty-day period following such notice. Upon
Termination of Executive for Cause, Executive shall be entitled to receive only
the Minimum Base Salary, the amount of any unpaid performance bonus earned in
any complete fiscal year of the Company preceding the date of termination, and
any benefits as are due Executive through the effective date of such
Termination. No prorated bonus shall be paid to Executive upon a Termination for
Cause.
18. TERMINATION BY COMPANY WITHOUT CAUSE. If Executive is terminated
without Cause, Executive shall be entitled to receive an amount equal to 50% of
Executive's base salary and 50% of Executive's average bonus for the previous
three fiscal years and the vesting of Executive's stock options shall be
accelerated, as if Executive had held them through the end of the following
fiscal year. Executive may terminate his employment upon the occurrence of a
Demotion Event and such termination shall be deemed a Termination without Cause.
Any amounts due to Executive under this paragraph shall be paid to Executive in
six (6) equal monthly payments or in a lump sum (to be paid within twenty (20)
days after Termination), at the Executive's discretion, following Termination.
If the Executive elects to take the payments due under this paragraph over a six
month period, he shall be entitled, to the extent permitted by law and the
plans, to continued participation in the Company's benefit plans for such
period. If the Executive elects to take a lump sum payment, his participation in
the Company's benefit plans shall terminate upon receipt of the lump sum
payment.
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19. TERMINATION UPON CHANGE OF CONTROL. If, within twelve (12) months
following a Change of Control of the Company, Executive voluntarily terminates
his employment as a result of a Demotion Event, Executive shall be entitled to
receive an amount equal to 100% of Executive's base salary and 100% of
Executive's average bonus for the previous three fiscal years and all of
Executive's stock options shall vest in full and be immediately exercisable. Any
amounts due to Executive under this paragraph shall be paid to Executive in
twelve (12) equal monthly payments or in a lump sum (to be paid within twenty
(20) days after Termination), at the Executive's discretion, following
Termination. If the Executive elects to take the payments due under this
paragraph over a twelve month period, he shall be entitled, to the extent
permitted by law and the plans, to continued participation in the Company's
benefit plans for such period. If the Executive elects to take a lump sum
payment, his participation in the Company's benefit plans shall terminate upon
receipt of the lump sum payment.
20. TERMINATION UPON DEATH OF EXECUTIVE. If during the term of this
Agreement Executive dies, then this Agreement shall terminate and Company shall
pay to the estate of Executive only the Minimum Base Salary, the amount of any
unpaid bonus earned in any complete fiscal year of the Company preceding the
date of Termination, the prorated portion of any objectively determined current
year bonus, and any benefits (including any life insurance benefits provided to
Executive's estate under Company's standard policies as in effect) as are due
through the date of his death. In addition, the vesting of Executive's stock
options shall be accelerated, as if the Executive had served through the end of
the fiscal year of his Termination.
21. TERMINATION UPON DISABILITY OF EXECUTIVE. If during the term of the
Agreement Executive is unable to perform the services required of Executive
pursuant to this Agreement for a continuous period of ninety (90) days due to
disability or incapacity by reason of any physical or mental illness (as
reasonably determined by Company by its Board of Directors), then Company shall
have the right to terminate this Agreement at the end of such ninety-day period
by giving written notice to Executive. Executive shall be entitled to receive
only such Minimum Base Salary, the amount of any unpaid bonus earned in any
complete fiscal year of the Company preceding the date of termination, the
prorated portion of any objectively determined current year bonus, and any
benefits as are due Executive through the effective date of such Termination. In
addition, the vesting of Executive's stock options shall be accelerated, as if
the Executive had served through the end of the fiscal year of his Termination.
22. INDEMNITY. The Company shall indemnify Executive to the fullest
extent permitted by the Company's Bylaws. Such indemnification shall survive the
termination of this Agreement.
23. ARBITRATION. Any dispute, controversy, or claim, whether
contractual or non-contractual, between the parties hereto arising directly or
indirectly out of or connected with this Agreement, relating to the breach or
alleged breach of any representation, warranty, agreement, or covenant under
this Agreement, unless mutually settled by the parties hereto, shall be resolved
by binding arbitration in accordance with the Commercial Arbitration Rules of
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the American Arbitration Association (the "AAA"). Any arbitration shall be
conducted by arbitrators approved by the AAA and mutually acceptable to Company
and Executive. All such disputes, controversies, or claims shall be conducted by
a single arbitrator, unless the dispute involves more than $50,000 in the
aggregate in which case the arbitration shall be conducted by a panel of three
arbitrators. If the parties hereto are unable to agree on the arbitrator(s),
then the AAA shall select the arbitrator(s). The resolution of the dispute by
the arbitrator(s) shall be final, binding, nonappealable, and fully enforceable
by a court of competent jurisdiction under the Federal Arbitration Act. The
arbitrator(s) shall award compensatory damages to the prevailing party. The
arbitrator(s) shall have no authority to award consequential or punitive or
statutory damages, and the parties hereby waive any claim to those damages to
the fullest extent allowed by law. The arbitration award shall be in writing and
shall include a statement of the reasons for the award. The arbitration shall be
held in Phoenix, Arizona. The arbitrator(s) shall award reasonable attorneys'
fees and costs to the prevailing party.
