<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
SCHEDULE 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
SUNDANCE HOMES, INC.
(Name of Issuer)
SUNDANCE HOMES, INC.
(Name of Persons Filing Statement)
Common Stock, par value $0.01 per share
(Title of Class of Securities)
86724Q106
(CUSIP Number of Class of Securities)
Maurice Sanderman
Sundance Homes, Inc.
70 E. Lake Street
Suite 1600
Chicago, Illinois 60601
(Name, Address and Telephone Number of Persons Authorized to Receive
Notices and Communications on Behalf of Persons Filing Statement)
Copies to:
Lawrence D. Levin
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60607
(312) 902-5654
This statement is filed in connection with (check the appropriate box):
a.[X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b.[ ] The filing of registration statement under the Securities Act of
1933.
c.[_] A tender offer.
d.[_] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X]
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Transaction Amount of Filing Fee
Valuation(1)
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$ 60,000,000 $ 12,000
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[X] Check box if any part of the fee is offset as provided by rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
Amount Previously Paid: $12,000 Filing Party: Sundance Homes, Inc.
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Schedule: Pres14A Date Filed: April 5, 1999
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<PAGE>
SCHEDULE 13E-3
INTRODUCTION
This Rule 13e-3 Transaction Statement relates to Sundance Homes, Inc.'s
(the" Company") sale of substantially all of the assets and assumption of
certain liabilities of its suburban housing operations, which include
substantially all of the assets and certain liabilities of its Suburban Property
Division and its Rembrandt Homes Division, to Centex Homes, a Nevada general
partnership ("Centex"), pursuant to the Sale and Purchase Agreement dated as of
April 2, 1999, a copy of which is attached to the Preliminary Proxy Statement as
Appendix A. The sale of substantially all of the Company's suburban assets to
Centex is more fully described in the Preliminary Proxy Statement of Sundance
Homes, Inc., filed concurrently herewith (the "Preliminary Proxy Statement"), a
copy of which is attached hereto as Exhibit (d).
The cross reference sheet below is being supplied pursuant to General
Instruction F of Schedule 13E-3. It identifies the location in the Preliminary
Proxy Statement of the information required to be included in response to the
items of this Schedule. The information set forth in the Preliminary Proxy
Statement, including all Appendices thereto, is expressly incorporated by
reference and responses to each item herein are qualified in their entirety by
the provisions of the Preliminary Proxy Statement.
CROSS REFERENCE SHEET
ITEM IN SCHEDULE 13E-3 WHERE LOCATED IN PRELIMINARY
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PROXY STATEMENT
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Item 1(a) .................. +
Item 1(b)-(d)................ "Security Ownership of Principal Shareholders and
Management" and "Market for Registrant's Common
Equity and Related Stockholder Matters".
Item 1(e)-(f)................ *
Item 2(a)-(g)................ +
Item 3(a).................... *
Item 3(b).................... "The Proposed Sale - Background of the Proposed
Sale" and "The Sale and Purchase Agreement".
<PAGE>
Item 4(a).................... "The Proposed Sale" and "The Sale and Purchase
Agreement".
Item 4(b).................... "The Proposed Sale - Interest of Certain Persons
in the Proposed Sale".
Item 5(a)-(e)................ *
Item 5(f)-(g)................ +
Item 6(a).................... "The Sale and Purchase Agreement - Purchase
Price". Certain other information is included
only within this Schedule 13E-3 filing.
Item 6(b).................... "The Proposed Sale - Expenses and Other Fees".
Item 6(c)(d)................. *
Item 7(a)-(c)................ "The Proposed Sale - Background of the Proposed
Sale" and "The Proposed Sale - Sundance's
Reasons for the Proposed Sale; Recommendation of
the Board of Directors".
Item 7(d).................... "The Proposed Sale - Use of Proceeds; Plans for
Future Operations After the Proposed Sale", "The
Proposed Sale - Material Federal Income Tax
Consequences", "The Proposed Sale - Accounting
Treatment" and "The Sale and Purchase Agreement".
Item 8(a).................... "The Proposed Sale - Sundance's Reasons for the
Proposed Sale; Recommendation of the Board of
Directors" and "The Proposed Sale - Interest of
Certain Persons in the Proposed Sale". Certain
additional information is included only within
this Schedule 13E-3 filing.
Item 8(b).................... "The Proposed Sale - Sundance's
Reasons for the Proposed Sale; Recommendation of
the Board of Directors" and "The Proposed Sale -
Opinion of Houlihan Lokey Howard & Zukin
Financial Advisors, Inc." Certain additional
information is included only within this Schedule
13E-3 filing.
<PAGE>
Item 8(c).................... "The Special Meeting - Vote Required; Voting
Rights".
Item 8(d).................... "The Proposed Sale - Background of the Proposed
Sale" and "The Proposed Sale - Opinion of
Houlihan Lokey Howard & Zukin Financial Advisors,
Inc." Certain additional information is included
only within this Schedule 13E-3 filing.
Item 8(e).................... "The Proposed Sale - Background of the Proposed
Sale".
Item 8(f).................... *
Item 9(a)-(c)................ "The Proposed Sale - Background of the Proposed
Sale", "The Proposed Sale - Sundance's Reasons
for the Proposed Sale; Recommendation of the
Board of Directors" and "The Proposed Sale -
Opinion of Houlihan Lokey Howard & Zukin
Financial Advisors, Inc." Certain additional
information is included only within this Schedule
13E-3 filing.
Item 10(a)................... "Security Ownership of Principal Shareholders and
Management".
Item 10(b)................... *
Item 11...................... "The Special Meeting - Intentions and Agreements
to Vote".
Item 12(a)-(b)............... "The Special Meeting - Purpose of the Special
Meeting; Recommendation of the Board of
Directors", "The Special Meeting - Intentions and
Agreements to Vote" and "The Proposed Sale -
Sundance's Reasons for the Proposed Sale;
Recommendation of the Board of Directors".
Item 13(a)................... "The Special Meeting - Dissenters' Rights of
Appraisal" and Appendix C to the Preliminary
Proxy Statement.
Item 13(b)-(c)............... *
<PAGE>
Item 14(a)(1)-(2)............ "Financial Statements as of September 30, 1998
and 1997 and for the Years Ended September 30,
1998, 1997 and 1996" and "Financial Statements
(unaudited) as of December 31, 1998 and September
30, 1998 and for the Three Months Ended December
31, 1998 and 1997".
Item 14(a)(3)................ *
Item 14(a)(4)................ +
Item 14(b)(1)................ "Pro Forma Financial Data".
Item 14(b)(2)................ "Pro Forma Financial Data". Certain additional
information is included only within this
Schedule 13E-3 filing.
Item 14(b)(3)................ *
Item 15(a)................... "The Special Meeting - Proxy Solicitation and
Expenses", "The Proposed Sale - General", "The
Sale and Purchase Agreement - Treatment of the
Company Employees", "The Sale and Purchase
Agreement - Purchased Assets and Assumed
Liabilities" and "The Sale and Purchase
Agreement--Treatment of Company Employees".
Item 15(b)................... "The Special Meeting - Proxy Solicitation and
Expenses".
Item 16...................... The Preliminary Proxy Statement and each Appendix
attached thereto.
Item 17(a)................... *
Item 17(b)................... Appendix B to the Preliminary Proxy Statement.
Item 17(c)................... +
Item 17(d)................... The Preliminary Proxy Statement in its entirety,
including each appendix thereto.
Item 17(e)................... Appendix C to the Preliminary Proxy Statement.
Item 17(f)................... *
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* The Item is inapplicable or the answer thereto is in the negative.
+ The information in response to this item appears only in the Schedule 13E-3
filing.
<PAGE>
SCHEDULE 13E-3
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
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(a) The name of the issuer is Sundance Homes, Inc., which has its principal
executive offices at 150 West Center Court, Schaumburg, Illinois 60195.
(b)-(d) The Company's common stock, par value $.01 per share is the only
class of securities of the Company subject to this Rule 13E-3 transaction. The
information in the sections of the Preliminary Proxy Statement entitled
"Security Ownership of Principal Shareholders and Management" and "Market for
Registrant's Common Equity and Related Stockholder Matters" is incorporated by
reference herein.
(e)-(f) Not applicable.
ITEM 2. IDENTITY AND BACKGROUND.
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This statement is being filed by the Company, which is the owner of the
assets which are the subject of the Rule 13e-3 transaction.
(a)-(g) Not applicable.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
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(a) Not applicable.
(b) The information in the sections of the Preliminary Proxy Statement
entitled "The Proposed Sale - Background of the Proposed Sale" and "The Sale and
Purchase Agreement" is incorporated by reference herein.
ITEM 4. TERMS OF THE TRANSACTIONS.
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(a) The information in the sections of the Preliminary Proxy Statement
entitled "The Sale and Purchase Agreement" and "The Proposed Sale" is
incorporated by reference herein.
(b) The information in the section of the Preliminary Proxy Statement
entitled "The Proposed Sale - Interest of Certain Persons in the Proposed Sale"
is incorporated by reference herein.
<PAGE>
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
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(a)-(e) Not applicable.
(f)-(g) The Company as of the beginning of its current fiscal year and
currently has fewer than 300 shareholders of record of its common stock, and
therefore is eligible to terminate the registration of such securities pursuant
to Section 12(g)(4) of the Securities Exchange Act of 1934, as amended (the
"Act"). The Company would also be eligible to suspend its reporting obligations
pursuant to section 15(d) of the Act if it were to elect to terminate its
registration. The Company, however, has no plans at this time to terminate its
registration pursuant to Section 12(g)(4) of the Act or to suspend its reporting
obligations pursuant to section 15(d) of the Act.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
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(a) The information in the section of the Preliminary Proxy Statement
entitled "The Sale and Purchase Agreement - Purchase Price" is incorporated by
reference herein. There is no financing condition to the closing of the proposed
sale and to the best of the Company's knowledge, Centex will raise the necessary
funds from its existing revolving credit facility.
(b) The information in the section of the Preliminary Proxy Statement
entitled "The Proposed Sale - Expenses and Other Fees" is incorporated by
reference herein.
(c)-(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
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(a)-(c) The information in the sections of the Preliminary Proxy Statement
entitled "The Proposed Sale - Background of the Proposed Sale" and "The Proposed
Sale - Sundance's Reasons for the Proposed Sale; Recommendation of the Board of
Directors" is incorporated by reference herein.
(d) The information in the sections of the Preliminary Proxy Statement
entitled "The Proposed Sale - Use of Proceeds; Plans for Future Operations After
the Proposed Sale", "The Proposed Sale - Material Federal Income Tax
Consequences", "The Proposed Sale -Accounting Treatment" and "The Sale and
Purchase Agreement" is incorporated by reference herein.
ITEM 8. FAIRNESS OF THE TRANSACTION.
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(a) The information in the section of the Preliminary Proxy Statement
entitled "The Proposed Sale - Sundance's Reasons for the Proposed sale;
Recommendation of the Board of Directors" is incorporated by reference herein.
Maurice Sanderman, Chairman and Chief Executive Officer, abstained from voting
on the proposed sale due to the potential personal
<PAGE>
interest which might result from the consummation of the sale of assets. The
information in the section of the Preliminary Proxy Statement entitled "The
Proposed Sale - Interest of Certain Persons in the Proposed Sale" is
incorporated by reference herein.
(b) The information in the sections of the Preliminary Proxy Statement
entitled "The Proposed Sale - Sundance's Reasons for the Proposed Sale;
Recommendation of the Board of Directors" and "The Proposed Sale - Opinion of
Houlihan Lokey Howard & Zukin Financial Advisors, Inc." is incorporated by
reference herein.
(c) The approval of two-thirds of all outstanding shares must be received
for the proposed transaction to receive shareholder approval regardless of
whether such shares are held by an affiliate or a non-affiliate. The information
in the section of the Preliminary Proxy Statement entitled "The Special Meeting
- - Vote Required; Voting Rights" is incorporated by reference herein.
(d) The majority of the directors who are not employees of the issuer have
not retained an unaffiliated representative to act solely on behalf of
unaffiliated security holders for the purposes of negotiating the terms of the
sale of assets. However, a special committee of the Board of Directors
consisting of the non-employee directors along with the Chairman and CEO have
retained outside legal counsel to help negotiate the terms of the Sale and
Purchase Agreement, and the Company has hired an unaffiliated investment banking
firm to render an opinion on the fairness, to the Company, from a financial
point of view, of the consideration to be received upon the sale of assets. The
information in the sections of the Preliminary Proxy Statement entitled "The
Proposed Sale - Background of the Proposed Sale" and "The Proposed Sale -
Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc." is
incorporated by reference herein.
(e) The information in the section of the Preliminary Proxy Statement
entitled "The Proposed Sale - Background of the Proposed Sale" is incorporated
by reference herein.
(f) Not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
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(a)-(c) The information in the sections of the Preliminary Proxy Statement
entitled "The Proposed Sale - Background of the Proposed Sale", "The Proposed
Sale - Sundance's Reasons for the Proposed Sale; Recommendation of the Board of
Directors" and "The Proposed Sale - Opinion of Houlihan Lokey Howard & Zukin
Financial Advisors, Inc." is incorporated by reference herein. The Opinion of
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. is attached to the
Preliminary Proxy Statement as Appendix B. The opinion is also available for
inspection and copying at the principal executive offices of the Company
during its regular business hours by any interested shareholder of the Company
or his or her representative who has been so designated in writing. Although
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. opined that the
consideration to be received for the
<PAGE>
assets is fair to the Company from a financial point of view, the Company and
Centex determined the purchase price through negotiations.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
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(a) The information in the section of the Preliminary Proxy Statement
entitled "Security Ownership of Principal Shareholders and Management" is
incorporated by reference herein.
(b) Not applicable.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
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SECURITIES.
-----------
The information in the section of the Preliminary Proxy Statement entitled
"The Special Meeting - Intentions and Agreements to Vote" is incorporated by
reference herein.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
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THE TRANSACTION.
----------------
(a)-(b) The information in the sections of the Preliminary Proxy Statement
entitled "The Special Meeting - Purpose of the Special Meeting; Recommendation
of the Board of Directors", "The Special Meeting - Intentions and Agreements to
Vote", and "The Proposed Sale -Sundance's Reasons for the Proposed Sale;
Recommendation of the Board of Directors" is incorporated by reference herein.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
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(a) The information in the section of the Preliminary Proxy Statement
entitled "The Special Meeting - Dissenters' Rights of Appraisal" and Appendix C
of the Preliminary Proxy Statement is incorporated by reference herein.
(b)-(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
- -------------------------------
(a) (1)-(2) The information in the sections of the Preliminary Proxy
Statement entitled "Financial Statements as of September 30, 1998 and 1997 and
for the Years Ended September 30, 1998, 1997 and 1996" and "Financial Statements
(unaudited) as of December 31, 1998 and September 30, 1998 and for the Three
Months Ended December 31, 1998 and 1997" is incorporated by reference herein.
(a) (3) Not applicable.
(a) (4)
<TABLE>
<CAPTION>
As of As of
9/30/98 12/31/98
------- --------
<S> <C> <C>
Net Book Value $20,432 $19,315
Number of shares outstanding 7,809 7,817
Net Book Value per Share $ 2.62 $ 2.47
</TABLE>
<PAGE>
(b)(1) The information in the section of the Preliminary Proxy Statement
entitled "Pro Forma Financial Data" is incorporated by reference herein.
(b)(2) Not applicable
(b)(3) The information in the section of the Preliminary Proxy Statement
entitled "Pro Forma Financial Data" is incorporated by reference herein.
SUNDANCE HOMES
PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1998
(Unaudited, In Thousands)
<TABLE>
<CAPTION>
Less:
Suburban
September 30, Net Assets Pro Forma
1998 Sold (A) Adjustments Pro Forma
------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 1,947 $ - $ 58,298 (B) $ 595
(12,000)(C)
(2,000)(D)
(45,650)(E)
Real estate inventories 102,088 (57,574) 44,514
Prepaid expenses and other assets 2,227 (361) 2,000 (D) 3,866
Property and equipment, net 4,988 (3,342) 1,646
-------- -------- -------- -------
$111,250 $(61,277) $ 648 $50,621
======== ======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Accounts payable and accrued construction liabilities $ 23,026 $(12,000)(C) $11,026
Other accrued expenses 2,386 2,386
Customer deposits 3,464 (932) 2,532
Notes payable 55,249 (1,547) (45,650)(E) 8,052
Secured subordinated notes payable to Principal Shareholder 2,500 - 2,500
Unsecured subordinated notes payable to Principal Shareholder 4,193 - 4,193
-------- -------- -------- -------
Equity (Deficit) 20,432 (500)(F) 19,932
-------- -------- -------- -------
$111,250 $ (2,479) $(58,150) $50,621
======== ======== ======== =======
</TABLE>
- ---------------
Adjustments to the pro forma consolidated balance sheet consist of:
(A) Net Suburban assets purchased by buyer.
(B) Net proceeds received from sale of Suburban assets.
(C) Payoff of accounts payable on Work In Process Inventory related to the
Suburban assets being sold.
(D) Holdback established with buyer as security for Sundance's, indemnification
obligation.
(E) Partial paydown of outstanding line of credit.
(F) Estimated loss on sale of Suburban assets after estimated transaction costs
of $542.
<TABLE>
<CAPTION>
Proforma Proforma
As of As of
9/30/98 12/31/98
-------- --------
<S> <C> <C>
Net Book Value $19,932 $18,815
Number of shares outstanding 7,809 7,817
Net Book Value per Share $ 2.55 $ 2.41
</TABLE>
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
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(a) The information in the sections of the Preliminary Proxy Statement
entitled "The Special Meeting - Proxy Solicitation and Expenses", "The Proposed
Sale - General", "The Sale and Purchase Agreement - Purchased Assets and Assumed
Liabilities" and "The Sale and Purchase Agreement - Treatment of Company
Employees" is incorporated by reference herein.
(b) The information in the sections of the Preliminary Proxy Statement
entitled "The Special Meeting - Proxy Solicitation and Expenses" is incorporated
by reference herein.
ITEM 16. ADDITIONAL INFORMATION.
- --------------------------------
The information in the Preliminary Proxy Statement and each Appendix
thereto, a copy of which is attached hereto as Exhibit (d) is incorporated by
reference herein in its entirety.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
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(a) Not applicable.
(b) Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
(c) Voting Agreement, dated April 2, 1999 between Centex and Maurice
Sanderman.
(d) Preliminary Proxy Materials of the Company for the Special Meeting of
Shareholders filed with the Securities and Exchange Commission on April 5, 1999.
(e) Excerpts from the Illinois Business Corporation Act Relating to
Dissenters' Rights of Appraisal.
(f) None.
<PAGE>
SIGNATURE
After due inquiry and to the best of our knowledge and belief, we certify
that the information set forth in this statement is true, complete and correct.
April 5, 1999
SUNDANCE HOMES, INC.
By: /s/ Joseph Atkin
-----------------------
JOSEPH ATKIN
Chief Financial Officer
<PAGE>
[HOULIHAN LOKEY LETTERHEAD]
April 2, 1999
The Board of Directors of
Sundance Homes, Inc.
70 East Lake Street
Suite 1600
Chicago, IL 60601
Dear Committee Members:
We understand that Sundance Homes, Inc. ("Sundance" or the "Company") has
entered into a Sale and Purchase Agreement dated April 2, 1999 with Centex
Homes ("Centex") in which Sundance will sell substantially all the assets of
its suburban home building operations to Centex. Under the terms of the
agreement, Centex will pay approximately $60.0 million in cash at closing for
selected developed and undeveloped lots, work in process, and other assets of
Sundance's subsidiaries Rembrandt Homes, Inc., Sundance Suburban Properties,
Inc. and other entities of Sundance's suburban home building operations (the
"Divisions" hereinafter). The precise amount of cash to be received is
determined by a complex formula reflecting the fact that during the period
between the signing of the Sale and Purchase Agreement and the closing of the
transaction, Sundance will be continuing to operate in the normal course of
business, which means it will be closing sales of finished homes to purchasers
and continuing construction of homes-in-progress, called "work-in-process". To
the extent that the number of finished homes which are sold prior to the
closing date of the transaction varies from the number originally estimated,
the actual purchase price will vary from the estimated purchase price. If a
greater number of finished homes are sold, the actual purchase price will be
less than the estimated purchase price, but, of course Sundance will retain
the proceeds from the sale of these finished homes. Conversely, if fewer
finished homes are sold than originally estimated, the actual purchase price
will be more than the estimated purchase price. Additionally, if the amount of
construction work completed on the homes-in-progress on the closing date of
the transaction is more or less than the amount originally estimated, the
actual purchase price will be more or less, respectively, than the estimated
purchase price, but in any event, Sundance will be reimbursed for the cost of
all such construction work invoiced prior to the closing date. Thus, these
potential variances in the actual cash received at closing as compared to the
estimated purchase price will not materially affect the financial benefits of
the proposed transaction. Such transaction and all related transactions
identified to us are referred to collectively herein as the "Transaction."
You have requested our opinion (the "Opinion") as to the maters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested, and did not solicit
third party indications of interest in acquiring all or any part of the
Company. Furthermore, at your request, we have not negotiated the Transaction
or advised you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders for the fiscal
years ended 1993, 1997, and 1998; annual reports on Form 10-K for the
fiscal years ended 1996 through 1998; quarterly reports on Form 10-Q for
the quarter ended December 31, 1997 and 1998; Company-prepared financial
statements for the year ended September 30, 1998 and for the quarters
ended December 31, 1997 and 1998 for the Divisions, which the Company's
management has identified as being the most current financial statements
available.
2. reviewed copies of the following agreements: the Sale and Purchase
Agreement by and among Sundance Homes, Inc. and its subsidiaries and
Centex Homes dated April 2, 1999 ("Sale and Purchase Agreement");
B-1
<PAGE>
3. reviewed a draft of the preliminary proxy statement to be filed April 5,
1999 (Draft dated April 2, 1999);
4. met with members of the senior management of the Company to discuss the
operations of Sundance, Rembrandt Homes, Inc., Sundance Suburban
Properties, Inc. and other entities of Sundance's suburban home building
operations; the current financial condition of Sundance in regard to its
lending arrangements; the alternatives available to Sundance to
restructure its debt with and without the proposed sale; the anticipated
focus of Sundance after the proposed sale; and met with representatives
of the Company's counsel to discuss the proposed sale and related
matters;
5. visited the company's offices located at 70 East Lake St., Chicago, IL;
6. reviewed copies of certain real estate appraisals provided by Sundance;
7. reviewed the certificate of the Company's chief financial officer
addressed to Houlihan Lokey dated March 19, 1999 and schedules attached
to the certificate;
8. reviewed the historical market prices and trading volume for the
Company's publicly traded securities;
9. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company, and publicly available
prices and premiums paid in other transactions that we considered
similar to the Transaction;
10. reviewed drafts of certain documents to be delivered at the closing of
the Transaction; and
11. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
As you are aware, certain schedules to the Sale and Purchase Agreement have
not been finalized; the only documentation with respect thereto that we have
received is referred to above in Items 2 and 7. Accordingly, this Opinion is
subject to the assumption that the final schedules will conform in all
material respects to the provisions and representations contained in Items 2
and 7 above. At the request of the Board, Houlihan Lokey is prepared to review
the final schedules to the Sale and Purchase Agreement to determine whether
they conform in all material respects with the Company's representations made
as of the date of this Opinion. Said determination will be provided to the
Board under separate letter. Houlihan Lokey's review of the final schedules
will not constitute an updated analysis or bring-down opinion to a date
subsequent to the date of this Opinion.
This Opinion is furnished solely for your benefit and may not be relied
upon by any other person without our express, prior written consent. This
Opinion is delivered to each recipient subject to the conditions, scope of
engagement, limitations and understandings set forth in this Opinion and our
engagement letter, and subject to the understanding that the obligations of
Houlihan Lokey in the Transaction are solely corporate obligations, and no
officer, director, employee, agent, shareholder or controlling person of
Houlihan Lokey shall be subjected to any personal liability whatsoever to any
person, nor will any such claim be asserted by or on behalf of you or your
affiliates.
We have relied upon and assumed, without independent verification, that the
financial information provided to us has been reasonably prepared and reflects
the best currently available estimates of the financial results and condition
of the Company, and that there has been no material change in the assets,
financial condition, business or prospects of the Company since the date of
the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other
conditions as they exist and can be evaluated by us at the date of this
letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the consideration to be received by the Company in connection with the
Transaction is fair to the Company from a financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
/s/ Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
B-2
<PAGE>
Exhibit G
---------
VOTING AGREEMENT
This VOTING AGREEMENT (this "Agreement") is entered into as of this 5th
day of April, 1999 between CENTEX HOMES, a Nevada general partnership ("Centex
Homes"), and MAURICE SANDERMAN, an individual resident in the State of Illinois
("Shareholder").
WITNESSETH:
WHEREAS, in order to induce Centex Homes to enter into that certain Sale
and Purchase Agreement, dated as of April 2, 1999 (the "Purchase Agreement"), by
and among Sundance Homes, Inc., an Illinois corporation (the "Company"),
Sundance Suburban Properties, Inc., an Illinois corporation ("SSPI"), Rembrant
Homes, Inc., an Illinois corporation ("Rembrandt"), Lockport Development, Inc.,
an Illinois corporation ("Lockport"), McCarty's Mill Development, Inc., an
Illinois corporation ("MMDI"), Sutton Development, Inc., an Illinois corporation
("Sutton"), SAR Development, Inc., an Illinois corporation ("SAR"), Matteson
Development, Inc., an Illinois corporation ("Matteson"), Walnut Pointe
Development, Inc., an Illinois corporation ("Walnut", along with SSPI,
Rembrandt, Lockport, MMDI, Sutton, SAR, SLRB and Matteson are collectively
referred to as the "Subsidiaries"), the Shareholder is willing to enter into
this Agreement and to vote his shares ("Company Shares") of voting capital stock
of the Company owned by him, or as to which he otherwise has voting rights, in
accordance with the terms and provisions set forth herein; and
WHEREAS, capitalized terms used but not defined in this Agreement have the
respective meanings set forth in the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises, the terms and provisions
set forth herein, the mutual benefits to be gained by the performance thereof
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
VOTING; TERM
SECTION 1.1. Voting. For so long as this Agreement remains in effect, the
Shareholder shall, at any meeting of the shareholders of the Company, and in any
action by written consent of the shareholders of the Company in lieu of a
meeting, vote all of the Company Shares owned by such Shareholder as of the date
of this Agreement, or as to which he otherwise has voting rights, and any
additional Company Shares acquired by such Shareholder (whether by purchase or
otherwise), or with respect to which he otherwise obtain voting rights, from
time to time after the date hereof (collectively, the "Shares") (i) in favor of
the Purchase Agreement (as the same may be amended from time to time), the
purchase by Centex Homes of the Assets of the Selling Parties listed on Schedule
1.1 to the Purchase Agreement (but not including the Excluded Assets listed on
Schedule 1.2 to the Purchase Agreement) (the "Transaction") and the other
transactions contemplated by the Purchase Agreement and (ii) against any
Acquisition Proposal or any other action or agreement that,
<PAGE>
directly or indirectly, is inconsistent with the Purchase Agreement, the
Transaction or the other transactions contemplated by the Purchase Agreement or
that is reasonably likely (a) to impede, interfere with, delay or postpone the
Transaction or the other transactions contemplated by the Purchase Agreement,
(b) to result in a breach of any covenant, representation, warranty or any other
obligation of the Company or the Subsidiaries under the Purchase Agreement or
(c) to cause any conditions to the obligations of the parties under the Purchase
Agreement not to be fulfilled. The obligation of the Shareholder to vote the
Shares in the manner set forth in this Article I shall be unconditional;
provided, however, that such obligation shall be suspended for so long as there
shall be issued and in effect any order, writ, injunction, judgment or decree of
any federal or state court or other Governmental Authority which has the effect
of making illegal, impeding or otherwise restraining or prohibiting the
Shareholder from voting the Shares in the manner set forth herein.
SECTION 1.2. Term. Notwithstanding any provision of this Article I to the
contrary, the obligations of the Shareholder to vote the Shares in the manner
set forth in this Article I shall be rendered null, void and without effect if
(i)(a) all of the Overbid Termination Conditions shall been satisfied, (b) the
Selling Parties shall have terminated the Purchase Agreement pursuant to Section
9.1(iv)(a) thereof, and (c) Centex Homes shall have been paid the aggregate
principal amount of (as well as any interest accrued thereon) the Termination
Fee Note, (ii) if the Purchase Agreement is otherwise terminated pursuant to any
other provision of Section 9.1 or (iii) the Transaction is consummated pursuant
to the terms and conditions of the Purchase Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Shareholder represents and warrants to Centex Homes as follows:
SECTION 2.1. Authority; Binding Effect. The Shareholder has all necessary
power and authority to enter into and perform his obligations under this
Agreement. This Agreement has been duly executed and delivered by the
Shareholder and constitutes a legal, valid and binding obligation of him,
enforceable against the Shareholder in accordance with the terms hereof.
SECTION 2.2. Absence of Conflicts. The execution and delivery by the
Shareholder of this Agreement, the performance by him of his obligations
hereunder and the consummation by him of the transactions contemplated hereby
will not (i) conflict with, result in any violation or breach of, constitute a
default under, give rise to any right of termination or acceleration (with or
without notice or the lapse of time or both) pursuant to, or result in being
declared void, voidable or without further effect, any term or provision of any
material note, bond, mortgage, indenture, lease, franchise, permit, license,
contract or other instrument or document to which the Shareholder is a party or
by which his properties or assets are bound or (ii) conflict with, or result in
any violation of, any law, ordinance, statute, rule or regulation of any
Governmental Authority or of any order, writ, injunction, judgment or decree of
any court, arbitrator or Governmental Authority applicable to the Shareholder or
his respective properties or assets.
-2-
<PAGE>
SECTION 2.3. Governmental Consents and Filings. There is no requirement
applicable to the Shareholder to obtain any consent of, or to make or effect any
declaration, filing or registration with, any Governmental Authority for the
valid execution and delivery by the Shareholder of this Agreement, the due
performance by him of his obligations hereunder or the lawful consummation by
him of the transactions contemplated hereby.
SECTION 2.4. Title to Shares. As of the date hereof, the Shareholder is the
record and beneficial owner of the number of Shares set forth on Exhibit A
attached hereto and incorporated by reference herein. The Shares set forth on
such exhibit are the only Company Shares owned by the Shareholder. The Shares
are, or, if acquired after the date hereof, will be, owned by the Shareholder
free and clear of all Encumbrances that may affect the Shareholder's ability to
vote the Shares in accordance with the terms of this Agreement. The Shareholder
has not appointed or granted any proxy, which appointment or grant is still
effective, with respect to any of such Shares.
SECTION 2.5. Other Shares. As of the date hereof, the Shareholder has
voting rights with respect to, but not record and beneficial ownership of, the
number of Shares set forth on Exhibit B attached hereto and incorporated by
reference herein. The Shares set forth on such exhibit are the only Company
Shares which are not owned by the Shareholder, but with respect to which he
otherwise have voting rights. The Shareholder has not appointed or granted any
proxy, which appointment or grant is still effective, with respect to any of
such Shares.
ARTICLE III
COVENANTS
The Shareholder hereby covenants and agrees as follows:
SECTION 3.1. No Encumbrances on or Transfer of Shares.
----------------------------------------
(a) Except pursuant to the terms of this Agreement or the Purchase
Agreement, for so long as this Agreement remains in effect, the Shareholder
shall not directly or indirectly sell, convey or transfer record or beneficial
ownership of any Shares by any means whatsoever to any person, without the prior
written consent of Centex Homes. Without limiting the generality of the
foregoing, for so long as this Agreement remains in effect, the Shareholder
shall not, directly or indirectly, (i) except pursuant to the terms of this
Agreement, grant any proxies or enter into any voting trust or other agreement
or arrangement with respect to the Shares or (ii) except pursuant to the terms
of the Purchase Agreement or as permitted pursuant to paragraphs (b) below,
sell, assign, transfer, encumber or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to the
direct or indirect sale, assignment, transfer, encumbrance or other disposition
of, any Shares, in each case without the prior written consent of Centex Homes.
If requested by Centex Homes, the Shareholder shall cause an appropriate legend
referring to the restrictions provided for in this Section 3.1(a) to be placed
on the certificates evidencing the Shares.
(b) Notwithstanding the provisions of paragraph (a) above, the Shareholder
may sell, assign, transfer, encumber or otherwise dispose of any Shares owned by
the Shareholder to a
-3-
<PAGE>
Permitted Transferee (as hereinafter defined) without the consent of Centex
Homes, but only if (i) the certificate or certificates evidencing such Shares
bear an appropriate legend referring to the restrictions provided for in this
Section 3.1, (ii) the Permitted Transferee shall have executed, as a condition
to obtaining ownership of such Shares, an appropriate document (a "Supplemental
Agreement") in which the Permitted Transferee agrees that its ownership of such
Shares shall be subject to, and that the Permitted Transferee shall comply with,
all of the terms and conditions of this Agreement (including, but not limited
to, the restrictions on the sale, assignment, transfer, encumbrance or other
disposition of Shares set forth in this Section 3.1) and that the Permitted
Transferee shall not sell, assign, transfer, encumber or otherwise dispose of
any Shares owned by it except in compliance with the provisions hereof and in
which the Permitted Transferee confirms that the representations and warranties
contained in Article II hereof are true and correct with respect to such
Permitted Transferee as of the date of the Supplemental Agreement and (iii) the
Supplemental Agreement shall have been promptly delivered to Centex Homes and
approved (as to its conformity with the requirements of this Section 3.1(b) by
it in its reasonable discretion prior to the acquisition by such Permitted
Transferee of the Shares. Centex Homes shall not unreasonably withhold or delay
its approval of any Supplemental Agreement. As used herein, the term "Permitted
Transferee" means the Shareholder named in this Agreement and any spouse or
lineal ancestor or descendant of the Shareholder, any entity the entire equity
interest in which is owned by any of the foregoing persons and any executor or
administrator of the estate of any of the foregoing persons.
SECTION 3.2. Best Efforts. Each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations and which may be required under any agreements, contracts,
commitments, instruments, understandings, arrangements or restrictions of any
kind to which it is a party or by which it is or may be bound, in order to
effectuate the transactions contemplated by this Agreement, to obtain all
necessary waivers, consents and approvals from, and effect all necessary
registrations and filings with, any Governmental Authorities, and to rectify any
event or circumstances which could impede the effectuation of the transactions
contemplated hereby.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Expenses. All fees and expenses incurred by any of the parties
hereto in connection with this Agreement or any of the transactions contemplated
hereby shall be borne and paid solely by the party incurring such fees and
expenses.
SECTION 4.2. Further Assurances. The Shareholder shall execute and deliver,
or cause to be executed and delivered all such other and further documents and
instruments and take all such further actions as may be reasonably necessary in
order to effectuate the transactions contemplated by this Agreement.
SECTION 4.3. Action in Shareholder Capacity Only. The Shareholder makes no
agreement or understanding herein as a director or officer of the Company. The
Shareholder is entering into this Agreement solely in his capacity as a record
and beneficial owner of the Shares, or otherwise as a
-4-
<PAGE>
person entitled to vote such Shares, and nothing contained herein shall limit or
affect, or impose any obligations with respect to, any actions taken by the
Shareholder in his capacity as a director or officer of the Company.
SECTION 4.4. Notices. Any notice, request, instructions or other document
to be given hereunder to any party shall be in writing delivered personally or
sent by mail, facsimile or bonded air courier, confirmed in writing, as follows:
If to Centex Homes:
12400 Whitewater Dr., Suite 120
Minnetonka, Minnesota 55343
Attention: Tom Boyce
Telephone: (612) 988-8230
Facsimile: (612) 936-0486
With copy to:
Centex Homes
12400 Whitewater Dr., Suite 120
Minnetonka, Minnesota 55343
Attention: Tim Hoyt
Telephone: (612) 988-8234
Facsimile: (612) 936-0486
and to:
Brian J. Woram
Centex Homes
2728 N. Harwood, 8th Floor
Dallas, Texas 75201
Telephone: (214) 981-6544
Facsimile: (214) 981-6000
If to the Shareholder:
Sundance Homes, Inc.
70 East Lake Street, Suite 1600
Chicago, Illinois 60661
Attention: Maurice Sanderman
Telephone: (312)782-7100
Fax: (312)793-9930
-5-
<PAGE>
with copy to (which shall not constitute effective notice to the
Shareholder):
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attention: Gerald Penner, Esq.
Telephone: (312) 902-5245
Facsimile: (312) 577-8863
Any party may change its address for purposes of this Section by giving
notice of such change of address to the other party in the manner herein
provided for giving notice. Any notice to be given or served upon any party
hereto must be in writing, and shall be delivered in person to the other party,
shall be given by certified mail, return receipt requested, shall be given by
facsimile or shall be given by bonded air courier and shall be deemed to have
been given when received by the addressee; provided, however, that notice
delivered by facsimile mail with the original sent by overnight delivery shall
be deemed to have been received on the day it is faxed to the addressee.
SECTION 4.5. Amendment; Waiver. The terms and provisions of this Agreement
may be modified or amended only by a written instrument executed by each of the
parties hereto, and compliance with any term or provision hereof may be waived
only by a written instrument executed by each party entitled to the benefits of
the same. No failure to exercise any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege granted hereunder.
SECTION 4.6. Entire Agreement. This Agreement (including Exhibits A and B
hereto) constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior written or oral agreements and
understandings and all contemporaneous oral agreements and understandings among
the parties or any of them with respect to the subject matter hereof.
SECTION 4.7. Parties in Interest; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns (it being understood and agreed that nothing contained in
this Agreement is intended to confer any rights, benefits or remedies of any
kind or character on any other Person under or by reason of this Agreement). No
party may delegate any of its obligations or assign or otherwise transfer any
its rights under this Agreement without the prior written consent of each of the
other parties, except as permitted by Section 3.1(b) hereof. Any attempted or
purported assignment, delegation or other transfer by any party in violation of
this Section 4.8 shall be null and void.
SECTION 4.8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois, without regard
to any principles of conflicts of laws that would result in the application of
the laws of any other jurisdiction.
-6-
<PAGE>
SECTION 4.9. Severability. In the event that any provision contained herein
shall be held to be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of any such provision in every other
respect and the validity, legality and enforceability of the remaining
provisions contained in this Agreement shall not be in any way impaired thereby.
[Remainder of page intentionally left blank]
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CENTEX HOMES
By: Centex Real Estate Corporation,
its managing partner
By: ___________________________________
Name: Andrew J. Hannigan
Title: President
________________________________________
Maurice Sanderman
14578 09986 DALLAS 971417.7
-8-
<PAGE>
EXHIBIT A
Shares owned by the Shareholder (record and beneficial ownership): 3,537,500
---------
<PAGE>
EXHIBIT B
Shares over which the Shareholder has voting rights
but of which he is not the record and beneficial owner: 0
-----------
<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Sundance Homes Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $60,000,000
-------------------------------------------------------------------------
(5) Total fee paid: $12,000
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
SUNDANCE HOMES, INC.