24. SEVERABILITY; REFORMATION. In the event any court or arbiter
determines that any of the restrictive covenants in this Agreement, or any part
thereof, is or are invalid or unenforceable, the remainder of the restrictive
covenants shall not thereby be affected and shall be given full effect, without
regard to invalid portions. If any of the provisions of this Agreement should
ever be deemed to exceed the temporal, geographic, or occupational limitations
permitted by applicable laws, those provisions shall be and are hereby reformed
to the maximum temporal, geographic, or occupational limitations permitted by
law. In the event any court or arbiter refuses to reform this Agreement as
provided above, the parties hereto agree to modify the provisions held to be
unenforceable to preserve each party's anticipated benefits thereunder.
25. NOTICES. All notices and other communications hereunder shall be in
writing and shall be sufficiently given if made by hand delivery, by telecopier,
or by registered or certified mail (postage prepaid and return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by it by like notice):
If to Company : Monterey Homes Corporation
6613 N. Scottsdale Road
Suite 200
Scottsdale, Arizona 85250
Phone: (602) 998-8700
Fax: (602) 998-9162
Attn: President
With a copy to: Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
Phone: (602) 382-6252
FAX: (602) 382-6070
Attn: Steven D. Pidgeon, Esq.
If to Executive: Larry W. Seay
802 West El Caminito Drive
Phoenix, Arizona 85021
All such notices and other communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; three business days
after being deposited in the mail, postage prepaid, if delivered by mail; and
when receipt is acknowledged, if telecopied.
26. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each counterpart shall constitute an original instrument, but
all such separate counterparts shall constitute one and the same agreement.
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27. GOVERNING LAW. The validity, construction, and enforceability of
this Agreement shall be governed in all respects by the laws of the State of
Arizona, without regard to its conflict of laws rules.
28. ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise, except that Company may assign all or any portion of its
rights under this Agreement to any Company entity, but no such assignment shall
relieve Company of its obligations hereunder, and except that this Agreement may
be assigned to any corporation or entity with or into which Company may be
merged or consolidated or to which Company transfers all or substantially all of
its assets, and such corporation or entity assumes this Agreement and all
obligations and undertakings of Company hereunder.
29. FURTHER ASSURANCES. At any time on or after the date hereof, the
parties hereto shall each perform such acts, execute and deliver such
instruments, assignments, endorsements and other documents and do all such other
things consistent with the terms of this Agreement as may be reasonably
necessary to accomplish the transaction contemplated in this Agreement or
otherwise carry out the purpose of this Agreement.
30. GENDER, NUMBER AND HEADINGS. The masculine, feminine, or neuter
pronouns used herein shall be interpreted without regard to gender, and the use
of the singular or plural shall be deemed to include the other whenever the
context so requires.
31. WAIVER OF PROVISIONS. The terms, covenants, representations,
warranties, and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time to require performance of any provisions hereof shall, in no manner,
affect the right at a later date to enforce the same. No waiver by any party of
any condition, or breach of any provision, term, covenant, representation, or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation, or warranty of this Agreement.
32. ATTORNEYS' FEES AND COSTS. If any legal action or any arbitration
or other proceeding is brought for the enforcement of this Agreement, or because
of an alleged dispute, breach, default, or misrepresentation in connection with
any of the provisions of this Agreement, the successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees, accounting
fees, and other costs incurred in that action or proceeding, in addition to any
other relief to which it or they may be entitled.
33. SECTION AND PARAGRAPH HEADINGS. The Article and Section headings in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
34. AMENDMENT. This Agreement may be amended only by an instrument in
writing executed by all parties hereto.
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35. EXPENSES. Except as otherwise expressly provided herein, each party
shall bear its own expenses incident to this Agreement and the transactions
contemplated hereby, including without limitation, all fees of counsel,
consultants, and accountants.
36. ENTIRE AGREEMENT. This Agreement constitutes and embodies the full
and complete understanding and agreement of the parties hereto with respect to
the subject matter hereof, and supersedes all prior understandings or
agreements, whether oral or in writing.
37. WITHHOLDING. Executive acknowledges and agrees that payments made
to Executive by Company pursuant to the terms of this Agreement may be subject
to tax withholding and that Company may withhold against payments due Executive
any such amounts as well as any other amounts payable by Executive to Company.
38. RELEASE. Receipt by Executive of any of the severance benefits
noted in paragraphs 18, 19, 20 and 21 hereof following termination of
Executive's employment hereunder shall be subject to Executive's compliance with
any reasonable and lawful policies or procedures of Company relating to employee
severance including the execution and delivery by Executive of a release
reasonably satisfactory to Company and Executive of any and all claims that
Executive may have against Company or any related person, except for the
continuing obligations provided herein, and an agreement that Executive shall
not disparage Company or any of its directors, officers, employees or agents.
Concurrent with the termination of Executive's employment hereunder pursuant to
paragraphs 18, 19, 20 or 21 hereof, and receipt of a release reasonably
satisfactory to the Company and Executive, the Company shall execute and deliver
to Executive a release, reasonably satisfactory to Company and Executive, of any
and all claims that Company may have against Executive, except for any claims
arising out of Executive's fraudulent or criminal conduct, and an agreement that
Company shall not disparage Executive.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement or caused this Agreement to be duly executed on their respective
behalf, by their respective officers thereunto duly authorized, all as of the
day and year first above written.
MONTEREY HOMES CORPORATION, a
Maryland corporation
By: /s/ Steven J. Hilton and William W. Cleverly
--------------------------------------------
Name: Steven J. Hilton and William W. Cleverly
------------------------------------------
Its: Managing Directors
------------------------------------------
/s/ Larry W. Seay
------------------------------------------
LARRY W. SEAY
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EXHIBIT "A"
-----------
1998 - 2000 BONUS PLAN
LARRY SEAY
ANNUAL SALARY: $120,750
BONUS PLAN
----------
* Potential Bonus to 50% to 70% of Base Salary at Discretion of
Supervisors, and Ability to Accomplish Objectives
Objectives to Qualify for Bonus Plan
------------------------------------
1. Equity Coverage/Investor Relations:
* Initiate and Maintain Coverage from at least Three Housing
Analysts.
* Expand Investor Relations Program.
* Significant Introduction to Buy Side Investors.
* Identify and Update Investor Reporting Services.
2. Expand Roles of Accounting Staff:
* Initiate Quarterly Financial Reports to Public.
* Model Financial Ratio's of Company Against Competitors.
3. Capital Structure:
* Senior Note Placement - First Quarter 1998.
* Administer and Negotiate Corporate Banking Facilities.
* Explore Expansion of Capital Structure - Joint Ventures,
Secondary Offerings.
4. Coordinate Acquisition Analysis and Due Diligence:
* Create Model and Financial Structure for Potential Acquisitions.
* Assist in Identifying Acquisition Targets.
* Acquisition Analysis and Due Diligence.
5. Audit Controls - Policies & Procedures:
* Complete Accounting Policies Manual - 1st Quarter, 1998.
* Institute Periodic Audit Procedures.
Compensation Subject to Continuing Employment and Standard Employment Policies
as Outlined in the Company Personnel Manual.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "AGREEMENT") is made as of this 1st day
of January, 1998, by and between MONTEREY HOMES CORPORATION, a Maryland
corporation (the "Company") and Clyde Dinnell, an individual ("EXECUTIVE"). If
Executive is presently or subsequently becomes employed by a subsidiary of
Company, the term "Company" shall be deemed to refer collectively to Monterey
Homes Corporation and the subsidiary or subsidiaries which employs Executive.
RECITALS
A. COMPANY BUSINESS. The Company's principal business is homebuilding.
B. EXECUTIVE EXPERIENCE. Executive has served as Vice President of the
Company.
C. AGREEMENT PURPOSE. The Company desires to employ Executive, and
Executive desires to be employed by Company, on the terms and conditions set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants, agreements,
representations, and warranties contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. DEFINITIONS. As used herein:
(a) "CAUSE" shall include the following:
i) Employee's wrongful misappropriation of any money or
other assets or properties of the Company;
ii) Executive is convicted of committing a felony, or
engages in conduct involving fraud, moral turpitude, dishonesty, gross
misconduct, embezzlement, theft, or similar matters that are
detrimental to Company;
iii) Employee's willful disregard of his primary
duties to the Company or policies of the Company.
(b) "CHANGE OF CONTROL". A Change of Control of the Company
shall mean: (a) the purchase or other acquisition by any person,
entity, or group of persons, within the meaning of section 13(d) or
14(d) of the Securities Exchange Act of 1934 as amended (the "Act") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Act) of more than 50% of either the outstanding shares of
common stock of the Company or the combined voting power of the
Company's then outstanding voting securities entitled to vote
generally; (b) the approval by the stockholders of the Company of a
reorganization, merger, or consolidation, in each case with respect to
which persons who were stockholders
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of the Company immediately prior to such reorganization, merger, or
consolidation do not, immediately thereafter, own more than 50% of the
combined voting power entitled to vote generally in the election of
directors of the reorganized, merged, or consolidated company's then
outstanding securities; or (c) a liquidation or dissolution of the
Company or the sale of all or substantially all of the Company's
assets.
(c) "COMPANY CONFIDENTIAL INFORMATION" shall mean
confidential, proprietary information or trade secrets of Company and
its subsidiaries, including, without limitation, the following: (1)
customer and vendor lists and customer and vendor information as
compiled by Company and its subsidiaries, including pricing, sale and
contract terms and conditions, contract expirations, and other compiled
customer and vendor information; (2) Company's and its subsidiaries'
internal practices and procedures; (3) Company's and its subsidiaries'
financial condition and financial results of operation; (4) information
relating to Company's and its subsidiaries' real estate holding or
commitments, lot positions, strategic planning, sales, financing,
insurance, purchasing, marketing, promotion, distribution, and selling
activities, whether now existing, or acquired, developed, or made
available anytime in the future to or by Company or its subsidiaries;
(5) all information which Executive has a reasonable basis to consider
confidential or which is treated by Company or its subsidiaries as
confidential; and (6) any and all information having independent
economic value to Company or its subsidiaries that is not generally
known to, and not readily ascertainable by proper means by, persons who
can obtain economic value from its disclosure or use. Executive
acknowledges that such information is Company Confidential Information
whether disclosed to or learned by Executive or originated by Executive
during his employment by Company or any of its subsidiaries. In the
event that information is not clearly and obviously publicly available,
all information about Company or its subsidiaries shall be presumed to
be confidential. In the event of a dispute or litigation, Executive
will have the burden of proof by clear and convincing evidence that
such information is not confidential.