150 West Center Court
Schaumburg, Illinois 60195
(847) 255-5555
, 1999
To the Shareholders of
SUNDANCE HOMES, INC.:
You are cordially invited to attend a Special Meeting of Shareholders of
Sundance Homes, Inc. to be held at the offices of Katten Muchin & Zavis, 525
West Monroe Street, Suite 1600, Chicago, Illinois 60661, on ,
, 1999 at 9:00 a.m., local time.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Sale and Purchase Agreement dated April 2,
1999 between Sundance and Centex Homes, a Nevada general partnership, pursuant
to which Sundance has agreed (pending shareholder approval) to sell for cash
substantially all of the assets of its suburban housing operations, which
include substantially all of the assets of its Suburban Property Division and
its Rembrandt Homes Division. The attached Notice of Special Meeting and Proxy
Statement fully describe the proposal to approve the sale of a substantial
part of Sundance's assets to Centex Homes, and a copy of the Sale and Purchase
Agreement is attached as Appendix A to the Proxy Statement.
The Board of Directors believes that the proposed sale is in the best
interests of Sundance and its shareholders since the consummation of the
proposed sale will allow Sundance to substantially reduce its outstanding debt
obligations. Furthermore, the closing of the proposed transaction will allow
Sundance to focus on its urban operations, which the Board of Directors
believes has the potential to be a more profitable line of business than the
suburban housing operations.
THE NON-MANAGEMENT MEMBERS OF THE BOARD OF DIRECTORS HAVE DETERMINED THAT
THE PROPOSED SALE IS FAIR TO AND IN THE BEST INTERESTS OF SUNDANCE AND ITS
SHAREHOLDERS, HAVE UNANIMOUSLY APPROVED AND ADOPTED THE PROPOSED SALE (SUBJECT
TO SHAREHOLDER APPROVAL) AND RECOMMEND THAT SHAREHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE PROPOSED SALE. In arriving at its recommendation, the Board
gave careful consideration to a number of factors, as described in the
enclosed Proxy Statement, including the opinion of its financial adviser,
Houlihan Lokey Howard & Zukin Financial Advisors, Inc., to the effect that the
consideration to be received by Sundance is fair, from a financial point of
view, to Sundance. The written opinion of Houlihan Lokey is attached as
Appendix B to the enclosed Proxy Statement. You are urged to read the opinion
in its entirety for a description of the assumptions made, the matters
considered and the procedures followed by Houlihan Lokey.
DETAILS OF THE PROPOSED SALE APPEAR IN THE ACCOMPANYING PROXY STATEMENT.
PLEASE GIVE THIS MATERIAL YOUR CAREFUL ATTENTION.
Approval of the proposed sale requires the affirmative vote of holders of
two-thirds of Sundance's issued and outstanding shares of common stock.
Directors and officers of Sundance will be present to help host the Special
Meeting and to respond to any questions that you may have. It is important
that your shares of common stock be represented at the Special Meeting.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the enclosed
<PAGE>
Proxy Card and mail it promptly using the enclosed, pre-addressed, postage-
paid, return envelope. If you attend the Special Meeting, you may revoke the
proxy given and vote in person if you wish, even if you have previously
returned your Proxy Card. Your prompt attention will be greatly appreciated.
Sincerely,
/s/ Maurice Sanderman
Maurice Sanderman
Chairman and Chief Executive Officer
<PAGE>
SUNDANCE HOMES, INC.
150 West Center Court
Schaumburg, Illinois 60195
(847) 255-5555
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1999
----------------
To our Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Sundance
Homes, Inc. will be held at the offices of Katten Muchin & Zavis, 525 West
Monroe Street, Suite 1600, Chicago, Illinois 60661, on ,
, 1999, at 9:00 a.m., local time, for the following purposes, as more fully
described in the accompanying Proxy Statement:
(1) To consider and vote upon the proposal to approve and adopt the Sale
and Purchase Agreement between Sundance and Centex Homes, a Nevada
general partnership, pursuant to which Sundance has agreed (pending
shareholder approval) to sell for cash substantially all of the assets
and certain liabilities of its suburban housing operations, which
include substantially all of the assets of its Suburban Property
Division and its Rembrandt Homes Division. The attached Proxy Statement
fully describes the proposal to approve the sale of a substantial part
of Sundance's assets to Centex Homes, and a copy of the Sale and
Purchase Agreement is attached as Appendix A to the Proxy Statement.
(2) To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
Approval of the proposed sale requires the affirmative vote of holders of
two-thirds of Sundance's issued and outstanding shares of common stock, par
value $0.01 per share.
Only shareholders of record at the close of business on , 1999
are entitled to notice of and to vote at the Special Meeting or any
adjournment or postponement thereof. The stock transfer books will not be
closed. For a period of at least ten days prior to the Special Meeting, a
complete list of shareholders entitled to vote at the Special Meeting shall be
open to the examination of any shareholder during ordinary business hours at
the offices of Sundance at 150 West Center Court, Schaumburg, Illinois 60195.
EACH SHAREHOLDER IS CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN
PERSON. TO ASSURE REPRESENTATION AT THE SPECIAL MEETING, HOWEVER, SHAREHOLDERS
ARE URGED TO DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. ANY
SHAREHOLDER ATTENDING THE SPECIAL MEETING MAY VOTE IN PERSON EVEN IF HE OR SHE
HAD PREVIOUSLY RETURNED A PROXY CARD.
Information concerning the matters to be acted upon at the Special Meeting
is set forth in the accompanying Proxy Statement.
By Order of the Board of Directors,
/s/ David Apter
David Apter
Corporate Secretary
Schaumburg, Illinois
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE AGREEMENT WITH CENTEX HOMES............... i
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS........................... ii
THE SPECIAL MEETING....................................................... 1
Time, Date and Place of Special Meeting................................. 1
Purpose of the Special Meeting; Recommendation of the Board of
Directors.............................................................. 1
Record Date and Outstanding Shares...................................... 1
Intentions and Agreements to Vote....................................... 1
Quorum and Voting of Proxies; Revocation................................ 2
Vote Required; Voting Rights............................................ 2
Dissenters' Rights of Appraisal......................................... 2
Proxy Solicitation and Expenses......................................... 3
THE PROPOSED SALE......................................................... 3
General................................................................. 3
Sundance Homes, Inc..................................................... 3
Centex Homes............................................................ 4
Use of Proceeds; Plans for Future Operations After the Proposed Sale.... 4
Background of the Proposed Sale......................................... 5
Sundance's Reasons for the Proposed Sale; Recommendation of the Board of
Directors.............................................................. 6
Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc........ 7
Interest of Certain Persons in the Proposed Sale........................ 10
Regulatory Approvals.................................................... 10
Material Federal Income Tax Consequences................................ 10
Accounting Treatment.................................................... 11
Expenses and Other Fees................................................. 11
THE SALE AND PURCHASE AGREEMENT........................................... 11
Purchased Assets and Assumed Liabilities................................ 11
Purchase Price.......................................................... 11
The Closing............................................................. 12
Representations and Warranties.......................................... 12
Indemnification......................................................... 12
Expenses and Transfer Taxes............................................. 14
Feasibility Period; Conditions to Closing and Closing Deliveries........ 14
Covenants............................................................... 14
No Solicitation; Break-Up Fee........................................... 15
Covenant Not to Compete................................................. 15
Treatment of Company Employees.......................................... 16
Termination............................................................. 16
Consequences of Failure to Close........................................ 16
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT............... 17
SELECTED CONSOLIDATED FINANCIAL DATA OF SUNDANCE.......................... 18
PRO FORMA FINANCIAL DATA.................................................. 19
</TABLE>
<PAGE>
<TABLE>
<S> <C>
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..... 22
Dividends............................................................... 22
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1998 AND 1997 AND FOR THE YEARS
ENDED SEPTEMBER 30, 1998, 1997 AND 1996.................................. 23
Report of Independent Accountants....................................... 23
Consolidated Balance Sheets as of September 30, 1998 and September 30,
1997................................................................... 24
Consolidated Statements of Operations for the years ended September 30,
1998, 1997 and 1996.................................................... 25
Consolidated Statements of Changes in Shareholders' Equity for the years
ended September 30, 1998, 1997 and 1996................................ 26
Consolidated Statements of Cash Flows for the years ended September 30,
1998, 1997 and 1996.................................................... 27
Notes to Consolidated Financial Statements.............................. 28
FINANCIAL STATEMENTS (UNAUDITED) AS OF DECEMBER 31, 1998 AND SEPTEMBER 30,
1998 AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997........... 40
Consolidated Balance Sheets as of December 31, 1998 and September 30,
1998................................................................... 40
Consolidated Statements of Operations for the three months ended
December 31, 1998 and 1997............................................. 41
Consolidated Statements of Cash Flows for the three months ended
December 31, 1998 and 1997............................................. 42
Notes to Consolidated Financial Statements.............................. 43
THE COMPANY............................................................... 46
Business................................................................ 46
Properties.............................................................. 52
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 52
OTHER MATTERS............................................................. 58
Sundance's Independent Auditors......................................... 58
Legal Proceedings....................................................... 58
Proposals of Shareholders............................................... 59
Shareholder List........................................................ 59
</TABLE>
<TABLE>
<C> <S>
APPENDIX A.................. Sale and Purchase Agreement
APPENDIX B.................. Opinion of Financial Advisors
APPENDIX C.................. Text of Illinois Business Corporation Act
Section 11.70 detailing the procedure for
shareholders to exercise their rights to dissent
and seek appraisal of their shares
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE
AGREEMENT WITH CENTEX HOMES
Q. Who is soliciting my proxy?
A. The Board of Directors of Sundance Homes, Inc.
Q. Where and when is the Special Meeting?
A. 9:00 a.m., , , 1999, at the offices of Katten Muchin
& Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661.
Q. What am I voting on?
A. Management of Sundance is seeking the authorization of the shareholders for
the sale of substantially all of the assets of Sundance's suburban housing
operations to, and assumption of certain related liabilities by, Centex
Homes, a Nevada general partnership. Sundance is not selling, and will
continue to own and operate, its urban home building operations along with
several close out projects in the suburbs. If the transaction with Centex
Homes is consummated on or before May 31, 1999, Sundance estimates that it
will receive, net of prorations and expenses, approximately $60 million in
cash for the sale of the proposed assets. The precise amount of cash to be
received is determined by a complex formula reflecting the fact that during
the period between the signing of the Sale and Purchase Agreement and the
closing of the transaction, Sundance will be continuing to operate in the
normal course of business, which means it will be closing sales of finished
homes to purchasers and continuing construction of homes-in-progress,
called work-in-process. To the extent that the number of finished homes
which are sold prior to the closing date of the transaction varies from the
number originally estimated, the actual purchase price will vary from the
estimated purchase price. If a greater number of finished homes are sold,
the actual purchase price will be less than the estimated purchase price,
but, of course, Sundance will retain the proceeds from the sale of these
finished homes. Conversely, if fewer finished homes are sold than
originally estimated, the actual purchase price will be more than the
estimated purchase price. Additionally, if the amount of construction work
completed on the homes-in-progress on the closing date of the transaction
is more or less than the amount originally estimated, the actual purchase
price will be more or less, respectively, than the estimated purchase
price, but in any event, Sundance will be reimbursed for the cost of all
such construction work invoiced prior to the closing date. Thus, these
potential variances in the actual cash received at closing as compared to
the estimated purchase price will not materially affect the financial
benefits of the proposed transaction. See "The Sale and Purchase
Agreement-- Purchase Price."
Q. Why is Sundance selling the suburban housing operations?
A. The Board of Directors of Sundance has thoroughly considered the advantages
and disadvantages of selling the suburban housing operations at this time.
As described in greater detail in this Proxy Statement, the Board believes
that it is in the best interests of the shareholders and Sundance to
convert the assets of its suburban housing operations into cash for the
purpose of reducing a substantial portion of its outstanding bank
indebtedness.
Q. How do I know if Sundance is receiving fair value for the suburban
operating assets?
A. Based on a variety of factors including (i) Sundance's overall goals and
future business plans, (ii) the changing and highly competitive nature of
the home building business and management's expectations regarding probable
trends in the industry and (iii) the limited survey of proposed
alternatives to the transaction, the Board believes that the consideration
to be received from Centex Homes in the sale of substantially all of the
suburban operating assets is fair. In addition, the Board retained Houlihan
Lokey Howard & Zukin Financial Advisors, Inc., an independent investment
banking firm. On behalf of the Board, Houlihan Lokey has concluded that the
consideration to be received by Sundance in the transaction is fair to
Sundance from a financial point of view.
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Q. Will any of the money received from the transaction be distributed to
Sundance's shareholders?
A. No. Sundance intends to use substantially all of the net proceeds generated
from the sale to repay certain outstanding bank indebtedness and use the
remaining net proceeds to pay its accounts payable due to subcontractors
for work in progress done on those assets which are part of the proposed
sale. See "The Proposed Sale--Use of Proceeds; Plans for Future Operations
After the Proposed Sale."
Q. Will shareholders have appraisal rights?
A. Yes. Shareholders of Sundance will have Dissenters' Rights of Appraisal as
a result of this transaction. See "Special Meeting--Dissenters' Rights of
Appraisal."
Q. What should shareholders do now?
A. Shareholders should mail their signed and dated Proxy Card in the enclosed
envelope, as soon as possible, so that their shares will be represented at
the Special Meeting of the Sundance shareholders.
Q. Can shareholders change their vote after they have mailed a signed proxy
card?
A. Yes. Shareholders can change their vote in one of three ways at any time
before their proxies are used. First, shareholders can revoke their proxies
by written notice. Second, shareholders can complete new, later-dated proxy
cards. Third, shareholders can attend the special shareholders' meeting and
vote in person.
Q. How are shares held in a broker's name voted?
A. Brokers will vote shares nominally held in their name (or in what is
commonly called "street name") only if the beneficial shareholder provides
the broker with written instructions on how to vote. Absent such
instructions, these shares will not be voted. Shareholders are urged to
instruct their brokers in writing to vote shares held in street name for
the proposed transaction.
Q. Whom should shareholders call with questions?
A. Sundance's shareholders who have questions about the transaction should
call Joseph R. Atkin, Sundance's Chief Financial Officer at (847) 255-5555.
DISCLOSURE REGARDING
FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements including
statements containing words such as "believes", "anticipates", "estimates",
"should", "could", "expects", and words of similar import. These statements
involve known and unknown risks and uncertainties that may cause Sundance's
actual results or outcomes to be materially different from those anticipated
and discussed herein. Important factors that Sundance believes might cause
such differences include: (1) concentration of Sundance's assets into the
Chicago urban housing market; (2) changes in interest rates and the
availability of mortgage financing; (3) Sundance's substantial leverage; (4)
the seasonal nature of the residential construction business; (5) changes in
general economic and market conditions; (6) changes in costs and availability
of material, supplies and labor; (7) general competitive conditions; (8) the
availability of capital; (9) the ability to successfully affect acquisitions;
and (10) those specific risks that are discussed in the Risk Factors detailed
in Sundance's filings with the Securities and Exchange Commission. In
assessing forward-looking statements contained herein, shareholders are urged
to read carefully all cautionary statements contained in this Proxy Statement
and in those other filings with the Securities and Exchange Commission.
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SUNDANCE HOMES, INC.
150 West Center Court
Schaumburg, Illinois 60195
(847) 255-5555
----------------
PROXY STATEMENT
for the
SPECIAL MEETING OF SHAREHOLDERS
to be held on , 1999
----------------
THE SPECIAL MEETING
Time, Date and Place of Special Meeting
The accompanying Proxy is solicited by the Board of Directors of Sundance
Homes, Inc. for use at the Special Meeting of Shareholders to be held on
, 1999, or at any adjournment or postponement thereof, at the
offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago,
Illinois 60661.
Copies of this Proxy Statement, the attached Notice of Special Meeting of
Shareholders, and the enclosed form of proxy are first being mailed to
Sundance's shareholders on or about , 1999.
Purpose of the Special Meeting; Recommendation of the Board of Directors
At the Special Meeting, shareholders will be asked to consider and vote
upon the proposal to approve and adopt the Sale and Purchase Agreement between
Sundance and Centex Homes, a Nevada general partnership and a wholly owned
subsidiary of Centex Corporation, a Nevada corporation, pursuant to which
Sundance has agreed (pending shareholder approval) to sell for cash
substantially all of the assets of its suburban housing operations to Centex
Homes, with Centex Homes assuming certain liabilities relating to those
assets.
Pursuant to the applicable provisions of the Illinois Business Corporation
Act, Sundance is required to obtain the affirmative vote of two-thirds of the
issued and outstanding shares of Sundance's common stock prior to the sale of
all or substantially all of its property or assets. Although Sundance will
continue to have significant operations after the consummation of the proposed
sale (see "Proposed Sale--Use of Proceeds; Plans for Future Operations After
the Proposed Sale"), the Board of Directors has nevertheless concluded on
advice of counsel that under Illinois law, it is necessary to submit the Sale
and Purchase Agreement and the transactions contemplated thereby to the
shareholders of Sundance for approval.
THE NON-MANAGEMENT MEMBERS OF THE BOARD OF DIRECTORS HAVE UNANIMOUSLY
APPROVED THE PROPOSED SALE (SUBJECT TO SHAREHOLDER APPROVAL) AND RECOMMEND A
VOTE FOR THE ADOPTION AND APPROVAL OF THE SALE AND PURCHASE AGREEMENT AND THE
PROPOSED SALE.
Record Date and Outstanding Shares
The Board of Directors has fixed the close of business on ,
1999 as the record date for determining shareholders entitled to notice of,
and to vote at, the Special Meeting. Accordingly, only holders of record of
Sundance's common stock at the close of business on the record date will be
entitled to vote at the Special Meeting, either by proxy or in person. As of
the record date of the Special Meeting there were issued and outstanding
shares of Sundance's common stock. The outstanding shares of common
stock constitute the only outstanding voting securities of Sundance entitled
to be voted at the Special Meeting.
Intentions and Agreements to Vote
As of the record date, the executive officers and directors of Sundance and
their affiliates beneficially owned an aggregate of shares of
Sundance's common stock, or approximately % of the shares of
<PAGE>
common stock then issued and outstanding. In connection with the proposed sale
of assets, Maurice Sanderman, Chief Executive Officer of Sundance, has agreed
with Centex Homes to vote those shares of Sundance's common stock beneficially
owned by him in favor of the proposed sale. As of the record date, Mr.
Sanderman was the beneficial owner of shares of Sundance's common
stock. In addition, all of the other executive officers and directors of
Sundance and their affiliates have advised Sundance that they intend to vote
their shares of common stock to adopt and approve the Sale and Purchase
Agreement.
Quorum and Voting of Proxies; Revocation
The presence at the Special Meeting, in person or by proxy, of the holders
of a majority of Sundance's issued and outstanding shares of common stock as
of the record date will constitute a quorum at the Special Meeting.
Shares of common stock that are represented by properly executed proxy
cards received by Sundance at or prior to the Special Meeting, and not duly
and timely revoked, will be voted according to the instructions indicated on
the proxy card. Unless contrary instructions are given, the persons named on
the proxy card intend to vote the shares of common stock so represented FOR
the adoption and approval of the Sale and Purchase Agreement and the proposed
sale, which has already been unanimously approved by the Board of Directors.
Discretionary authority is provided in the Proxy as to any matters not
specifically referred to therein. Management is not aware of any other matters
that are likely to be brought before the Special Meeting. However, if any such
matters properly come before the Special Meeting, it is understood that the
Proxy holder or holders are fully authorized to vote thereon in accordance
with his or their judgment and discretion. Giving the Proxy will not in any
way affect a shareholder's right to attend the Special Meeting and to vote in
person.
Abstentions will be treated as shares that are present for purposes of
determining whether a quorum exists but will be treated as unvoted shares for
the purpose of adopting and approving the Sale and Purchase Agreement and the
proposed sale of assets. If a broker indicates on the proxy that it does not
have discretionary authority as to certain shares to vote on a particular
matter, those shares will not be considered as present for the purpose of
determining whether a quorum exists and will not be entitled to vote with
respect to that matter.
A shareholder may revoke the proxy at any time before it is exercised by
providing written notice of such revocation to the executive offices of
Sundance Homes, Inc., 150 West Center Court, Schaumburg, Illinois 60195, Attn:
Corporate Secretary. A shareholder may also revoke the proxy by attending and
voting at the Special Meeting or by executing and delivering to Sundance a
Proxy dated subsequent to a prior proxy.
Vote Required; Voting Rights
Approval of the proposed sale of assets requires an affirmative vote of
two-thirds of the outstanding shares of Sundance's common stock. Each holder
of Sundance's common stock is entitled to one vote for each share owned by
such shareholder.
Maurice Sanderman and Charles Engles, the persons named as proxies on the
Proxy Card accompanying this Proxy Statement, were selected by the Board of
Directors of Sundance to serve in such capacity. Messrs. Sanderman and Engles
are each Directors of Sundance. Each executed and returned Proxy will be voted
in accordance with the directions indicated thereon, or if no direction is
indicated, such Proxy will be voted in accordance with the recommendations of
the Board of Directors contained in this Proxy Statement.
Dissenters' Rights of Appraisal
Shareholders of Sundance's common stock are entitled to dissenters'
appraisal rights under Section 11.65 of the Illinois Business Corporation Act
of 1983, as amended (the "IBCA"), in connection with the proposal. To
effectively assert dissenters' rights, a shareholder must follow the
procedures outlined in Section 11.70 of the IBCA. In summary, Section 11.70
requires that a shareholder (i) deliver to Sundance before the vote is taken a
written demand for the payment of his or her shares if the proposed sale of
assets is consummated and (ii) not vote in favor of the proposed action.
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If the Sale and Purchase Agreement is adopted and the proposed sale of
assets is approved, Sundance will send to each dissenting shareholder a
statement setting forth the opinion of Sundance as to the estimated fair value
of the dissenting shares. This statement will be sent within 10 days after the
date on which the proposed sale is effective or 30 days after the shareholder
delivers to Sundance the written demand for payment, whichever is later. The
statement will also include either a commitment of Sundance to purchase the
shares from the shareholder at the stated amount, or Sundance will provide the
shareholder with instructions to sell his or her shares into the public market
if such shares may be readily sold on such market. If the shareholder does not
sell within 10 days of receiving notice to sell his or her shares, the
shareholder shall be deemed to have sold his or her shares at the average
closing price of the shares during that 10 day period.
If the shareholder does not agree with Sundance's opinion on share value,
then within 30 days of the date of Sundance's delivery of Sundance's statement
of value, the shareholder shall notify Sundance in writing, of the
shareholder's estimate of fair value and interest due for the shares. In the
same notice, the shareholder shall demand payment for the difference between
the shareholder's estimate of fair value and interest due, and the amount
Sundance committed to pay, or the amount that the shareholder received (or is
deemed to have received) after selling the shares pursuant to Sundance's
instructions.
If, within 60 days from receiving a shareholder demand in accordance with
the above paragraph, Sundance and the shareholder cannot agree on the fair
value of the shares, Sundance shall either pay the amount demanded by the
shareholder and interest thereon, or Sundance shall file a petition in the
circuit court of Cook County, requesting the court to determine the fair value
of shares and interest due thereon.
A shareholder should not rely on the above summary presented in this Proxy
Statement, but rather should read the relevant section of the Illinois
Business Corporation Act which has been attached as Appendix C and consult
legal counsel when determining whether and how to exercise their dissenters'
right of appraisal.
Proxy Solicitation and Expenses
The costs of soliciting Proxies in the accompanying form are being paid by
Sundance. In addition to the solicitation of Proxies by the use of the mails,
certain officers and associates (who will receive no compensation therefor in
addition to their regular salaries) may be used to solicit Proxies personally
and by telephone and facsimile. In addition, banks, brokers and other
custodians, nominees and fiduciaries will be requested to forward copies of
the Proxy material to their principals and to request authority for the
execution of Proxies. Sundance will reimburse such persons for their
reasonable expenses in so doing.
THE PROPOSED SALE
General
The Sale and Purchase Agreement, which was executed and delivered by
Sundance and Centex Homes on April 2, 1999, provides for the sale of
substantially all of the assets of the suburban housing operations to, and the
assumption of certain related liabilities by, Centex Homes. The assets being
sold include substantially all of the assets of the Suburban Properties
Division and its Rembrandt Homes Division with the exception of two close out
projects, eleven additional lots and two spec homes.
Sundance Homes, Inc.
Sundance is a builder of single family homes in the Chicago metropolitan
area and condominiums in the Chicago urban market. Prior to September 1996,
Sundance primarily was a builder of affordably priced, single-family detached
and attached homes in the Chicago metropolitan area.
In September 1996, Sundance entered the urban real estate market with the
introduction of two condominium-loft conversion projects in Chicago. In 1998,
Sundance continued to increase its presence in the Chicago urban market with
its Chicago Urban Properties Division, which completed construction on three
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condominium-loft conversion projects. Additionally, Sundance made significant
progress on completing its 24-story high rise condominium apartment project,
and opened for sale two new condominium-loft conversions and one new
construction condominium apartment project in Chicago.
Sundance strives to deliver superior value to all market segments by
providing innovative designs and diverse, high-quality products. Sundance
typically broadens its appeal to various market segments by offering one or
more product lines within each suburban and urban project. Each product
offering is architecturally designed to complement other products within the
project and create a sense of community. For additional information about
Sundance, see "The Company."
Centex Homes
Centex Homes, with its principal offices located at 2728 N. Harwood,
Dallas, Texas 75201, is a wholly-owned subsidiary of Centex Corporation, a
Nevada corporation. Centex Homes is a conventional home building operation
primarily involved in the purchase and development of land or lots as well as
the construction and sale of single-family homes, townhomes and low-rise
condominiums. Centex Homes sells to both first-time and move-up buyers.
Approximately ninety-three percent of the houses Centex Homes sells are
single-family detached homes, and the remainder are townhomes and low-rise
condominiums. Centex Homes currently builds in fifty-four market areas in
twenty states, including Chicago, Illinois.
Use of Proceeds; Plans for Future Operations After the Proposed Sale
The net proceeds to Sundance from the sale of its suburban housing
operations, which include substantially all of the assets of its Suburban
Property Division and its Rembrandt Homes Division, net of prorations and
after deducting estimated transaction expenses of $542,000, are expected to be
approximately $60 million, which is subject to an escrow holdback of $2
million to cover certain indemnity obligations. The precise amount of net
proceeds derived from the sale of the suburban housing operations may be more
or less than this amount based upon the actual amount of land sold and the
amount of work-in-process on the closing date of the proposed transaction. See
"The Sale and Purchase Agreement--Purchase Price."
On the closing date of the transaction, there will be a fixed amount of
accounts payable which Sundance will owe to its subcontractors for work-in-
process which has been completed and invoiced as of the closing date of the
transaction on those homes which are being sold to Centex Homes. It is
estimated that this amount will be between $5 million and $10 million.
Sundance will first use the estimated net proceeds to pay these accounts
payable due to subcontractors for work-in-process in place on those assets
which are part of the proposed sale. The entire remaining amount of the
estimated net proceeds from the proposed sale will be used by Sundance to
repay a substantial portion of its outstanding bank indebtedness. As of March
31, 1999, Sundance had borrowed $64.0 million under Sundance's $80 million
Revolving Credit Loan Agreement with LaSalle National Bank, American National
Bank and Trust Company of Chicago and BankBoston, NA and had $3.8 million in
outstanding letters of credit. Since the accounts payable outstanding are paid
through additional borrowing under the Revolving Credit Loan Agreement, the
amount of debt outstanding subsequent to the closing of the transaction and
the paydown of Sundance's outstanding bank indebtedness is not expected to be
materially affected by the dollar amount of the accounts payable outstanding
on the closing date of the transaction.
In anticipation of the proposed sale, Sundance is in the process of
refinancing its current Revolving Credit Loan Agreement. Currently under the
existing Loan Agreement as modified by the Forbearance and Loan Modification
Agreement dated as of December 15, 1998 which Sundance entered into after
Sundance's lenders declared a "default" under the Loan Agreement: (i) there
are significant limitations placed on Sundance's ability to acquire new land,
(ii) the lenders will not further fund the 130 unit condominium apartment
project known as Plaza 32 in Chicago, Illinois, (iii) interest rates are prime
plus 3.0%, (iv) certain financial penalties will be imposed if certain revised
covenants are not met in the future, and (v) the maximum loan amount will be
systematically reduced. With the reduction of a substantial amount of
Sundance's outstanding indebtedness, Sundance believes that it will be able to
restructure the remaining portion of its debt concurrently with the closing
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of the proposed transaction on terms that are less expensive to Sundance and
will provide sufficient capital liquidity for the future operations of its
Chicago urban operations. However, no assurances can be given that Sundance
will actually be able to restructure its remaining debt or obtain better terms
and sufficient capital liquidity for its future operations, even if the
proposed sale is consummated.
Following the consummation of the proposed sale, the shareholders of
Sundance will retain their equity interest in Sundance. The proposed sale will
not result in any changes in the rights of Sundance's shareholders. As
indicated above, Sundance will not distribute any of the proceeds derived from
the sale of its suburban housing operations to its shareholders. Sundance will
continue to operate as a home builder in the Chicago urban market, which
includes the Loop area, South Loop, West Loop, New East Side, River North,
Streeterville and the Gold Coast. Extensive development is taking place in
other areas near the traditional Loop boundaries. These include the areas
between Roosevelt Road and Cermak Road, and Halsted Street west to the United
Center, and as far as 5800 north along the Ravenswood corridor. Management
believes that housing demand in this market is strong due to the high rents in
the markets, job growth in the downtown area, the long commute times between
the city and the suburbs and the numerous amenities available in the Chicago
downtown area to prospective home buyers.
Sundance plans to maintain its current strategy of development in and
around the downtown Chicago market. Sundance will target two primary forms of
urban development, (i) acquisition of former or current manufacturing
buildings which are suitable for the conversion to residential loft-
condominiums and (ii) acquisition of parcels for use in developing multi-story
apartment condominiums.
Sundance will retain approximately 27 substantially completed homes and 41
developed lots contained in two suburban close out projects (Heartland Meadows
and Georgian Court) as well as eleven additional lots and two spec homes. The
total value of these assets is estimated to be approximately $7,500,000 as of
May 31, 1999, of which approximately $6,500,000 was attributable to the two
retained close out projects. This amount could vary based on the number of
homes sold in these projects prior to the closing date of the proposed
transaction. The homes have been listed with brokers.
Background of the Proposed Sale
Sundance has within the last year entered into preliminary discussions with
various parties concerning the sale of certain of its assets and in some
instances the entire company. However, in each case the discussions were
terminated prior to arriving at either a letter of intent or a definitive
agreement because of the inability of the parties to agree on appropriate
terms for such transaction.
In November 1998, after several initial conversations, representatives of
Sundance met with representatives of Centex Homes to discuss the possibility
of selling the suburban housing operations, which include substantially all of
Sundance's Suburban Property Division and its Rembrandt Homes Division. During
this meeting Sundance discussed certain aspects of its suburban housing
operations including the total number of its developed and undeveloped lots,
and the basis on which those lots and the other suburban operating assets of
Sundance would be valued. At the conclusion of the meeting the parties agreed
that there was sufficient mutual interest in the proposed transaction to
warrant continued discussions and due diligence.
Pursuant to a request by Centex Homes, Sundance during the second week of
December 1998 provided certain information to Centex Homes. The information
detailed the basis on which Sundance was basing its valuation and asking price
for the assets of Sundance being considered by Centex Homes. Late in January
1999, Sundance met with several representatives of Centex Homes to discuss in
detail the pricing and other material aspects of the proposed transaction.
Upon the conclusion of the January meeting, the parties agreed to use their
best efforts to memorialize their discussions in a letter of intent with both
non-binding and binding provisions.
Early in February 1999, Sundance received a first draft of the letter of
intent as proposed by Centex Homes. During the month of February the parties
negotiated in good faith to resolve certain material differences relating
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to the pricing of the assets of the suburban housing operations which were to
be subject to the proposed transaction, the amount of earnest money to be
deposited by Centex Homes, certain aspects of the indemnification provisions,
the liabilities to be assumed by Centex Homes upon their purchase of the
proposed assets, and the extent of Centex Homes' due diligence period.
On February 23, 1999, Sundance and Centex Homes executed the letter of
intent, which called for the parties to finalize a definitive agreement on or
prior to March 5, 1999. During the period prior to March 5, 1999, Sundance
agreed not to solicit any potential buyers, or respond to any unsolicited
offers, for the assets that Sundance had proposed to sell to Centex Homes.
Shortly after signing the letter of intent, Sundance hired, after a special
committee of the Board of Directors interviewed several candidates, Houlihan
Lokey Howard & Zukin Financial Advisors, Inc. to consider the fairness of the
purchase consideration involved in the proposed sale, from a financial point
of view, to Sundance. Houlihan Lokey is a nationally recognized investment
banking firm that provides financial advisory services in connection with
mergers and acquisitions, leveraged buyouts, business valuations for a variety
of regulatory and planning purposes, recapitalizations, financial
restructurings, and private placements of debt and equity securities. As a
result, management believes Houlihan Lokey is well qualified. Houlihan Lokey
was selected by the Board on the basis of its experience and reputation, the
favorable personal presentation made by the representatives of Houlihan Lokey
to Sundance, the ability to perform the requisite work on a schedule capable
of accommodating Sundance's proposed timing and its favorable fee estimate.
Prior to the engagement hereof, Houlihan Lokey and Sundance did not maintain
any material relationship.
On March 2, 1999, counsel to Centex Homes presented the first draft of the
Sale and Purchase Agreement to Sundance's counsel. Sundance and Centex Homes,
prior to March 5, 1999, agreed to extend the letter of intent until March 12,
1999, and continued to negotiate in good faith to finalize the definitive
agreement. From March 2, 1999 until March 22, 1999, Sundance and their
advisors on the one hand and Centex Homes and their advisors on the other hand
proceeded to negotiate the terms of a final agreement. During this period, the
following were the subject of significant negotiation between the parties
during this period: (i) the structure of the agreement, including the specific
liabilities to be assumed by Centex Homes; (ii) the precise formula for
determining the purchase price; (iii) the representations and warranties to be
made by Sundance; (iv) securing Sundance's obligation to pay a breakup fee if
Sundance accepted a bid superior to that of Centex Homes; (v) the limitations
on Centex Homes' rights to terminate the Sale and Purchase Agreement prior to
closing; and (vi) the indemnity provisions.
On March 23, 1999, Houlihan Lokey presented the Board of Directors with
their opinion that the proposed transaction, from a financial point of view,
is fair to Sundance. The Board reviewed their opinion and the methodology used
to arrive at such opinion as well as a draft of the Sale and Purchase
Agreement. After discussing the potential alternatives to the proposed
transaction, the Board concluded that the proposed transaction was in the best
interest of Sundance's shareholders. The non-management members of the board
of directors unanimously voted to approve the proposed transaction, adopt the
Sale and Purchase Agreement subject to its satisfactory completion and solicit
shareholder approval of the same. Maurice Sanderman, Chairman of the Board and
Chief Executive Officer, abstained from the vote due to his potential interest
in the transaction. See "The Proposed Sale--Interest of Certain Persons in the
Proposed Sale."
From March 24 through April 2, 1999 the parties finalized negotiation on
the few remaining open issues. The Agreement was executed on April 2, 1999
with certain schedules and exhibits to be agreed upon in the future.
Sundance's Reasons for the Proposed Sale; Recommendation of the Board of
Directors
The proposed sale will substantially reduce Sundance's outstanding
indebtedness and enable it to concentrate on its Chicago urban operations
which, management believes, represents a potentially more profitable line of
business. Sundance's suburban housing operations have not been profitable for
the past two fiscal years. The sale of substantially all of these operations
will enable Sundance to operate with substantially less overhead costs and
should result in an organization that is better focused and easier to manage.
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Reducing and then restructuring Sundance's current credit facility is, in
management's judgment, imperative to the future operation of Sundance. As
noted above, Sundance's current credit facility bears interest at a high rate
of "prime" plus three percentage points and prohibits any acquisitions or
continued funding of key Chicago urban projects. Since the proceeds of the
proposed sale will substantially pay down this facility, Sundance will be in a
much stronger debt to equity position and should be able to obtain more
favorable terms for its debt financing.
Finally, Sundance believes that the offer is fair and in the best interests
of shareholders. By virtue of this transaction, shareholders' value should be
enhanced. Sundance's common stock is currently selling well below book value
and this transaction is expected to represent the sale of approximately 60% of
Sundance's assets at approximately book value.
The non-management members of the Board of Directors have determined, based
on the above reasons as well as the opinion of Houlihan Lokey Howard & Zukin
Financial Advisors, Inc. which is summarized below, that the proposed Sale and
Purchase Agreement and the proposed sale is in the best interests of Sundance
and its shareholders, have unanimously approved the Sale and Purchase
Agreement and the proposed sale, and recommend that the shareholders vote
"FOR" the proposal to adopt and approve the sale of assets.
Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
Sundance engaged Houlihan Lokey to render its opinion to the Board of
Directors as to the fairness, from a financial point of view, of the
consideration to be received by Sundance in connection with the proposed sale,
as outlined in the Sale and Purchase Agreement dated April 2, 1999. Houlihan
Lokey is a nationally recognized investment banking firm that provides
financial advisory services in connection with mergers and acquisitions,
leveraged buyouts, business valuations for a variety of regulatory and
planning purposes, recapitalizations, financial restructurings, and private
placements of debt and equity securities.
Sundance agreed to pay Houlihan Lokey a fee of $100,000 plus reimbursement
of out-of-pocket expenses for its preparation and delivery of the fairness
opinion. No portion of Houlihan Lokey's fee is contingent upon the successful
completion of the proposed sale or the delivery of a favorable opinion.
Sundance retained Houlihan Lokey solely to deliver its fairness opinion.
Sundance agreed to indemnify Houlihan Lokey and its affiliates against certain
liabilities, including liabilities under federal securities laws that arise
out of the engagement of Houlihan Lokey. The full text of Houlihan Lokey's
opinion, which sets forth the assumptions made, general procedures followed,
factors considered and limitations on the review undertaken by Houlihan Lokey
in rendering its opinion, is attached as Appendix B and is incorporated herein
by reference.
Houlihan Lokey did not, and was not requested by Sundance to make any
recommendations as to the form or amount of consideration to be received by
Sundance, to solicit third party indications of interest in acquiring all or
any part of Sundance, and does not express any opinion as to the fairness of
any aspect of the transaction not expressly addressed in its fairness opinion.
In arriving at its opinion, among other things, Houlihan Lokey:
1. reviewed Sundance's annual reports to shareholders for the fiscal years
ended 1993, 1997 and 1998; annual reports on Form 10-K for the fiscal
years ended 1996 through 1998; quarterly reports on Form 10-Q for the
quarter ended December 31, 1998; Company-prepared financial statements
for the year ended September 30, 1998 and for the quarters ended
December 31, 1997 and 1998 for the divisions, which Sundance's
management has identified as being the most current financial statements
available;
2. reviewed a copy of the Sale and Purchase Agreement by and among Sundance
and Centex Homes, dated April 2, 1999;
3. reviewed a draft of this preliminary Proxy Statement dated April 2,
1999;
4. met with members of the senior management of Sundance to discuss the
operations of Sundance, Rembrandt Homes, Inc., Sundance Suburban
Properties, Inc. and other entities of Sundance's suburban home building
operations, the current financial condition of Sundance in regard to its
lending
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arrangements, the alternatives available to Sundance to restructure its
debt with and without the proposed sale, the anticipated focus of
Sundance after the proposed sale and met with representatives of
Sundance's counsel to discuss the proposed sale and related matters.
5. visited Sundance's offices located at 70 East Lake Street, Chicago,
Illinois;
6. reviewed copies of certain real estate appraisals provided by Sundance;
7. reviewed the certificate of Sundance's chief financial officer addressed
to Houlihan Lokey dated March 19, 1999 and Schedules attached to the
certificate;
8. reviewed the historical market prices and trading volume for Sundance's
publicly traded securities;
9. reviewed certain other publicly available financial data for certain
companies that Houlihan Lokey deemed comparable to Sundance, and
publicly available prices and premiums paid in other transactions that
Houlihan Lokey considered similar to the proposed sale;
10. reviewed drafts of certain documents to be delivered at the closing of
the proposed sale; and
11. conducted such other studies, analyses and inquiries as Houlihan Lokey
deemed appropriate.
In connection with the proposed sale, Houlihan Lokey determined that the
total aggregate consideration for the sold assets of Sundance will be
approximately $60 million. The precise amount of cash to be received is
determined by a complex formula reflecting the fact that during the period
between the signing of the Sale and Purchase Agreement and the closing of the
transaction, Sundance will be continuing to operate in the normal course of
business, which means it will be closing sales of finished homes to purchasers
and continuing construction of homes-in-progress, called work-in-process. To
the extent that the number of finished homes which are sold prior to the
closing date of the transaction varies from the number originally estimated,
the purchase price will be adjusted. Additionally, if the amount of
construction work completed on the homes-in-progress on the closing date of
the transaction is more or less than the amount originally estimated, the
purchase price will be adjusted.
Houlihan Lokey primarily used five methodologies to assess the fairness,
from a financial point of view, of the consideration to be received by
Sundance in connection with the transaction. Each methodology provided an
estimate as to the aggregate value of the assets being acquired by Centex. The
analyses required studies of the overall market, economic and industry
conditions in which Sundance operates, and the operating results of Sundance
suburban and Rembrandt divisions (the "Divisions").
Comparable Company Analysis. Using publicly available information, Houlihan
Lokey compared selected financial data of the Divisions with similar data of
various companies engaged in business considered by Houlihan Lokey to be
comparable to that of the Division's including:
Beazer Homes USA, Inc. Presley Companies/DE
Crossman Communities Rottlund Company, Inc.
Dominion Homes, Inc. Ryland Group, Inc.
Fortress Group, Inc. Schottenstein (M/I) Homes, Inc.
Horton (DR), Inc. US Home Corporation
INCO Homes Corporation Washington Homes, Inc.
Lennar Corporation Weitzer Homebuilders
Meritage Corporation Zaring National Corporation
For each of the comparable companies, Houlihan Lokey calculated, reviewed
and analyzed numerous financial and operating performance ratios, as well as
numerous market capitalization ratios, such as the enterprise value (aggregate
equity plus total interest-bearing debt less cash); the latest twelve months'
earnings before interest and taxes; and earnings before interest, taxes,
depreciation, amortization and revenue.
Based on its comparable company analysis, Houlihan Lokey determined that
the consideration to be received by Sundance is fair to Sundance from a
financial point of view.
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There are inherent differences between the businesses, operations, and
prospects of the Divisions and the comparable companies. Accordingly, Houlihan
Lokey believed that it was inappropriate to, and therefore did not, rely solely
on the above-described quantitative results of the comparable companies that
would, in Houlihan Lokey's opinion, affect the public market valuation of such
companies.
Comparable Transaction Analysis. Houlihan Lokey analyzed certain financial
performance measures for the merger and acquisition transactions involving
companies in the real estate development sector set forth below:
C. Richard Dobson Builders, Inc. Legacy Homes, Ltd.
Calton, Inc. Lewis Homes
Cambridge Properties PolyGon Communities
ColRich Communities PrideMark
Communities Southwest Quail Construction
Continental Homes Holding Company Starrett Communities
Hutson Construction Company Sterling Communities
Don Galloway Homes Torrey Group of Companies
Estes Homebuilding Trafalgar House Property, Inc.
Hallmark Whitaker Homes
Iacobucci Organization Wilshire Homes
In performing its analysis, Houlihan Lokey considered that the merger and
acquisition transaction environment varies over time because of, among other
things, interest rate and equity market fluctuations and industry results and
growth expectations.
No company or transaction used in the analysis described above was directly
comparable to Sundance, the Divisions or the proposed sale. Accordingly, the
analysis of the results of the foregoing involved complex considerations and
judgments concerning differences in financial and operational characteristics
of the companies that could affect public trading values.
Based on historical financial results for the Divisions, the comparable
transaction analyses resulted in enterprise values of approximately $40.6
million to $64.2 million.
Discounted Cash Flow Analysis. Houlihan Lokey performed a discounted cash
flow analysis. In conducting its analysis, Houlihan Lokey relied on certain
assumptions, industry averages and other information provided by the management
of Sundance. This discounted cash flow analysis resulted in an enterprise value
for the Divisions of approximately $61.5 million.
Adjusted Book Value Analysis. Utilizing the real estate appraisal outlined
above, Houlihan Lokey performed an analysis of the adjusted book value of the
assets to be sold in the transaction. Consideration was given to the current
state of the projects, the likelihood of absorption, the appraisal date and
other qualitative factors.
Based on adjusted book value, the analysis resulted in enterprise values of
approximately $48.0 million to $62.5 million.
Market Trading Analysis. Houlihan Lokey reviewed current and historical
market prices and trading data of Sundance's common stock. During the period
from July 9, 1993, the date of Sundance's initial public offering, to February
24, 1999, five business days prior to the announcement of the transaction,
common stock closing prices ranged from a high of $14.50 per share to a low of
$1.00 per share with an average price of $3.72 per share; during the period
from February 24, 1998 to February 24, 1999, common stock closing prices ranged
from a high of $3.00 per share to a low of $1.00 per share and an average price
of $2.01 per share. Houlihan Lokey also compared the relative performance of
common stock to comparable companies during the one-year period from February
24, 1998 to February 24, 1999. The market trading analysis was performed to
provide background information and to add context to the other analyses
performed by Houlihan Lokey as described above.
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Houlihan Lokey drew no specific conclusion from its comparable company,
comparable transaction, discounted cash flow, adjusted book value, and market
trading analyses, but subjectively factored its observations from these
analyses into its qualitative assessment of the relevant facts and
circumstances.
Houlihan Lokey's analyses indicated that the consideration to be received
by Sundance in connection with the proposed sale is fair to Sundance from a
financial point of view.
Houlihan Lokey's opinion is based on the business, economic, market and
other conditions as they existed as of April 2, 1999, and on the financial
information provided to Houlihan Lokey as of such date. In rendering its
opinion, Houlihan Lokey has relied upon and assumed, without independent
verification, that the historical and projected financial information provided
to Houlihan Lokey by Sundance has been reasonably and accurately prepared
based upon the best current available estimates of the financial results and
condition of the Divisions. Houlihan Lokey did not independently verify the
accuracy or completeness of the information supplied to it with respect to
Sundance or the Divisions and does not assume responsibility for it. Except as
set forth above, Houlihan Lokey did not make any independent appraisal of the
specific properties or assets of the Divisions.
The summary set forth above describes the material points of more detailed
analyses performed by Houlihan Lokey in arriving at its fairness opinion. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and application of those methods to the particular
circumstances, and is therefore not readily susceptible to summary
description. In arriving at its opinion, Houlihan Lokey made qualitative
judgements as to the significance and relevance of each analyses and factor.
Accordingly, Houlihan Lokey believes that its analyses and summary set forth
herein must be considered as a whole. In its analysis, Houlihan Lokey made
numerous assumptions with respect to Sundance, the Divisions, industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Sundance and the
Divisions. The estimates contained in such analyses are not necessarily
indicative of actual values or predicative of future results for values, which
may be more or less favorable than suggested by such analyses. Additionally,
analyses relating to the value of businesses or securities are not appraisals.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty.
Interest of Certain Persons in the Proposed Sale
As a result of the closing of the proposed sale of assets and the
concurrent refinancing of Sundance's outstanding debt obligations, Sundance
may be in a position to pay off its subordinated debt owed to Maurice
Sanderman, which otherwise would not have been payable until February 1, 2000.
Additionally, if Sundance is able to refinance its outstanding debt as a
result of the proposed transaction, Sundance will repay its outstanding demand
note payable to Maurice Sanderman.
Regulatory Approvals
Consummation of the Sale and Purchase Agreement does not require any
regulatory approvals other than the federal filings required under applicable
U.S. securities laws in connection with this Proxy Statement.
Material Federal Income Tax Consequences
The proposed sale will not have any direct federal income tax consequences
to Sundance's shareholders because no distributions of sale proceeds will be
made to the shareholders. Upon consummation of the proposed sale, Sundance
will recognize taxable gain equal to the excess of the net proceeds of the
sale over Sundance's tax basis in the assets purchased by Centex Homes.
Sundance estimates that its taxable gain from the proposed transaction will be
approximately $100,000, which when combined with Sundance's estimated other
net taxable income for the year ended September 30, 1999 should be
substantially offset by Sundance's net operating loss carryforward.
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Accounting Treatment
The sale of substantially all of the assets of the suburban operations of
Sundance pursuant to the Sale and Purchase Agreement will be recorded as an
asset sale. As a result of such sale, it is expected that a loss, after
expenses, of approximately $500,000 will be realized in 1999.
Expenses and Other Fees
The estimated costs to Sundance for the proposed transaction will be
approximately $542,000, which amount includes $350,000 in legal expenses,
$160,000 in financial advisory and accounting services, $20,000 in printing
expenses and $12,000 in filing fees with the Securities and Exchange
Commission.
THE SALE AND PURCHASE AGREEMENT
Purchased Assets and Assumed Liabilities
The assets being sold are substantially all of the tangible and intangible
assets of Sundance's suburban housing operations, excluding only lots and
homes related to certain closed out projects. In addition to land and houses
under construction, the assets being sold include Sundance's rights and
interests under or in respect of contracts and agreements relating to its
suburban operations (with Centex Homes assuming liability under such contracts
and agreements from and after the closing date) and the various trademarks and
trade names used by Sundance in connection with its suburban operations, but
not including the name "Sundance."
Purchase Price
The consideration Sundance is to receive consists of a purchase price
payable in cash and the assumption by Centex Homes of Sundance's liabilities
under various contracts and agreements relating to the suburban operations.
The components of the purchase price include (i) an agreed value per lot for
the land being sold, which approximate the costs incurred by Sundance in
acquiring, developing, and carrying the land, minus the costs to complete the
development of the land as of the closing date; (ii) the book value (as
reflected on the Sundance Pre-Closing Balance Sheet (as defined in the Sale
and Purchase Agreement)) of construction work-in-process, including finished
model homes and work completed, invoiced and recorded as an account payable
but not paid; (iii) the book value (as reflected on Sundance's Pre-Closing
Balance Sheet) of certain fixed assets and vehicles relating to the suburban
operations; (iv) advertising expenses (not to exceed $150,000) incurred by
Sundance during the period between February 1, 1999 and the closing date of
the proposed transaction; and (v) an overhead factor applied against the book
value (as reflected on Sundance's Pre-Closing Balance Sheet) of the work-in-
process and model homes to reimburse Sundance for overhead incurred in
producing the work-in-process and model homes. This overhead factor is 6.6%
subject to adjustment as provided in the Sale and Purchase Agreement. The cash
purchase price shall be reduced by amounts retained by Sundance to secure the
performance of certain subcontractor work as provided in the Sale and Purchase
Agreement.
If the closing of the proposed transaction takes place on or before May 31,
1999, Sundance estimates that the cash portion of the purchase price, net of
prorations and expenses, will be approximately $60 million. The precise amount
of cash to be received is determined by a complex formula reflecting the fact
that during the period between the signing of the Sale and Purchase Agreement
and the closing of the transaction, Sundance will be continuing to operate in
the normal course of business, which means it will be closing sales of
finished homes to purchasers and continuing construction of homes-in-progress,
called work-in-process. To the extent that the number of finished homes which
are sold prior to the closing date of the transaction varies from the number
originally estimated, the actual purchase price will vary from the estimated
purchase price. If a greater number of furnished homes are sold, the actual
purchase price will be less than the estimated purchase price, but, of course,
Sundance will retain the proceeds from the sale of these finished homes.
Conversely, if fewer finished homes are sold than originally estimated, the
actual purchase price will be more than the estimated purchase
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price. Additionally, if the amount of construction work completed on the
homes-in-progress on the closing date of the transaction is more or less than
the amount originally estimated, the actual purchase price will be more or
less, respectively, than the estimated purchase price, but in any event,
Sundance will be reimbursed for the cost of all such construction work
invoiced prior to the closing date. Thus, these potential variances in the
actual cash received at closing as compared to the estimated purchase price
will not materially affect the financial benefits of the proposed transaction.
If, as anticipated, the sale closes on or before May 31, 1999, Sundance
believes that, based on its schedule for work-in-process and the estimated
number of finished homes to be closed, the cash portion of the purchase price
will be as indicated above. If the sales close after May 31, 1999, Sundance
projects an increasing number of finished homes closing, which may
significantly reduce the cash portion of the purchase price, but for the
reasons indicated, this will not materially affect the financial benefit of
the proposed transaction.
At the signing of the Sale and Purchase Agreement, Centex Homes is making a
$1,500,000 earnest money deposit in escrow which deposit will be applied
against the purchase price if the transaction closes, and returned to Centex
Homes if the transaction fails to close for any reason other than a breach by
Centex Homes. In the latter event, the money deposited in escrow will be paid
to Sundance as liquidated damages.
The Closing
The Sale and Purchase Agreement calls for the closing of the proposed sale
to take place on or before April 30, 1999, provided, that either party has the
right to extend the date the proposed sale is scheduled to close as reasonably
necessary to enable it to fulfill the conditions of the proposed sale (see "--
Feasibility Period; Conditions to Closing"), provided, however, that neither
Sundance nor Centex Homes shall be entitled to extend such closing date past
July 30, 1999 without the consent of the other party. Sundance does not expect
the transaction to close on or before April 30, 1999 but will request that the
closing date be extended until such time as the shareholders have approved the
transaction and it has satisfied its other conditions to the closing which is
expected to be on or before May 31, 1999.
Representations and Warranties
The Sale and Purchase Agreement contains representations and warranties of
Sundance typical for transactions of this type including, among others,
representations and warranties related to corporate organization;
qualification of Sundance and its subsidiaries; power and authority to enter
into the transaction; organization of subsidiaries; charters and bylaws of
Sundance and its subsidiaries; non-violation of binding agreements or the
bylaws and charters; consents and approvals; absence of undisclosed
liabilities; ownership, description and related matters concerning the real
property which is subject to the Sale and Purchase Agreement; leases; health
and safety compliance; legal proceedings; taxes and tax returns; permits;
contracts; absence of certain changes since January 28, 1999; insurance;
environmental matters; intellectual property rights; employee benefit plans;
labor relations; transactions with affiliates; absence of brokers; and
disclosure of certain items regarding business conditions.
The Sale and Purchase Agreement contains typical representations and
warranties of Centex Homes including, among others, representations and
warranties related to its partnership status; power and authority to enter
into the transaction; non-violation of binding agreements or partnership
provisions; consents and approvals; and absence of brokers and finders.
Indemnification
Sundance has agreed to indemnify and hold harmless Centex Homes, its
affiliates and their respective shareholders, directors, officers, employees,
agents and representatives from any and all liabilities (excluding liabilities
assumed by Centex Homes pursuant to the Sale and Purchase Agreement),
obligations, claims (including third party claims), contingencies, damages,
losses, fines, penalties, interest, costs and expenses that
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Centex Homes or any such person may suffer or incur as a result of or relating
to: (i) the breach or inaccuracy of any of the representations, warranties,
covenants or agreements made by Sundance in the Sale and Purchase Agreement,
(ii) any transaction, activity, liability or obligation of Sundance that
occurs or arises out of actions or events occurring before the closing date,
except certain liabilities assumed by Centex Home pursuant to the Sale and
Purchase Agreement and except to the extent such liability or obligation
relates to the physical condition of the assets being sold for which Sundance
made representations and warranties pursuant to the Sale and Purchase
Agreement, including, without limitation, claims and litigation pending prior
to closing, (iii) certain taxes arising out of the transactions contemplated
by the Sale and Purchase Agreement, (iv) earnest money deposits (not placed in
escrow) paid by Sundance, before the closing date, to the seller of real
property which is to be sold pursuant to the Sale and Purchase Agreement that
is not returned to Centex Homes because such seller wrongfully withholds such
deposit and refuses to return it to Centex Homes in violation of the terms of
the purchase agreement for such real property, (v) any violation of the Bulk
Sales Laws of the State of Illinois or any other similar state laws to which
the assets being sold are subject; (vi) any amounts that may become payable to
Centex Homes by Sundance in the case of an adjustment of the purchase price as
a result of an overpayment to Sundance of the purchase paid on the closing
costs or (vii) all expenditures and labor costs incurred by Centex Homes to
complete construction of or landscape surrounding residential homes that are
part of the assets being sold, for which title has been transferred to a buyer
on or before the closing date.
Except as otherwise provided in the Sale and Purchase Agreement, Centex
Homes has agreed to defend at its cost, indemnify and hold harmless Sundance
and its affiliates, and their respective shareholders, directors, officers,
employees, agents and representatives from any and all losses that Sundance or
any such person may suffer or incur as a result of or relating to (i) the
breach or inaccuracy of any of the representations, warranties, covenants or
agreements made by Centex Homes in the Sale and Purchase Agreement, and (ii)
any transaction, activity, liability or obligation relating to the assets
arising after the date on which the transaction closes, excluding however any
liability, cost or expense incurred by Sundance as a result of actions taken
by Sundance to enforce its rights under this Agreement.
Except for claims based on fraud, an indemnitee shall not have any rights
of indemnification, setoff or recoupment under the Sale and Purchase Agreement
against the other party for breaches of representations or warranties until
the aggregate amount of all losses subject to indemnification, setoff or
recoupment for such claims exceeds a $50,000 threshold. After the aggregate
amount of all such losses exceeds the threshold, indemnification will be paid
for the full amount of all losses from and relating back to the first dollar
of loss without regard to the threshold (and without deduction for tax
benefits) subject to the following limits on the maximum amount of
indemnification which may be recovered by an indemnitee: (a) $4,000,000 during
the period beginning on the date on which the transaction closes through and
including the date that is one year after such closing date, (b) the lesser of
(i) $3,000,000 or (ii) $4,000,000 less the sum of all amounts which have been
paid (or are still subject to claims from the previous year) during the period
beginning one year and one day after such closing date through and including
the date that is two years after such closing date and (c) the lesser of (i)
$2,000,000 or (ii) $4,000,000 less the sum of all amounts that have been paid
(or are unpaid, but still subject to claims from the previous two years)
during the period beginning two years and one day after such closing date
through and including the date that is three years after such closing date. In
order to partially secure Sundance's indemnification obligation, Centex Homes
will hold back $2,000,000 of the purchase price. One-half of this amount, plus
interest thereon at the rate of 8% per annum, less any claims made is to be
paid to Sundance one year from the date on which the transaction closes. The
balance (plus interest at the rate of 8% per annum) less any claims made is to
be paid to Sundance on the second anniversary of such closing date. The
representations and warranties of both parties, other than those relating to
tax matters and broker fees, shall survive for three years, except for
instances of fraud or intentional misrepresentations.
The indemnification provided for in the Sale and Purchase Agreement shall
be subject to the limitations that an indemnitor shall not be obligated to pay
any amount for indemnification hereunder relating to a claim to the extent of
any indemnity, insurance, contribution or similar payment paid to an
indemnitee from any third party with respect thereto (excluding the cost of
such insurance coverage to and the deductible paid by an indemnitee).
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Expenses and Transfer Taxes
Each party will bear its own legal, accounting, and other expenses and
costs in connection with the sale. Real estate taxes and similar items will be
pro rated as of the date on which the transaction closes and any real estate
recording and transfer taxes assessed in connection with the sale will be
shared equally by Sundance and Centex Homes.
Feasibility Period; Conditions to Closing and Closing Deliveries
Centex Homes shall be entitled to conduct a due diligence investigation of
Sundance during the period ending on the date that is seven business days
after Sundance has delivered all disclosure schedules required by the Sale and
Purchase Agreement to Centex Homes. If in the course of its due diligence,
Centex Homes in its sole judgment, shall determine that it is inadvisable to
consummate the proposed sale, it may terminate the Sale and Purchase Agreement
and receive the return of its earnest money deposit. After the expiration of
the feasibility period, the Sale and Purchase Agreement can only be terminated
in the event any condition to closing does not occur. See "The Sale and
Purchase Agreement--Termination."
The obligations of Sundance to close the proposed sale are subject to the
following conditions: (i) the representations and warranties of Centex Homes
contained in the Sale and Purchase Agreement shall be true and correct in all
material respects on and as of the closing date and Centex Homes shall have
performed all agreements to be performed by it on or before the closing date
of the proposed transaction and (ii) the shareholders of Sundance shall have
approved the proposed sale at the Special Meeting. In addition, Centex Homes
is required to deliver prior to the closing date, among other things, (i) the
purchase price for the purchased assets and (ii) an opinion of Brian J. Woram,
General Counsel for Centex Homes, in a form mutually agreed to by the parties.
The obligations of Centex Homes to close the proposed sale are subject to
among other things the following conditions: (i) the representations and
warranties of Sundance contained in the Sale and Purchase Agreement shall be
true and correct in all material respects on and as of the closing date and
Sundance shall have performed all covenants and agreements to be performed by
it on or before the closing date, (ii) as of the closing of the proposed
transaction, there shall have been no material adverse change since April 2,
1999 in the financial condition, business operations, gross profit margins, or
the suburban assets of Sundance, (iii) all necessary consents from third
parties shall have been obtained, (iv) there shall not be certain types of
litigation claims pending against Sundance or Centex Homes, (v) Centex Homes
shall have received a satisfactory environmental review report concerning
certain assets being sold and (vi) the shareholders of Sundance shall have
approved the proposed sale. In addition, Sundance is required to deliver prior
to closing, among other things, (i) an opinion of counsel from Katten Muchin &
Zavis in a form mutually agreed to by the parties, (ii) insurance insuring its
fee title to the real property included in the assets being sold, (iii) an
executed Non-competition Agreement between Maurice Sanderman, Sundances'
Chairman and Chief Executive Officer, and Centex Homes, and (iv) assignments
for those contracts relating to the business of the suburban operations of
Sundance, including the lease covering its Schaumburg, Illinois office, to
Centex Homes.
Covenants
Pursuant to the Sale and Purchase Agreement, Sundance has agreed, among
other things (i) to conduct the suburban business in the ordinary course,
consistent with past practice, and to use its best efforts to maintain
satisfactory relationships with its suppliers, insurers, lessors, licensees,
employees, governmental authorities and other persons with whom Sundance has
business relationships, (ii) not to make any material change in the conduct of
the suburban business or enter into any transaction not in the ordinary
course, to sell or encumber any of the assets subject to the Sale and Purchase
Agreement, (iii) to permit representatives of Centex Homes to have full access
at all reasonable times to all books and records of or pertaining to the
suburban business, (iv) that Sundance will use its best efforts to procure
shareholder approval of the proposed sale before the closing date, (v) that
Sundance will not disclose and will use its best efforts to prevent other
persons from disclosing any confidential material regarding the suburban
business unless compelled to disclose such information by
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governmental authorities, (vi) to assist Centex Homes in offering employment
to and hiring those employees of Sundance whom Centex Homes considers integral
to the suburban business, (vii) to provide prompt notice to Centex Homes of
any fact or action that makes any of the representations and warranties made
by Sundance in the Sale and Purchase Agreement untrue or incorrect, (viii) to
provide prompt notice to Centex Homes in the event that Sundance fails to
comply with any covenant, condition, or agreement to be complied with or
satisfied by it pursuant to the Sale and Purchase Agreement, and (ix)
indemnify Centex Homes in the event that Sundance is liable for broker or
finders' fees.
Centex Homes has agreed (i) to provide prompt notice to Sundance of any
fact or action that makes any of the representations and warranties made by
Centex Homes in the Sale and Purchase Agreement untrue or incorrect, (ii) to
provide prompt notice to Sundance in the event that Centex Homes failed to
comply with any covenant, condition, or agreement to be complied with or
satisfied by it pursuant to the Sale and Purchase Agreement, (iii) to take all
reasonable steps to procure the release of certain specified improvement bonds
and financial securities with respect to certain assets, (iv) not to disclose
any confidential information concerning Sundance, unless required by law or
necessary to exercise its rights under the Sale and Purchase Agreement, (v) to
indemnify Sundance in the event that Centex Homes is liable for broker or
finders' fees, and (vi) that prior to seeking indemnification from Sundance,
with respect to latent defects affecting the purchased assets, Centex Homes
shall use reasonable efforts to enforce all legal remedies available against
any subcontractor responsible for such latent defect.
In addition, Sundance and Centex Homes have agreed (i) to take all actions
and to do all things necessary to consummate and make effective the proposed
sale of assets, (ii) to enter into an agreement covering warranty and certain
other work to be performed on the purchased assets and (iii) that aside from
the press releases made on February 25, 1998, no party will issue a press
release or otherwise publicly announce information concerning the proposed
sale without the prior written consent of the other party, unless such release
may be required by applicable law or a governmental authority.
No Solicitation; Break-Up Fee
Pursuant to the Sale and Purchase Agreement, Sundance has agreed that
neither it nor its officers, directors, employees or agents will solicit or
encourage (whether by furnishing non-public information or otherwise), or
entertain, any proposal to acquire an interest in Sundance or substantially
all of its assets or its subsidiaries. This obligation is subject to the
fiduciary obligations of the board of directors of Sundance, which require
Sundance to consider an unsolicited proposal that offers a better value for
Sundance's shareholders than the Centex Homes offer. Accordingly, if Sundance
receives an unsolicited proposal before the closing that exceeds the purchase
price as set forth in the Sale and Purchase Agreement by at least $1,000,000,
Sundance will be permitted to consider and, subject to payment of the break-up
fee described below, accept an unsolicited proposal, provided that Centex
Homes shall have an opportunity to top any such bid within five (5) business
days of receiving notice of the proposal.
If the Sale and Purchase Agreement is terminated because Sundance accepts
an offer that exceeds the Purchase Price set forth in the Sale and Purchase
Agreement by at least $1,000,000, then Sundance will be obligated to pay
Centex Homes a break-up fee of $1,500,000.
Covenant Not to Compete
Sundance has agreed that for a period of three years from the closing it
will not (i) engage or participate in any business or activity involving the
construction of residential homes in the Chicago, Illinois suburban area
except with respect to the liquidation of certain closed out projects, (ii)
hire any person who was, at any point during the six months prior to the
closing of the proposed transaction, an employee at Sundance and became an
employee of Centex Homes at the closing of the proposed transaction, or (iii)
solicit or induce employees of Centex Homes to leave the employment of Centex
Homes. Maurice Sanderman, Chief Executive Officer and principal shareholder of
Sundance, will execute a similar covenant not to compete.
15
<PAGE>
Treatment of Company Employees
Centex Homes will provide Sundance a list of employees that Centex Homes
identifies as integral to Centex Homes' operation of the suburban business.
Sundance will assist Centex Homes in offering employment to and hiring those
employees of Sundance on such terms and conditions as designated by Centex
Homes. Centex Homes shall not be obligated to continue or maintain any
retirement, pension, health, insurance or other benefit plan maintained by
Sundance for the benefit of its employees. Sundance will pay such employees
(within the time permitted by law) all wages, salaries, employment benefits
arising out of services performed prior to the closing, including, without
limitation, retirement, health and other benefits, vacation and any
termination or severance pay, whether due immediately or at some future date.
Termination
The Sale and Purchase Agreement may be terminated and the transactions
contemplated thereby abandoned at any time prior to the closing (i) by mutual
written consent of Sundance and Centex Homes, (ii) by either party if any
federal or state court or other governmental authority shall have enjoined or
impeded the transaction or otherwise declared consummation of the transaction
illegal or litigation is threatened or brought by a creditor of Sundance
against any of the assets which are proposed to be sold pursuant to this
transaction, (iii) by Centex Homes if: (a) it reasonably believes that the
proposed sale of assets is unlikely to be approved by Sundance's shareholders;
(b) Sundance's shareholders shall not have approved the proposed sale of the
assets or the closing has not occurred on or before June 30, 1999; (c)
Sundance notifies Centex Homes of a competing bid and Sundance continues to
consider the competing bid for more than ten days; (d) Sundance or any of its
subsidiaries becomes a proponent or the subject of any voluntary or
involuntary plan of reorganization under the Bankruptcy Code; (e) Sundance
shall have materially violated or breached any covenant or agreement or
representation and warranty under the Sale and Purchase Agreement which shall
not have been waived, or cured within a specified period of time, (iv) by
Sundance if: (a) the closing has not occurred by July 30, 1999, (b) another
bid for the assets is accepted by Sundance, and Sundance has satisfied certain
requirements under the Sale and Purchase Agreement, (c) notwithstanding
Sundance's good faith effort, Sundance has not received the approval of its
shareholders by June 30, 1999 or (d) Centex Homes shall have materially
violated or breach any covenants or agreement or representation and warranty
under the Sale and Purchase Agreement, which shall not have been waived, or
cured within a specified period of time.
Consequences of Failure to Close
If Centex Homes fails to close the sale in violation of its obligations
under this Agreement, Centex Homes shall lose its $1,500,000 earnest money
deposit as liquidated damages but shall have no further liability to Sundance.
If Sundance fails to close in violation of its obligations under the Sale and
Purchase Agreement, Centex Homes shall be entitled to seek a judicial order of
specific performance to require Sundance to close. If Sundance fails to close
as a result of the acceptance of a better offer to purchase the assets being
sold, Sundance will be obligated to pay Centex Homes liquidated damages of
$1,500,000. If the sale fails to close for any other reason, neither party
shall have any liability to the other.
16
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL
SHAREHOLDERS AND MANAGEMENT
The following table sets forth, as of March 31, 1999, certain information
with respect to the beneficial ownership of Sundance's common stock by (i)
each person known by Sundance to own beneficially more than 5% of the
outstanding shares of common stock, (ii) each director of Sundance, (iii) the
Chief Executive Officer and Sundance's other executive officers other than the
CEO, and (iv) all executive officers and directors as a group. As of March 31,
1999, there were 7,816,866 shares of common stock outstanding.
<TABLE>
<CAPTION>
Number of
Shares Percent
Beneficially of
Name and Address Owned (1) Ownership
- ---------------- ------------ ---------
<S> <C> <C>
Maurice Sanderman (2)(3)................................ 3,537,500 45.3%
Myra Sanderman, as Investment Adviser of the
Sanderman Descendants Trust U/A/D 12/29/92 (2)......... 1,175,000 15.0%
Wellington Management Company, LLP (4).................. 700,500 9.0%
Franklin Resources Inc. (5)............................. 670,600 8.6%
Dennis Bookshester (6).................................. 42,000 *
Charles Engles (6)...................................... 41,000 *
Gerald Ginsburg (6)..................................... 34,000 *
Thomas Small (6)........................................ 29,000 *
Joseph Atkin (6)........................................ 25,000 *
All executive officers and directors as a group (6
persons) (6)........................................... 3,708,500 47.4%
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise indicated below, the persons in the above table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) The address of the shareholder listed is c/o Sundance Homes, Inc., 150
West Center Court, Schaumburg, Illinois 60195.
(3) Excludes 1,175,000 shares beneficially owned by Maurice Sanderman's wife,
Myra Sanderman, as investment adviser of the Sanderman Descendants Trust
U/A/D 12/29/92, of which shares Maurice Sanderman disclaims beneficial
ownership.
(4) Based on a Schedule 13G filed with the SEC dated February 10, 1999.
According to the Schedule 13G, Wellington Management Company, LLP
("Wellington") has shared voting power with respect to 155,200 shares and
shared dispositive power with respect to all 700,500 shares, including
545,300 shares beneficially owned by First Financial Fund, Inc. ("First
Financial"). The address of Wellington is 75 State Street, Boston,
Massachusetts 02109. First Financial, based on a Schedule 13G filed with
the SEC dated February 12, 1999, has sole voting power and shared
dispositive power with respect to all 545,300 shares. The address of First
Financial is Gateway Center Three, 100 Mulberry Street, 9th Floor, Newark,
New Jersey 07102-4077.
(5) Based on a Schedule 13G filed with the SEC dated February 4, 1999.
According to the Schedule 13G, Franklin Resources, Inc. ("FRI") grants all
voting and dispositive power with respect to all 670,600 shares to its
investment advisor, Templeton Global Advisors Limited (a subsidiary of
FRI). Charles B. Johnson and Rupert H. Johnson, Sr. each own in excess of
10% of FRI and may therefore be deemed to be the beneficial owner of the
720,000 shares of Common Stock of Sundance. The address of FRI, Charles B.
Johnson and Rupert H. Johnson, Sr. is 777 Mariners Island Boulevard, San
Mateo, California 94404. The address of Templeton Global Advisors Limited
is Lyford Cay, P.O. Box N-7759, Nassau, Bahamas.
(6) Includes the following number of shares issuable within 60 days of March
15, 1999 pursuant to the exercise of stock options: Dennis Bookshester and
Charles Engles, 35,000 each; Gerald Ginsburg, 30,000; Joseph Atkin,
25,000; and Thomas Small, 29,000.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL
DATA OF SUNDANCE
The following selected consolidated financial and operating data of
Sundance is qualified by reference to and should be read in conjunction with
the Consolidated Financial Statements and Notes thereto and other financial
data included elsewhere herein. The data set forth below as of and for the
years ended September 30, 1998, 1997, and 1996, the nine months ended
September 30, 1995 and the year ended December 31, 1994 have been derived from
Sundance's audited consolidated financial statements. Consolidated balance
sheets at September 30, 1998 and September 30, 1997 and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended September 30, 1998 and
notes thereto appear elsewhere herein. Also, consolidated financial statements
as of December 31, 1998 (unaudited) and September 30, 1998 and for the three
months ended December 31, 1998 and 1997 (unaudited) and the related
consolidated statements of income, cash flows and related notes thereto appear
elsewhere herein. These historical results are not necessarily indicative of
the results to be expected in the future (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations").
<TABLE>
<CAPTION>
Nine
Year Year Year Months Year
ended ended ended ended ended
September September September September December
30, 1998 30, 1997 30, 1996 30, 1995 31, 1994
--------- --------- --------- --------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total sales (1) $131,556 $108,743 $120,948 $63,811 $118,659
Income (loss) before
minority interest and
provision for income taxes
(2) (5,480) (715) 2,176 (7,051) 3,643
Net income (loss) (7,614) (350) 1,235 (4,216) 1,930
Net income (loss) per share $ (0.98) $ (0.04) $ 0.16 $ (0.54) $ 0.25
<CAPTION>
September September September September December
30, 1998 30, 1997 30, 1996 30, 1995 31, 1994
--------- --------- --------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Real estate inventories $102,088 $ 80,787 $ 76,101 $86,434 $ 86,721
Total assets 111,250 94,730 86,406 98,880 98,907
Notes and mortgages payable 55,249 33,087 23,027 42,787 34,280
Minority interest (2) -- -- 111 266 1,049
Shareholders' equity 20,432 28,043 28,393 27,153 31,369
</TABLE>
- --------
(1) Sales are recognized at closing, when title to the home has passed to the
buyer (see Note 1 of the Notes to Consolidated Financial Statements).
(2) Sundance is the General Partner of The Sundance-Kaco Limited Partnership,
with a 75% interest in said partnership. Under the terms of the
partnership agreement, the limited partner is entitled to 25% of all
profits of the partnership and will receive cash distributions.
18
<PAGE>
The unaudited pro forma consolidated balance sheet as of December 31, 1998
reflects the sale of the Suburban assets as of that date. The related
unaudited pro forma consolidated statements of operations for the year ended
September 30, 1998 and the three months ended December 31, 1998 reflect the
sale of the Suburban assets as of the first day of each period presented,
respectively. The column "Less: Suburban Net Assets Sold" in the accompanying
unaudited pro forma financial statements reflects direct amounts associated
with those operations.
SUNDANCE HOMES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 1998
(Unaudited, In Thousands)
<TABLE>
<CAPTION>
Less:
Suburban
December 31, Net Assets Pro Forma Pro
1998 Sold Adjustments Forma
------------ ---------- ----------- -------
ASSETS
------ (a)
<S> <C> <C> <C> <C>
Cash and cash equivalents........ $ 1,339 $ -- $ 61,300 (b) $ 2,989
(12,000)(c)
(2,000)(d)
(45,650)(e)
Real estate inventories.......... 109,114 (60,402) -- 48,712
Prepaid expenses and other
assets.......................... 2,521 (280) 2,000 (d) 4,241
Property and equipment, net...... 4,655 (3,096) -- 1,559
-------- -------- -------- -------
$117,629 $(63,778) $ 3,650 $57,501
======== ======== ======== =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS'
EQUITY
-----------------------------
<S> <C> <C> <C> <C>
Accounts payable and accrued
construction liabilities........ $ 18,067 -- $(12,000)(c) $ 6,067
Other accrued expenses........... 2,125 -- -- 2,125
Customer deposits................ 3,291 (943) -- 2,348
Notes payable.................... 68,138 (1,035) (45,650)(e) 21,453
Secured subordinated notes
payable to Principal
Shareholder..................... 2,500 -- -- 2,500
Unsecured subordinated notes
payable to Principal
Shareholder..................... 4,193 -- -- 4,193
Equity (Deficit)................. 19,315 -- (500)(f) 18,815
-------- -------- -------- -------
$117,629 $ (1,978) $(58,150) $57,501
======== ======== ======== =======
</TABLE>
- --------
Adjustments to the pro forma consolidated balance sheet consist of:
(a) Net Suburban assets purchased by buyer.
(b) Net proceeds received from sale of Suburban assets.
(c) Payoff of accounts payable on Work In Process Inventory related to the
Suburban assets being sold.
(d) Holdback established with buyer as security for Sundance's indemnification
obligation.
(e) Partial paydown of outstanding line of credit.
(f) Estimated loss on sale of Suburban assets after estimated transaction
costs of $542.