(d) "DEMOTION EVENT"shall include a demotion or relocation of
Executive, a material change in Executive's duties without Executive's
consent, a reduction from the previous year in Executive's base salary
without Executive's consent, or any action taken by the Company
specifically to limit Executive's ability to earn a bonus comparable to
his prior year's bonus.
(d) "TERMINATION" shall mean termination of Executive's
employment with Company pursuant to Sections 17 through 21 hereof.
2. TERM OF AGREEMENT. This Agreement will commence as of January 1,
1998 and shall terminate two (2) years from such date, unless earlier terminated
in accordance with, and subject to, the other provisions hereof (the "TERM").
This Agreement will automatically renew for successive one-year terms unless one
of the parties hereto gives notice of non-renewal at least ninety (90) days
before the scheduled renewal date.
-2-
<PAGE>
3. POSITION WITH COMPANY. During the Term, Executive shall serve as
Division President - Phoenix, shall devote his full time and efforts to the
affairs of Company, and shall faithfully and diligently perform all duties
commensurate with such position, including, without limitation, those duties
reasonably requested by Company's Board of Directors. Executive shall be subject
to and comply with all of Company's policies and procedures.
4. SALARY. Executive shall be entitled to receive a minimum base salary
from Company in the amount of $125,000 annually, payable in equal installments
in accordance with Company's general salary payment policies in effect during
the Term hereof (the "MINIMUM BASE SALARY"). The Minimum Base Salary may be
increased at such times and in such amounts as Company's Board of Directors
shall determine in its sole discretion.
5. BONUS AND STOCK OPTION. The Board of Directors may, from time to
time, at its discretion, pay performance bonuses to Executive, which shall be
calculated based on the formula set forth in EXHIBIT A attached hereto. Any such
performance bonus may be paid in cash or Company stock, in the discretion of the
Board of Directors. In addition, the Board of Directors may, from time to time,
at its discretion, grant Executive options under the Company's stock option
plan.
6. VACATION AND SICK LEAVE. Executive shall be entitled to take
reasonable vacation, holiday and sick leave, subject to the Company's reasonable
limits and policies.
7. BENEFIT PLANS. Executive shall be eligible to participate in all
benefit plans made available to Company employees from time to time. Nothing
herein shall restrict Company's ability to terminate or modify any benefit plan
or arrangement.
8. EXPENSES. Company shall pay for or reimburse Executive for all
ordinary and necessary business expenses incurred or paid by Executive in
furtherance of Company's business, subject to and in accordance with Company's
policies and procedures of general application. The Company shall provide
Executive a car allowance not to exceed $6,000.00 per year.
9. STAFF MANUAL. All other terms of Executives employment shall be
governed by the Company employee manual (the "Employee Manual"). The Company
reserves the right to amend the Employee Manual, from time to time, and
Executive shall be subject to changes made so long as such changes are applied
to all Company employees.
10. COVENANTS OF EXECUTIVE. (a) Executive hereby covenants and agrees
that, during the term of this Agreement, Executive will not engage, directly or
indirectly, either as principal, partner, joint venturer, consultant or
independent contractor, agent, or proprietor or in any other manner participate
in the ownership, management, operation, or control of any person, firm,
partnership, limited liability company, corporation, or other entity which
engages in the business of providing any products or services, including,
without limitation, home building products or services, which are competitive
with those products or services offered or sold by Company or its subsidiaries
within any jurisdiction in which Company or its subsidiaries does or proposes to
do business. The
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<PAGE>
covenants set forth in this paragraph 10(a) shall expired upon cessation of
Executive's employment for any reason.
(b) Executive hereby covenants and agrees that, during the term of the
Agreement, and for a period of one year after the last date on which the
Executive is employed by the Company, Executive will not:
(i) Directly or indirectly solicit for employment (whether as
an employee, consultant, independent contractor, or otherwise) any
person who is an employee, independent contractor or the like of
Company or any of its subsidiaries, unless Company gives its written
consent to such employment or offer of employment.
(ii) Call on or directly or indirectly solicit or divert or
take away from Company or any of its subsidiaries (including, without
limitation, by divulging to any competitor or potential competitor of
Company or its subsidiaries) any person, firm, corporation, or other
entity who was a customer or prospective customer of the Company during
Executive's term of Employment.
11. CONFIDENTIALITY AND NONDISCLOSURE. It is understood that in the
course of Executive's employment with Company, Executive will become acquainted
with Company Confidential Information. Executive recognizes that Company
Confidential Information has been developed or acquired at great expense, is
proprietary to Company or its subsidiaries, and is and shall remain the
exclusive property of Company. Accordingly, Executive hereby covenants and
agrees that he will not, without the express written consent of Company, during
Executive's employment with Company or its subsidiaries and thereafter or until
such time as Company Confidential Information becomes generally known, or
readily ascertainable by proper means, by persons unrelated to Company or its
subsidiaries, disclose to others, copy, make any use of, or remove from
Company's or its subsidiaries' premises any Company Confidential Information,
except as Executive's duties for Company or its subsidiaries may specifically
require. In the event of dispute or litigation, Executive shall have the burden
of proof by clear and convincing evidence that the Company Confidential
Information has become generally known, or readily ascertainable by proper
means, by persons unrelated to Company or its subsidiaries.