19
<PAGE>
SUNDANCE HOMES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended September 30, 1998
(Unaudited, In Thousands)
<TABLE>
<CAPTION>
Year ended Less:
September 30, Suburban Net Pro Forma
1998 Assets Sold(a) Adjustments Pro Forma
------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Residential sales........... $122,906 $(63,319) $59,587
Land and building sales..... 8,650 (1,700) 6,950
-------- -------- ----- -------
Total sales................. 131,556 (65,019) -- 66,537
Cost of residential sales... 113,065 (56,051) 57,014
Cost of land sales.......... 7,069 (1,190) 5,879
-------- -------- ----- -------
Total cost of sales......... 120,134 (57,241) -- 62,893
-------- -------- ----- -------
Gross profit................ 11,422 (7,778) -- 3,644
Selling expenses............ 12,227 (6,070) 6,157
General and administrative
expenses................... 4,871 (1,820) 3,051
Other (income) expense, net. (196) (22) (218)
-------- -------- ----- -------
Income (loss) before
minority interest and
provision (benefit) for
income taxes............... (5,480) 134 -- (5,346)
Minority interest........... (3) -- (3)
-------- -------- ----- -------
Income (loss) before
provision (benefit) for
income taxes............... (5,477) 134 -- (5,343)
Provision (benefit) for
income taxes............... (97) -- (97)
-------- -------- ----- -------
Income (loss) before
cumulative effect of change
in accounting principle,
net of tax................. (5,380) 134 -- (5,246)
Cumulative effect of change
in accounting principle,
net........................ (2,234) 836 (1,398)
-------- -------- ----- -------
Net income (loss)........... $ (7,614) $ 970 $ -- $(6,644)
======== ======== ===== =======
Per share loss.............. $ (0.98) $ (0.85)
Weighted average number of
shares outstanding......... 7,808 7,808
</TABLE>
- --------
Adjustments to the pro forma consolidated statement of operations:
(a) Reflects the direct results of operations related to the Suburban assets
being sold. No allocation of corporate expenses has been reflected in
these results or as a pro forma adjustment.
20
<PAGE>
SUNDANCE HOMES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the quarter ended December 31, 1998
(Unaudited, In Thousands)
<TABLE>
<CAPTION>
Less:
December 31, Suburban Net Pro Forma
1998 Assets Sold(a) Adjustments Pro Forma
------------ -------------- ----------- ---------
<S> <C> <C> <C> <C>
Residential sales............ $ 22,801 $(16,664) $ 6,137
Land and building sales...... 1,300 (1,300) --
-------- -------- ---- -------
Total sales.................. 24,101 (17,964) -- 6,137
Cost of residential sales.... 21,141 (15,045) 6,096
Cost of land sales........... 622 (622) --
-------- -------- ---- -------
Total cost of sales.......... 21,763 (15,667) -- 6,096
-------- -------- ---- -------
Gross profit................. 2,338 (2,297) -- 41
Selling expenses............. 2,356 (1,338) 1,018
General and administrative
expenses.................... 1,200 (442) -- 758
Other (income) expense, net.. (91) 42 (49)
-------- -------- ---- -------
Net income (loss)............ $ (1,127) $ (559) $-- $(1,686)
======== ======== ==== =======
Per share loss............... $ (0.14) $ (0.22)
Weighted average number of
shares outstanding.......... 7,813 7,813
</TABLE>
- --------
Adjustments to the pro forma consolidated statement of operations:
(a) Reflects the direct results of operations related to the Suburban assets
being sold. No allocation of corporate expenses has been reflected in
these results or as a pro forma adjustment.
21
<PAGE>
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Sundance's Common Stock has been quoted on the NASDAQ Stock Market's
National Market (the "National Market") under the symbol SUNH since July 9,
1993. The following table shows the high and low closing prices for the common
stock for the periods indicated as reported by the National Market:
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal 1999
Quarter ended March 31, 1999................................... $1.875 $ .500
Quarter ended December 31, 1998................................ $2.500 $1.188
Fiscal 1998
Quarter ended September 30, 1998............................... $2.500 $1.313
Quarter ended June 30, 1998.................................... 3.000 2.125
Quarter ended March 31, 1998 2.875 1.750
Quarter ended December 31, 1997................................ 1.750 1.031
Fiscal 1997
Quarter ended September 30, 1997............................... $2.010 $1.500
Quarter ended June 30, 1997.................................... 2.375 1.750
Quarter March 31, 1997......................................... 3.125 2.250
Quarter ended December 31, 1996................................ 4.000 2.250
</TABLE>
The closing price of Sundance's common stock as reported on the National
Market on March 31, 1999 was $0.625 per share. As of March 31, 1999, there
were 51 holders of record of Sundance's Common Stock.
The high and low prices of Sundance's common stock as reported on the
National Market on February 24, 1999, the day prior to public announcement of
the proposed sale, were $1.625 and $1.4375 respectively. The closing price was
$1.4375.
Dividends
Sundance intends to retain its future earnings to finance the continuing
development of its business. Accordingly, Sundance does not anticipate paying
any cash dividends on its common stock in the foreseeable future. The payment
of any future dividends will be at the discretion of Sundance's Board of
Directors and will depend upon, among other things, future earnings, the
success of Sundance's development activities, capital requirements,
restrictions in financing arrangements, the general financial condition of
Sundance and general business conditions. At present, Sundance is restricted
from paying any dividends as a result of the current defaults related to the
Loan Agreement (as defined hereafter, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources").
22
<PAGE>
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1998 AND 1997
AND FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
Report of Independent Accountants
To the Board of Directors and
Shareholders of Sundance Homes, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in shareholders'
equity and of cash flows present fairly, in all material respects, the
financial position of Sundance Homes, Inc. and its subsidiaries at September
30, 1998 and 1997, and the results of their operations and their cash flows
for the each of the three years in the period ended September 30, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 5 to the
financial statements, the Company has violated certain loan covenants and
accordingly is in default of its revolving credit loan agreement. The Company
has been unable to renegotiate the terms of the revolving credit loan
agreement or to secure alternative financing. The inability of the Company to
resolve the loan default under its current loan agreement or to obtain
alternative financing to meet its obligations as they become due raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to this matter are also described in Note 5. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
December 23, 1998
23
<PAGE>
SUNDANCE HOMES, INC.
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, September 30,
ASSETS 1998 1997
------ ------------- -------------
<S> <C> <C>
Cash and cash equivalents.......................... $ 1,947 $ 4,615
Real estate inventories............................ 102,088 80,787
Prepaid expenses and other assets.................. 2,227 1,748
Property and equipment, net........................ 4,988 3,289
Deferred project start-up costs.................... -- 3,726
Income taxes receivable............................ -- 565
-------- -------
Total assets................................... $111,250 $94,730
======== =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Accounts payable and accrued construction
liabilities....................................... $ 23,026 $23,711
Other accrued expenses............................. 2,386 1,976
Customer deposits.................................. 3,464 2,116
Notes payable...................................... 55,249 33,087
Notes payable to Principal Shareholder............. 2,500 --
Deferred income taxes.............................. -- 1,604
Subordinated notes payable to Principal
Shareholders...................................... 4,193 4,193
-------- -------
Total liabilities.............................. 90,818 66,687
-------- -------
Minority interest.................................. -- --
-------- -------
Commitments and contingencies...................... -- --
-------- -------
Shareholders' equity:
Preferred stock, $0.01 par value, 1,000,000
shares authorized, none issued or outstanding... -- --
Common stock, $0.01 par value, 20,000,000 shares
authorized, 7,809,125 shares issued and
outstanding..................................... 78 78
Additional paid-in capital....................... 26,980 26,977
Retained earnings (deficit)...................... (6,626) 988
-------- -------
Total shareholders' equity..................... 20,432 28,043
-------- -------
Total liabilities and shareholders' equity..... $111,250 $94,730
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
SUNDANCE HOMES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Residential sales................................ $122,906 $108,743 $120,948
Land and building sales.......................... 8,650 -- --
-------- -------- --------
Total sales...................................... 131,556 108,743 120,948
Cost of residential sales........................ 113,065 95,875 106,639
Cost of land and building sales.................. 7,069 -- --
-------- -------- --------
Total cost of sales.............................. 120,134 95,875 106,639
-------- -------- --------
Gross profit..................................... 11,422 12,868 14,309
Selling expenses................................. 12,227 9,547 7,386
General and administrative expenses.............. 4,871 4,301 4,940
Other (income) expenses, net..................... (196) (265) (193)
-------- -------- --------
Income (loss) before minority and provision
(benefit) for income taxes...................... (5,480) (715) 2,176
Minority interest................................ (3) (131) 117
-------- -------- --------
Income (loss) before provision (benefit) for
income taxes.................................... (5,477) (584) 2,059
Provision (benefit) for income taxes............. (97) (234) 824
-------- -------- --------
Income (loss) before cumulative effect of change
in accounting policy............................ (5,380) (350) 1,235
Cumulative effect of change in accounting policy,
net of related tax effect....................... (2,234) -- --
-------- -------- --------
Net income (loss)................................ $ (7,614) $ (350) $ 1,235
======== ======== ========
Net income (loss) per share...................... $ (0.98) $ (0.04) $ 0.16
======== ======== ========
Weighted average number of shares outstanding.... 7,808 7,807 7,806
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
SUNDANCE HOMES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Retained
------------- Paid-In Earnings
Shares Amount Capital (Deficit) Total
------ ------ ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995...... 7,805 $78 $26,972 $ 103 $27,153
Exercise of stock options........ 2 -- 5 -- 5
Net income....................... -- -- -- 1,235 1,235
----- --- ------- ------- -------
Balance at September 30, 1996...... 7,807 78 26,977 1,338 28,393
Net loss......................... -- -- -- (350) (350)
----- --- ------- ------- -------
Balance at September 30, 1997...... 7,807 78 26,977 988 28,043
Exercise of stock options........ 2 -- 3 -- 3
Loss before cumulative effect of
change in accounting policy..... -- -- -- (5,380) (5,380)
Cumulative effect of change in
accounting policy............... -- -- -- (2,234) (2,234)
----- --- ------- ------- -------
Balance at September 30, 1998...... 7,809 $78 $26,980 $(6,626) $20,432
===== === ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
SUNDANCE HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(in thousands)
<TABLE>
<CAPTION>
Year ended September 30,
------------------------------
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Operating activities:
Net income (loss)............................ $ (7,614) $ (350) $ 1,235
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation and amortization............. 2,636 1,109 848
Deferred income taxes..................... (1,604) 2,065 (461)
Changes in operating assets and
liabilities:
Real estate inventories.................. (22,949) (4,686) 10,333
Prepaid expenses and other assets........ (479) (946) 395
Income tax receivables................... 565 (565) 1,964
Deferred project start up costs.......... 3,726 (1,654) 628
Accounts payable and accrued construction
liabilities............................. (685) 644 6,551
Other accrued expenses................... 410 (4,206) 866
Customer deposits........................ 1,348 683 (1,216)
--------- -------- ---------
Net cash provided by (used for) operating
activities.................................... (24,646) (7,906) 21,143
--------- -------- ---------
Investing activities:
Property and equipment, net.................. (2,687) (1,878) (1,292)
Exercise of stock options.................... -- -- (5)
--------- -------- ---------
Net cash provided by (used for) investing
activities.................................... (2,687) (1,878) (1,297)
--------- -------- ---------
Financing activities:
Borrowings under notes payable............... 141,199 111,275 99,392
Repayments of notes payable.................. (119,037) (99,682) (115,691)
Borrowings under notes payable to Principal
Shareholder................................. 5,479 650 1,340
Repayments of notes payable to Principal
Shareholder................................. (2,979) (2,183) (4,801)
Proceeds of stock options exercised.......... 3 -- --
Contributions from minority interest......... -- -- 73
Distributions to minority interest........... -- (162) (345)
--------- -------- ---------
Net cash provided by (used for) financing
activities.................................... 24,665 9,898 (20,032)
--------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................... (2,668) 114 (186)
Cash and cash equivalents:
Beginning of period.......................... 4,615 4,501 4,687
--------- -------- ---------
End of period................................ $ 1,947 $ 4,615 $ 4,501
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
Note 1--Summary of Significant Accounting Policies:
Nature of business
Sundance Homes, Inc. is engaged in the development of land and construction
of attached and detached single-family homes and urban residential buildings
in the Chicago metropolitan area.
Principles of consolidation
The consolidated financial statements include the accounts of Sundance
Homes, Inc., its wholly-owned subsidiaries ("Sundance") and its investment in
a majority-owned limited partnership. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Revenue recognition
Residential sales are recognized at closing, when title to the home has
passed to the buyer. Sundance's homes are generally offered for sale in
advance of their construction. To date, most of Sundance's homes have been
sold pursuant to standard sales contracts entered into prior to commencement
of construction. Sundance's standard sales contracts generally require the
customer to make an earnest money deposit. This deposit may range from a
nominal amount for an FHA or VA financed purchase to 5% to 10% of the purchase
price for a buyer using conventional financing.
Land sales are recognized when Sundance has received an adequate cash down
payment and all other conditions necessary for profit recognition have been
satisfied.
Real estate inventories and cost of sales
Real estate inventories are carried at cost, which is less than fair value,
and include land, land development, direct and certain indirect construction
costs, interest and real estate taxes. At the time of revenue recognition,
cost of sales is charged with the actual construction costs incurred and any
estimate to complete, plus an allocation, based upon relative sales value, of
the total estimated cost of land and land development, interest, real estate
taxes and any other capitalizable common costs. Sundance generally provides a
one year limited warranty of workmanship and materials and a two year limited
warranty on the working systems for each of its homes. Accordingly, a warranty
reserve, based on Sundance's historical experience, is provided as residential
sales are closed. This reserve is reduced by the cost of subsequent work
performed.
Interest capitalization
Interest and related debt issuance costs are capitalized to qualifying real
estate inventories as incurred, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 34, "Capitalization of Interest Cost," and
charged to cost of sales as revenue from residential sales is recognized.
Property and equipment
Property and equipment are carried at cost less accumulated depreciation
and are depreciated using straight line and accelerated methods over the
estimated useful lives of the assets, except for model home upgrades and
furnishings, which are amortized as related home sales in a development are
closed. Significant additions and improvements are capitalized, while
expenditures for maintenance and repairs are charged to operations as
incurred. The cost and accumulated depreciation of property and equipment sold
or retired are removed from the respective accounts and the resultant gains or
losses, if any, are included in current operations.
28
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Advertising costs
Sundance attracts initial interest in its projects through a comprehensive
advertising program using media such as newspapers, direct mail,
telemarketing, billboards and, to a lesser extent, radio and television.
Advertising costs, which are expensed as incurred, aggregated approximately
$3.3 million, $3.6 million and $1.9 million during the years ended September
30, 1998, 1997 and 1996, respectively.
Income taxes
Deferred income taxes are determined under the asset and liability method
in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No.
109, deferred income taxes arise from temporary differences between the income
tax basis of assets and liabilities and their reported amounts in the
consolidated financial statements.
Cash and equivalents
For purposes of reporting cash flows, Sundance considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Supplemental disclosures of cash flow information are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Year Year
ended ended ended
September September September
30, 1998 30, 1997 30, 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash paid for:
Interest.................................. $6,116 $5,975 $3,536
Income taxes.............................. -- 75 --
</TABLE>
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year
then ended. Actual results could differ from those estimates.
Reclassification of Results of Operations
Certain amounts for 1997 and 1996 were reclassified to conform to the 1998
financial presentation.
Note 2--Change in Accounting Policy:
Effective October 1, 1997 Sundance adopted Statement of Position (SOP) No
98-5, Reporting on the Costs of Start-up Activities and Organization Costs.
Costs of start up activities and organization costs are expensed as incurred.
The cumulative effect of this change in accounting principle decreased net
assets at October 1, 1997 by $2,234,000, net of related tax effect of
$1,490,000.
29
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3--Real Estate Inventories:
Real estate inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Work-in-process:
Land and land development................... $ 41,696 $33,683
Suburban inventory.......................... 12,545 10,249
Urban construction inventory................ 30,983 19,482
Completed homes:
Models...................................... 2,040 6,668
Speculative homes........................... 3,590 912
Capitalized overhead.......................... 4,225 3,146
Capitalized interest.......................... 7,009 6,647
-------- -------
$102,088 $80,787
======== =======
</TABLE>
Completed homes include models constructed to help market a development and
include allocations of land, development and other common costs. Speculative
homes represent non-model homes that are substantially complete and are not
subject to a sales contract. During the year ended September 30, 1998,
Sundance entered into a sale leaseback agreement with a third party. Sales
revenue derived from the 31 units sold subject to this agreement totaled $5.5
million. Annual lease payments due under the leaseback provisions of the
agreement will be approximately $0.6 million for the year ended September 30,
1999.
Capitalized interest is included in real estate inventories as follows (in
thousands):
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 30, September 30,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Interest capitalized,
beginning of period.......... $ 6,647 $ 5,427 $ 5,418
Interest incurred and
capitalized.................. 6,825 4,534 3,581
Interest amortized to cost of
sales........................ (6,463) (3,314) (3,572)
------- ------- -------
Interest capitalized, end of
period....................... $ 7,009 $ 6,647 $ 5,427
======= ======= =======
</TABLE>
A reserve is provided as a charge against earnings when the carrying amount
of any of Sundance's inventories exceeds its fair value. Fair value represents
the expected selling price a property will bring in the open market reduced by
(a) the estimated cost to complete and improve such property to the condition
expected in determining the selling price, (b) disposition costs, and (c)
estimated costs to hold the property to the point of sale, including interest
carrying costs and other net cash flow requirements of the project. During the
year ended September 30, 1998, Sundance recorded valuation reserves totaling
$850,000.
30
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4--Property and Equipment:
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Model home upgrades and furnishings........... $ 8,047 $4,307
Equipment and furniture....................... 3,028 3,147
Vehicles...................................... 270 379
Leasehold improvements........................ 476 52
------- ------
11,821 7,885
Accumulated depreciation...................... 6,833 4,596
------- ------
$ 4,988 $3,289
======= ======
</TABLE>
Note 5--Notes and Mortgages Payable:
Notes and mortgages payable are summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Revolving line of credit...................... $53,682 $30,818
Notes payable to land sellers................. 1,567 2,269
------- -------
$55,249 $33,087
======= =======
</TABLE>
On April 30, 1998, Sundance entered into a new $80 million Revolving Credit
Loan Agreement (the "Loan Agreement") with LaSalle National Bank, American
National Bank and Trust Company of Chicago and BankBoston, NA (collectively,
the "Lenders"), which replaced Sundance's previous credit loan agreement which
had provided for a $60 million line of credit. The three banks participate in
the $80 million facility as follows: LaSalle National Bank, $35 million;
American National Bank and Trust Company of Chicago, $25 million; and
BankBoston, NA, $20 million. The borrowings are secured by the real estate
assets of Sundance with certain exceptions. Borrowings under the Loan
Agreement bear interest at LIBOR plus 300 basis points for borrowings up to
$70 million and prime plus 0.75% for borrowings in excess of $70 million, plus
certain customary fees. The Loan Agreement was originally scheduled to mature
on February 1, 2000. Available borrowings under the Loan Agreement are reduced
by the amount of letters of credit outstanding. The Loan Agreement includes
certain customary representations and covenants, including restrictions on
Sundance's ability to pay dividends and maintenance of certain financial
ratios. As of September 30, 1998, Sundance had violated certain covenants as
set forth in the Loan Agreement, including certain financial covenants,
specifically those related to net worth and net income. On December 1, 1998,
Sundance's Lenders declared a "default" under the Loan Agreement and the
outstanding balance of the loan is due and payable, subject to the
satisfactory modification of the Loan Agreement. Sundance and its Lenders are
currently negotiating a Forbearance and Loan Modification Agreement (the
"Forbearance Agreement").
Following the successful execution of the Forbearance Agreement, Sundance
intends to replace the existing credit line at more favorable rates and terms.
There can be no assurance though, that Sundance will be able to enter into the
Forbearance Agreement on the terms described above or replace the existing
credit line on a timely basis or at all. Failure by Sundance to cure the
defaults, successfully negotiate the Forbearance Agreement or negotiate
replacement financing on a timely basis could have a material adverse effect
on Sundance's operations. As of September 30, 1998, Sundance had borrowed
$53.7 million under the Loan Agreement and had $4.1 million outstanding
letters of credit, leaving $22.2 million available for future borrowings. The
Loan Agreement was originally scheduled to mature on February 1, 2000, which
date may be modified in the Forbearance Agreement.
31
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
While Sundance was securing its Loan Agreement, Sundance entered into
certain interim financing arrangements to provide funding for certain projects
that were not provided for under Sundance's prior credit agreement.
On March 16, 1998, Sundance entered into a $15 million Construction Loan
Agreement with LaSalle National Bank with a maturity date of February 20,
1999, at a rate of Prime plus 1.0%. Advances under this loan totaled
$4,931,562 and were used to provide construction funds for Sundance's Erie
Tower Project located at 375 West Erie Street, Chicago, Illinois. Concurrent
with the funding of the Loan Agreement on May 12, 1998, this Construction Loan
Agreement was repaid in full.
On March 17, 1998, Sundance entered into an interim financing agreement
with Cohen Financial Corporation in the amount of $1.6 million at a rate of
prime plus 1.0% with a maturity date of October 1, 1998. This promissory note
was secured by a mortgage on the property located at 3228-3244 North Halsted
Street, Chicago, Illinois. Concurrent with the funding of the Loan Agreement
on May 12, 1998, this note was repaid in full.
Sundance entered into interim financing agreements with the Principal
Shareholder as described in Note 6.
Notes payable to land sellers are non-interest bearing and are repaid
through application of agreed upon amounts from the proceeds of individual
home sale closings.
Scheduled maturities of notes and mortgages payable in future periods are
as follows (in thousands):
<TABLE>
<CAPTION>
Year ending
September 30,
-------------
<S> <C>
1999........................................................ $ 777
2000........................................................ 53,994
2001........................................................ 313
2002........................................................ 165
--------
$ 55,249
========
</TABLE>
Interest and related debt issuance costs incurred, all of which were
capitalized, during the year ended September 30, 1998, 1997 and 1996,
aggregated approximately $6.8 million, $4.5 million and $3.5 million,
respectively.
Note 6--Subordinated Notes and Notes Payable to Principal Shareholder:
Secured Note Payable
On May 1, 1998, Erie Center Lofts, Inc., a wholly owned subsidiary of
Sundance, entered into a $2.5 million Secured Subordinated Promissory Note
with a maturity date of June 30, 1999, and an interest rate of 20% with
Maurice Sanderman, Sundance's Chairman and President. The note is secured by a
junior mortgage on the property commonly known as Erie Tower located at 421
West Erie Street in Chicago, Illinois. Principal payments under this note may
only be paid out of net sales proceeds from the sale of units within Erie
Tower only after all advances made under the New Loan Agreement related to the
Erie Tower project have been repaid.
Unsecured Notes Payable
On February 24, 1998, Sundance borrowed $487,000 on an unsecured basis from
Maurice Sanderman. The unsecured note was at a prime rate plus 3.0% with a
maturity date of October 1, 1998. These funds were used to pay property taxes
for 1996 and 1997 that became due on a building owned by Sundance at 201 North
Wells,
32
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Chicago, Illinois. The payment of these taxes was not provided for under the
terms of the prior credit agreement. This loan was repaid on June 30, 1998
concurrently with the closing of the sale of the building.
On March 17, 1998, in order to acquire the property located at 3228-3244
North Halsted, Chicago, Illinois, Sundance borrowed $890,000 on an unsecured
basis from Maurice Sanderman. The unsecured note was at a rate of prime plus
3.0% with an expiration date of October 1, 1998. The purchase of this property
was not provided for under the terms of the prior credit agreement. Concurrent
with the funding of the Loan Agreement, on May 12, 1998, this note was repaid
in full.
On May 26, 1998 Sundance borrowed $1,602,241 on an unsecured basis from
Maurice Sanderman. The unsecured note was at a rate of prime plus 3.0% with a
maturity date of October 1, 1998. These funds were used to pay property taxes
for 1990, 1991 and 1992, which became due through a court settlement on a
building owned by Sundance at 201 N. Wells, Chicago, Illinois. The payment of
these taxes were not provided for under the terms of the Loan Agreement. This
loan was repaid in full concurrent with the closing of the sale of the
building on June 30, 1998.
Prior to Sundance completing the public offering on July 9, 1993, Sundance
was recapitalized and reorganized into a parent-subsidiary structure, thereby
terminating its S Corporation status. Sundance declared aggregate
distributions of S Corporation earnings to its Principal Shareholder in an
aggregate amount such that beginning shareholders' equity as a C Corporation
would be $5 million.
During the twelve months ended December 31, 1993, such distributions
aggregated $9.1 million, of which $4.9 million was paid out of available cash,
while the remaining $4.2 million was paid in the form of promissory notes,
which are subordinate to Sundance's bank indebtedness, bear interest at 7.50%
that compounds daily and originally matured in two equal annual installments
on the first and second anniversaries of the offering. On April 30, 1998, the
maturity date of the notes was extended to February 1, 2000. Payment of the
annual installments is subject to certain restrictions under Sundance's
Revolving Credit Loan Agreement (see Note 5--Notes and Mortgages Payable).
Note 7--Income Taxes:
The provision (benefit) for income taxes was as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Current
Federal....................... $ -- $ -- $105
State......................... -- -- 35
------- ----- ----
-- -- 140
------- ----- ----
Deferred
Federal....................... (1,842) (199) 563
State......................... (348) (35) 121
------- ----- ----
(2,190) (234) 684
------- ----- ----
Valuation allowance............. 2,093 -- --
------- ----- ----
Total........................... $ (97) $(234) $824
======= ===== ====
</TABLE>
33
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reconciliations of the statutory Federal income tax rate of 34% to the
effective income tax rate are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Income taxes at the Federal
statutory rate............... $(1,852) $(206) $700
State income taxes, net of
Federal benefit.............. (338) (23) 150
Other......................... -- (5) (26)
Valuation allowance........... 2,093 -- --
------- ----- ----
Total..................... $ (97) $(234) $824
======= ===== ====
</TABLE>
Sundance's net deferred tax asset is reserved through the establishment of
a tax valuation allowance. The valuation allowance of $2.1 million was
recorded upon consideration of the recent operating results and related
uncertainty associated with realization of the tax benefit of the net
operating loss carryforward, which is ultimately dependent upon the generation
of future earnings of Sundance.
The consolidated balance sheets included the following net deferred tax
(assets) or net deferred tax liabilities:
<TABLE>
<CAPTION>
September 30, September 30, September 30,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Deferred project start-up
costs......................... $ -- $ 1,538 $ 843
Real estate inventories........ 342 1,723 (1,378)
Partnership book to tax
differences................... -- -- 176
Accrued expenses............... (359) (274) (266)
Depreciation of property and
equipment..................... (85) 117 164
Tax carry forward items........ (1,991) (1,500) --
Valuation allowance............ 2,093 -- --
------- ------- -------
$ -- $ 1,604 $ (461)
======= ======= =======
</TABLE>
Sundance has entered into a tax indemnification agreement with the
Principal Shareholder of Sundance which provides for, among other things, the
indemnification of the Principal Shareholder for any losses or liabilities
with respect to any additional taxes (including interest, penalties and legal
fees) resulting from Sundance's operations during the period in which it was
an S Corporation.
Note 8--Minority Interest:
During 1993, one of Sundance's subsidiaries, acting as general partner with
a 75% ownership interest, entered into a limited partnership with a land
seller. Under the terms of this limited partnership agreement, Sundance
purchased the land from the seller for approximately $1.4 million, payable
over the term of the agreement as home sales are closed. This partnership
began closing homes in March, 1994.
The income (loss) from the limited partnership's operations is allocated to
the general and limited partner based upon their relative ownership interests.
Distributions with respect thereto are paid as outlined in the agreements.
34
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of the minority interest balance as presented in the
Consolidated Balance Sheets is as follows (in thousands):
<TABLE>
<S> <C>
Minority interest in net assets at September 30, 1995................... $ 266
-----
Contributions........................................................... 73
Limited partner's interest in 1996 net income of the partnership........ 117
Distributions during 1996............................................... (345)
-----
Minority interest in net assets at September 30, 1996................... $ 111
-----
Contributions........................................................... --
Limited partner's interest in 1997 net loss of the partnership.......... (131)
Distributions during 1997............................................... (162)
-----
Minority interest in net assets at September 30, 1997................... $(182)
-----
Contributions........................................................... --
Limited partner's interest in 1998 net loss of the partnership.......... (3)
-----
Minority interest in net assets at September 30, 1998................... $(185)
=====
</TABLE>
The balances due from minority interest as of September 30, 1998 and 1997
were reclassified to Prepaid expenses and other assets.
Note 9--Stock Incentive Plan and Directors Options Plan
Stock Incentive Plan
The Board of Directors and shareholders adopted the Sundance Homes, Inc.
Stock Incentive Plan (the "Stock Incentive Plan") effective as of April 7,
1993. The purpose of the Stock Incentive Plan is to enable officers and key
employees of Sundance to participate in Sundance's future and to enable
Sundance to attract and retain these persons by offering them proprietary
interests in Sundance. The Stock Incentive Plan is administered by Sundance's
compensation committee and authorizes the issuance of up to 525,000 shares of
common stock pursuant to the grant or exercise of stock options, stock
appreciation rights, restricted or deferred stock.
Prior to the offering in July of 1993, Sundance granted stock options under
the Stock Incentive Plan to certain of its employees who were not previously
shareholders of Sundance to purchase up to 250,000 shares of common stock in
the aggregate for a purchase price per share equal to the initial public
offering price. Options granted to these officers will vest 25% per year on
the anniversary of the grant date for four years and will expire after 10
years.
Directors Option Plan
Outside Directors are granted options by Sundance's compensation committee,
which is authorized to issue of up to 100,000 shares of common stock.
Directors are granted options to acquire 5,000 shares of Common Stock on each
of: (1) the date on which a person is elected as a Director, (2) the date of
the first annual meeting of shareholders held subsequent to such person's
election and, (3) the date of each succeeding annual meeting of shareholders
after which the person is still serving as a director (with a limit of options
to acquire a total of 25,000 shares to be granted to any Outside Director).
All options granted under the Director's Plan are exercisable on the one year
anniversary date of the grant and, at a price per share equal to the closing
price of the Common Stock as reported on the NASDAQ National Market on the
date of the grant or, if the market is closed on such date, the next business
day. Options will expire after ten years.
35
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Option activity for both plans for the three years ended September 30, 1998
is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
-------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 400,500 $3.54 250,500 $4.08 146,500 $5.21
Granted............... 219,000 1.60 187,500 2.67 126,500 2.34
Exercised............. (2,125) 1.63 -- -- -- --
Forfeited............. (155,625) 3.03 (37,500) 2.83 (22,500) 1.63
-------- ------- -------
Outstanding at end of
year................... 461,750 $2.80 400,500 $3.54 250,000 $4.16
======== ======= =======
Exercisable at end of
year................... 184,375 147,625 83,750
======== ======= =======
Available for future
grant at end of year... 163,250 224,500 374,500
======== ======= =======
Weighted average per
share fair value of
options granted during
year................... $0.77 $1.36 $1.29
</TABLE>
The fair value of each option grant was estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Risk free interest rate. 5.77% 6.44% 6.37%
Dividend yield.......... 0% 0% 0%
Expected lives.......... 7 years 7 years 7 years
Expected volatility..... 34.51% 36.87% 37.30%
</TABLE>
The following table summarizes information about stock options at September
30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Range Range
------------------- -------------- -------------
<S> <C> <C>
Range of Exercise Price................... $7.250-11.250 $1.125-3.625
Number Outstanding at September 30, 1998.. 43,250 418,500
Weighted Average Remaining Contractual
Life..................................... 5.3 years 8.4 years
Weighted Average Exercise Price........... $ 8.74 $ 2.19
<CAPTION>
Options Exercisable
-------------------
<S> <C> <C>
Number Exercisable at September 30, 1998.. 43,250 141,125
Weighted Average Exercise Price........... $ 8.74 $ 7.79
</TABLE>
Sundance has applied Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its Plan; accordingly, no compensation costs
have been recognized. Had compensation costs for Sundance's Plan been
determined based on the fair value at the grant date for the options granted
in 1998, 1997, and 1996 in accordance with the method required by Statement of
Financial Accounting Standards No. 123, Sundance's net income per share would
have been reduced to the pro forma amounts as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Net income (loss) available to common shareholders
As reported......................................... $(7,614) $ (350) $1,235
Pro forma........................................... $(7,691) $ (428) $1,221
Per share net income (loss) available to common
shareholders
As reported Basic................................... $ (0.98) $(0.04) $ 0.16
Pro forma Basic..................................... $ (0.99) $(0.05) $ 0.16
</TABLE>
36
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 10--Employee Benefit Plan:
Sundance maintains a contributory profit sharing plan established pursuant
to the provisions of Section 401(k) of the Internal Revenue Code which
provides retirement benefits for eligible employees of Sundance and its
subsidiaries. Sundance may make annual discretionary contributions to the
plan. There were no discretionary contributions during the years ended
September 30, 1998, 1997 and 1996.
Note 11--Commitments and Contingencies:
Sundance is frequently required, in connection with the development of its
projects, to obtain performance or other maintenance bonds or letters of
credit in lieu thereof. The amount of such obligations outstanding at any time
varies in connection with Sundance's pending development activities. In the
event any such obligations are drawn upon, Sundance would be obligated to
reimburse the issuing surety company or bank. At September 30, 1998, there
were approximately $10.6 million in performance or maintenance bonds and
approximately $4.1 million of letters of credit outstanding for such purposes.
There have been no such draws during the years ended September 30, 1998 and
1997.
Sundance currently leases 15,500 square feet of office space in Schaumburg,
Illinois where its Suburban Properties Division is located. Sundance also
leases approximately 3,000 square feet of office space in Chicago, Illinois,
where the Chicago Urban Properties Division is located. Certain equipment is
also currently leased under non-cancelable operating leases. Rent expense
under such leases aggregated $480,000, $436,000 and $380,000 during the years
ended September 30, 1998, 1997 and 1996, respectively. As discussed in Note 3
to the financial statements, Sundance sold certain model homes to an unrelated
third party and is leasing them back from the buyer. Rent expense under the
sale leaseback agreement was $153,000 during the year ended September 30,
1998.
Additionally, Sundance is involved in various routine legal proceedings
which Sundance believes to incidental to the conduct of its business.
Specifically, In November, 1994, a lawsuit was brought against Sundance and
certain directors and employees of Sundance by the Board of Managers of
Parkside on the Green Condominium Association. The complaint seeks damages
against Sundance for alleged construction defects in the approximate amount of
$4.8 million, together with punitive damages against the named individuals for
alleged breach of fiduciary duty. Sundance has assumed the defense of this
lawsuit on behalf of the individual defendants. The lawsuit is in the
discovery process and various inspections of the project are underway.
Sundance is defending the lawsuit vigorously. Management believes that none of
these legal proceedings will have a material adverse impact on the financial
condition or results of operations of Sundance.
37
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12--Quarterly Results of Operation (unaudited):
The following table reflects the results of operations for Sundance during
the four quarters of 1998 and 1997. Certain of the quarterly information has
been restated, as described below (dollars in thousands, except unit and per
share data):
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------
12/31/97 3/31/98 6/30/98 9/30/98
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal 1998
Number of home sales closed................ 107 137 186 222
Total sales, as reported................... $19,633 $25,244 $42,117 n/a
Parking unit sales (1)................... (213) (185) (148) n/a
------- ------- ------- -------
Total sales, as restated................... $19,420 $25,059 $41,969 $45,108
======= ======= ======= =======
Gross profit, as reported.................. $ 2,492 $ 2,550 $ 4,707 n/a
Parking unit sales (1)................... (81) (77) (51) n/a
Change in construction costs............. (1,038) (620) (616) n/a
Change in accounting policy (3).......... 71 (100) (129) n/a
------- ------- ------- -------
Gross profit, as restated.................. $ 1,444 $ 1,753 $ 3,911 $ 4,314
======= ======= ======= =======
Income (loss) before minority interest and
provision for income taxes, as reported... $ (485) $ (968) $ 1,029 n/a
Parking unit sales (1)................... (81) (77) (51) n/a
Change in construction costs (2)......... (1,038) (620) (616) n/a
Change in accounting policy (3).......... 264 (176) (3) n/a
------- ------- ------- -------
Income (loss) before minority interest and
provision for income taxes, as restated... $(1,340) $(1,841) $ 359 $(2,655)
======= ======= ======= =======
Income (loss) before cumulative effect of
change in accounting policy, as reported.. $ (291) $ (581) $ 617 n/a
Parking unit sales (1)................... (48) (46) (30) n/a
Change in construction cost (2).......... (623) (372) (370) n/a
Change in accounting policy (3).......... 158 (106) (2) n/a
------- ------- ------- -------
Income (loss) before cumulative effect of
change in accounting policy, as restated.. (804) (1,105) 215 n/a
------- ------- ------- -------
Cumulative effect of change in accounting
policy (3)................................ (2,234) -- -- n/a
------- ------- ------- -------
Net income (loss), as restated............. $(3,038) $(1,105) $ 215 $(3,686)
======= ======= ======= =======
Net income (loss) per share, as reported
(basic and diluted)....................... $ (0.04) $ (0.07) $ 0.08 n/a
Income (loss) per share, before cumulative
effect of change in accounting policy
(basic and diluted)....................... $ (0.10) -- -- --
Income (loss) per share, as restated (basic
and diluted).............................. $ (0.39) $ (0.14) $ 0.03 $ (0.42)
</TABLE>
- --------
(1) Reversal of parking unit closings because the transfer of legal title was
incomplete.
(2) To reflect changes in construction costs that were not recognized on a
timely basis.
(3) To reflect the change in accounting policy related to the early adoption
of SOP 98-5, Reporting on the costs of Start-up Activities and
Organization Costs, refer to Note 2.
38
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------
12/31/96 3/31/97 6/30/97 9/30/97
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal 1997+
Number of home sales closed.................. 131 91 140 274
Sales........................................ $22,712 $15,131 $23,739 $47,161
Gross profit................................. 1,837 695 2,876 7,460
Income (loss) before minority interest and
provision (benefit) for income taxes........ (943) (2,664) 33 2,859
Net income (loss)............................ $ (575) $(1,604) $ 22 $ 1,807
======= ======= ======= =======
Net income (loss) per share.................. $ (0.07) $ (0.21) $ 0.00 $ 0.23
======= ======= ======= =======
</TABLE>
- --------
+Quarterly Results of Operations have been reclassified to conform to the
1998 financial presentation.
39
<PAGE>
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1998 AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
SUNDANCE HOMES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1998
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1998 1998
------ ------------ -------------
(as
restated)
<S> <C> <C>
Cash and cash equivalents........................... $ 1,339 $ 1,947
Real estate inventories............................. 109,114 102,088
Prepaid expenses and other assets................... 2,521 2,227
Property and equipment, net......................... 4,655 4,988
-------- --------
Total assets.................................... $117,629 $111,250
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Accounts payable and accrued construction
liabilities........................................ 18,067 $ 23,026
Other accrued expenses.............................. 2,125 2,386
Customer deposits................................... 3,291 3,464
Notes payable....................................... 68,138 55,249
Notes payable to Principal Shareholder.............. 2,500 2,500
Subordinated notes payable to Principal Shareholder. 4,193 4,193
-------- --------
Total liabilities............................... 98,314 90,818
-------- --------
Minority interest................................... -- --
-------- --------
Commitments and contingencies....................... -- --
-------- --------
Shareholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, none issued or outstanding...........
Common stock, $0.01 par value, 20,000,000 shares
authorized, 7,816,866 shares issued and
outstanding...................................... 78 78
Additional paid-in capital........................ 26,990 26,980
Retained earnings (deficit)......................... (7,753) (6,626)
-------- --------
Total shareholders' equity...................... 19,315 20,432
-------- --------
Total liabilities and shareholders' equity...... $117,629 $111,250
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
SUNDANCE HOMES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
December 31,
--------------------
1998 1997
--------- ---------
(as restated)
<S> <C> <C>
Residential sales........................................ $ 22,801 $ 19,420
Land and building sales.................................. 1,300 --
--------- ---------
Total sales.............................................. 24,101 19,420
Cost of residential sales................................ 21,141 17,976
Cost of land and building sales.......................... 622 --
--------- ---------
Total cost of sales...................................... 21,763 17,976
--------- ---------
Gross profit............................................. 2,338 1,444
Selling expenses......................................... 2,356 1,660
General and administrative expenses...................... 1,109 1,124
--------- ---------
Income (loss) before provision (benefit) for income
taxes................................................... (1,127) (1,340)
Provision (benefit) for income taxes................... -- (536)
--------- ---------
Income (loss) before cumulative effect of change in
accounting policy..................................... (1,127) (804)
Cumulative effect of change in accounting policy, net
of related tax effect................................. -- (2,234)
--------- ---------
Net income (loss)...................................... $ (1,127) $ (3,038)
========= =========
Net income (loss) per share............................ $ (0.14) $ (0.39)
========= =========
Weighted average number of shares outstanding.......... 7,813 7,807
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
SUNDANCE HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
December 31,
--------------------
1998 1997
--------- ---------
(as restated)
<S> <C> <C>
Operating activities:
Net loss............................................... $ (1,127) $ (3,038)
Adjustments to reconcile net loss to net cash provided
by (used for) operating activities:
Depreciation and amortization........................ 422 334
Deferred income taxes................................ -- (552)
Minority interest.................................... -- (4)
Cumulative effect of change in accounting policy..... -- 2,234
Changes in operating assets and liabilities:
Real estate inventories............................ (7,026) (10,237)
Prepaid expenses and other assets.................. (294) (745)
Income taxes receivable............................ -- 405
Accounts payable and accrued construction
liabilities....................................... (4,959) (4,156)
Other accrued expenses............................. (261) 315
Customer deposits.................................. (173) (22)
--------- ---------
Net cash used in operating activities.................... (13,418) (15,466)
--------- ---------
Net cash used in investing activities: Property and
equipment, net.......................................... (89) (350)
--------- ---------
Financing activities:
Borrowings under notes payable......................... 34,217 32,099
Repayments of notes payable............................ (21,328) (17,130)
Proceeds from employee stock purchase plan............. 10 --
--------- ---------
Net cash provided by financing activities................ 12,899 14,969
--------- ---------
Net decrease in cash and cash equivalents................ (608) (847)
Cash and cash equivalents:
Beginning of period.................................... 1,947 4,615
--------- ---------
End of period.......................................... $ 1,339 $ 3,768
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Principles of Consolidation
The accompanying interim consolidated financial statements include the
accounts of Sundance Homes, Inc. and its subsidiaries ("Sundance"). These
financial statements are unaudited, but in the opinion of management contain
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial condition and results of operations of Sundance.
The interim consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto for the year
ended September 30, 1998 included in Sundance's Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission on January 13, 1999.
The results of operations for the three months ended December 31, 1998 are
not necessarily indicative of the results to be expected for the entire fiscal
year.
Note 2--Change in Accounting Policy
Effective October 1, 1997 Sundance adopted Statement of Position (SOP) No
98-5, Reporting on the Costs of Start-up Activities and Organization Costs.
Cost of start up activities and organization costs are expensed as incurred.
The cumulative effect of this change in accounting decreased net assets at
October 1, 1997 by $2,234,000, net of the related tax effect of $1,490,000.
Note 3--Real Estate Inventories
Real estate inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
<S> <C> <C>
Work-in-process:
Land and land development.................... $ 40,530 $ 41,696
Suburban inventory........................... 12,932 12,545
Urban construction inventory................. 36,499 30,983
Completed homes:
Models....................................... 1,956 2,040
Speculative homes............................ 4,948 3,590
Capitalized overhead......................... 4,529 4,225
Capitalized interest......................... 7,720 7,009
-------- --------
$109,114 $102,088
======== ========
</TABLE>
Model homes are constructed to help market a development and include
allocations of land and development and other allocable costs. Speculative
homes represent non-model homes which are substantially complete and are not
subject to a sales contract.
Note 4--Property And Equipment
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
<S> <C> <C>
Model home upgrades and furnishings............ $8,109 $8,047
Equipment and furniture........................ 3,056 3,028
Vehicles....................................... 270 270
Leasehold improvements......................... 476 476
------ ------
11,911 11,821
Accumulated depreciation....................... 7,256 6,833
------ ------
$4,655 $4,988
====== ======
</TABLE>
43
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5--Notes Payable
Notes and mortgages payable are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
<S> <C> <C>
Revolving line of credit....................... $67,087 $53,682
Notes payable to land sellers.................. 1,051 1,567
------- -------
$68,138 $55,249
======= =======
</TABLE>
On April 30, 1998, Sundance entered into a new $80 million Revolving Credit
Loan Agreement (the "Loan Agreement") with LaSalle National Bank, American
National Bank and Trust Company of Chicago and BankBoston, NA (collectively,
the "Lenders"), which replaced Sundance's previous credit loan agreement which
had provided for a $60 million line of credit. The three banks participate in
the $80 million facility as follows: LaSalle National Bank, $35 million;
American National Bank and Trust Company of Chicago, $25 million; and
BankBoston, NA, $20 million. The borrowings are secured by the real estate
assets of Sundance with certain exceptions and are subject to certain
customary fees. Available borrowings under the Loan Agreement are reduced by
the amount of letters of credit outstanding. The Loan Agreement includes
certain customary representations and covenants, including restrictions on
Sundance's ability to pay dividends and maintenance of certain financial
ratios. As of September 30, 1998, Sundance had violated certain covenants,
specifically those related to net worth and net income. On December 1, 1998,
Sundance's Lenders declared a "default" under the Loan Agreement and the
outstanding balance of the loan was due and payable, subject to the
satisfactory modification of the Loan Agreement.
On January 14, 1999, Sundance and its Lenders entered into a Forbearance
and Loan Modification Agreement (the "Forbearance Agreement") effective as of
December 15, 1998.
The Forbearance Agreement includes the following terms:
1. Existing defaults have been waived.
2. Significant limitations have been placed on Sundance's ability to
acquire new land.
3. The Lenders have no further commitment or obligation to fund the
130 unit condominium apartment project known as Plaza 32 in Chicago,
Illinois.
4. Interest rates have been increased from prime plus 0.75% to prime
plus 3.0%, and there is no longer a LIBOR option.
5. Certain financial penalties shall be imposed if certain revised
covenants are not met in the future.
6. The maximum loan amount has been systematically reduced.
7. The maturity date has been changed to January 3, 2000.
8. Other various credit limiting and monitoring devices have been
imposed.
Notes payable to land sellers are non-interest bearing and are repaid
through application of agreed upon amounts from the proceeds of individual
home sale closings.
Note 6--Subordinated Notes and Notes Payable to Principal Shareholder
Secured Note Payable
On May 1, 1998, Erie Center Lofts, Inc., a wholly owned subsidiary of
Sundance, entered into a $2.5 million Secured Subordinated Promissory Note
with a maturity date of June 30, 1999, and an interest rate of 20% with
44
<PAGE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Maurice Sanderman, Sundance's Chairman and President. The note is secured by a
junior mortgage on the property commonly known as Erie Tower located at 421
West Erie Street in Chicago, Illinois. Principal payments under this note may
only be paid our of net sales proceeds from the sale of units within Erie
Tower only after all advances made under the New Loan Agreement related to the
Erie Tower project have been repaid.
Unsecured Notes Payable
As part of the public offering and recapitalization of Sundance on July 9,
1993, Sundance issued promissory notes to the Principal Shareholder. The notes
are subordinate to Sundance's bank indebtedness, bear interest at 7 1/2% per
annum, compounded daily, and originally matured in two equal annual
installments on the first and second anniversaries of the offering. The
maturity date of the notes is February 1, 2000. Payment of the outstanding
principal balances is subject to certain restrictions under the Loan Agreement
Note 7--Contingencies
Sundance is frequently required, in connection with the development of its
projects, to obtain performance or other maintenance bonds of letters of
credit in lieu thereof. The amount of such obligations outstanding at any time
varies in connection with Sundance's pending development activities. In the
event any such obligations are drawn upon, Sundance would be obligated to
reimburse the issuing surety company or bank. At December 31, 1998, there were
approximately $7.4 million in performance or maintenance bonds and
approximately $3.2 million of letters of credit outstanding for such purposes.
There have been no such draws during the quarters ended December 31, 1998 or
December 31 1997.
Sundance currently leases 15,500 square feet of office space in Schaumburg,
Illinois where its Suburban Properties Division and Corporate offices are
located. Sundance also leases approximately 3,000 square feet of office space
in Chicago, Illinois, where the Chicago Urban Properties Division is located.
Certain equipment is also currently leased under non-cancelable operating
leases.
Additionally, Sundance is involved in various routine legal proceedings,
which Sundance believes to be incidental to the conduct of its business.
Specifically, in November, 1994, a lawsuit was brought against Sundance and
certain directors and employees of Sundance by the Board of Managers of
Parkside on the Green Condominium Association. The complaint seeks damages
against Sundance for alleged construction defects in the approximate amount of
$4.8 million, together with punitive damages against the named individuals for
alleged breach of fiduciary duty. Sundance has assumed the defense of this
lawsuit on behalf of the individual defendants. The lawsuit is in the
discovery process and various inspections of the project are underway.
Sundance is defending the lawsuit vigorously. Management believes that none of
these legal proceedings will have a material adverse impact on the financial
condition or results of operations of Sundance.
45
<PAGE>
THE COMPANY
Business
The Company. Sundance is a builder of single family homes in the Chicago
metropolitan area and condominiums in the Chicago urban market. Prior to
September 1996, Sundance primarily was a builder of affordably priced, single-
family detached and attached homes in the Chicago metropolitan area.
In September 1996, Sundance entered the urban real estate market with the
introduction of two condominium-loft conversion projects in Chicago. In 1998,
Sundance continued to increase its presence in the Chicago urban market with
its Chicago Urban Properties division, which completed construction on three
condominium-loft conversion projects. Additionally, Sundance made significant
progress on completing its 24-story high rise condominium apartment project,
and opened for sale two new condominium-loft conversions and one new
construction condominium apartment project in Chicago.
The Chicago metropolitan area, which includes Cook County and the five
surrounding counties (McHenry, Lake, DuPage, Kane and Will Counties, commonly
referred to as the "collar counties"), is the third largest metropolitan area
in the United States. Management believes that housing demand in these areas
is strong due in large part to their proximity to concentrated job markets
that have developed along major highways to the north, northwest, southwest
and west of Chicago.
The Chicago urban market includes the Loop area, South Loop, West Loop, New
East Side, River North, Streeterville and the Gold Coast. Extensive
development is taking place in other areas near the traditional Loop
boundaries. These include the areas between Roosevelt Road and Cermak Road,
and Halsted Street west to the United Center, and as far as 5800 north along
the Ravenswood corridor. Management believes that housing demand in this
market is strong due to the high rents in the markets, job growth in the
downtown area, the long commute times between the city and the suburbs and the
numerous amenities available in the Chicago downtown area to prospective home
buyers.
Sundance is currently operating three divisions: Sundance Suburban
Properties; Rembrandt Homes; and Chicago Urban Properties. The Sundance
Suburban Properties Division focuses on affordably priced entry-level and
first time move-up houses primarily in the collar counties surrounding
Chicago. The Rembrandt Division focuses primarily on the semi-custom and
custom market primarily in the north and northwest Chicago suburban counties.
The Chicago Urban Properties Division focuses primarily on loft-conversion,
townhouse and new construction of mid and high-rise apartment condominiums in
the City of Chicago. After the proposed sale, Sundance will only operate in
the Chicago urban market except for those suburban assets which have been
retained by Sundance and are excluded from the non-compete agreement.
Sundance currently has 21 projects in various stages of planning and
development. After the conclusion of the proposed sale, Sundance will have
five projects currently under development in the Chicago urban market and the
five projects in the suburbs which are not part of the Sale and Purchase
Agreement. See "Proposed Sale--Use of Proceeds; Plans for Future Operations
After the Proposed Sale."
Sundance strives to deliver superior value to all market segments by
providing innovative designs and diverse, high-quality products. Sundance
typically broadens its appeal to various market segments by offering one or
more product lines within each suburban and urban project. Each product
offering is architecturally designed to complement other products within the
project and create a sense of community.
Business Strategy. Sundance's home building strategy consists of the
following key elements:
Value Pricing, Customer Satisfaction, and Commitment to Quality. Sundance
strives to deliver superior value across market segments by pricing its homes
competitively while consistently providing innovative designs and high-quality
products. Sundance's commitment to overall customer satisfaction through
quality construction is the cornerstone of its business strategy. Sundance
acts as general contractor on most of its projects and requires
46
<PAGE>
that its subcontractors and suppliers use high-quality, durable materials in
the construction of its homes. The project manager for each project is
responsible for ensuring that each home in the project meets Sundance's
standards for workmanship and materials.
Growth-Oriented Markets. Sundance focuses its home-building in suburban
communities and urban neighborhoods where land acquisition costs have remained
low and demand for entry-level, move-up, custom, and urban-style homes is
strong. Demographic shifts in the housing market combined with the diverse and
stable economic environment in Chicago have translated into population
increases in and around the downtown area. Sundance will continue to evaluate
extending its home-building activities to other urban markets as opportunities
consistent with Sundance's strategy arise.
Innovative Design and Effective Marketing. Sundance monitors the design and
feature preferences of home buyers in its markets and uses this market
research to provide innovative, space-efficient and desirable architectural
designs and home amenities. In each project, Sundance creates and maintains
model homes representing the plans offered. Sundance believes that the
effective use of a variety of model homes plays an integral role in marketing
the competitive advantages of its home design to prospective buyers.
Property Acquisition and Development. Sundance strives to minimize its
overall property costs and the risks associated with the development of
unentitled property by, whenever possible, using options and other financing
arrangements that allow Sundance to control property through the entitlement
process, but defer the payment for such property until the entitlement process
has been completed and Sundance is prepared to commence construction. For a
description of the entitlement process, see "Governmental Regulation and
Environmental Controls."
Sundance has substantial experience in obtaining the entitlements necessary
to develop urban properties. In addition, Sundance has occasionally purchased
entitled property to the extent that the price and terms of such purchases
were believed by Sundance to be advantageous.
Cost Control. Sundance endeavors to control the cost of developing its
projects by: (i) seeking to purchase property at a low cost per unit; (ii)
using its position as a leading homebuilder in its markets to obtain favorable
pricing on construction materials and labor from its subcontractors; and (iii)
adhering to construction schedules and monitoring the physical progress and
costs of construction with the use of a computerized tracking system.
The following table presents information relating to Sundance's current and
planned projects as of March 15, 1999:
<TABLE>
<CAPTION>
Estimated Homes
Homes at in
Initial Closing Completion Homes Homes Backlog Sales
Project Location (Fiscal Quarter) (1) Closed Remaining (2) Price Ranges (3)
- ------- -------- ---------------- ---------- ------ --------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sundance Suburban Properties, Inc.
Country Walk Round Lake Beach, 3rd Qtr. 1992 780 776 4 0 $119,900-184,900
Lake County
Heartland Meadows Elgin/South Elgin, 4th Qtr. 1994 685 646 39 4 $122,990-135,990
Kane County
Bellchase Lake in the Hills, 2nd Qtr. 1995 578 358 220 29 $124,500-192,900
McHenry County
Sutton on the Lake Round Lake Beach, 4th Qtr. 1996 481 260 221 50 $119,900-189,490
Lake County
McCarty's Mill Aurora, Kane County 4th Qtr. 1997 111 41 70 13 $142,000-153,000
Georgian Court Addison, Cook County 1st Qtr. 1998 47 18 29 0 $130,500-210,000
Hometown Square Oswego, Kane County 1st Qtr. 1998 26 23 3 0 $139,990-166,990
Walnut Pointe Bolingbrook, 3rd Qtr. 1998 166 38 128 19 $144,990-180,490
Will County
Cedar Creek Matteson, Cook County 3rd Qtr. 1998 146 31 115 34 $158,990-243,490
Arrowhead Lockport, Will County 3rd Qtr. 1998 311 50 261 14 $122,000-192,500
The Preserves Orland Park, 1st Qtr. 1999 106 1 105 9 $204,990-248,490
Cook County
----- ----- ----- ---
Sub-total 3,437 2,242 1,195 172
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Estimated Homes
Homes at in
Initial Closing Completion Homes Homes Backlog Sales
Project Location (Fiscal Quarter) (1) Closed Remaining (2) Price Ranges (3)
- ------- -------- ---------------- ---------- ------ --------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rembrandt Homes, Inc.
Conservancy Gurnee, Lake County 2nd Qtr. 1995 164 157 7 3 $226,990-254,990
Gregg's Landing Vernon Hills, 1st Qtr. 1998 135 56 79 13 $350,000-650,000
Lake County
White Oaks (4) Long Grove, 1 0 1 0 $600,000-650,000
Lake County
Indian Creek (4) Buffalo Grove, 7 0 7 2 $400,000-500,000
Lake County
Stirling Manor (4) Kildeer, Lake County 13 0 13 0 $450,000-600,000
Property Under Contract 1 0 1 0
(4)
----- ----- ----- ---
Sub-total 321 213 108 18
Chicago Urban Properties, Inc.
Erie Tower Chicago, Cook County 2nd Qtr. 1999 126 25 101 66 $141,000-535,000
Arthouse Lofts (4) Chicago, Cook County 28 0 28 20 $ 89,000-246,000
Plaza 32 (4) Chicago, Cook County 130 0 130 80 $137,000-305,000
Capitol Hill Lofts (4) Chicago, Cook County 91 0 91 68 $109,000-325,000
2700 N. Halsted (4) Chicago, Cook County 51 0 51 0
----- ----- ----- ---
Sub-total 426 25 401 234
----- ----- ----- ---
Total: 4,184 2,480 1,704 424
===== ===== ===== ===
</TABLE>
- --------
(1) The estimated number of homes to be built at completion is subject to
change, and there can be no assurance that Sundance or Centex Homes, upon
acquisition of the suburban operations, will build these homes.
(2) Homes in backlog refers to homes subject to sales contracts that, as of
March 15, 1999, had not closed, and there can be no assurance that
closings of such homes will occur.
(3) Reflects base price, excluding any lot premiums and buyer-selected
options, which vary from project to project.
(4) Sundance does not currently have an estimate as to when an initial closing
will occur.
Property Acquisition and Development. Sundance selects property for
acquisition and development based upon a variety of factors, including: (i)
financial and legal review as to the feasibility of the proposed project,
including projected profitability; (ii) demographic and marketing studies;
(iii) competition within the area of the proposed project; (iv) proximity to
concentrated job markets, and (v) management's judgment as to the real estate
market, economic trends and Sundance's experience in a particular area.
Suburban Development. Sundance, in its suburban divisions, minimized its
overall land costs and the risks associated with developing unentitled land,
whenever possible, by using options and other financing arrangements that
allowed Sundance to control land through the entitlement process but defer the
payment for such land until the entitlement process had been completed and
Sundance was prepared to commence construction. After control of a parcel of
unentitled land had been obtained, Sundance prepared preliminary and final
plans for each project.
Urban Development. For the majority of Sundance's urban development,
Sundance targets for acquisition former or current manufacturing buildings
that are suitable for the conversion to residential loft-condominiums.
Sundance is also targeting for acquisition parcels for use in developing
multi-story apartment condominiums. Typically, any building on a parcel of
land of this type would be torn down prior to new construction beginning. Each
of the factors outlined in the acquisition process above is performed on these
sites, including assessing Sundance's ability to obtain appropriate
entitlements and zoning. Other factors evaluated are Sundance's ability to
provide adequate parking capacity and access to public transportation,
commercial centers, and various City of Chicago amenities.
Prior to acquisition, Sundance prepares architectural drawings, performs
environmental testing and assessments, reviews zoning and entitlement
requirements, and prepares feasibility studies based on projected
48
<PAGE>
absorption and estimated construction costs. Sundance has been able to start
initial construction activities soon after acquisition and typically opens for
sale within six months after acquisition, as the evaluation and zoning period
is much shorter than for suburban developments.
Home Design. Sundance continuously engages in market research in an effort
to ensure that its home designs, features, and selling strategies address the
preferences of potential home buyers. Sundance closely monitors new trends in
the industry, while carefully tracking the design features chosen by buyers of
its homes as well as those offered by competitors in the marketplace.
In 1998, Sundance opened a state-of-the-art Design Center in Schaumburg,
Illinois to provide its suburban customers with the opportunity to make design
selections in a controlled, retail environment. The Design Center will be sold
to Centex Homes as part of the proposed sale, and Sundance will be allowed to
use the Design Center on a fee for use basis. Each customer that visits the
Design Center is surveyed in order to identify areas for improvement. In
addition to surveying its customers during the purchasing process, Sundance
conducts focus groups, exit interviews at its model home sites, telephone
surveys, and statistical demographic studies in an effort to produce the most
desirable architectural designs and home amenities. Sundance's marketing and
design teams develop detailed standards and specifications for each new
product line and then work closely with one of a select number of unaffiliated
architectural firms to produce a product line that delivers the home designs
and features preferred by the target home buyers.
Within each suburban project, Sundance seeks to create a sense of community
through the use of cul-de-sacs, landscaping and a variety of front elevations
and architectural designs that complement each other. Sundance also seeks to
create continuity within each suburban project by coordinating the exterior
colors and trim of neighboring homes. The product lines offered in both
suburban and urban projects depend upon many factors, including the housing
alternatives generally available in the area, the needs of the target home
buyers for such project and Sundance's cost per unit in the project.
Construction. Sundance typically acts as general contractor for its urban
project developments. Sundance employs project construction managers who
supervise one or more building conversions, and construction superintendents
who supervise all phases of construction for a particular building. The length
of time of the construction process for urban projects varies due to the
amount of demolition, environmental or other construction requirements.
Additionally, occupancy requirements typically specify completion of an entire
phase prior to the initial closings, and as such will usually result in an
approximate nine to eighteen month construction cycle. Sundance hired an
outside general contractor to build the core building for its 24-story Erie
Tower project and will consider hiring qualified general contractors for any
future mid-rise and high-rise projects. Sundance is using its own supervisory
personnel for all individual unit trim work.
Subcontractors typically are retained on a project-by-project basis to
complete construction at a fixed price. Sundance generally uses a competitive
bidding process among competing subcontractors prior to entering into a
subcontracting agreement. Construction labor has generally been available to
Sundance, but the home-building industry has in the past experienced
occasional shortages of skilled labor in certain markets.
Sundance negotiates price and volume discounts with manufacturers and
suppliers on behalf of subcontractors to take advantage of its volume of
production. Management believes that this strategy has given Sundance an
advantage in producing quality homes at the lowest possible cost.
Sundance typically obtains price guarantees from manufacturers and material
suppliers but makes no long-term purchase commitments to material suppliers on
behalf of subcontractors. Materials used in the construction of Sundance's
projects are available from a number of sources, but material prices may
fluctuate due to various factors, including supply and demand imbalances.
Although there is presently an adequate supply of labor and materials for
Sundance's projects, it is possible that future shortages of skilled workers
and/or materials may occur.
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<PAGE>
In the Chicago urban market, the completion time of each project typically
ranges from nine months to eighteen months depending upon the size and number
of condo or loft units per project.
Sundance has historically provided a one year limited warranty of
workmanship and materials and a two year limited warranty on the working
systems for each of its homes. Beginning in 1995, Sundance expanded its
warranty policy to include a ten year limited warranty against certain
structural defects. Historically, Sundance has not incurred any significant
financial costs relating to any warranty claims or defects in construction
(see "Legal Proceedings").
Marketing and Sales. Sundance attracts initial interest in its
communities/projects through a comprehensive marketing program that employs
various forms of media such as newspaper, radio, television, direct mail, and
billboards. While Sundance is innovative in its use of media vehicles to
market its products, it believes that its reputation for building high-quality
homes also assists in this process. For that purpose, Sundance complements its
direct marketing in both the suburban and urban markets with a buyer referral
program in which buyers of Sundance's homes receive referral fees for
introducing new buyers to Sundance.
Sundance believes that the effective use of model homes plays an integral
role in demonstrating the competitive advantages of its home designs and
features to prospective home buyers. Sundance has an exclusive relationship
with an award winning interior designer who is responsible for creating and
maintaining attractive model homes for each product line.
A majority of Sundance's homes are sold by full-time, commissioned
employees who typically work from sales offices (open seven days a week)
located within each project. Additionally, Sundance sells homes through
independent brokers. Employees assist prospective buyers throughout the home
buying process by providing them with information from a network database on
the available product lines, pricing, options and upgrades, mortgage financing
(including qualifying criteria), warranties and construction. The
concentration of Sundance's developments within the Chicago metropolitan area
makes it possible for Sundance to retain sales employees for a long-term,
rather than on a project-by-project basis, which management believes results
in reduced training costs and a more knowledgeable and motivated sales force.
The sales contracts for its homes generally provide for mortgage approval
within a specified period. Sundance attempts to minimize cancellations by
requiring a nonrefundable cash deposit of approximately 5% to 10% of the
purchase price for buyers using conventional financing and by training its
sales force to assess the qualification of potential home buyers.
Backlog. Sundance's homes are generally offered for sale in advance of
their construction. A majority of Sundance's home sales during 1998 were sold
pursuant to standard sales contracts entered into prior to commencement of
construction. Sundance's standard sales contract generally requires the
customer to make an earnest money deposit upon signing. This deposit may range
from a nominal amount for an FHA or VA financed purchase, to 5% to 10% of the
purchase price for a buyer using conventional financing. Upon execution of the
contract and receipt of the deposit, the home sale is included in backlog.
Sundance recognizes revenue on residential sales at closing, when title to the
home has passed to the buyer.
The following table provides certain backlog information for the twelve
month periods presented:
<TABLE>
<CAPTION>
September 30,
-----------------------
1998 1997 1996
------- ------- -------
(dollars in thousands)
<S> <C> <C> <C>
Number of home sales closed during the twelve
month period................................... 652 636 701
Lots/units owned and available for development.. 1,852 1,920 1,717
Number of lots/units under contract............. 294 2,331 3,032
Backlog in lots/units........................... 384 247 197
Average sales price in backlog.................. $194 $183 $168
Aggregate sales value in backlog................ $74,419 $45,228 $33,193
</TABLE>
50
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Sundance backlog at any particular date is subject to substantial variation
and is dependent upon several factors, including the number of homes then
available for sale and the length of time necessary to complete the closing of
home sales subject to pending contracts. However, no assurances can be given
that homes in backlog will result in actual closings. The aggregate sales
value of backlog increased approximately $29 million from September 30, 1997
to September 30, 1998 due primarily to Sundance's entrance into five new
suburban projects in the southern suburbs of Chicago and its increasing
presence in the Chicago urban market.
Customer Financing. Substantially all home buyers utilize long-term
mortgage financing to purchase a home. Lenders generally make loans only to
borrowers who earn three to four times the total amount of the mortgage
payment plus insurance and property taxes. As a result, economic conditions,
increases in unemployment or high mortgage interest rates can eliminate a
substantial number of potential home buyers from the market. Although mortgage
financing for qualified home buyers was readily available during the year
ended September 30, 1998, there can be no assurance that affordable mortgage
financing will remain available to Sundance's customers in the future.
FHA and VA financing generally enable home buyers to purchase homes with
lower down payments than the down payments required through conventional
financing, allowing a purchaser to borrow from 90% to 95% of the value of the
home. Sundance believes that when conventional lending rates are higher, the
availability of FHA and VA financing broadens the group of potential
purchasers for Sundance's homes. If conventional rates increase substantially,
Sundance expects the percentage of buyers applying for FHA or VA approval to
increase. As of September 30, 1998, the FHA financing limit for a one unit
residence was $153,000.
Competition and Market Factors. The home-building industry is a highly
competitive and fragmented market. Sundance competes for residential sales
with national, regional and local developers and homebuilders, individual
resales of existing homes and condominiums, and available rental housing.
Sundance also competes for the acquisition of conversion properties and
undeveloped land on which to build. Sales of homes at deeply discounted prices
by competitors, lenders and similar institutions in the markets where Sundance
operates could have a material adverse effect on Sundance. Sundance believes
it is competitive as a result of its early entry into the market, development
expertise, product design, location and the size and scope of its operation,
knowledge of the local real estate market and governmental permit and approval
process, and its favorable reputation in the Chicago urban area home-building
industry.
The home-building industry is cyclical and affected by consumer confidence
levels and prevailing economic conditions in general and by employment and
interest rate levels in particular. A variety of other factors affect the
home-building industry and demand for new homes, including changes in costs
associated with home ownership such as increases in property taxes and energy
costs, changes in consumer preferences, demographic trends and the
availability of and changes in mortgage financing programs.
Government Regulation and Environmental Controls. Generally, Sundance must
obtain numerous government approvals, licenses, permits and agreements,
referred to as "entitlements," before it can commence development and
construction. Through options and other financing arrangements, Sundance
typically controls unentitled land during the entitlement process and only
purchases the land after the planning and zoning process is complete.
Obtaining the many necessary entitlements for residential developments in the
Chicago urban market is an extended process which generally takes six months
to one year and considerable expense.
Certain permits and approvals will be required to complete the residential
developments currently being planned by Sundance. The ability of Sundance to
obtain necessary approvals and permits for these projects is often beyond
Sundance's control and could restrict or prevent the development of otherwise
desirable property. The length of time necessary to obtain permits and
approvals increases the carrying costs of unimproved property acquired for the
purpose of development and construction. In addition, the continued
effectiveness of permits already granted is subject to factors such as changes
in policies, rules and regulations and their interpretation and application.
51
<PAGE>
Sundance is also subject to a variety of federal, state and local statutes,
ordinances, rules and regulations concerning protection of health and the
environment. These laws may result in delays, cause Sundance to incur
substantial compliance costs and prohibit or severely restrict development in
certain environmentally sensitive regions or areas. Prior to purchasing a
parcel of land, Sundance evaluates such land for the presence of hazardous or
toxic materials, wastes or substances. To date, Sundance has not experienced
any material delays as a result of these laws and Sundance's operations have
not been materially affected by the presence or potential presence of such
materials.
Bonds and Other Obligations. Sundance is frequently required, in connection
with the development of its projects, to obtain performance or maintenance
bonds or letters of credit. The amount of such obligations outstanding at any
time varies in accordance with Sundance's pending development activities. In
the event any such obligations are drawn upon, Sundance would be obligated to
reimburse the issuing surety company or bank. On September 30, 1998, there
were approximately $10.6 million in performance or maintenance bonds and
approximately $4.1 million in letters of credit outstanding for such
purposes (see "The Company--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources").
Employees. As of September 30, 1998, Sundance employed 175 persons, 65 of
whom were involved in project management, land development, production,
contract management and contract administration, 51 of whom were sales and
marketing personnel, and 59 of whom were executive, accounting, systems and
administrative personnel. Although none of Sundance's employees are covered by
collective bargaining agreements, many of the subcontractors and suppliers
which Sundance engages are represented by labor unions or are subject to
collective bargaining arrangements. Sundance believes that its relations with
its employees, subcontractors and suppliers are good. Upon completion of the
proposed transactions, most of Sundance's employees will have been offered
jobs with Centex Homes, and approximately 35 employees will remain at
Sundance.
Properties
Sundance currently occupies approximately 4,000 square feet of office space
at 70 East Lake Street, Chicago, Illinois. The lease for this office space
began on January 29, 1999 and terminates on June 20, 2000 and is for a total
of 13,533 square feet which Sundance shares with two other co-tenants. Also,
Sundance occupies approximately 15,500 square feet of office space for its
Suburban Properties Division and its corporate headquarters in Schaumburg,
Illinois. The lease for this office space began on April 1, 1998 and
terminates on March 31, 2003. Upon the closing of the proposed sale, Sundance
will assign this lease to Centex Homes.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion of our results of operations and financial
condition should be read in conjunction with the consolidated interim
financial statements of Sundance and the notes thereto contained herein.
Overview. Sundance experienced increased revenues for the quarter ended
December 31, 1998, as compared to the quarter ended December 31, 1997, and the
average sales price per home closed increased by $6,500 from $183,500 in the
quarter ended December 31, 1997 to $190,000 in the quarter ended December 31,
1998. The primary reason for the increase in the average sales price was an
increased number of deliveries in our Rembrandt Homes division, which
delivered homes ranging in price from about $380,000 to $475,000. Residential
sales, which are recognized upon the closing and delivery of homes, increased
$3.4 million or 17.4% to $22.8 million, for the quarter ended December 31,
1998, as compared to $19.4 million for the quarter ended December 31, 1997.
Sundance delivered 120 homes during the quarter ended December 31, 1998
compared to 107 in the quarter ended December 31, 1997. During the year ended
September 30, 1998 as compared to the year ended September 30, 1997 Sundance's
residential sales increased by $14.2 million or 13% to $122.9 million. In
addition, the average sales price per home closed increased by $17,500 to
$188,500 from $171,000 in fiscal 1997. Sundance closed 652 homes during fiscal
1998 compared to 636 in fiscal 1997.
52
<PAGE>
The aggregate value of sales in backlog as of December 31, 1998 increased
by 110% or $41.6 million to $79.3 million, representing 396 homes at an
average sales price of $200,200 compared to $37.7 million representing 202
homes at an average sales price of $186,600 as of December 31, 1997.
Sundance's aggregate sales value in backlog as of September 30, 1998 increased
by $29.2 million or 65% to $74.4 million compared to $45.2 million at
September 30, 1997. In addition, the average sales price per home of the 384
homes in backlog at September 30, 1998, increased by $10,700 per home to
$193,800 from $183,100 for the 247 homes in backlog as of September 30, 1997.
During fiscal 1998, Sundance sold its position in two separate land parcels
located in the City of Chicago and 10 fully developed lots in one of its
suburban projects for $6,950,000 and $1,700,000, respectively, totaling
$8,650,000 in land and building sales.
Urban Development. Sundance's wholly owned division, Chicago Urban
Properties, Inc., entered into 59 new contracts during the quarter ended
December 31, 1998, increasing its total backlog to 229 homes with a total
sales value of $46.4 million.
The Capitol Hill Lofts project and the Art House Loft project, consisting
of 91 and 26 loft units respectively, were over 60% sold as of December 31,
1998. Sundance's 24-story Erie Tower project was also over 60% sold by
December 31, 1998. Initial deliveries at Erie Tower began in January, 1999.
The Chicago Urban Properties also experienced significant growth in fiscal
1998. Closings increased from 95 units in fiscal 1997 to 149 units in fiscal
1998. Revenues increased from $15.6 million in fiscal 1997 to $27.3 million in
fiscal 1998.
The St. Paul, Michigan Avenue and Erie Center Lofts projects were
substantially completed and closed out during the year. Sundance's 24-story
building which contains 124 condominium units and 251 parking spaces was over
80% completed by September 30, 1998, with initial deliveries scheduled for
early 1999.
Sundance's three new projects in the Chicago urban market ended the fiscal
year with 130 units in backlog. These projects include two new loft conversion
projects located at 625 West Jackson Street and 942 West Madison Street in
Chicago, Illinois, and a 130 unit new construction mid-rise condominium
project at 3232 North Halsted, Chicago, Illinois.
Suburban Communities. During the quarter ended December 31, 1998,
Sundance's suburban division, Sundance Suburban Properties, entered into 111
new contracts, an increase of 44% over the same period in fiscal 1997. During
the quarter the Division delivered 105 homes, an increase of 44 homes over the
quarter ended December 31, 1997.
Sundance's custom home division, Rembrandt Homes, entered into 16 new
contracts during the quarter and delivered 12 homes, with such deliveries
being an increase of 100% over the quarter ended December 31, 1997.
During the year ended September 30, 1998, Sundance significantly expanded
its presence in the south suburbs of Chicago by purchasing approximately 400
developed lots in Orland Park and Lockport, and 166 undeveloped lots in
Bolingbrook.
Sundance's custom home division, Rembrandt Homes, continued to expand by
completing the acquisition of 135 lots at Gregg's Landing, a golf course
community in Vernon Hills, Illinois. Of the 135 acquired lots, Sundance
delivered 36 homes and sold 10 developed lots during the year ended September
30, 1998.
53
<PAGE>
Results of Operations. The following table sets forth, for the three months
ended December 31, 1998, and December 31, 1997, and for the three years ended
September 30, 1998, 1997 and 1996, the percentage of Sundance's total sales
represented by each income statement line item presented.
<TABLE>
<CAPTION>
Three
Months
Ended
December Year ended
31, September 30,
------------- ---------------------
1998 1997 1998 1997 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Residential sales....................... 94.6% 100.0% 93.4% 100.0% 100.0%
Land and building sales................. 5.4 -- 6.6 -- --
----- ----- ----- ----- -----
Total sales............................. 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Cost of residential sales............... 87.7 92.6 85.9 88.2 88.2
Cost of land and building sales......... 2.6 -- 5.4 -- --
----- ----- ----- ----- -----
Gross profit............................ 9.7 7.4 8.7 11.8 11.8
----- ----- ----- ----- -----
Selling expenses........................ 9.8 8.5 9.3 8.8 6.1
General and administrative expenses..... 4.6 5.8 3.7 4.0 4.1
----- ----- ----- ----- -----
Income (loss) before provision (benefit)
for income taxes....................... (4.7) (6.9) (4.2) (0.7) 1.7
----- ----- ----- ----- -----
Provision (benefit) for income taxes.... -- (2.8) (0.1) (0.2) (0.7)
----- ----- ----- ----- -----
Income (loss) before cumulative effect
of change in accounting policy......... (4.7) (4.1) (4.1) (0.5) 1.0
Cumulative effect of change in
accounting policy, net of related tax
effect................................. -- (11.5) (1.7) -- --
----- ----- ----- ----- -----
Net income (loss)....................... (4.7)% (15.6)% (5.8)% (0.5)% 1.0%
===== ===== ===== ===== =====
</TABLE>
Three Months Ended December 31, 1998 Compared to the Three Months Ended
December 31, 1997.
Residential Sales. Residential sales, which are recognized upon the closing
and delivery of homes, increased $3.4 million or 17.4% to $22.8 million, for
the quarter ended December 31, 1998, as compared to $19.4 million for the
quarter ended December 31, 1997. Sundance delivered 120 homes in the quarter
ended December 31, 1998 compared to 107 in the quarter ended December 31, 1997.
The increase in sales for the quarter ended December 31, 1998 was due primarily
to the increase in the number of homes delivered during the period as compared
to the quarter ended December 31, 1997.
Land Sales. During the quarter ended December 31, 1998, Sundance sold a
parcel of land consisting of approximately 7.0 acres in Lake in the Hills,
Illinois for $1.3 million. The buyer of the property has a continuing option to
purchase an additional 6.0 acres contiguous to the sold property, such option
expiring in June, 2000. There were no land sales in the quarter ended December
31, 1997.