12. ACKNOWLEDGMENT; RELIEF FOR VIOLATION. Executive hereby agrees that
the period of time provided for in Sections 10 and 11 and the territorial
restrictions and other provisions and restrictions set forth therein are
reasonable and necessary to protect Company, its subsidiaries and its and their
successors and assigns in the use and employment of the good will of the
business conducted by Company and its subsidiaries. Executive further agrees
that damages cannot compensate Company in the event of a violation of Section 10
or 11, and that, if such violation should occur, injunctive relief shall be
essential for the protection of Company, its subsidiaries, and its and their
successors and assigns. Accordingly, Executive hereby covenants and agrees
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<PAGE>
that, in the event any of the provisions of Sections 10 and 11 shall be violated
or breached, Company shall be entitled to obtain injunctive relief against
Executive, without bond but upon due notice, in addition to such further or
other relief as may appertain at equity or law. Obtainment of such an injunction
by Company shall not be considered an election of remedies or a waiver of any
right to assert any other remedies which Company has at law or in equity. No
waiver of any breach or violation hereof shall be implied from forbearance or
failure by Company to take action thereon. Executive hereby agrees that he has
such skills and abilities that the provisions of Sections 10 and 11 will not
prevent him from earning a living. Each party agrees to pay its own costs and
expenses in enforcing any provision of this Agreement.
13. EXTENSION DURING BREACH. Executive agrees that the time period
described in Sections 10 and 11 shall be extended for a period equal to the
duration of any breach of such provisions by Executive.
14. NO CONFLICTS OF INTEREST.
(a) During the period of Executive's employment with Company,
Executive will not independently engage in the same or a similar line
of business as Company or its subsidiaries, or, directly or indirectly,
serve, advise, or be employed by any individual, firm, partnership,
association, corporation, or other entity engaged in the same or
similar line or lines of business.
(b) Executive is not a promoter, director, employee, or
officer of, or consultant or independent contractor to, a business
organized for profit, nor will Executive become a promoter, director,
employee, or officer of, or consultant to, such a business while
employed by Company or its subsidiaries without first obtaining the
prior written approval of Company. Executive disclaims any such
relationship or position with any such business. Should Executive
become a promoter, director, employee, or officer of, or a consultant
to, a business organized for profit upon obtaining such prior written
approval, Executive understands that Executive has a continuing
obligation to advise Company at such time of any activity of Company,
or such other business that presents Executive with a conflict of
interest as an employee of Company.
(c) Should any matter of dealing in which Executive is
involved, or hereafter becomes involved, on his own behalf or as an
employee of Company, appear to present a possible conflict of interest
under any Company policy then in effect, Executive will promptly
disclose the facts to Company's Board of Directors so that a
determination can be made as to whether a conflict of interest does
exist. Executive will take whatever action is requested of Executive by
Company or its Board of Director to resolve any conflict which it finds
to exist, including severing the relationship which creates the
conflict.
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<PAGE>
(d) Notwithstanding anything herein to the contrary, Executive
may make investments in commercial properties or land development
ventures provided they are not competitive with the business of the
Company, and may own less than 1% of stock in publicly traded
homebuilders.
15. RETURN OF COMPANY MATERIALS AND COMPANY CONFIDENTIAL INFORMATION.
Upon Termination, Executive shall promptly deliver to Company the originals and
all copies of any and all materials, documents, notes, manuals, or lists
containing or embodying Company Confidential Information or relating directly or
indirectly to the business of Company in the possession or control of Executive.
16. NO AGREEMENT WITH OTHERS. Executive represents, warrants, and
agrees that Executive is not a party to any agreement with any other person or
business entity, including former employers, that in any way affects Executive's
employment by Company or relates to the same subject matter of this Agreement or
conflicts with his obligations under this Agreement, or restricts Executive's
services to Company.
17. TERMINATION FOR CAUSE. The Company may terminate this Agreement for
Cause by giving written notice of Termination and, with respect to a purported
violation of Section 1(a)(i), (ii) or (iii) of this Agreement that is curable in
such time period, shall afford Executive an opportunity to cure or disprove the
purported violation for the thirty-day period following such notice. Upon
Termination of Executive for Cause, Executive shall be entitled to receive only
the Minimum Base Salary, the amount of any unpaid performance bonus earned in
any complete fiscal year of the Company preceding the date of termination, and
any benefits as are due Executive through the effective date of such
Termination. No prorated bonus shall be paid to Executive upon a Termination for
Cause.
18. TERMINATION BY COMPANY WITHOUT CAUSE. If Executive is terminated
without Cause, Executive shall be entitled to receive an amount equal to 50% of
Executive's base salary and 50% of Executive's average bonus for the previous
three fiscal years and the vesting of Executive's stock options shall be
accelerated, as if Executive had held them through the end of the following
fiscal year. Executive may terminate his employment upon the occurrence of a
Demotion Event and such termination shall be deemed a Termination without Cause.
Any amounts due to Executive under this paragraph shall be paid to Executive in
six (6) equal monthly payments or in a lump sum (to be paid within twenty (20)
days after Termination), at the Executive's discretion, following Termination.
If the Executive elects to take the payments due under this paragraph over a six
month period, he shall be entitled, to the extent permitted by law and the
plans, to continued participation in the Company's benefit plans for such
period. If the Executive elects to take a lump sum payment, his participation in
the Company's benefit plans shall terminate upon receipt of the lump sum
payment.
19. TERMINATION UPON CHANGE OF CONTROL. If, within twelve (12) months
following a Change of Control of the Company, Executive voluntarily terminates
his employment as a result of a Demotion Event, Executive shall be entitled to
receive an amount equal to 100% of
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<PAGE>
Executive's base salary and 100% of Executive's average bonus for the previous
three fiscal years and all of Executive's stock options shall vest in full and
be immediately exercisable. Any amounts due to Executive under this paragraph
shall be paid to Executive in twelve (12) equal monthly payments or in a lump
sum (to be paid within twenty (20) days after Termination), at the Executive's
discretion, following Termination. If the Executive elects to take the payments
due under this paragraph over a twelve month period, he shall be entitled, to
the extent permitted by law and the plans, to continued participation in the
Company's benefit plans for such period. If the Executive elects to take a lump
sum payment, his participation in the Company's benefit plans shall terminate
upon receipt of the lump sum payment.
20. TERMINATION UPON DEATH OF EXECUTIVE. If during the term of this
Agreement Executive dies, then this Agreement shall terminate and Company shall
pay to the estate of Executive only the Minimum Base Salary, the amount of any
unpaid bonus earned in any complete fiscal year of the Company preceding the
date of Termination, the prorated portion of any objectively determined current
year bonus, and any benefits (including any life insurance benefits provided to
Executive's estate under Company's standard policies as in effect) as are due
through the date of his death. In addition, the vesting of Executive's stock
options shall be accelerated, as if the Executive had served through the end of
the fiscal year of his Termination.
21. TERMINATION UPON DISABILITY OF EXECUTIVE. If during the term of the
Agreement Executive is unable to perform the services required of Executive
pursuant to this Agreement for a continuous period of ninety (90) days due to
disability or incapacity by reason of any physical or mental illness (as
reasonably determined by Company by its Board of Directors), then Company shall
have the right to terminate this Agreement at the end of such ninety-day period
by giving written notice to Executive. Executive shall be entitled to receive
only such Minimum Base Salary, the amount of any unpaid bonus earned in any
complete fiscal year of the Company preceding the date of termination, the
prorated portion of any objectively determined current year bonus, and any
benefits as are due Executive through the effective date of such Termination. In
addition, the vesting of Executive's stock options shall be accelerated, as if
the Executive had served through the end of the fiscal year of his Termination.
22. INDEMNITY. The Company shall indemnify Executive to the fullest
extent permitted by the Company's Bylaws. Such indemnification shall survive the
termination of this Agreement.
23. ARBITRATION. Any dispute, controversy, or claim, whether
contractual or non-contractual, between the parties hereto arising directly or
indirectly out of or connected with this Agreement, relating to the breach or
alleged breach of any representation, warranty, agreement, or covenant under
this Agreement, unless mutually settled by the parties hereto, shall be resolved
by binding arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association (the "AAA"). Any arbitration shall be
conducted by arbitrators approved by the AAA and mutually acceptable to Company
and Executive. All such disputes, controversies, or claims shall be conducted by
a single arbitrator, unless the dispute involves more than $50,000 in the
aggregate in which case the arbitration shall be conducted by a panel of three
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<PAGE>
arbitrators. If the parties hereto are unable to agree on the arbitrator(s),
then the AAA shall select the arbitrator(s). The resolution of the dispute by
the arbitrator(s) shall be final, binding, nonappealable, and fully enforceable
by a court of competent jurisdiction under the Federal Arbitration Act. The
arbitrator(s) shall award compensatory damages to the prevailing party. The
arbitrator(s) shall have no authority to award consequential or punitive or
statutory damages, and the parties hereby waive any claim to those damages to
the fullest extent allowed by law. The arbitration award shall be in writing and
shall include a statement of the reasons for the award. The arbitration shall be
held in Phoenix, Arizona. The arbitrator(s) shall award reasonable attorneys'
fees and costs to the prevailing party.
24. SEVERABILITY; REFORMATION. In the event any court or arbiter
determines that any of the restrictive covenants in this Agreement, or any part
thereof, is or are invalid or unenforceable, the remainder of the restrictive
covenants shall not thereby be affected and shall be given full effect, without
regard to invalid portions. If any of the provisions of this Agreement should
ever be deemed to exceed the temporal, geographic, or occupational limitations
permitted by applicable laws, those provisions shall be and are hereby reformed
to the maximum temporal, geographic, or occupational limitations permitted by
law. In the event any court or arbiter refuses to reform this Agreement as
provided above, the parties hereto agree to modify the provisions held to be
unenforceable to preserve each party's anticipated benefits thereunder.
25. NOTICES. All notices and other communications hereunder shall be in
writing and shall be sufficiently given if made by hand delivery, by telecopier,
or by registered or certified mail (postage prepaid and return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by it by like notice):
If to Company : Monterey Homes Corporation
6613 N. Scottsdale Road
Suite 200
Scottsdale, Arizona 85250
Phone: (602) 998-8700
Fax: (602) 998-9162
Attn: President
With a copy to: Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
Phone: (602) 382-6252
FAX: (602) 382-6070
Attn: Steven D. Pidgeon, Esq.