Cost of Residential Sales. Cost of residential sales includes land
acquisition costs, development costs, construction costs and direct overhead,
job oversight supervision, customer service, warranty costs, interest and
property taxes. Cost of residential sales increased $3.1 million from $18.0
million to $21.1 million for the quarter ended December 31, 1998 as compared to
the quarter ended December 31, 1997. Cost of residential sales as a percentage
of residential sales increased nominally during the quarter ended December 31,
1998 as compared to the quarter ended December 31, 1997.
Selling, General and Administrative Expenses. Selling expenses include
advertising, sales commissions, payroll, amortization of the costs of non-
permanent upgrades to convert standard homes to model homes (draperies, wall-
hangings, decor items) and maintenance of model homes. Certain expenses, such
as sales commissions and amortization of model home upgrades, are derived from
sales prices or the number of home sales closed and thus remain relatively
constant as a percentage of residential sales. Other expenses, such as
advertising costs and model home maintenance, may be significantly influenced
in any given period by the
54
<PAGE>
number of grand openings or special promotions and the number of projects
operating in that period. Costs associated with upgrading standard homes to
model homes are capitalized and expensed as related home sales are closed,
while most other selling expenses are expensed as incurred. Selling expenses
increased from $1.7 million for the quarter ended December 31, 1997 to $2.4
million for the quarter ended December 31, 1998. As a percentage of
residential sales, selling expenses increased from 8.5% for the quarter ended
December 31, 1997 to 10.3% for the quarter ended December 31, 1998. The
increase in selling expenses as a percentage of residential sales was a direct
result of significantly increased marketing activities in both suburban and
urban communities related to projects scheduled to deliver units later in
fiscal 1999.
General and administrative expenses were effectively unchanged for the
quarter ending December 31, 1998 compared to $1.1 million for the quarter
ended December 31, 1997. General and administrative expenses, as a percentage
of total sales, decreased from 5.8% for the quarter ended December 31, 1997 to
4.6% for the quarter ended December 31, 1998. This is a result of our
continued efforts to control overhead costs.
Year Ended September 30, 1998 Compared to the Year Ended September 30, 1997.
Residential Sales. Residential sales, already in three month comparison,
increased $14.2 million or 13%, to $122.9 million, for the year ended
September 30, 1998 as compared to $108.7 million for the prior year. This
increase was due primarily to the increase in the number of units closed
during the year and the average selling price increase of $17,500 from
$171,000 for the year ended September 30, 1997 to $188,500 for the year ended
September 30, 1998.
Land Sales. During the year ended September 30, 1998 Sundance sold the land
and the 28 story building located at 201 N. Wells in Chicago, Illinois. In
February, 1997 Sundance purchased the note and mortgage on this property and
on April 13, 1998 obtained title through a foreclosure sale. In addition
Sundance sold 10 developed lots in our Turtle Bay project in Vernon Hills,
Illinois and its contractual rights to purchase a land parcel located at 1300
West Diversey in Chicago, Illinois. Revenue derived from these sales totaled
$8,650,000. In fiscal 1997, no revenue was derived from land sales.
Cost of Residential Sales. Cost of residential sales, as a percentage of
residential sales, increased by 3.8 percentage points to 92.0% for the year
ended September 30, 1998 as compared to 88.2% for the year ended September 30,
1997. Cost of residential sales increased by $17.1 million to $113.0 million
from $95.9 million for the year ended September 30, 1997. The primary reasons
for the increase in the cost of residential sales as a percentage of
residential sales were increased costs related to interest and production
overheads as well as certain increases on several of Sundance's close-out
projects in both the Suburban and Urban Divisions.
Selling, General and Administrative Expenses. Selling expenses as a
percentage of total sales increased by 0.5 percentage points to 9.3% for the
year ended September 30, 1998 from 8.8% for the year ended September 30, 1997.
Actual selling expenses increased by $2.7 million from $9.5 million for the
year ended September 30, 1997 to $12.2 million for the year ended September
30, 1998. This increase, for the year ended September 30, 1998, resulted
primarily from variable costs associated with increased deliveries, as well as
increased advertising expenditures resulting from the opening of several new
communities.
General and administrative expenses increased by $0.6 million to $4.9
million for the year ended September 30, 1998 compared to $4.3 million for the
year ended September 30, 1997. As a percentage of total sales, general and
administrative expenses were 3.7% and 4.0% for the years ended September 30,
1998 and September 30, 1997, respectively.
Year Ended September 30, 1997 Compared to the Year Ended September 30, 1996.
Sales. Residential sales decreased $12.2 million to $108.7 million for the
year ended September 30, 1997, a decrease of 10.1% over the twelve months
ended September 30, 1996. The decrease was primarily due to an overall decline
in the suburban housing market of approximately 10%. The average sales price
of home sales closed also decreased slightly from $172,500 in fiscal 1996 to
$171,000 in fiscal 1997.
55
<PAGE>
There were 686 net new sales orders for the year ended September 30, 1997,
representing an increase of 10%, or 62 orders, over the fiscal 1996 total of
624. Sundance attributes the increase primarily to the expansion of its market
place to include the Chicago urban market.
Cost of sales decreased $10.7 million to $95.9 million in fiscal 1997
primarily as a result of lower sales volume. Cost of sales as a percent of
residential sales was 88.2% in fiscal 1997 as compared to 88.2% of sales
revenue in fiscal 1996.
Selling, General and Administrative Expenses. Selling expenses increased by
$2.1 million from $7.4 million in fiscal 1996 to $9.5 million in fiscal 1997.
As a percent of residential sales, selling expenses increased from 6.1% in the
year ended September 30, 1996, to 8.8% in the year ended September 30, 1997.
This increase is primarily due to increased marketing activities for several
projects that did not deliver closed units and homes until fiscal 1998 and
additional costs incurred due to our decision to use commissioned brokers.
General and administrative expenses decreased by $639,000 in the year ended
September 30, 1997 compared to the year ended September 30, 1996. These costs
have decreased due to Sundance's continued efforts to reduce such expenses.
Sundance--Kaco Limited Partnership. Sundance is the general partner, with a
75.0% partnership interest, in the Sundance-Kaco Limited Partnership, an
Illinois limited partnership. Also participating in the partnership is Kaco,
Inc., the sole limited partner, which is entitled to 25.0% of all profits from
the Spring Lake Farm South project. The limited partner's share of losses for
1997 was $131,000. Pursuant to the provisions of the partnership agreement,
limited partner distributions of $161,000 were paid during 1997.
Year 2000 Compliance. The Year 2000 or "Y2K" issue is the result of many
legacy computer programs using a two digit format, as opposed to a four digit
format, to indicate the year. Many computer systems will not be able to
interpret dates beyond the year 1999, which could cause a system failure or
other errors, leading to disruptions in operations. In 1997, Sundance developed
a three phase plan to address this issue.
Phase I of the plan, which began during the fiscal year ended September 30,
1998, is the identification of all the systems, services and key operating
infrastructures where Sundance has exposure. Phase II is the development and
implementation of the necessary steps to bring the systems, services and
infrastructures into compliance. Phase II is scheduled to be completed by
spring of 1999. Phase III, which is scheduled to be completed in mid to late
1999, is the testing and acceptance of each modification necessary to the
systems, service and infrastructure components identified in Phase I and
implemented in Phase II. Sundance has identified four major areas of focus
necessary to ensure successful Y2K compliance. These are: (1) its integrated
suite of accounting, costing and job control applications, (2) all custom
developed enhancements to the base suite, (3) all operating infrastructure
components including, but not limited to various operating systems, personal
computers and their associated software tools, along with other hardware and
software necessary for the operation of the business and (4) third party
relationships and their respective Y2K readiness.
Sundance's currently installed core accounting, costing and job control
applications are not Y2K compliant. However, a project is currently underway to
upgrade the suite to a version which is believed to be compliant. The upgrade
plan will include a corresponding upgrade of the custom developed enhancements.
Many of the operating infrastructure components will require modifications to
achieve compliance. These modifications are currently underway and do not
directly impact the upgrade of any other system. Sundance is in the process of
contacting all significant suppliers and other third party relationships to
obtain responses indicating compliance or plans to be compliant by the year
2000.
Sundance has identified the potential for 1,000 man hours of project-related
work to achieve compliance. Sundance has hired outside consulting resources to
help facilitate the timely completion of the projects identified. Y2K specific
costs incurred to date have not been significant. Estimated future costs will
range from approximately $50,000-$150,000 and are scheduled to be incurred in
fiscal 1999.
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<PAGE>
Upon closing of the proposed sale of assets, Sundance's current computer
system will be sold to Centex Homes. Sundance is currently analyzing its future
computer needs and upon the determination of those needs, Sundance will
purchase computer hardware and software that is Y2K compliant.
Income Taxes. The provision for income taxes for the years ended September
30, 1997 and 1996 reflects management's estimate of Sundance's effective tax
rate of approximately 40.0%. During the year ended September 30, 1998, Sundance
has recorded a charge to earnings in fiscal 1998 of approximately $2.1 million
to establish a reserve against the net deferred income tax asset that resulted
from the current year net operating loss.
Seasonality and Variability in Quarterly Results. Sundance has experienced,
and expects to continue to experience, significant seasonally and quarter to
quarter variability in residential sales and net income. Generally, the receipt
of sales contracts is highest during the first six months of the calendar year.
Related closings typically peak in the July through September period, as homes
contracted for earlier in the year are delivered. Management believes that this
seasonality reflects the tendency of home buyers to shop for a new home in the
Spring with the goal of closing in the Fall or Winter as well as the scheduling
of construction to accommodate seasonal weather conditions (see Note 12,
"Quarterly Results of Operations" in the Footnotes to Consolidated Financial
Statements).
Inflation. Sundance, as well as the home-building industry in general, may
be adversely affected during periods of high inflation, primarily because of
higher land acquisition, land development and construction costs. In addition,
higher mortgage interest rates may significantly affect the affordability of
mortgage financing to prospective purchasers. Inflation also increases its
interest costs and the cost of labor and materials. Sundance attempts to pass
through to its buyers any increases in its costs through increased selling
prices. Inflation did not have a material impact on fiscal 1998 or 1997
results.
Liquidity and Capital Resources. Net cash provided by or used for operating
activities varies from period to period, due primarily to Sundance's houseline
inventory activity, land and building acquisition and development requirements,
and in lesser part to Sundance's net income. Net cash used for operating
activities for the quarter ended December 31, 1998 decreased by approximately
$2.0 million to $13.4 million compared to net cash used for operating
activities of $15.5 million in the quarter ended December 31, 1997. The
decrease is primarily due to the slower growth in real estate inventory levels
and a slight reduction in accounts payable and accrued construction
liabilities.
On April 30, 1998, Sundance entered into a new $80 million Revolving Credit
Loan Agreement (the "Loan Agreement") with LaSalle National Bank, American
National Bank and Trust Company of Chicago and Bank Boston, NA (collectively,
the "Lenders"), which replaced its previous credit loan agreement which had
provided for a $60 million line of credit. The three banks participate in the
$80 million facility as follows: LaSalle National Bank, $35 million; American
National Bank and Trust Company of Chicago, $25 million; and Bank Boston, NA,
$20 million. The borrowings are secured by Sundance's real estate assets with
certain exceptions and are subject to certain customary fees. Available
borrowings under the Loan Agreement are reduced by the amount of letters of
credit outstanding.
The Loan Agreement includes certain customary representations and covenants,
including restrictions on Sundance's ability to pay dividends and maintenance
of certain financial ratios. As of September 30, 1998, Sundance had violated
certain covenants, specifically those related to net worth and net income. On
December 1, 1998, Sundance's Lenders declared a "default" under the Loan
Agreement, and the outstanding balance of the loan was due and payable, subject
to the satisfactory modification of the Loan Agreement.
On January 14, 1999, Sundance and its Lenders entered into a Forbearance and
Loan Modification Agreement (the "Forbearance Agreement") effective as of
December 15, 1998.
The Forbearance Agreement includes the following terms:
1. Existing defaults have been waived.
2. Significant limitations have been placed on Sundance's ability to
acquire new land.
57
<PAGE>
3. The Lenders have no further commitment or obligation to fund the 130
unit condominium apartment project known as Plaza 32 in Chicago,
Illinois.
4. Interest rates have been increased from prime plus 0.75% to prime
plus 3.0% and there is no longer a LIBOR option.
5. Certain financial penalties shall be imposed if certain revised
covenants are not met in the future.
6. The maximum loan amount has been systematically reduced.
7. The maturity date has been changed to January 3, 2000.
8. Other various credit limiting and monitoring devices have been
imposed.
Notes payable to land sellers are non-interest bearing and are repaid
through application of agreed upon amounts from the proceeds of individual
home sale closings.
Upon the closing of the proposed sale of assets, Sundance intends to
refinance its current debt obligations.
Sundance has entered into certain financing agreements with the Principal
Shareholder as described below.
Secured Shareholder Note Payable. On May 1, 1998, Erie Center Lofts, Inc.,
a wholly owned subsidiary of Sundance, entered into a $2.5 million Secured
Subordinated Promissory Note with a maturity date of June 30, 1999, and an
interest rate of 20% with Maurice Sanderman, Sundance's Chairman and Principal
Shareholder. The note is secured by a junior mortgage on the property commonly
known as Erie Tower located at 421 West Erie Street in Chicago, Illinois.
Principal payments under this note may only be paid out of net sales proceeds
from the sale of units within Erie Tower and only after all advances made
under the New Loan Agreement related to the Erie Tower project have been
repaid.
Unsecured Shareholder Note Payable. As part of our public offering and
recapitalizations on July 9, 1993, Sundance issued promissory notes to its
Principal Shareholder, Maurice Sanderman. The notes are subordinate to
Sundance's bank indebtedness, bear interest at 7.5% per annum, compounded
daily, and originally matured in two equal annual payments on the first and
second anniversaries of the offering. On April 30, 1998 concurrent with the
execution of the Loan Agreement these notes were extended to February 1, 2000.
Payment of the outstanding principal balances are subject to certain
restrictions under the Loan Agreement.
On February 10, 1999, Marathon Center, Inc., a wholly owned subsidiary of
Sundance, entered into an unsecured Demand Note with Maurice Sanderman with
respect to the real estate located at 3232 North Halsted, Chicago, Illinois
for services rendered by the general contractor for $305,263. The Note bears
interest at prime plus 3%.
OTHER MATTERS
Sundance's Independent Auditors
Sundance's accountant for the current year and for the most recently
completed fiscal year is PricewaterhouseCoopers LLP. It is expected that
representatives of PricewaterhouseCoopers LLP will be present at the Special
Meeting and available to respond to questions. Such representatives will be
given an opportunity to make a statement if they desire to do so.
Legal Proceedings
Sundance is involved in various routine legal proceedings incidental to the
conduct of its business. Management believes that none of these legal
proceedings will have a material adverse impact on the financial condition or
results of operations of Sundance.
58
<PAGE>
Proposals of Shareholders
Sundance presently anticipates that its next Annual Meeting of Shareholders
will be held on March 3, 2000. Any proposal by a shareholder of Sundance
intended to be presented at the 2000 Annual Meeting of Shareholders must be
received by Sundance at its principal executive office not later than November
4, 1999 for inclusion in Sundance's Proxy Statement and form of proxy relating
to that meeting. Any stockholder proposal for consideration at the next Annual
Meeting of Shareholders will be considered untimely if received by Sundance
later than January 17, 2000. Sundance form of proxy for the next annual Meeting
of Shareholders will confer discretionary authority upon the persons named as
proxies to vote on any untimely shareholder proposals.
Shareholder List
A list of shareholders entitled to vote at the Special Meeting, arranged in
alphabetical order, showing the address of and number of shares registered in
the name of each shareholder, will be open to the examination of any
shareholder, for any purpose germane to the Special Meeting, during ordinary
business hours, for a period of at least ten days prior to the Special Meeting
and continuing through the date of the Special Meeting, at the offices of
Sundance, 150 West Center Court, Schaumburg, Illinois 60195.
PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE
IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING IN THE UNITED
STATES. A PROMPT RETURN OF YOUR PROXY WILL BE APPRECIATED.
By Order of the Board of Directors,
/s/ David Apter
David Apter
Corporate Secretary
59
<PAGE>
APPENDIX A
Sale and Purchase Agreement
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALE AND PURCHASE AGREEMENT
by and among
SUNDANCE HOMES, INC.,
SUNDANCE SUBURBAN PROPERTIES, INC.,
REMBRANDT HOMES, INC.,
LOCKPORT DEVELOPMENT, INC.,
MCCARTY'S MILL DEVELOPMENT, INC.,
SUTTON DEVELOPMENT, INC.,
SAR DEVELOPMENT, INC.,
MATTESON DEVELOPMENT, INC.,
WALNUT POINTE DEVELOPMENT, INC.,
and
CENTEX HOMES
April 2, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I--TERMS OF THE TRANSACTION....................................... A-1
1.1 Sale of Assets...................................................... A-1
1.2 Excluded Assets..................................................... A-2
1.3Consideration........................................................ A-2
1.4Holdback............................................................. A-3
1.5Earnest Money........................................................ A-3
1.6Tax Allocation....................................................... A-3
1.7Assumed Liabilities.................................................. A-3
1.8Excluded Liabilities................................................. A-4
ARTICLE II--THE CLOSING................................................... A-5
2.1Time and Place of Closing............................................ A-5
2.2Deliveries of the Selling Parties at the Closing..................... A-5
2.3Deliveries of Buyer at the Closing................................... A-6
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF SELLING PARTIES............ A-6
3.1Organization......................................................... A-6
3.2Qualification........................................................ A-7
3.3Power and Authority.................................................. A-7
3.4Subsidiaries......................................................... A-7
3.5Organizational Documents of the Company and its Subsidiaries......... A-8
3.6No Default Resulting from Agreement.................................. A-8
3.7Required Consents and Approvals...................................... A-8
3.8Financial Statements/SEC Filings..................................... A-8
3.9Undisclosed Liabilities.............................................. A-9
3.10 Reserved........................................................... A-9
3.11 Reserved........................................................... A-9
3.12 Real Property...................................................... A-9
3.13 Leases............................................................. A-12
3.14 Health and Safety.................................................. A-12
3.15 Legal Proceedings.................................................. A-12
3.16 Tax Matters........................................................ A-13
3.17 Permits............................................................ A-14
3.18 Personal Property.................................................. A-14
3.19 Contracts.......................................................... A-14
3.20 Conduct in the Ordinary Course; Absence of Certain Changes, Events
and Conditions......................................................... A-16
3.21 Insurance.......................................................... A-17
3.22 Environmental Matters.............................................. A-17
3.23 Intellectual Property Rights....................................... A-19
3.24 Employee Benefit Plans............................................. A-19
3.25 Labor Relations.................................................... A-19
3.26 Reserved........................................................... A-20
3.27 Transactions with Affiliates....................................... A-20
3.28 Brokerage Fees..................................................... A-20
3.29 Representations and Warranties..................................... A-20
ARTICLE IV--REPRESENTATIONS AND WARRANTIES OF BUYER....................... A-21
4.1 Existence........................................................... A-21
4.2 Power; No Conflict.................................................. A-21
</TABLE>
A-i
<PAGE>
<TABLE>
<S> <C>
4.3 Director Approval.................................................... A-21
4.4 No Consents Necessary................................................ A-21
4.5 No Default Resulting from Agreement.................................. A-21
4.6 Brokers or Finders................................................... A-21
ARTICLE V--ACTIONS OF THE SELLING PARTIES BEFORE THE CLOSING DATE.......... A-21
5.1 Conduct of Business.................................................. A-21
5.2 Restrictions on Certain Actions Before Closing....................... A-21
ARTICLE VI--ADDITIONAL AGREEMENTS.......................................... A-23
6.1 Access to Information................................................ A-23
6.2 Notification of Certain Matters...................................... A-23
6.3 Acquisition Proposals................................................ A-23
6.4 Schedules............................................................ A-25
6.5 Reasonable Best Efforts.............................................. A-25
6.6 Solicitation of Shareholder Approval by the Company.................. A-25
6.7 Public Announcements................................................. A-25
6.8 Indemnification of Claims of Brokers................................. A-25
6.9 Fees and Expenses.................................................... A-25
6.10 Tax Matters......................................................... A-26
6.11 Nondisclosure....................................................... A-26
6.12 Non-Competition..................................................... A-27
6.13 Employees and Employee Benefits..................................... A-27
6.14 Good Title: Title Insurance......................................... A-28
6.15 Further Assurances.................................................. A-30
6.16 Selling Parties' Name............................................... A-30
6.17 Release of Bonds.................................................... A-30
6.18 Kaco Partnership.................................................... A-30
6.19 Illinois Income Tax Withholding..................................... A-31
6.20 Compliance with Illinois Responsible Transfer Act of 1988........... A-31
6.21 Design Center....................................................... A-31
6.22 Work-in Progress.................................................... A-31
6.23 Warranty and Winter Work Agreement.................................. A-31
6.24 Fairness Opinion.................................................... A-31
6.25 Assignment of Remedies Against Subcontractors....................... A-32
ARTICLE VII--CONDITIONS TO OBLIGATIONS OF SELLING PARTIES.................. A-32
7.1Covenants and Agreements Performed.................................... A-32
7.2Representations and Warranties True................................... A-32
7.3Reserved.............................................................. A-32
7.4Reserved.............................................................. A-32
7.5Board and Shareholder Approval........................................ A-32
ARTICLE VIII--CONDITIONS TO OBLIGATIONS OF BUYER........................... A-33
8.1Feasibility Period.................................................... A-33
8.2Covenants and Agreements Performed.................................... A-33
8.3Default............................................................... A-33
8.4Representations and Warranties True................................... A-33
8.5No Material Adverse Change............................................ A-33
8.6Consents.............................................................. A-33
8.7RPTA.................................................................. A-33
8.8Closing Deliveries.................................................... A-33
8.9Litigation............................................................ A-34
</TABLE>
A-ii
<PAGE>
<TABLE>
<S> <C>
8.10 Environmental Audit................................................. A-34
8.11 Reserved............................................................ A-34
8.12 Selling Parties Board of Directors and Shareholder Approval......... A-34
ARTICLE IX--TERMINATION.................................................... A-34
9.1Termination........................................................... A-34
9.2Effect of Termination................................................. A-36
ARTICLE X--TERMINATION PAYMENTS............................................ A-36
10.1 Termination Fee Deposit............................................. A-36
10.2 Delivery of Earnest Money Deposit................................... A-37
10.3 Judicial Enforcement................................................ A-37
ARTICLE XI--INDEMNIFICATION................................................ A-37
11.1 Indemnification by the Selling Parties.............................. A-37
11.2 Indemnification by Buyer............................................ A-38
11.3 Third-Party Claims.................................................. A-38
11.4 Notice.............................................................. A-38
11.5 Right of Set Off.................................................... A-38
11.6 Good Faith Exercise; No Breach...................................... A-40
11.7 Indemnity Basket and Maximum Recovery............................... A-40
ARTICLE XII--SURVIVAL...................................................... A-40
12.1 Survival of Representations and Warranties.......................... A-40
12.2 Survival of Agreements and Covenants................................ A-40
ARTICLE XIII--MISCELLANEOUS................................................ A-41
13.1Predecessors Included................................................ A-41
13.2Notices.............................................................. A-41
13.3Bulk Sales Law....................................................... A-42
13.4No Obligation of Buyer Before the Closing............................ A-42
13.5Entire Agreement..................................................... A-42
13.6Binding Effect; Assignment; No Third Party Benefit................... A-42
13.7Reserved............................................................. A-42
13.8Governing Law........................................................ A-42
13.9Descriptive Headings................................................. A-42
13.10 Gender............................................................. A-42
13.11 References......................................................... A-42
13.12 Counterparts....................................................... A-43
13.13 Construction....................................................... A-43
13.14 Reserved........................................................... A-43
13.15 Waiver of Jury Trial............................................... A-43
ARTICLE XIV--DEFINITIONS................................................... A-43
14.1Certain Defined Terms................................................ A-43
14.2Certain Additional Defined Terms..................................... A-46
</TABLE>
A-iii
<PAGE>
SCHEDULE OF EXHIBITS
Exhibit A--Earnest Money Escrow Agreement
Exhibit B--Legal Opinion for Selling Parties
Exhibit C--Form of Bill of Sale
Exhibit D--Form of Special Warranty Deed
Exhibit E--Noncompetition Agreement of Maurice Sanderman
Exhibit F--Legal Opinion of Buyer
Exhibit G--Voting Agreement
Exhibit H--Termination Fee Promissory Note
Exhibit I-- Performance Guarantee Agreement
A-iv
<PAGE>
SCHEDULES
Schedule 1.1--Assets
Schedule 1.2--Excluded Assets
Schedule 1.3--Purchase Price
Schedule 1.7--Assumed Liabilities
Schedule 2.2--Liens
Schedule 3.2--Qualification
Schedule 3.4--Subsidiaries
Schedule 3.6--No Default Resulting from Agreement
Schedule 3.7--Required Consents and Approvals
Schedule 3.8--Financial Statements
Schedule 3.12--Real Property
Schedule 3.13--Leases
Schedule 3.14--Health and Safety
Schedule 3.15--Legal Proceedings
Schedule 3.16--Tax Matters
Schedule 3.17--Permits
Schedule 3.19--Contracts
Schedule 3.20--Conduct in the Ordinary Course
Schedule 3.21--Insurance
Schedule 3.22--Environmental Matters
Schedule 3.23--Intellectual Property Rights
Schedule 3.25--Labor Relations
Schedule 3.27--Transactions with Affiliates
Schedule 6.17--Release of Bonds
A-v
<PAGE>
SALE AND PURCHASE AGREEMENT
This SALE AND PURCHASE AGREEMENT (this "Agreement") is made and entered
into effective as of April 2, 1999 (the "Effective Date"), by and among
SUNDANCE HOMES, INC., an Illinois corporation ("Seller" or the "Company"),
SUNDANCE SUBURBAN PROPERTIES, INC., an Illinois corporation ("SSPI"),
REMBRANDT HOMES, INC., an Illinois corporation ("Rembrandt"), LOCKPORT
DEVELOPMENT, INC., an Illinois corporation ("Lockport", MCCARTY'S MILL
DEVELOPMENT, INC., an Illinois corporation ("MMDI"), SUTTON DEVELOPMENT, INC.,
an Illinois corporation ("Sutton"), SAR DEVELOPMENT, INC., an Illinois
corporation ("SAR"), MATTESON DEVELOPMENT, INC., an Illinois corporation
("Matteson"), WALNUT POINTE DEVELOPMENT, INC., an Illinois corporation
("Walnut," along with SSPI, Rembrandt, Lockport, MMDI, Sutton, SAR and
Matteson are collectively referred to as the "Subsidiaries"), and CENTEX
HOMES, a Nevada general partnership ("Buyer").
WITNESSETH:
WHEREAS, the Company and the Subsidiaries (collectively, the "Selling
Parties") own certain assets, including real property, used in the business of
constructing and marketing single-family detached residential homes, townhomes
and duplexes in the greater Chicago, Illinois suburban area, as more
particularly described in this Agreement (the "Business"). It is understood
and agreed that "Business" as used herein shall not include certain assets
listed on Schedule 1.2(i) relating to certain discontinued projects in the
Selling Parties' suburban operations.
WHEREAS, Buyer has agreed to purchase from the Selling Parties, and the
Selling Parties have agreed to sell to Buyer, certain properties and assets,
including, but not limited to, the properties and assets which are described
on Schedule 1.1 and used in the Business.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I
TERMS OF THE TRANSACTION
1.1 Sale of Assets. At the Closing (as defined below) and on the terms and
subject to the conditions set forth in this Agreement, the Selling Parties
shall sell, assign, transfer, deliver and convey (collectively, "transfer"),
or cause to be transferred, to Buyer, and Buyer shall purchase from the
Selling Parties, all of the following assets and properties of the Selling
Parties existing on the Closing Date (as defined below):
(i) All right, title and interest of the Selling Parties in and to any
parcels of land owned in fee and any improvements thereon located in the
Chicago, Illinois suburban area (including developed land and lots,
undeveloped land and parcels of land included in ongoing development
projects, model homes (the "Owned Model Homes") and houses under
construction) listed and described in Schedule 1.1(i) attached hereto and
all rights and appurtenances incidental thereto, including all right, title
and interest in and to water rights, mineral rights and adjacent easements,
streets, alleys and rights-of-way (collectively, the "Housing Property");
(ii) All right, title and interest of the Selling Parties in and to any
of the following properties and assets associated with the Business
(collectively, the "Personal Property"): (a) furnishings located in the
Model Homes (as defined below), furniture, fixtures, equipment, computers
and machinery, (b) earnest money deposits under Land Purchase Agreements
(as defined below), deposits and all other claims and rights of action of
any kind now or hereafter existing or arising which relate to the
ownership, operation, development or construction of the Housing Property
or other tangible and intangible personal property of
A-1
<PAGE>
the Selling Parties, including rights to recapture refunds due to the
Selling Parties from municipalities, towns and cities, or from other third
parties, for improvements to land adjacent to any of the Housing Property,
(c) documents evidencing the Selling Parties' right or entitlement to
acquire water service or sewer service, (d) the name "Rembrandt Homes" and
any derivatives or designs thereof, either in word form or as a design, and
any other names, trademarks, service marks, trade names, brand names, logos
or slogans or any other Intellectual Property (as defined below) used or
available for use by the Selling Parties in the Business (except for the
name "Sundance" and derivatives or designs thereof), together with all
goodwill associated therewith and all rights to sue for and receive damages
or other relief in respect of any past infringement or other violation of
any rights thereto, (e) all governmental approvals, licenses, permits,
rights and other kinds of entitlement relating to the Housing Property, and
(f) site plans, subdivision plans, development plans, soil and substrata
surveys, studies, architectural renderings, plans and specifications,
engineering plans and studies, house plans, floor plans, landscape plans
and all other plans, diagrams or studies of any kind relating to the
Housing Property, including, but not limited to, the Personal Property
listed and described on Schedule 1.1(ii);
(iii) All rights and interests of the Selling Parties under or in
respect of (a) any written contracts or agreements for the purchase of lots
and/or parcels of land located in the Chicago, Illinois suburban area (the
"Land Purchase Agreements"), including, but not limited to, the Land
Purchase Agreements listed or described in Schedule 1.1(iii)(a), subject,
however, to the Selling Parties obtaining the consents necessary to assign
the rights with respect thereto, (b) any written contracts or agreements
for the sale of completed homes located in the Chicago, Illinois suburban
area (the "Sales Contracts") that are listed and described on Schedule
3.12(iii), (c) any other written or oral contracts, commitments and
agreements of the Selling Parties related to the Business, including sales
contracts, subcontracts, leases of personal property, executory agreements
to option or buy land, and guaranties and warranties issued to the Selling
Parties, relating to the Housing Property or the Personal Property listed
or described in Schedule 1.1(iii)(c) (the "Contracts"), subject, however,
to the Selling Parties obtaining the consents necessary to assign the
rights with respect thereto, (d) any written contracts or agreements for
the lease of model homes located in the Chicago, Illinois suburban area
listed or described on Schedule 1.1(iii)(d) (the "Leased Model Homes" and,
together with the Owned Model Homes, the "Model Homes"), and (e) the
Sundance-Kaco Limited Partnership, an Illinois limited partnership (the
"Kaco Partnership"); and
(iv) All other properties, assets, claims, rights and entitlements of
the Selling Parties of any kind, character and description whatsoever
(whether or not reflected on the books of the Selling Parties and whether
real, personal or mixed, tangible or intangible, contingent or otherwise)
used, or available for use, in the Business or necessary for the
continuation of the Business or operations consistent with past practice
(the "Miscellaneous Property").
The Housing Property, the Personal Property, the Land Purchase Agreements,
the Sales Contracts, the Contracts, the Leased Model Homes, the Kaco
Partnership and the Miscellaneous Property are hereinafter collectively
referred to as the "Assets." The Assets shall be sold to Buyer free and clear
of all Liens (as defined below), except for the Permitted Encumbrances (as
defined below) or, as necessary, assigned to Buyer.
1.2 Excluded Assets. Notwithstanding any provision contained in this
Agreement to the contrary, the assets relating to certain discontinued
projects in the Selling Parties' suburban operations not used in the Business
and described in Schedule 1.2(i) and the other assets and properties of the
Selling Parties used in the Selling Parties' Chicago, Illinois urban
homebuilding operations described on Schedule 1.2(ii) shall be excluded from
the Assets to be transferred to Buyer (the "Excluded Assets").
1.3 Consideration. Buyer shall pay to the Selling Parties at the Closing
the aggregate purchase price calculated in the manner set forth on Schedule
1.3 (the "Purchase Price") less the Holdback (as defined below). The Purchase
Price, less the Holdback, shall be paid to the Selling Parties in immediately
available funds by confirmed wire transfer to a bank account designated by the
Selling Parties.
A-2
<PAGE>
1.4 Holdback. In order to secure the indemnity obligation of the Selling
Parties under Article XI, and without limiting any other rights which Buyer
may have pursuant to this Agreement or otherwise, Buyer shall be entitled to
withhold from the Purchase Price payable to the Selling Parties at the Closing
the amount of Two Million Dollars ($2,000,000) (the "Holdback"), which amount
shall accrue interest at the rate of 8% per year and be held by Buyer for two
years following the Closing Date in accordance with the terms and conditions
set forth in Section 11.5. On the first anniversary of the Closing Date, One
Million Dollars ($1,000,000) of the Holdback, less any amounts paid to Buyer
pursuant to Section 11.5 as Liquidated Losses or withheld as a Setoff Reserve,
shall be paid to the Selling Parties. On the second anniversary of the Closing
Date, the amount, if any, including interest accrued thereon, remaining in
such Holdback (other than amounts reserved by Buyer pursuant to Section
11.5(ii)) shall be promptly distributed to the Selling Parties.
1.5 Earnest Money. Buyer shall, within two (2) Business Days of the
execution of the escrow agreement (the "Earnest Money Escrow Agreement")
attached hereto as Exhibit A, cause to be deposited with TICOR Title Insurance
Company, as escrow agent selected by the parties, earnest money in the amount
of One Million Five Hundred Thousand Dollars ($1,500,000) (the "Earnest Money
Deposit") in accordance with the Earnest Money Escrow Agreement. The Earnest
Money Deposit shall either be applied to the Purchase Price at Closing,
returned to Buyer in accordance with Section 10.2(i), or delivered to Seller
as liquidated damages in accordance with Section 10.2(ii).
1.6 Tax Allocation. The Purchase Price shall be allocated among the Assets
in the manner set forth in a schedule that shall be prepared by the parties
within five days prior to the Closing Date (the "Purchase Price Allocation
Schedule"). The parties shall use the allocations contained in the Purchase
Price Allocation Schedule for purposes of any required tax returns or other
filings made with the Internal Revenue Service pursuant to Section 1060 of the
Internal Revenue Code of 1986, as amended. In addition, the parties shall
determine the value of the agreement of the Selling Parties not to compete
with Buyer as set forth in Section 6.12 of this Agreement.
1.7 Assumed Liabilities. Buyer agrees to assume, upon the terms and subject
to the conditions set forth herein, at the Closing, and thereafter to pay,
perform and discharge, the following liabilities and obligations of the
Selling Parties (but only such liabilities and obligations) (the "Assumed
Liabilities"):
(i) All obligations of the Selling Parties accruing after the Closing
Date under the Land Purchase Agreements, the Contracts, the Sales Contracts
and the Leased Property leases identified in Schedules 1.1(iii)(a),
1.1(iii)(c), 3.12(iii) and 1.1(iii)(d) hereto, respectively.
(ii) All obligations of the Selling Parties accruing after the Closing
Date under the Permits (as defined below) included in the Assets, but only
to the extent that such obligations arise from the operation of the Assets
after the Closing Date.
(iii) All obligations of the Selling Parties to perform warranty repairs
pursuant to the express terms of the Selling Parties' warranty, a copy of
which is attached hereto as Schedule 1.7(iii)(a), to residential homes that
are located in those neighborhoods listed on Schedule 1.7(iii)(b) and the
sales of which were closed by any of the Selling Parties in the twelve (12)
months immediately preceding the Closing Date, except that Buyer shall not
be responsible in any way for such warranty repairs with respect to such
residential homes to the extent such repairs (including the costs of
material and labor) either (a) exceed One Thousand Dollars ($1,000) in
direct costs per residential home or an average of Three Hundred Dollars
($300) per residential home or (b) are not within the scope of the express
warranty attached on Schedule 1.7(iii)(a).
(iv) All other obligations of the Selling Parties related solely to the
Assets (other than the Land Purchase Agreements, the Contracts, the Sales
Contracts, the Leased Property leases and the Permits, which obligations
are being assumed pursuant to Sections 1.7(i) and (ii) above) accruing
after the Closing Date in the ordinary course of business.
(v) All amounts to be paid for work-in-progress performed in the
ordinary course for which an invoice is delivered to the Selling Parties
after the date of the Pre-Closing Balance Sheet (as defined in Schedule
1.3) for work performed on any of the Developed Property (regardless of
whether such work is performed before the Closing Date). As used in this
provision, work-in-progress is performed "in the ordinary course" if it is
work done on a home included in the Assets that adds value to the home
commensurate with (and at) the price specified in the applicable Contract.
The liability assumed in this provision is the full price stated in the
Contract, less any increment already paid, but does not include any
additional charges and/or rework necessary to correct construction defects.
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(vi) All ad valorem property Taxes with respect to the Assets for the
period applicable to 1998 and 1999 not yet due and payable prior to the
Closing Date, to the extent that Buyer has received a proration credit as
calculated pursuant to Section 6.10(iv).
(vii) The liabilities for retention payments securing performance of
subcontractor work that are set forth on Schedule 1.7(vii).
(viii) The obligations of the Selling Parties related to the Kaco
Partnership accruing after the Closing Date, to the extent the Selling
Parties' interest in the Kaco Partnership is assigned, transferred or
conveyed to Buyer.
1.8 Excluded Liabilities. Buyer shall not be obligated to pay, assume,
perform or discharge any liability or obligation of the Selling Parties other
than the Assumed Liabilities. In addition, except as expressly otherwise
provided in this Agreement, Buyer shall not pay, assume, perform or discharge
any of the following debts, liabilities or obligations of the Selling Parties
(the "Excluded Liabilities"):
(i) Liabilities in respect of any claims or Proceedings (as defined
below) related to the Assets accruing before or on the Closing Date.
(ii) Any liability or obligation of the Selling Parties resulting from
or relating to the employment relationship between the Selling Parties and
any of the Selling Parties' present or former employees or the termination
of any such employment relationship, including without limitation severance
pay and other similar benefits, if any, and any claims filed on or before
the Closing Date or which may thereafter be filed by or on behalf of any
such present or former employee relating to the employment or termination
of employment of any such employee by a Selling Party, including without
limitation any claim for wrongful discharge, breach of contract, unfair
labor practice, employment discrimination, unemployment compensation, or
workers' compensation.
(iii) Liabilities or obligations of the Selling Parties arising from
conditions existing on or before the Closing Date under Environmental Laws
(as defined below).