If to Executive: Clyde Dinnell
6022 E. Mescal Street
Scottsdale, Arizona 85254
All such notices and other communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; three business days
after being deposited in the mail, postage prepaid, if delivered by mail; and
when receipt is acknowledged, if telecopied.
26. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each counterpart shall constitute an original instrument, but
all such separate counterparts shall constitute one and the same agreement.
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<PAGE>
27. GOVERNING LAW. The validity, construction, and enforceability of
this Agreement shall be governed in all respects by the laws of the State of
Arizona, without regard to its conflict of laws rules.
28. ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise, except that Company may assign all or any portion of its
rights under this Agreement to any Company entity, but no such assignment shall
relieve Company of its obligations hereunder, and except that this Agreement may
be assigned to any corporation or entity with or into which Company may be
merged or consolidated or to which Company transfers all or substantially all of
its assets, and such corporation or entity assumes this Agreement and all
obligations and undertakings of Company hereunder.
29. FURTHER ASSURANCES. At any time on or after the date hereof, the
parties hereto shall each perform such acts, execute and deliver such
instruments, assignments, endorsements and other documents and do all such other
things consistent with the terms of this Agreement as may be reasonably
necessary to accomplish the transaction contemplated in this Agreement or
otherwise carry out the purpose of this Agreement.
30. GENDER, NUMBER AND HEADINGS. The masculine, feminine, or neuter
pronouns used herein shall be interpreted without regard to gender, and the use
of the singular or plural shall be deemed to include the other whenever the
context so requires.
31. WAIVER OF PROVISIONS. The terms, covenants, representations,
warranties, and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time to require performance of any provisions hereof shall, in no manner,
affect the right at a later date to enforce the same. No waiver by any party of
any condition, or breach of any provision, term, covenant, representation, or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation, or warranty of this Agreement.
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<PAGE>
32. ATTORNEYS' FEES AND COSTS. If any legal action or any arbitration
or other proceeding is brought for the enforcement of this Agreement, or because
of an alleged dispute, breach, default, or misrepresentation in connection with
any of the provisions of this Agreement, the successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees, accounting
fees, and other costs incurred in that action or proceeding, in addition to any
other relief to which it or they may be entitled.
33. SECTION AND PARAGRAPH HEADINGS. The Article and Section headings in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
34. AMENDMENT. This Agreement may be amended only by an instrument in
writing executed by all parties hereto.
35. EXPENSES. Except as otherwise expressly provided herein, each party
shall bear its own expenses incident to this Agreement and the transactions
contemplated hereby, including without limitation, all fees of counsel,
consultants, and accountants.
36. ENTIRE AGREEMENT. This Agreement constitutes and embodies the full
and complete understanding and agreement of the parties hereto with respect to
the subject matter hereof, and supersedes all prior understandings or
agreements, whether oral or in writing.
37. WITHHOLDING. Executive acknowledges and agrees that payments made
to Executive by Company pursuant to the terms of this Agreement may be subject
to tax withholding and that Company may withhold against payments due Executive
any such amounts as well as any other amounts payable by Executive to Company.
38. RELEASE. Receipt by Executive of any of the severance benefits
noted in paragraphs 18, 19, 20 and 21 hereof following termination of
Executive's employment hereunder shall be subject to Executive's compliance with
any reasonable and lawful policies or procedures of Company relating to employee
severance including the execution and delivery by Executive of a release
reasonably satisfactory to Company and Executive of any and all claims that
Executive may have against Company or any related person, except for the
continuing obligations provided herein, and an agreement that Executive shall
not disparage Company or any of its directors, officers, employees or agents.
Concurrent with the termination of Executive's employment hereunder pursuant to
paragraphs 18, 19, 20 or 21 hereof, and receipt of a release reasonably
satisfactory to the Company and Executive, the Company shall execute and deliver
to Executive a release, reasonably satisfactory to Company and Executive, of any
and all claims that Company may have against Executive, except for any claims
arising out of Executive's fraudulent or criminal conduct, and an agreement that
Company shall not disparage Executive.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement or caused this Agreement to be duly executed on their respective
behalf, by their respective officers thereunto duly authorized, all as of the
day and year first above written.
MONTEREY HOMES CORPORATION, a
Maryland corporation
By: /s/ Steven J. Hilton and William W. Cleverly
--------------------------------------------
Name: Steven J. Hilton and William Cleverly
------------------------------------------
Its: Managing Directors
------------------------------------------
/s/ Clyde Dinnell
------------------------------------------
CLYDE DINNELL
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<PAGE>
EXHIBIT "A"
-----------
1998 - 2000 BONUS PLAN
CLYDE DINNELL
ANNUAL SALARY: $125,000
Additional Stock Options: 5,000
BONUS PLAN
----------
* Potential Bonus Equal to 100% of base Salary
* 35% of Bonus Potential Earned if 70% of Budgeted Pre-tax Net
Income Earned
* 65% of Bonus Potential Earned if 81% of Budgeted Pre-tax net
Income Earned
* 80% of Bonus Potential Earned if 91% of Budgeted Pre-tax Net
Income Earned
* 81%+ Bonus Potential of Management's Discretion
Objectives to Qualify for Bonus Plan
------------------------------------
1. Meet Annual Division Sales & Closing Forecast.
2. Do Not Exceed Annual Phoenix Division Budgeted Expenses without
Corresponding Increase in Sales and Net Income.
3. Open New Communities per Budgeted Schedules (1999).
4. Attain 80% Minimum (definitely recommend) Customer Satisfaction Level
Captured through Written and Telephone Surveys.
5. Maintain Satisfactory Customer Care Service Record.
Compensation Subject to Continuing Employment and Standard Employment Policies
as Outlined in the Company Personnel Manual.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 5,219,267
<SECURITIES> 0
<RECEIVABLES> 1,153,491
<ALLOWANCES> 0
<INVENTORY> 87,925,508
<CURRENT-ASSETS> 99,741,678
<PP&E> 4,228,382
<DEPRECIATION> 2,307,988
<TOTAL-ASSETS> 120,937,592
<CURRENT-LIABILITIES> 28,163,526
<BONDS> 33,265,038
0
0
<COMMON> 53,702
<OTHER-SE> 59,455,326
<TOTAL-LIABILITY-AND-EQUITY> 120,937,592
<SALES> 92,121,503
<TOTAL-REVENUES> 97,640,577
<CGS> 75,324,372
<TOTAL-COSTS> 4,894,388
<OTHER-EXPENSES> 4,182,056
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 195,594
<INCOME-PRETAX> 13,044,167
<INCOME-TAX> 896,000
<INCOME-CONTINUING> 12,148,167
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,148,166
<EPS-PRIMARY> 2.29
<EPS-DILUTED> 1.99
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 7,262,648
<SECURITIES> 0
<RECEIVABLES> 1,571,530
<ALLOWANCES> 0
<INVENTORY> 44,012,881
<CURRENT-ASSETS> 54,707,427
<PP&E> 2,679,759
<DEPRECIATION> 1,327,156
<TOTAL-ASSETS> 68,418,366
<CURRENT-LIABILITIES> 15,512,269
<BONDS> 23,367,901
0
0
<COMMON> 45,806
<OTHER-SE> 29,492,390
<TOTAL-LIABILITY-AND-EQUITY> 68,418,366
<SALES> 37,116,944
<TOTAL-REVENUES> 38,572,804
<CGS> 31,828,546
<TOTAL-COSTS> 1,998,710
<OTHER-EXPENSES> 2,275,469
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,470,079
<INCOME-TAX> 223,673
<INCOME-CONTINUING> 2,246,406
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,246,406
<EPS-PRIMARY> .50
<EPS-DILUTED> .48
</TABLE>
EXHIBIT 99
Private Securities Litigation Reform Act of 1995
Safe Harbor Compliance Statement for Forward-Looking Statements
In passing the Private Securities Litigation Reform Act of 1995 (the
"PSLRA"), Congress encouraged public companies to make "forward-looking
statements" by creating a safe-harbor to protect companies from securities law
liability in connection with forward-looking statements. Monterey Homes
Corporation (the "Company" or "Monterey") intends to qualify both its written
and oral forward-looking statements for protection under the PSLRA.
To qualify oral forward-looking statements for protection under the
PSLRA, a readily available written document must identify important factors that
could cause actual results to differ materially from those in the
forward-looking statements. Monterey provides the following information in
connection with its continuing effort to qualify forward-looking statements for
the safe harbor protection of the PSLRA.
Important factors currently known to management that could cause actual
results to differ materially from those in forward-looking statements include,
but are not limited to, the following: (i) changes in national and local
economic and other conditions, such as employment levels, availability of
mortgage financing, interest rates, consumer confidence, and housing demand;
(ii) risks inherent in homebuilding activities, including delays in construction
schedules, cost overruns, changes in government regulation, increases in real
estate taxes and other local government fees; (iii) changes in costs or
availability of land, materials, and labor; (iv) fluctuations in real estate
values; (v) the timing of home closings and land sales; (vi) the Company's
ability to continue to acquire additional land or options to acquire additional
land on acceptable terms; (vii) a relative lack of geographic diversification of
the Company's operation, especially when (A) real estate analysts are predicting
that new home sales in the Phoenix, Arizona metropolitan area may slow during
1998 and 1999 and (B) new home sales in the Tucson, Arizona metropolitan area
are expected to remain relatively flat during 1998; (viii) the inability of the
Company to obtain sufficient capital on terms acceptable to the Company to fund
its planned capital and other expenditures; (ix) changes in local, state and
federal rules and regulations governing real estate developing and homebuilding
activities and environmental matters, including "no growth" or "slow growth"
initiatives, building permit allocation ordinances and building moratoriums; (x)
expansion by the Company into new markets in which the Company has no operating
experience, such as Northern California; (xi) the inability of the Company to
identify acquisition candidates that will result in successful combinations;
(xii) the failure of the Company to make acquisitions on terms acceptable to the
Company; (xiii) the loss of key employees of the Company, including William W.
Cleverly, Steven J. Hilton and John R. Landon; and (xiv) factors that may affect
the Company's mortgage assets, including general conditions in the financial
markets, changes in prepayment rates and changes in interest rates.
Forward-looking statements express expectations of future events. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to these
inherent uncertainties, the investment community is urged not to place undue
reliance on forward-looking statements. In addition, Monterey undertakes no
obligations to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of anticipated events or changes to projections over
time.
(1) "Forward-looking statements" can be identified by use of words
such as "expect," "believe," "estimate," "project,"
"forecast," "anticipate," "plan," and similar expressions.