(iv) Liabilities or obligations the existence of which causes (alone or
together with other facts) a representation or warranty of the Selling
Parties contained in this Agreement to be untrue or which causes any
covenant of the Selling Parties contained herein to be breached.
(v) Liabilities or obligations of the Selling Parties under the Land
Purchase Agreements, the Sales Contracts, the Contracts, the Leased
Property leases and the Permits to the extent that such liabilities or
obligations accrue or arise on or before the Closing Date.
(vi) Liabilities or obligations of the Selling Parties existing at or
arising after the Closing Date under the Sales Contracts, the Contracts,
the Land Purchase Agreements, the Leased Property leases, the Permits or
any other leases, contracts or agreements included in the Assets which
results from the breach, default, or wrongful action or inaction of the
Selling Parties before the close of business on the Closing Date.
(vii) Any liabilities or obligations of the Selling Parties relating to
the Excluded Assets.
(viii) Except as set forth in Section 1.7 (iii) above, any liability or
obligation of the Selling Parties in respect of any express or implied
representation, warranty, agreement or guaranty made (or claimed to have
been made) by the Selling Parties, or imposed (or asserted to be imposed)
by operation of law, in respect of any products produced, distributed, or
sold by the Selling Parties or services performed in connection with the
Business or the Assets on or before the Closing Date.
(ix) Any income Tax (as defined below) liabilities or deficiencies
arising from the Assets, whether federal, state, or local Taxes, in each
such case to the extent applicable to periods ending on or before the
Closing Date.
(x) Expenditures and obligations necessary to complete the construction
of or landscaping surrounding residential homes that the Selling Parties
have constructed and closed on or before the Closing Date (the "Winter
Work").
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ARTICLE II
THE CLOSING
2.1 Time and Place of Closing. The sale and purchase of the Assets shall be
consummated at a closing (the "Closing") to be held at the offices of Katten
Muchin & Zavis in Chicago, Illinois on or before April 30, 1999, or on such
other date as the parties may mutually agree upon in writing; provided,
however, that Buyer or the Company may extend the Closing as necessary to
fulfill any closing condition that this Agreement requires such party to
perform on or prior to the Closing Date; provided, further, however, that in no
event shall any party extend the Closing past July 30, 1999. The date and time
of the Closing is hereinafter referred to as the "Closing Date." All Closing
transactions shall be deemed to have occurred simultaneously.
2.2 Deliveries of the Selling Parties at the Closing. At the Closing, the
Selling Parties will deliver to Buyer the following:
(i) A copy of the Articles of Incorporation of each of the Selling
Parties certified by the appropriate authority of the State of Illinois
dated no earlier than five (5) days before the Closing Date.
(ii) One or more certificates of the appropriate authority of the State
of Illinois, dated no earlier than fifteen (15) days before the Closing
Date, with respect to the payment of all franchise taxes by each of the
Selling Parties and the corporate existence of each of the Selling Parties
in the State of Illinois.
(iii) A certified copy of corporate resolutions duly adopted by the
Board of Directors of each of the Selling Parties authorizing the
consummation of the transactions contemplated hereby, duly executed by
their respective Secretaries.
(iv) A certificate from the Secretary of each of the Selling Parties
that the shareholders of each of the Selling Parties have authorized the
consummation of the transactions contemplated by this Agreement.
(v) Subject to the receipt by the Selling Parties of the necessary
consents (as listed on Schedule 3.7), the assignment of the Kaco
Partnership interest and the profit participation agreement, if applicable,
the Contracts, the Sales Contracts, the Land Purchase Agreements and the
Leased Property leases.
(vi) The certificates to be delivered by each of the Selling Parties in
accordance with Sections 8.2 through 8.5.
(vii) The opinion of Katten Muchin & Zavis, counsel to the Selling
Parties, in the form attached hereto as Exhibit B.
(viii) A Bill of Sale (the "Bill of Sale"), dated the Closing Date, in
the form attached hereto as Exhibit C, whereby the Assets (other than the
Housing Property, the Land Purchase Agreements and the Kaco Partnership)
are to be conveyed and assigned by the Selling Parties to Buyer, duly
executed by each of the Selling Parties, as applicable.
(ix) One or more special warranty deeds ("Special Warranty Deeds"), all
dated the Closing Date, in the form attached hereto as Exhibit D, as shall
be effective to vest in Buyer title to the Housing Property.
(x) The owner's policies of title insurance required under Section 6.14.
(xi) Originals or, to the extent originals are not available, copies as
listed on Schedule 2.2(xi), of all the Sales Contracts, the Contracts, the
Land Purchase Agreements and the Selling Parties' records related to the
Kaco Partnership, and copies of all of the Selling Parties' records, files
and other data relating to the Assets, which documents the Selling Parties
represent and warrant are in the Selling Parties' office in Schaumburg,
Illinois.
(xii) All consents or approvals of any third party which are necessary
in order for the assignment, conveyance or transfer of any part of the
Assets to be valid and effective.
(xiii) A Certificate of Non-Foreign Status duly executed by each of the
Selling Parties pursuant to Section 1445 of the Code and the regulations
promulgated thereunder.
(xiv) All instruments and documents required by Buyer from the Selling
Parties in order to assign to Buyer all of the right, title and interest of
the Selling Parties in and to all protective covenants, conditions and
restrictions and similar documents relative to the Housing Property.
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(xv) Except as set forth in Schedule 3.17(v), all instruments and
documents required by Buyer from the Selling Parties in order to assign to
Buyer all of the right, title and interest of the Selling Parties in and to
the Permits.
(xvi) Current UCC search reports showing no Liens as to the Personal
Property other than the Liens listed in Schedule 2.2(xvi).
(xvii) All such duly authorized and executed documents as may be
required to change the name or the assumed name of any Selling Party, if
applicable, as of the date hereof to another name bearing no similarity to
"Rembrandt Homes," including without limitation, an amendment to the
articles of incorporation of such Selling Party or Parties, as the case may
be, providing for such change of name and appropriate name change notices
for each state in which such Selling Party or Parties, as the case may be,
are qualified to do business.
(xviii) A noncompetition agreement executed by Maurice Sanderman, in the
form provided in Exhibit E (the "Noncompetition Agreement").
(xix) Assignment of the Selling Parties' rights under existing
Homeowners' Associations related to any of the Housing Property.
(xx) All other instruments and documents required to be executed and
delivered by the Selling Parties to Buyer at the Closing pursuant to the
provisions of this Agreement.
2.3 Deliveries of Buyer at the Closing. At the Closing, Buyer shall deliver
to the Selling Parties the following, in form and content reasonably
satisfactory to the Selling Parties:
(i) A copy of the general partnership agreement of Buyer, certified by
an assistant secretary of the general partner of Buyer.
(ii) A copy of the Articles of Incorporation of the managing general
partner of Buyer, certified by the Secretary of the State of Nevada no
earlier than thirty (30) days before the Closing Date.
(iii) A certificate of the Secretary of State of Nevada, dated no
earlier than thirty (30) days before the Closing Date, with respect to the
corporate existence of the managing general partner of Buyer in the State
of Nevada.
(iv) A certificate of the Secretary of the State of Illinois, dated no
earlier than thirty (30) days before the Closing Date, with respect to the
qualification of Buyer to transact business in the State of Illinois.
(v) A certified copy of corporate resolutions duly adopted by the Board
of Directors of the managing general partner of Buyer authorizing the
consummation of the transactions contemplated hereby by Buyer, duly
executed by the Secretary or an Assistant Secretary of the managing general
partner of Buyer.
(vi) The opinion of Brian J. Woram, counsel for the managing general
partner of Buyer, in the form attached hereto as Exhibit F.
(vii) The Purchase Price in immediately available funds by wire
transfer.
(viii) Instruments of assumption in form and substance reasonably
satisfactory to the Selling Parties pursuant to which Buyer shall assume,
at the Closing, and thereafter pay, perform and discharge, the Assumed
Liabilities.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLING PARTIES
As an inducement to execute this Agreement and to consummate the
transactions contemplated hereby, the Company represents and warrants, and
each Selling Party jointly and severally represents and warrants to Buyer as
follows:
3.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Illinois. No
Proceedings to dissolve the Company are pending or threatened.
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3.2 Qualification. Each of the Company and the Subsidiaries is duly
qualified or licensed to do business and each of the Company and the
Subsidiaries is in good standing in each of the jurisdictions set forth
opposite its name on Schedule 3.2, which are all the jurisdictions in which it
owns, leases, or operates property or in which such qualification or licensing
is required for the conduct of its business.
3.3 Power and Authority. The Company has all requisite corporate power and
authority to own or lease its assets and properties and to conduct its
business as and in the places where such assets and properties are now owned,
leased or operated, and such business is now conducted, and the Company has
complied in all material respects with all federal, state, local and foreign
laws with respect to its operations and the conduct of its business. The
Company has all requisite corporate power and authority to make, execute and
perform this Agreement and the transactions contemplated hereby and the
execution, delivery and performance of this Agreement have been duly and
validly authorized by all necessary corporate action of the Company. This
Agreement has been duly and validly executed and delivered by the Company and
each of the Subsidiaries and is a valid and binding obligation of the Company
and each of the Subsidiaries, enforceable in accordance with its terms except
that enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws and judicial decisions affecting
creditors' rights generally and (ii) equitable principles which may limit the
availability of certain equitable remedies (such as specific performance) in
certain instances.
3.4 Subsidiaries.
(i) The Company does not own, directly or indirectly, any capital stock
of any corporation or have any direct or indirect equity or ownership
interest in any other person (as defined below) involved in the activities
of the Business, other than the Subsidiaries. Schedule 3.4(i) lists each
Subsidiary, the jurisdiction of incorporation of each Subsidiary, and the
authorized and outstanding capital stock of each Subsidiary. Each
Subsidiary is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation. Each
Subsidiary has all requisite corporate power and corporate authority to
own, lease, and operate its properties and to carry on its business as now
being conducted and the Subsidiaries have complied in all material respects
with all federal, state, local and foreign laws with respect to their
respective operations and the conduct of the Business. No Proceedings to
dissolve any Subsidiary are pending.
(ii) Except as otherwise indicated on Schedule 3.4(ii), all the
outstanding capital stock of each Subsidiary is owned directly or
indirectly by the Company, free and clear of all Encumbrances (as defined
below) and on Closing Date the Company will be the record and beneficial
owner and holder of all of the outstanding capital stock of each Subsidiary
and will have good, valid and marketable title to all of the issued and
outstanding capital stock of each Subsidiary. All outstanding shares of
capital stock of each Subsidiary have been validly issued and are fully
paid and nonassessable. No shares of capital stock of any Subsidiary are
subject to, nor have any been issued in violation of, preemptive or similar
rights.
(iii) Except as set forth on Schedule 3.4(iii), there are (and as of the
Closing Date there will be) outstanding (a) no shares of capital stock or
other voting securities of any Subsidiary, (b) no securities of the Company
or any Subsidiary convertible into or exchangeable for shares of capital
stock or other voting securities of any Subsidiary, (c) no options or other
rights to acquire from the Company or any Subsidiary, and no obligation of
the Company or any Subsidiary to issue or sell, any shares of capital stock
or other voting securities of any Subsidiary or any securities convertible
into or exchangeable for such capital stock or voting securities, and (d)
no equity equivalents, interests in the ownership or earnings, or other
similar rights of or with respect to any Subsidiary. There are (and as of
the Closing Date there will be) no outstanding obligations of the Company
or any Subsidiary to repurchase, redeem, or otherwise acquire any of the
foregoing shares, securities, options, equity equivalents, interests, or
rights. There are no voting trusts, stockholder agreements, proxies or
other agreements or understandings in effect with respect to the voting or
transfer of any Subsidiary's capital stock.
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3.5 Organizational Documents of the Company and its Subsidiaries. The
Company has delivered to Buyer accurate and complete copies of (i) the charter
and bylaws of each of the Company and the Subsidiaries as currently in effect,
(ii) the stock records of each of the Subsidiaries, and (iii) the minutes of
all meetings of the respective Boards of Directors of the Company and the
Subsidiaries, any committees of such Boards, and the shareholders of the
Company and the Subsidiaries (and all consents in lieu of such meetings). Such
records, minutes, and consents accurately reflect the stock ownership of the
Subsidiaries and all actions taken by such Boards of Directors, committees,
and shareholders. Neither the Company nor any Subsidiary is in violation of
any provision of its charter or bylaws, other than violations which,
individually or in the aggregate, do not and will not have a material adverse
effect on the Business, Assets, results of operations, condition (financial or
otherwise), or prospects of the Company and the Subsidiaries considered as a
whole.
3.6 No Default Resulting from Agreement. Neither the execution and delivery
of this Agreement nor the performance of its terms will result in any breach
of the terms and conditions of, or constitute a default under or result in the
acceleration, modification or cancellation of, the charter or bylaws of the
Company or any Subsidiary or, except as set forth in Schedule 3.6, any
agreement, lease, mortgage, note, instrument, undertaking, judgment, decree,
governmental order or other restriction or obligation to which a Selling Party
is a party or by which a Selling Party or any of the Assets may be bound or
affected.
3.7 Required Consents and Approvals. Except as set forth on Schedule 3.7,
no consent, application, registration, qualification, authorization or other
action is required to be filed, given, obtained or taken by virtue of the
execution, delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby in order to avoid (x) the loss of any
Permit or other governmental authorization or (y) the violation or breach of,
or the default under, any regulation, order, decree or award of any court or
Governmental Authority (as defined below) or any Contract, Sales Contract,
Land Purchase Agreement, lease, mortgage, note or any other instrument to
which a Selling Party is a party and which relates to the Business or to which
it or any of the Assets are subject, except for such losses of Permits or
other governmental authorization, violations or defaults as would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect (as
defined below).
3.8 Financial Statements/SEC Filings.
(i) The Company has delivered to Buyer accurate and complete copies of
(a) the Company's consolidated balance sheets as of September 30, 1997 and
1998, and the related consolidated statements of income for each of the
years then ended (the "Year-End Financial Statements"), and (b) the
Company's unaudited consolidated balance sheet as of December 31, 1998 (the
"Latest Balance Sheet"), and the related unaudited consolidated statement
of income for the three-month period then ended (the "Latest Financial
Statements"), in each case certified by the Chief Financial Officer of the
Company (the Year-End Financial Statements and the Latest Financial
Statements and the notes thereto being herein collectively referred to as
the "Financial Statements"). Except as set forth on Schedule 3.8(i), the
Financial Statements (a) have been prepared from the books and records of
the Company in conformity with GAAP (as defined below) applied on a basis
consistent with preceding years throughout the periods involved, and (b)
accurately and fairly present the Company's financial position as of the
respective dates thereof and its results of operations for the periods then
ended. Except as disclosed on Schedule 3.8(ii), since December 31, 1998,
the Company has not discharged any liabilities or obligations involving the
payment of an amount in excess of the amount reflected or reserved for such
liability or obligation on the Latest Balance Sheet.
(ii) The Company has filed with the Securities and Exchange Commission
all forms, reports, schedules, statements, and other documents required to
be filed by it since January 1, 1997 under the Securities Act (as defined
below), the Exchange Act (as defined below), and all other federal
securities laws (as such documents have been amended since the time of
their filing, collectively, the "SEC Filings"). The Company has delivered
to Buyer accurate and complete copies of all the SEC Filings in the form
filed by the Company with the Securities and Exchange Commission. The SEC
Filings, at the time filed, complied in all material respects with all
applicable requirements of federal securities laws. To the knowledge of the
Company, none of the SEC Filings, including, without limitation, any
financial statements or schedules
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included therein, at the time filed, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.
3.9 Undisclosed Liabilities. Except (i) liabilities fully reflected or
provided for on the Latest Balance Sheet or (ii) current liabilities that have
arisen since the date of the Latest Balance Sheet in the ordinary course of
business (none of which is a liability for a breach of contract, breach of
warranty, tort or infringement), to the knowledge of the Company, neither the
Company nor any Subsidiary has, individually or in the aggregate, any material
debt, liability or obligation of any kind, whether accrued, absolute,
contingent or otherwise, including, without limitation, any liability or
obligation on account of taxes or any governmental charges or penalty,
interest or fines, required to be reflected in the Financial Statements in
accordance with GAAP (as defined below) which are not contained therein.
3.10 Reserved
3.11 Reserved
3.12 Real Property
(i) Schedule 3.12(i) identifies and contains a full, complete and
accurate description by lot and block and street address, if applicable, or
otherwise by metes and bounds, of each lot, parcel and tract of land owned
by the Selling Parties and held, used or usable in the Business that is
related to the Housing Property (the "Real Property").
(ii) Schedule 3.12(ii) identifies the real property, whether or not
owned in fee simple, upon which the Selling Parties have begun development
or constructed or begun construction of a residential home (the "Developed
Property") and contains (a) a description of the status of completion of
the development of each such lot, parcel and tract, including the status of
construction of the Improvements (as defined below), if any, being
constructed thereon, (b) the budgeted current estimate of costs of the
Selling Parties for the completion of the development of the Developed
Property and the construction of the Improvements, if any, being
constructed thereon, and (c) every material obligation or commitment of the
Selling Parties to construct, maintain, repair, or pay for the
construction, maintenance or repair of the developments or Improvements
located on or associated with properties sold, conveyed, dedicated or
otherwise transferred by the Selling Parties before the date hereof,
whether arising by contract, assessment, governmental action or otherwise
related to the Business.
(iii) Set forth on Schedule 3.12(iii) is (a) a list of each Sales
Contract, (b) a brief description of each such contract, including the
purchase price and date of sale, and (c) a brief description of the status
of the payment performance of each buyer. Except as noted in Schedule
3.12(iii), (d) no buyer is in arrears in any material payment for more than
thirty (30) days, (e) all Sales Contracts are in full force and effect, and
are binding and enforceable in accordance with their terms and (f) all
Sales Contracts are fully assignable to Buyer. Except as set forth on
Schedule 3.12(iii)(g), no buyer under any Sales Contract is entitled to
receive any monetary concession or other form of compensation from the
Selling Parties in connection with its purchase of a residential home.
Neither the Company or any Subsidiary, as applicable, nor, to the knowledge
of the Selling Parties, any buyer of a residential home, is in default in
any material way under any of the Sales Contracts.
(iv) Except for the Permitted Encumbrances and except as set forth in
Schedule 3.12(iv) hereto, no Real Property or Developed Property (a) serves
any adjoining property to any extent (except for normal utility or drainage
easements which could not reasonably be expected to affect in any material
respect the use, occupancy, value or marketability of any such lot, parcel
or tract of land) or (b) is located in any area determined by the
Department of Housing and Urban Development to be flood prone under the
Federal Flood Protection Act of 1973 or otherwise constituting a flood
plain.
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(v) Except as set forth in Schedule 3.12(v), the Real Property and the
Developed Property adjoins and has full, free and adequate access to and
from public highways and roads, and the Selling Parties have no knowledge
of any fact, event or development which would likely result in the
termination of such access.
(vi) There is (a) to the knowledge of the Selling Parties, no proposed
public improvement which may involve the creation or imposition of any
Encumbrance on the Real Property or Developed Property, (b) no existing or,
to the knowledge of the Selling Parties, proposed plan to modify or realign
any street or highway or existing, proposed or overtly threatened eminent
domain, condemnation or similar proceeding which could result in the taking
of all or any part of the Real Property or Developed Property or which
could affect the current or planned use of the Real Property or Developed
Property, (c) no proposed termination or impairment of any parking at any
such Real Property or Developed Property, (d) no contemplated sale of any
Real Property or Developed Property in lieu of condemnation, (e) no pending
or, to the knowledge of the Selling Parties, threatened federal forfeiture
proceeding with respect to the Real Property or Developed Property and (f)
no other action, suit or proceeding pending or, to the knowledge of the
Selling Parties, threatened before any federal or state court or other
Governmental Authority relating to or affecting the use, occupancy, value
or marketability of the Real Property or Developed Property.
(vii) Except as set forth in Schedule 3.12(vii), the buildings,
improvements and other facilities located within the boundary lines of any
Real Property or Developed Property and the Leased Model Homes
(collectively, the "Improvements"), other than those owned and used
exclusively by any public utility, (a) are not in violation of any
applicable setback requirements or zoning laws or ordinances, (b) are not
subject to any "permitted non-conforming use" or "permitted non-conforming
structure" classifications or any similar classifications under any
applicable setback requirements or zoning laws or ordinances, (c) do not
violate any agreements, restrictions or easements affecting any applicable
portion of the Real Property or Developed Property where the same would
have a Material Adverse Effect and (d) do not encroach on any easements
affecting the Real Property or Developed Property.
(viii) All Improvements, other than those owned and used exclusively by
any public utility, (a) to the knowledge of the Selling Parties, are being
occupied, operated and maintained in accordance with all applicable laws,
ordinances, statutes, rules and regulations (including but not limited to,
Environmental Laws) of any Governmental Authority, except for such
violations that, in the aggregate, would not have a Material Adverse
Effect, and (b) except to the extent set forth on Schedule 3.12(viii), are
supplied with all utilities and other services necessary for the use
thereof at full capacity for purposes of the operations currently conducted
therein or contemplated therefor and the Selling Parties have no knowledge
of any fact or condition that could reasonably be expected to result in the
termination or material impairment of such utilities or other services. No
Improvement or portion thereof is dependent for its access on any land not
included on the lot upon which it is situated. No Improvement has suffered
any damage by fire or other casualty loss which has not heretofore been
completely repaired and restored to its original condition.
(ix) Except as set forth in Schedule 3.12(ix), the Selling Parties have
no knowledge of any fact, condition or impediment which would or could
reasonably be expected to prevent the owner of the Real Property or
Developed Property from obtaining, without incurring any unusual cost or
expense (any expenses routinely incurred by the Selling Parties in the
ordinary course of business shall not be deemed to be an unusual cost or
expense), all necessary building permits for the construction of the
Improvements upon such Real Property or Developed Property, as the case may
be, other than normal and customary conditions imposed by Governmental
Entities or recorded restrictive covenants or agreements in favor of
property owner associations or other third parties.
(x) Except as set forth in Schedule 3.12(x), no commitments have been
made by the Selling Parties and, to the knowledge of the Selling Parties,
by any predecessor-in-interest of the Selling Parties, to any Governmental
Authority or to any other person or group which would impose an obligation
upon any owner of the Real Property or Developed Property to make any
contribution or dedication of money or land (including but not limited to
any rights of access or reciprocal easement agreements) or to construct,
install or maintain any improvements upon or in the vicinity of such Real
Property or Developed Property, and no Governmental Authority has imposed
any requirement that any developer or owner of such Real Property
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or Developed Property pay directly or indirectly any special fees or
contributions or incur any expenses or obligations whatsoever in connection
with any development or ownership thereof.
(xi) Except as set forth in Schedule 3.12(xi) there are no leases,
subleases, licenses, concessions or other agreements, whether written or
oral, made by the Selling Parties, or to the knowledge of the Selling
Parties, by any predecessor-in-interest of the Selling Parties, granting to
any person any right to use or occupy any portion of the Real Property or
Developed Property.
(xii) Schedule 3.12(xii) is a complete listing of any and all contracts
or agreements entered into by the Selling Parties or, to the knowledge of
the Selling Parties, by the Selling Parties' predecessors-in-interest
currently affecting all or any portion of the Real Property and the
Developed Property (other than the Sales Contracts, the Contracts, the Land
Purchase Agreements and the Kaco Partnership), including, without
limitation, construction contracts, contracts of sale and/or purchase,
brokerage agreements, service contracts, landscape contracts, utility
contracts and all other agreements that affect or relate to the use,
ownership, construction, service, management, development or sale of all or
any portion of the Real Property or Developed Property (collectively, the
"Property Agreements"), other than Property Agreements which (i) provide
for aggregate payments of less than Twenty Five Thousand Dollars ($25,000)
in any year, (ii) are terminable by the Selling Parties without penalty on
not more than ninety (90) days' notice and (iii) could not reasonably be
expected to impair in any material respect the use, occupancy, value or
marketability of the Real Property or Developed Property. Copies of all of
the Property Agreements have been provided or made available to Buyer. The
Selling Parties have complied in all material respects with each and every
undertaking, covenant and obligation under the Property Agreements and no
state of facts exist that constitute or, with the passage of time or the
giving of notice or both, would constitute a breach or default by the
Selling Parties or, to the knowledge of the Selling Parties, the other
party thereto under the Property Agreements. Except for the Contracts and
the Land Purchase Agreements and except as set forth on Schedule 3.12(xii),
there are no contracts of sale or outstanding options, rights of first
refusal or similar rights to purchase any part of the Real Property, the
Developed Property or any interest therein. Except as set forth in Schedule
3.12(xii), all of the Property Agreements are fully assignable to the
Buyer.
(xiii) Except as set forth on Schedule 3.12(xiii) hereto, there are no
persons (other than the Company or a Subsidiary) in possession of any
portion of the Real Property or Developed Property, whether as lessees,
tenants at will or at sufferance, trespassers or otherwise.
(xiv) Except as set forth in Schedule 3.12(xiv) hereto, to the knowledge
of the Selling Parties, no Real Property or Developed Property is currently
classified or regulated (or is under investigation by any Governmental
Authority) as wetlands or an endangered habitat or is currently affected by
endangered species under federal, state, local or foreign laws (including
common law), statutes, codes, ordinances, rules or regulations.
(xv) Attached to Schedule 3.12(xv) is a copy of each form of warranty
presently offered along with a copy of each form of warranty offered within
the previous 10 years by the Selling Parties in connection with the Sales
Contracts related to the Business. There are no outstanding agreements or
warranties between the Selling Parties or their predecessors and any
customer related to the Business which materially deviates from these
standard forms. The transactions contemplated by this Agreement will not
entitle a customer under a Sales Contract to cancel its Sales Contract.
(xvi) Except for bills and charges that are outstanding in the ordinary
course and except as set forth on Schedule 3.12(xvi), there has been no
material or labor furnished to or on the Real Property or Developed
Property for which payment has not been made, there are no mechanic's or
materialman's liens or claims filed against the Real Property or Developed
Property and the Selling Parties have not received a notice of any claims
of non-payment or claims of liens by any contractors, subcontractors,
suppliers, mechanics, materialmen or artisans with respect to any work
performed on or materials furnished to the Real Property or Developed
Property.
(xvii) Except as set forth in Schedule 3.12(xvii) hereto, the Selling
Parties have no knowledge of any proposed or contemplated change in any
applicable laws, ordinances or restrictions, or any judicial or
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administrative action, or any action by adjacent landowners, affecting the
Real Property or Developed Property which is not specifically addressed in
this Article III and which will or could reasonably be expected to impair
in any material respect the use, occupancy, value or marketability or
prevent or impede the development of the Real Property or Developed
Property.
(xviii) Except as set forth in Schedule 3.12(xviii), all Housing
Property and Developed Property have been developed; and all components of
the Improvements, including without limitation the roofs and structural
elements thereof and the heating, ventilation, air conditioning, plumbing,
electrical, sewer and storm water systems and facilities included therein,
have been built to code and substantially in accordance with all applicable
plans and specifications, and none of the Developed Property or the
Improvements contains any latent defects that would have, individually or
in the aggregate, a Material Adverse Effect. The rights and obligations of
the Parties with respect to this Section 3.12(xviii) are subject to Section
6.25 hereof.
(xix) To the knowledge of the Selling Parties, neither the Selling
Parties nor any of their predecessors-in-interest have incorporated into
the homes built by them any construction products that are or have been the
subject of any class action litigation.
(xx) Schedule 3.12(xx) identifies in detail for each lot, parcel and
tract of land constituting the Real Property or Developed Property, the
results of any soil tests or environmental and other reports concerning the
Real Property or Developed Property that is or has been in the possession
and control of the Selling Parties.
3.13 Leases. Set forth on Schedule 3.13(i) is a listing of all leasehold
real properties held by the Selling Parties related to the Business (the
"Leased Property"). The Selling Parties have valid leasehold interests in all
Leased Property under valid lease agreements and, except as noted on Schedule
3.13(ii), there is no default on the part of the Selling Parties or, to the
knowledge of the Selling Parties, the lessor of such leased property under any
such lease agreements. To the knowledge of the Selling Parties, the present
use of all such Leased Property conforms in all material respects to
Applicable Law, and all necessary occupancy and other certificates and permits
for the occupancy and lawful use thereof have been issued to the Selling
Parties and are presently in full force and effect. Except as set forth in
Schedule 3.13(iv), all contracts and agreements relating to the Leased
Property are fully assignable to Buyer.
3.14 Health and Safety. To the knowledge of the Selling Parties, the
properties of the Selling Parties have been and are being operated in
compliance in all material respects with all Applicable Laws designed to
protect safety or health, or both ("Health and Safety Laws"), including,
without limitation, the Occupational Safety and Health Act, 29 U.S.C.A.
(S) 651 et seq. ("OSHA"). Except as shown on Schedule 3.14, neither the
Company nor any Subsidiary has received any written notice of any violation,
deficiency, inspection, investigation or inquiry from any Governmental Entity
(as defined below), employee or third party under any Health and Safety Law,
and, to the knowledge of the Selling Parties, no such inspection,
investigation or inquiry is planned or threatened.
3.15 Legal Proceedings. Except as disclosed on Schedule 3.15(i)-(iii), (i)
there are no Proceedings (as defined below) that are related to the Business
pending or, to the knowledge of the Selling Parties, threatened against or
involving the Selling Parties or any of the Assets, including Proceedings
related to allegedly defective products or workmanship, (ii) the Selling
Parties are not subject to any judgment, order, writ, injunction, civil
investigative demand or decree of any Governmental Entity, and (iii) there are
no Proceedings pending or, to the knowledge of the Selling Parties, threatened
against any Selling Party seeking to restrain, prohibit or obtain damages or
other relief in connection with this Agreement or the transactions
contemplated by this Agreement. Except as disclosed on Schedule 3.15(iv), the
Selling Parties are not aware of any fact or circumstance that could
reasonably be expected to give rise to any such Proceeding. Except as
disclosed on Schedule 3.15(v), there is no action or suit brought or to be
brought by the Selling Parties pending or threatened against others.
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3.16 Tax Matters.
Except as disclosed on Schedule 3.16(i)-(xiii):
(i) For the years ended December 31, 1995 and 1996, the stub period
ended September 30, 1997 and the year ended September 30, 1998, the Company
and each Subsidiary have (and as of the Closing Date will have) duly filed
all federal, state, local and foreign Tax Returns (as defined below)
required to be filed with the IRS (as defined below) or other applicable
taxing authority, and no extensions of the applicable statute of
limitations with respect to any such Tax Return has (or as of the Closing
Date will have) been requested or granted.
(ii) The Company and each Subsidiary have (and as of the Closing Date
will have) fully and timely paid all Taxes (as defined below) due and
payable by them and have paid or accrued all Taxes for all periods ending
on or before the Closing Date (and the portion of any Straddle Period (as
defined below) ending on the Closing Date) for which Tax Returns are not
yet due.
(iii) There has been no issue raised or adjustment proposed (and none is
pending) by the IRS or any other taxing authority in connection with any
Tax Return of the Company or any Subsidiary which has not been settled or
paid nor, to the knowledge of the Company and the directors and officers
(and any employee responsible for tax matters), is there any basis for any
such issue to be raised or adjustment to be proposed.
(iv) The Company and each Subsidiary have withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or
other third party.
(v) There is no Tax audit pending with respect to the Company or any
Subsidiary.
(vi) Neither a director nor officer (or employee responsible for Tax
matters) of the Company or any Subsidiary expects any authority to assess
any additional Taxes as to the Company or any Subsidiary for any period for
which Tax Returns have been filed. There is no dispute or claim concerning
any Tax liability of the Company or any Subsidiary either (A) claimed or
raised by any authority in writing or (B) as to which any of the directors
and officers (and employees responsible for Tax matters) of the Company or
any Subsidiary has knowledge based upon personal contact with any agent of
such authority. Schedule 3.16(vi) lists all federal, state, local, and
foreign income Tax Returns filed with respect to the Company and each
Subsidiary for all taxable periods for which the applicable statutes of
limitations have not expired, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the subject of
audit.
(vii) The Company and each Subsidiary has (and as of the Closing Date
will have) made all deposits required with respect to Taxes due and payable
by the Company or any Subsidiary, respectively.
(viii) No waiver or extension of any statute of limitations as to any
federal, state, local or foreign Tax matter has been given by or requested
from the Company or any Subsidiary.
(ix) None of the Company and its Subsidiaries has filed a consent under
Code (S)341(f) concerning collapsible corporations. None of the Company and
its Subsidiaries has made any payments, is obligated to make any payments,
or is a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under Code
(S)280G. The Company and each Subsidiary have disclosed on their federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Code
(S)6662. None of the Company and its Subsidiaries is a party to any Tax
allocation or sharing agreement. None of the Company and its Subsidiaries
has been a member of an affiliated group filing a consolidated federal
income Tax Return (other than a group the common parent of which is the
Company), or has any liability for the Taxes of any Person (other than any
of the Company and its Subsidiaries) under Treas. Reg. (S)1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(x) Under separate cover, the Company has delivered to Buyer a schedule
which sets forth the following information with respect to each of the
Company and its Subsidiaries as of the most recent
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practicable date (as well as on an estimated pro forma basis as of the
Closing giving effect to the consummation of the transactions contemplated
hereby): the tax basis of the Company and the Subsidiaries in their assets
(including stock of a Subsidiary) and the amount of any net operating loss,
net capital loss, unused investment or other credit, unused foreign tax, or
excess charitable contribution allocable to the Company or any Subsidiary.
(xi) None of the Selling Parties is a foreign person within the
meaning of Section 1445(b)(2) of the Code and the Treasury Regulations
thereunder.
(xii) Except for the Kaco Partnership, neither the Company nor any
Subsidiary has any relationship with any other person which constitutes a
partnership for federal income tax purposes.
(xiii) To the knowledge of the Selling Parties, there are no Taxes,
assessments or levies of any type whatsoever that will be or are
contemplated to be imposed upon and collected from the Real Property or
Developed Property arising out of or in connection with the present
ownership and operation or development of the Real Property or Developed
Property, as the case may be, or any public improvements in the general
vicinity of the Real Property or Developed Property, other than Permitted
Encumbrances or ad valorem taxes, standby fees, front foot benefit charges,
unitary assessments or other fees or assessments imposed by Governmental
Entities, quasi-governmental agencies or property owners' associations for
provision of utility services applicable to the Real Property or Developed
Property, as the case may be, for the fiscal year in which the Closing
occurs payable to the state, county, school district and city in which the
Real Property or Developed Property is situated.
3.17 Permits. Schedule 3.17(i) sets forth a list of all Permits held by, or
applicable to, the Selling Parties related to the Business other than building
permits and waivers obtained in the ordinary course of business. A true copy
of each Permit, or an acceptable representative sampling, has been furnished
to Buyer for examination. To the knowledge of the Selling Parties, each of
such Permits is in full force and effect and the Selling Parties are not in
violation of or in default with respect to any applicable law or any
applicable rule, regulation, order, writ or decree of any court or any
governmental commission, board, bureau, agency or instrumentality (including
but not limited to those relating to environmental matters) or delinquent with
respect to any report required to be filed with any governmental commission,
board, bureau, agency or instrumentality except where such violation, default
or failure to timely file would not have a Material Adverse Effect. Except as
disclosed on Schedule 3.17(ii), no notice has been issued by any Governmental
Entity and received by the Selling Parties and no Proceeding is pending or, to
the knowledge of the Selling Parties, threatened with respect to the validity
or enforceability of any Permit, any alleged failure by the Selling Parties to
have any Permit or not to be in compliance therewith. Except as set forth on
Schedule 3.17(iii), the Selling Parties have all Permits used or required by
the Selling Parties in the operation of the Business or for the ownership of
its properties and assets, including routine building permits and waivers.
Except as set forth on Schedule 3.17(iv), the consummation of the transaction
contemplated hereby will not extinguish or adversely affect any such Permit
which the Selling Parties have on the date of this Agreement and, except as
set forth on Schedule 3.17(v), each Permit listed on Schedule 3.17(i) is fully
assignable to Buyer.
3.18 Personal Property. The books and records of the Selling Parties that
are related to the Business properly include and reflect all of the properties
of the Selling Parties that are related to the Business. Set forth on Schedule
3.18(iii) is a list, as of the Effective Date, of all furniture, equipment,
machinery, computer hardware, materials, rolling stock, apparatus, tools,
implements, appliances, and other tangible personal property owned, leased, or
used or held for use by the Selling Parties related to the Business. All such
properties owned or leased by the Selling Parties are in good condition, order
and repair, subject to ordinary wear and tear, and are suitable and sufficient
for the purposes for which they are presently being used.
3.19 Contracts. As used in this Agreement, the term "Company Agreements"
shall mean all mortgages, indentures, notes, agreements, contracts, leases,
licenses, franchises, obligations, instruments or other commitments,
arrangements or understandings of any kind related to the Business or the
Assets, whether written or oral, binding or nonbinding, to which any of the
Selling Parties is a party or by which any of the Selling
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Parties or any of their properties may be bound or affected and which are not
described in Schedules 1.1(iii)(a) and (c), Schedules 3.12(iii), (v) and (xii)
and Schedule 3.13. Set forth on Schedule 3.19(i)-(xxi) is a list of (a) each
Company Agreement that is material to the business, operations, assets or
financial condition of the Selling Parties and (b) without regard to
materiality, each of the following Company Agreements (the Company Agreements
described in clauses (a) and (b) above are collectively called the "Material
Contracts"):
(i) Any Company Agreement for or relating to any Debt (as defined below)
of the Company;
(ii) Any guaranty, direct or indirect, by the any of the Selling Parties
of any obligation for borrowings, advances, goods or services purchased or
otherwise, excluding endorsements made for collection in the ordinary
course of business;
(iii) Any Company Agreement made other than in the ordinary course of
business and calling for future payments in the aggregate in excess of
Twenty Five Thousand Dollars ($25,000);
(iv) Any Company Agreement relating to the acquisition or disposition of
the Assets by any of the Selling Parties having a fair market value in
excess of Twenty Five Thousand Dollars ($25,000) in the aggregate;
(v) Any obligation to make future payments, contingent or otherwise,
arising out of or relating to the acquisition by any of the Selling Parties
of any business, assets or stock or other interests of other companies;
(vi) Any Company Agreement, including any employment, compensation, loan
or severance arrangements, with any current or former shareholder,
director, manager, officer, employee or agent of any of the Selling
Parties;
(vii) Any Company Agreement with a sales representative, sales
consultant or distributor (all of such agreements are terminable at any
time by any of the Selling Parties without penalty on not more than 90 days
notice, except as otherwise disclosed on Schedule 3.19(viii);
(viii) Any Company Agreement with any consultant or advisor of the
Selling Parties calling for future payments in the aggregate in excess of
Fifteen Thousand Dollars ($15,000);
(ix) Any Company Agreement to which any Selling Party and any other
Selling Party or Affiliate (as defined below) of any Selling Party is a
party;
(x) Any Company Agreement with a term in excess of one year and
providing for future payments aggregating in excess of Fifteen Thousand
Dollars ($15,000) that is not terminable (without penalty) on not more than
thirty (30) days notice;
(xi) Any Company Agreement containing limitations restricting the
conduct of the Business of the Selling Parties or the use of any of their
properties, or containing limitations on the disclosure of confidential or
proprietary information or containing limitations on the hiring of
employees, agents or representatives by the Selling Parties;
(xii) Any Company Agreement relating to Intellectual Property;
(xiii) Any Company Agreement that forms or purports to form a
partnership, joint venture or similar entity;
(xiv) Any Company Agreement relating to the transport, storage, release
or disposal of Hazardous Materials (as defined below) or Hazardous Waste
(as defined below);
(xv) Any Company Agreement with any Governmental Entity that currently
is binding on, or restricts the actions of the Selling Parties;
(xvi) Letters of credit, bid and performance bonds, hedge, swap,
futures, options or other derivatives and similar contracts;
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(xvii) Any Company Agreement in the nature of a settlement or a
conciliation agreement arising out of any claim asserted by any person;
(xviii) Any rebate, volume discount, price reduction or similar right
given by any of the Selling Parties;
(xix) Any Company Agreement that by its terms provides for the creation,
existence or maintenance of a Lien or other Encumbrances on any properties
or assets of the Selling Parties;
(xx) Any Company Agreement that contains any "change of control"
provision or agreement; and
(xxi) All other contracts that are material to the Selling Parties or
that could prevent, impede or otherwise affect in any material respect the
consummation of the transactions contemplated by this Agreement.
The Selling Parties have delivered to Buyer accurate and complete copies of
all written Material Contracts listed on Schedule 3.19(i) - (xxi) as well as
Contracts and Land Purchase Agreements and have provided Buyer with written
summaries of the same that are unwritten (if any). Each Material Contract,
Contract and Land Purchase Agreement is in full force and effect and is a
legal, binding and enforceable obligation of the Selling Parties and, to the
knowledge of the Selling Parties, each of the other parties thereto, and no
notices of termination or cancellation thereof have been given or received by
the Selling Parties. The Selling Parties, nor, to the knowledge of the Selling
Parties, any other party thereto is in breach of or default under any Material
Contract, Contract or Land Purchase Agreement, and no event has occurred that
(after notice or lapse of time or both) would become a breach or default
under, or would permit modification, cancellation, acceleration or termination
of, any Material Contract, Contract or Land Purchase Agreement or result in
the creation of any Encumbrance upon, or any person obtaining any right to
acquire, any properties, assets or rights of the Company. Except as disclosed
on Schedule 3.19(xxii), there are no material unresolved disputes involving
the Selling Parties under any Material Contract. Except as disclosed on
Schedule 3.19(xxiii), the Contracts and the Land Purchase Agreements are fully
assignable to Buyer.
3.20 Conduct in the Ordinary Course; Absence of Certain Changes, Events and
Conditions. Since January 28, 1999, the Business has been conducted in the
ordinary course and consistent with past practice in all material respects.
With respect to the Business and except as set forth in Schedule 3.20(i) -
(xii), since January 28, 1999:
(i) There has not been any Material Adverse Effect in the Business,
Assets, liabilities, results of operations or financial condition of the
Selling Parties or in their relationships with material lenders, suppliers,
customers, employees, or others, whether such changes have occurred in the
ordinary course of business or otherwise;
(ii) There has not been any declaration, setting aside, or payment of
any dividend or other distribution on or in respect of the outstanding
capital stock of any Subsidiary, nor has there been any direct or indirect
redemption, retirement, purchase or other acquisition of any of the
outstanding capital stock of any Subsidiary, or any issuance of any shares
of outstanding capital stock of any Subsidiary;
(iii) There has not been any increase in the compensation, the rate of
compensation, commissions, severance or termination pay payable or to
become payable by any of the Selling Parties to any director, officer or
salaried employee, or any payment of or commitment to pay any bonus,
profit-sharing or other extraordinary compensation to any employee not
consistent with past practices;
(iv) There has not been any damage, destruction or loss which had a
Material Adverse Effect with respect to the Assets or the Business;
(v) There has not been any disposition of or encumbrance, or any pledge
or grant of a security interest in any of the Assets of the Selling
Parties, or any increase in any indebtedness of the Selling Parties other
than in the ordinary course of business;
(vi) There has not been any merger, consolidation or other business
combination involving the Selling Parties, nor has there been any
acquisition of any stock, business, property or assets of any other person,
firm, association, corporation or other business organization;
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(vii) There has not been any settlement in respect of any Proceedings at
law or in equity involving any payment by the Selling Parties;
(viii) There has not been any sale or grant to any party or parties of
any license, franchise, option or other right of any nature whatsoever to
sell, distribute, or otherwise deal in or with the property of the Selling
Parties, other than in the ordinary course of business, or any sale or
grant to any party or parties of any license, franchise, option or other
right of any nature to use any patent, trade name, trademark, service mark,
copyright, pending applications therefor, trade secrets or other
proprietary rights of the Selling Parties;
(ix) There has not been any change in the accounting methods or
practices of the Selling Parties;
(x) There has not been any contract entered into for services or
otherwise with any of the officers, directors or shareholders of the
Selling Parties, or members of their families;
(xi) There has not been any contract or agreement entered into, or any
business transaction engaged in, with any Affiliate of the Selling Parties;
(xii) There has not been any theft, loss of or damage to any of the
furnishings located in the Model Homes, except for instances of theft, loss
or damage that, in the aggregate, have not had a Material Adverse Effect;
and
(xiii) There has not been any agreement or commitment by the Selling
Parties, to do or take any of the actions referred to in this Section 3.20.
3.21 Insurance Schedule 3.21(i) sets forth true and correct summaries of
all policies of fire, liability, casualty, life and other insurance currently
in force with respect to the Selling Parties' or their properties' liability,
and accurately states the coverages, deductible amounts and carriers of each
such insurance policy. All such insurance policies are in full force and
effect and no notice of cancellation or termination has been received with
respect to any such policy. There are no circumstances known to the Selling
Parties that would enable any insurance company or association to avoid
liability under any of the insurance policies maintained by the Selling
Parties, other than pursuant to express exclusions and limitations of such
policies. Except as set forth in Schedule 3.21(ii), the coverage provided by
such insurance policies with respect to events occurring before the Closing
Date will not be affected in any manner by, and will not terminate or lapse by
reason of, any of the transactions contemplated by this Agreement. At no time
since January 1, 1999 has any insurance company or association canceled or
reduced any coverage maintained by the Selling Parties, or given any notice or
other indication of its intention to cancel or reduce any such coverage. The
loss, damage or destruction of any properties and assets of the Company which
are not fully covered by insurance would not have a Material Adverse Effect.
The Company agrees to keep the policies listed on Schedule 3.21(i) in full
force and effect through the Closing Date. In addition, Schedule 3.21(iii)
contains a list of all pending claims against the Selling Parties of which the
Selling Parties are aware which may be covered by insurance, and the Selling
Parties have given timely notice to the appropriate insurance carrier with
respect to each such claim.
3.22 Environmental Matters. Except as disclosed on Schedule 3.22:
(i) The Company has not received any written notice of any violation,
investigation or inquiry from any Governmental Entity regarding a purported
violation of any Environmental Law (as defined below) and, to the knowledge
of the Selling Parties, no such investigation or inquiry is planned or
threatened. To the knowledge of the Selling Parties, the Selling Parties
have not failed to file any reports or notices concerning the release of
any Hazardous Material (as defined below) as required by Environmental Law,
and, to the knowledge of the Selling Parties, the Selling Parties have not
been named or listed, and they have no reason to believe that any such
naming or listing is likely, by any Governmental Entity or potentially
responsible party group, as a potentially responsible party under CERCLA
(as defined below) or any similar state statute. To the knowledge of the
Selling Parties, none of the Real Property, the Developed Property or
Leased Property has been listed on the Comprehensive Environmental
Response, Compensation and Liability Information System or the National
Priorities List under CERCLA or similar lists under state statutes. To the
knowledge of the Selling Parties, there have been no environmental
investigations, studies, reviews or audits conducted by or on behalf of the
Selling Parties or any other party or any other
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environmental records, documents, or correspondence which are in the
possession of the Selling Parties relating to the Selling Parties or their
properties that have not been delivered to Buyer before the Effective Date
and Schedule 3.22(i) sets forth the documentation delivered to Buyer.
(ii) None of the Real Property, the Developed Property or the Leased
Property has been used during the period of such ownership or leasing by
the Selling Parties or to the Selling Parties' knowledge before such
ownership or leasing (a) for the storage or disposal of a Hazardous
Material or Hazardous Waste (as defined below) or (b) as a landfill, solid
waste management unit (as defined in RCRA (as defined below)) or other
waste disposal site.
(iii) The Selling Parties have not entered into any agreement, consent
order, decree, license or permit condition, settlement, judgment or other
directive of or by any Governmental Entity that is based on any
Environmental Law and that relates to the future use of any Real Property,
Developed Property or Leased Property or requires any remediation actions
or changes in the present conditions of any of such properties. There are
no Proceedings seeking money damages, injunctive relief, fines or
penalties, remedial action or other remedy, pending or, to the knowledge of
the Selling Parties, threatened, against the Real Property, Developed
Property or Leased Property relating to (a) the violation of, or
noncompliance with, any Environmental Law, (b) the disposal, discharge,
transportation or release of any Hazardous Material or (c) the exposure of
any person to any other solid waste, pollutant or chemical substance.
(iv) To the knowledge of the Selling Parties, the Real Property,
Developed Property and Leased Property (as to all periods of time of
ownership by it) have not been contaminated with Hazardous Materials
affecting the groundwater, surface water or soil at, on, in, under or about
such properties other than as is not in violation of and would not likely
result in a remediation obligation under Environmental Law. No Hazardous
Material or Hazardous Waste has been disposed of, transferred, removed,
released or transported from any property owned or leased by the Selling
Parties during the period such property was owned or leased by the Selling
Parties or to the knowledge of the Selling Parties' before such ownership
or leasing other than as is not in violation of and would not likely result
in a remediation obligation or other claims under Environmental Law.
(v) To the knowledge of the Selling Parties, there are none of the
following at, on, in, under or immediately about any of the Real Property,
Developed Property or Leased Property or any home, building, or structure
on or at the Real Property, Developed Property or Leased Property:
(a) tanks, storage vessels, drums or containers of any kind located
underground or above ground, or any piping associated therewith;
(b) any landfills or former landfills;
(c) except as set forth on Schedule 3.22(v)(c), wetlands or former
wetlands that have been filled;
(d) asbestos-containing materials;
(e) polychloride biphenyls ("PCBs") or PCB-containing equipment;
(f) pipelines not listed as Encumbrances and not ordinarily found on
residential property;
(g) current or former oil or gas production or storage facilities,
wells, pits, or other related operations;
(h) formaldehyde-containing material; or
(i) lead-based or lead-containing paint.
(vi) To the knowledge of the Selling Parties, there are no violations of
or remedial obligations arising under, and the Selling Parties are in
compliance with, Environmental Laws arising from or in connection with any
event, condition, circumstance, activity, practice, incident, action or
plan existing or occurring before the Closing Date relating to the Business
or Assets of the Selling Parties (including without limitation the presence
of any underground storage tanks or Hazardous Materials or Hazardous Wastes
on, in, under or affecting any of the Selling Parties' properties or
surrounding areas or any release thereof, or the storage, disposal or
treatment, or transportation for storage, disposal or treatment, of
Hazardous Materials or Hazardous Wastes).
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3.23 Intellectual Property Rights
(i) Schedule 3.23(i) contains a true, correct and complete list of all
registered and unregistered Intellectual Property owned or used by the
Selling Parties in the Business other than the "Sundance" name and all
derivatives thereof, and other Intellectual Property relating to the
Excluded Assets. The Selling Parties own all right, title and interest to,
or has the right to use pursuant to a valid license, all Intellectual
Property identified on such schedule. Except as set forth on Schedule
3.23(i) the interests of the Selling Parties in the Intellectual Property
listed on Schedule 3.23(i) are free and clear of all claims of others and
of all Encumbrances whatsoever.
(ii) Schedule 3.23(ii) contains a true, correct and complete list of all
licenses granted by any third party to the Selling Parties with respect to
any Intellectual Property (other than standard form licenses with respect
to commercial software that is generally available from third parties), in
each case, identifying the Intellectual Property covered thereby.
(iii) Except as set forth on Schedule 3.23(iii), (a) the Selling Parties
have not received any notices of any infringement or misappropriation by,
or conflict with, any third party with respect to such Intellectual
Property (including, but not limited to, any demand or request that the
Selling Parties license any rights from a third party), (b) the conduct of
the Selling Parties does not infringe or misappropriate in any material
respect, any Intellectual Property of other persons, and (c) to the
knowledge of the Selling Parties, the Intellectual Property owned by or
licensed to the Selling Parties is not being infringed or misappropriated
in any material respect by any other persons.
(iv) The Selling Parties have experienced certain problems or
malfunctions related to the computer systems, operating systems and other
systems of the Selling Parties as described on Schedule 3.23(iv). Schedule
3.23(iv) sets forth all remedial actions the Selling Parties have
undertaken to solve such problems or malfunctions.
3.24 Employee Benefit Plans. During the past six years, neither the Selling
Parties nor any affiliate of the Selling Parties have made or been required to
make contributions to any "multiemployer plan," as defined in Section 3(37) of
ERISA. The Selling Parties and all affiliates of the Selling Parties have paid
and discharged promptly when due all liabilities and obligations arising under
ERISA or the Code of a character which if unpaid or unperformed might result
in the imposition of a lien against any of the Assets. For purposes of this
Section 3.24 only, an "affiliate" of any person means any other person which,
together with such person, would be treated as a single employer under Section
414 of the Code. With respect to each employee benefit plan, program or
arrangement sponsored, administered or contributed to by the Selling Parties
or their affiliates for employees of the Business, all employee and employer
contributions for all periods ending prior to the Closing Date have been made
in full.
3.25 Labor Relations.
(i) Except as set forth on Schedule 3.25(i), the Selling Parties are in
compliance in all material respects with all Applicable Laws pertaining to
employment and employment practices and wages, hours and other terms and
conditions of employment in respect of their employees with respect to the
Business.
(ii) Except as set forth in Schedule 3.25(ii), with respect to the
Business: (a) the Selling Parties are not parties to any outstanding
employment, consulting or management agreements or contracts with officers
or employees that are not terminable at will, or that provide for the
payment of any bonus or commission following termination of such agreement
or contract; (b) the Selling Parties are not parties to any agreement,
policy or practice that requires it to pay termination or severance pay to
salaried, non-exempt or hourly employees (other than as required by law);
(c) the Selling Parties have not been the subject of any representational
campaign by any union or other organization or group seeking to become the
collective bargaining representative of any of its employees or been
subject to or, to the knowledge of the Selling Parties, threatened with any
strike or other concerted labor activity or dispute and (d) the Selling
Parties are
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not obligated to bargain collectively with respect to wages, hours and
other terms and conditions of employment with any recognized or certified
labor organization, collective bargaining representative or group of
employees. The Selling Parties have furnished to Buyer complete and correct
copies of all such agreements ("Employment and Labor Agreements"). The
Selling Parties have not breached or otherwise failed to comply with any
provisions of any Employment and Labor Agreement, and is in full compliance
with all terms of any collective bargaining agreement and there are no
grievances outstanding thereunder.
(iii) Except as set forth in Schedule 3.25(iii), with respect to the
Business: (a) there is no unfair labor practice charge or complaint pending
before the National Labor Relations Board ("NLRB"); (b) there is no labor
strike, material slowdown or material work stoppage or lockout actually
pending or to the Selling Parties' knowledge threatened against or
affecting the Selling Parties, and the Selling Parties have not at any time
experienced any strike, material slow down or material work stoppage,
lockout or other collective labor action by or with respect to employees of
the Selling Parties; (c) there is no representation claim or petition
pending before the NLRB or any similar foreign agency and no question
concerning representation exists relating to the employees of the Selling
Parties; (d) there is no pending or, to the knowledge of the Selling
Parties, threatened Proceeding by or before, and the Selling Parties are
not subject to any judgment, order, writ, injunction or decree of or
inquiry from, the NLRB, the Equal Employment Opportunity Commission, the
Department of Labor, Department of Justice, the Office of Federal Contract
Compliance Programs or any other Governmental Entity in connection with any
current, former or prospective employee of any of the Selling Parties or
with respect to any employment practice; and (e) the Selling Parties have
no notice from any federal, state, local or foreign agency responsible for
the enforcement of labor or employment laws of an intention to conduct an
investigation of the Selling Parties and no such investigation is in
progress.
(iv) The Selling Parties will deliver to the Buyer, within seven days
from the date hereof, a true and complete list of each employee of the
Selling Parties involved in the Business as of the date hereof, including
their names and current annual compensation (e.g., salary, bonus plans and
other perquisites or compensation paid).
3.26 Reserved.
3.27 Transactions with Affiliates. Except as set forth on Schedule 3.27,
the Selling Parties have not purchased, acquired or leased any property or
services from, or sold, transferred or leased any property or services to, or
loaned or advanced any money to, or borrowed any money from, or guaranteed or
otherwise become liable for any indebtedness or other obligations of, or
acquired any capital stock, obligations or securities of, or made any
management, consulting or similar fee arrangement with, or entered into or
consummated any other material transaction, agreement or arrangement with or
for the benefit of, any officer, director or employee of the Selling Parties
or any of its Affiliates, other than compensation and benefits provided to any
such officer, director or employee in the ordinary course of business and
consistent with past practice.
3.28 Brokerage Fees. The Selling Parties and their Affiliates have not
retained any financial advisor, broker, agent or finder or paid or agreed to
pay any financial advisor, broker, agent or finder on account of this
Agreement or any transaction contemplated by this Agreement.
3.29 Representations and Warranties. No representation, warranty or
covenant contained in this Agreement or the exhibits or schedules hereto, or
any documents to be delivered at the Closing contains or shall contain any
untrue material statement or omit to state a material fact necessary in order
to make the statements therein not misleading. Copies of all documents
furnished to Buyer in connection with this Agreement are true and complete.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Selling Parties that:
4.1 Existence. Buyer is a partnership duly formed and validly existing and
in good standing under the laws of the State of Nevada.
4.2 Power; No Conflict. Buyer has all requisite power, in accordance with
law, to execute, deliver and perform this Agreement, and such execution,
delivery and performance does not conflict with any partnership provision of
Buyer or with any contract to which Buyer is a party or to which it is
subject. This Agreement has been duly and validly executed and delivered by
Buyer and is a valid and binding obligation of Buyer, enforceable in
accordance with its terms except that enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
and judicial decisions affecting creditors' rights generally and (ii)
equitable principles which may limit the availability of certain equitable
remedies (such as specific performances in certain circumstances).
4.3 Director Approval. The Board of Directors of the managing partner of
Buyer has authorized this Agreement, the transactions contemplated herein, the
execution and delivery hereof by Buyer and the performance by Buyer of all of
its obligations hereunder.
4.4 No Consents Necessary. No authorization, approval or consent of any
Governmental Authority or any third party is necessary to be obtained by Buyer
in connection with the purchase of the Assets. No authorization, approval or
consent of any partner of Buyer, other than Centex Real Estate Corporation, as
managing general partner, is necessary to be obtained by Buyer in connection
with the execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
4.5 No Default Resulting from Agreement. Neither the execution and delivery
of this Agreement nor the performance hereof by Buyer in compliance with its
terms will result in any breach of the terms and conditions of, or constitute
a default under, the partnership documents of Buyer or any agreement, lease,
mortgage, note, instrument, undertaking, judgment, decree or governmental
order or other restriction or obligation to which Buyer is a party or by which
Buyer or any of its properties or assets may be bound or affected.
4.6 Brokers or Finders. No broker or finder has acted on behalf of Buyer in
connection with this Agreement or the transactions contemplated hereby.
ARTICLE V
ACTIONS OF THE SELLING PARTIES BEFORE THE CLOSING DATE
5.1 Conduct of Business. From the date hereof until the Closing Date, the
Selling Parties shall conduct the Business in the ordinary and regular course
of business and consistent with past practice and shall use their reasonable
best efforts to preserve intact their business organization, to keep available
the services of its present officers and employees, and maintain their present
relationships with property developers, suppliers, insurers, lessors and
licensees and with the Governmental Authorities and other persons having
business relationships with the Selling Parties, except to the extent that the
Selling Parties may change present relationships with any of such parties and
substitute therefor a relationship or relationships with new parties which
will provide to the Selling Parties no less than the benefits presently being
derived from the existing relationship(s).
5.2 Restrictions on Certain Actions Before Closing. Without limiting the
generality of Section 5.1, and except as otherwise expressly provided in this
Agreement, from the date hereof until the Closing Date, none of the Selling
Parties will, with respect to the Business, except with the prior written
consent of Buyer:
(i) Lease, sell, transfer or otherwise dispose of the ownership or
possession of any Asset (except in the ordinary course of business) or
divest itself of custody and control of any Books or Records related to the
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Business of any nature which, in accordance with sound business practice,
are retained for a period of time after their use, creation or receipts.
(ii) Enter into any agreement, arrangement or understanding with any
director, officer or key employee of any of the Selling Parties providing
for the employment of any such director, officer or key employee or any
increase in the compensation, severance or termination benefits payable or
to become payable by any of the Selling Parties to any such director,
officer or key employee or make any loan to or enter into any other
material transaction or arrangement with any such director, officer or key
employee.
(iii) Increase the benefits payable by any of the Selling Parties under
any bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option, stock purchase or other employee
benefit plan, program or arrangement made to, for or with any of the
directors, officers or employees of the Selling Parties.
(iv) Increase in any material way the general administrative and selling
expenses out of the ordinary course of business of any of the Selling
Parties.
(v) Fail to keep all of the Assets insured to the extent set forth on
Schedule 3.21 hereto, except where such failure could not reasonably be
expected to have a Material Adverse Effect.
(vi) Merge or consolidate with any other person.
(vii) Mortgage or pledge any of the Assets or create or suffer to exist
any Lien (other than insured mechanic's liens) or Encumbrance thereupon,
other than the Permitted Encumbrances.
(viii) Except in the ordinary course of business consistent with past
practices, enter into, modify or terminate any Land Purchase Agreement,
Contract, Sales Contract or other material lease, contract or agreement,
including the Kaco Partnership or enter into any transaction.
(ix) Change the accounting principles or methods of any of the Selling
Parties, except as required by law or as a result of any mandatory change
in accounting standards.
(x) Grant or agree to grant any preferential right to purchase the
Assets.
(xi) Cancel, release, waive or transfer any claims or rights of
substantial value related to the Assets.
(xii) Engage in any transactions with any Affiliate, except on terms and
conditions at least as favorable to the Selling Parties as those that would
apply in the case of a similar arms length transaction.
(xiii) Except in the ordinary course of business, take any action that
would cause any representation or warranty of any of the Selling Parties
contained in this Agreement to be untrue or incorrect at any time after the
date of this Agreement to the Closing or would or might result in any of
the conditions set forth in this Agreement not being satisfied.
(xiv) Delay payment of any account payable or other liability of the
Selling Parties relating to the Business beyond its due date or the date
when such liability would have been paid in the ordinary course of the
business consistent with past practice.
(xv) Allow the levels of work-in-process, finished homes, supplies, and
other materials included in the inventory of the Business to vary in any
material respect from the levels customarily maintained by Seller in the
ordinary course of the business consistent with past practice.
(xvi) Accelerate the construction of residential homes to exceed that
number planned for in the Selling Parties' current business plan.
(xvii) Acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other Person or division thereof.
(xviii) Fail to maintain the books and records of the Selling Parties in
the usual, regular and ordinary manner.
(xix) Make any Tax elections or settle or compromise any income tax
liability, except in the ordinary and regular course of business and
consistent with past practice.
(xx) Agree or commit to do any of the foregoing.
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Access to Information. The Selling Parties shall afford to the
officers, attorneys, accountants and other authorized representatives of Buyer
free and full access during normal business hours and upon reasonable prior
notice to copies of the books and records of the Selling Parties (including,
but not limited to, employment records) in order that Buyer may have full
opportunity to make a complete inventory and such investigation as it shall
desire of the Assets and the Business and of the affairs of the Selling
Parties relating thereto, provided that the investigation shall not
unreasonably interfere with the operations of the Selling Parties. In
addition, for a period commencing on March 16, 1999 and ending at 11:59 p.m.,
Chicago, Illinois time on the date that is the later to occur of (i) seven (7)
Business Days after the Selling Parties have delivered all schedules required
by this Agreement and (ii) April 6, 1999 (the "Feasibility Period"), Buyer
shall conduct a feasibility study of the structure of the transactions set
forth in this Agreement as well as the advisability of Buyer completing the
transactions set forth in this Agreement. If Buyer and the Company determine
on or before the expiration of the Feasibility Period that this transaction is
better suited as a stock purchase or asset and stock purchase, the parties
agree to use their reasonable best efforts to amend this Agreement to reflect
such new structure no later than 10 days after the completion of the
Feasibility Period and upon failure thereof this Agreement shall survive and
remain in full force and effect. If Buyer, in its sole discretion, determines
that it is not in its best interests to complete the transactions set forth in
this Agreement, then Buyer shall have the unilateral right to terminate this
Agreement as set forth in Article IX and shall give notice to the Selling
Parties no later than 6:00 p.m. on the Business Day (as defined below)
following the last day of the Feasibility Period. If Buyer fails to give the
required termination notice as provided in this Section 6.1, Buyer shall waive
its right to terminate this Agreement as provided in this Section 6.1 and
Section 9.1 (iii)(j). Upon Buyer's election to terminate this Agreement as
provided in this Section 6.1, neither party shall have any further obligation
under this Agreement, except that the agreements contained in Article X and in
Sections 6.7, 6.8, 6.9 and 6.11 hereof shall survive any such termination of
this Agreement. No investigation pursuant to this Section 6.1 shall affect any
representations or warranties made by the Selling Parties in this Agreement
or, except as set forth in this Section 6.1, the conditions to the obligations
of any party hereto to consummate the transactions contemplated hereby.
6.2 Notification of Certain Matters. The Selling Parties shall give prompt
notice to Buyer of (i) the discovery of any fact or circumstance or the
occurrence or nonoccurrence of any event which would be likely to cause any
representation or warranty contained in Article III to be untrue or inaccurate
at or before the Closing Date, and (ii) any failure of the Selling Parties to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by them hereunder. Buyer shall give prompt notice to the
Company of (i) the discovery of any fact or circumstance or the occurrence or
nonoccurrence of any event which would be likely to cause any representation
or warranty contained in Article IV to be untrue or inaccurate at or before
the Closing Date and (ii) any failure of Buyer to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by Buyer
hereunder. The delivery of any notice pursuant to this Section 6.2 shall not
be deemed to (i) modify the representations or warranties hereunder of the
party delivering such notice, (ii) modify the conditions set forth in Article
VII and VIII or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
6.3 Acquisition Proposals.
(i) From the date hereof until the Closing Date, the Selling Parties
shall not, and shall use their best efforts not to permit their respective
Affiliates, directors, officers, agents or other representatives
(including, but not limited to, any investment banker, financial advisor,
attorney or accountant) to, initiate any contact with, solicit, encourage
or enter into or continue any negotiations, understandings or agreements
with any Third Party (as defined below) with respect to, or furnish or
disclose any non-public information regarding the Selling Parties, the
Assets or the Business to any Third Party in connection with, any
Acquisition Proposal (as defined below). Notwithstanding the foregoing, to
the extent required by the fiduciary obligations of the Board of Directors
of the Company based on the advice of counsel, (a) the Selling Parties
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may, in response to an unsolicited request therefor, furnish non-public
information with respect to the Selling Parties, the Assets or the Business
to any Qualified Third Party (as defined below) pursuant to a customary
confidentiality agreement and discuss such information (but not any
Acquisition Proposal and not any non-public information relating to the
structure of the transactions contemplated hereby, other than any
information which the Company can demonstrate was independently developed
by it or its advisors) with such Qualified Third Party and (b) upon receipt
by the Company of an Acquisition Proposal from a Qualified Third Party, if
(1) the Company has complied fully and in a timely manner with its
obligations to notify Buyer of the receipt of such Acquisition Proposal
(and the identity of the offeror and the material terms of such proposal)
in accordance with Section 6.3(iii) hereof, (2) the Board of Directors of
the Company has reasonably determined that such Acquisition Proposal, if
consummated, would constitute an Overbid Transaction (as defined below) and
(3) the Company has delivered a written notice to Buyer (an "Overbid
Notice") advising it of the foregoing determination by its Board of
Directors (which notice shall be accompanied by copies of the form of
definitive agreement or other documentation proposed to be entered into in
connection with the Acquisition Proposal), the Company may participate in
discussions and negotiations with such Qualified Third Party regarding such
Acquisition Proposal (after compliance in full with each of the conditions
precedent to the delivery of such notice).
(ii) Furthermore, if (a) the Company has delivered an Overbid Notice to
Buyer, (b) Buyer shall not have delivered to the Company within five (5)
Business Days after receipt of such Overbid Notice a written offer (a
"Topping Offer") to amend the terms of this Agreement in order to provide
for consideration attributable to the Assets having a value greater than
the value of the consideration provided for under the Acquisition Proposal
to which such Overbid Notice relates, which offer shall state that it may
not be withdrawn or revoked by Buyer unless the Company and Buyer do not
enter into an amendment to this Agreement to reflect the acceptance of the
Topping Offer within five (5) Business Days after receipt thereof by the
Company (it being understood and agreed that, if Buyer does deliver a
Topping Offer to the Company, the Company then shall immediately cease to
participate in discussions or negotiations with such Qualified Third Party
regarding such Acquisition Proposal), (c) the terms of the Acquisition
Proposal shall not have been modified in a manner adverse to the Company or
its existing stockholders after the date of the Overbid Notice (it being
understood and agreed that the Company shall promptly advise Buyer in
writing of the nature of any change in the terms thereof), (d) the Selling
Parties shall have taken all action on their part required in order to
cause the Termination Fee Note (as defined below) to be fully funded
(either by the Company or the Qualified Third Party whose Acquisition
Proposal is accepted) and the proceeds delivered to Buyer, and (e) the
Selling Parties shall have taken all action on their part required to cause
the Escrow Agent to deliver the Earnest Money Deposit to Buyer (the
conditions set forth in clauses (a), (b), (c), (d) and (e) above being
hereinafter collectively referred to as the "Overbid Termination
Conditions"), the Company may enter into an agreement with a Qualified
Third Party with respect to an Overbid Transaction. It is expressly
understood and agreed that, if any Affiliates, directors, officers, agents
or other representatives (including, but not limited to, any investment
banker, financial advisor, attorney or accountant) of any of the Selling
Parties, whether or not such persons are purporting to act on behalf of the
Company, engage in any conduct involving the furnishing of information to,
the solicitation of, or participation in discussions or negotiations with,
a Third Party which, if performed by any of the Selling Parties, would
constitute a breach of the provisions of this Section 6.3(ii), then,
notwithstanding anything to the contrary contained herein, such Third Party
shall not be deemed a Qualified Third Party for purposes of this Agreement.
(iii) If any of the Selling Parties shall directly or indirectly receive
any offer, proposal or inquiry regarding an Acquisition Proposal, the
Company shall notify Buyer within two (2) Business Days after the receipt
of such offer, proposal or inquiry and shall, in any such notice to Buyer,
indicate the identity of the offeror and all of the material terms of such
offer, proposal or inquiry.
(iv) The Company shall not modify, or release any Third Party from, any
confidentiality or standstill agreement to which it is a party (exclusive
of those in which it is solely the recipient rather than the provider of
confidential information).
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6.4 Schedules and Exhibits. Within twenty (20) Business Days after the
Effective Date, the Selling Parties shall deliver to Buyer a full and complete
set of the Schedules to this Agreement and the parties shall attach any
exhibits not attached hereto as of the date hereof.
6.5 Reasonable Best Efforts. Each party agrees that it will not voluntarily
undertake any course of action inconsistent with the provisions or intent of
this Agreement and will use its reasonable best efforts to take, or cause to
be taken, all action and to do, or cause to be done, all things reasonably
necessary, proper or advisable under Applicable Laws to consummate the
transactions contemplated by this Agreement, including, without limitation,
(i) cooperation in determining whether any consents, approvals, orders,
authorizations, waivers, declarations, filings or registrations of or with any
Governmental Entity or third party are required in connection with the
consummation of the transactions contemplated by this Agreement, (ii)
obtaining any such consents, approvals, orders, authorizations and waivers and
to effect any such declarations, filings and registrations, (iii) causing to
be lifted or rescinded any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the transactions
contemplated by this Agreement, (iv) cooperating in the defense of all
lawsuits or other legal proceedings challenging this Agreement or the
consummation of the transactions contemplated by this Agreement, (v) the
execution of any additional instruments necessary to consummate the
transactions contemplated by this Agreement and (vi) the assignment of the
Selling Parties' interest in the Kaco Partnership to Buyer.
6.6 Solicitation of Shareholder Approval by the Company. The consummation
of the transactions contemplated by this Agreement is conditioned upon the
Company procuring approval of the same by the requisite vote of its
shareholders, pursuant to and in accordance with all state and federal
securities laws governing proxy solicitation. The Company will exercise its
best efforts to procure such approval before the Closing Date.
6.7 Public Announcements. Except for the press releases made by the Company
and Buyer on February 25, 1998, no party nor any of their Affiliates or
representatives will issue or permit or cause the issuance of any press
release or otherwise make any public statement with respect to this Agreement
or the transactions contemplated by this Agreement, without the prior written
consent of Buyer (in the case of the Selling Parties) and the Company (in the
case of Buyer); provided, however, that Buyer, the Company and their
respective Affiliates may make any public disclosure they believe in good
faith is required by Applicable Law or any listing or trading agreement
concerning any of their publicly-traded securities, in which case such party
shall use its reasonable best efforts to advise the other party before making
the disclosure. In addition, except as may be required by Applicable Law, no
party nor any of their Affiliates or representatives shall disclose or provide
to any third party any confidential or proprietary information pertaining to
the transactions contemplated by this Agreement (including any internal
analysis thereof) without the prior written consent of Buyer (in the case of
the Selling Parties) and the Company (in the case of Buyer).
6.8 Indemnification of Claims of Brokers. Buyer shall indemnify and hold
harmless the Selling Parties from and against any claim or demand for
commission or other compensation by any broker, finder, agent or similar
intermediary claiming to have been employed by or on behalf of Buyer, and
Buyer shall bear the cost of legal fees and expenses incurred in defending
against any such claim. The Selling Parties shall, jointly and severally,
indemnify and hold harmless Buyer from and against any claim or demand for
commission or other compensation by any broker, finder, agent or similar
intermediary claiming to have been employed by or on behalf of any of any
Selling Parties, and they shall bear the cost of legal fees and expenses
incurred in defending against any such claim.
6.9 Fees and Expenses. Except as otherwise herein provided, the Selling
Parties and Buyer shall pay their own expenses and costs in connection with
this Agreement and the transactions contemplated hereby, and none of such
costs and expenses of the Selling Parties shall be paid from the Assets.
Without limitation of the foregoing, Buyer and the Selling Parties shall share
in equal portion all recording and transfer taxes assessed in connection with
the closing of the transaction contemplated by this Agreement by the State of
Illinois, any applicable county or applicable municipality to the extent
recordation or transfer taxes are required to be paid under Applicable Law.
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6.10 Tax Matters.
(i) Except as set forth in Sections 6.10(iii) and (iv) below, the
Selling Parties shall be solely responsible for all Taxes relating to the
Assets for all periods ending on or before the Closing Date (and the
portion of any Straddle Period ending on the Closing Date) and shall
indemnify and hold harmless Buyer and the Company with respect thereto.
(ii) Any income tax (federal, state and foreign) consequences to any
Selling Parties arising from the consummation of the transactions
contemplated by this Agreement are for the sole benefit or account of such
Selling Parties.
(iii) All transfer, documentary, sales, use, stamp, registration and
other such Taxes and fees (including any penalties and interest) incurred
in connection with the transactions contemplated by this Agreement shall be
paid in equal parts by Buyer and the Selling Parties when due, and the
Selling Parties will, at their own expense, file all necessary Tax Returns
and other documentation with respect to all such Taxes and fees, and, if
required by Applicable Law, Buyer will join in the execution of any such
Tax Returns or other documentation.
(iv) All 1998 and 1999 real and personal property Taxes as well as all
homeowner association dues imposed on or with respect to the Assets (other
than on or with respect to the Excluded Assets, which real and personal
property Taxes shall be the sole responsibility of the Selling Parties)
shall be prorated based on the number of days in such period before and
after the Closing Date and the Selling Parties shall be responsible, for
purposes of such proration for those days from January 1, 1998 through the
Closing Date.
6.11 Nondisclosure.
(i) The Selling Parties agree that from and after the Closing Date (and
without limitation of time), they shall (and shall cause their Affiliates
to) hold in confidence, and shall use all reasonable best efforts to cause
all present and former directors, officers and employees of the Selling
Parties and their Affiliates to hold in confidence, any and all
proprietary, confidential or secret information or data of or in respect of
the Assets or Business and shall not disclose, publish or intentionally use
such information or data for any purpose other than as provided in this
Agreement (a) without the prior written consent of Buyer, (b) until such
information or data has been publicly disclosed by Buyer or otherwise
ceased to be secret or confidential as evidenced by general public
knowledge through no fault of any of the Selling Parties; provided,
however, that any of the Selling Parties shall have the right to disclose
such information or data, without consent, to the extent that, in the
opinion of their counsel, which counsel and opinion shall be reasonably
satisfactory to Buyer, such disclosure is compelled by any Governmental
Entity, audit, defense or prosecution of a Proceeding; provided further,
however, that if any of the Selling Parties proposes to make such
disclosure based upon such opinion of counsel, it shall advise and consult
with Buyer before such disclosure concerning the information or data it
proposes to disclose and shall give Buyer an opportunity to seek a
protective order or other appropriate remedy to foreclose such disclosure
without penalty to any of the Selling Parties.
(ii) Except as and to the extent required by Applicable Law and except
in connection with the exercise of their rights or the performance of their
obligations under this Agreement or any other agreement entered into
pursuant hereto or in connection herewith, Buyer and its Affiliates shall
not disclose or use, and shall direct its representatives not to disclose
or use, to the detriment of a Selling Party, any Confidential Information
(as defined below) that is furnished, or is to be furnished, by a Selling
Party or their representatives to Buyer or its Affiliates or their
representatives at any time or in any manner. For purposes of this Section
6.11(ii), "Confidential Information" means any information about a Selling
Party that a Selling Party treats as and advises Buyer in writing is
confidential, unless: (a) such information is already known to Buyer or its
Affiliates or representatives, or to others not bound by a duty of
confidentiality, before the date of disclosure by a Selling Party, or such
information becomes publicly available through no fault of Buyer or its
Affiliates or representatives; (b) the use of such information is necessary
or appropriate in making any filing or obtaining any consent or approval
required for the consummation of the transactions contemplated by this
Agreement; or (c) the furnishing or use of such information is required by
or necessary
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or appropriate in connection with any Proceedings. If this Agreement is
terminated for any reason, upon the written request of a Selling Party,
Buyer and its Affiliates and representatives shall promptly return to such
Selling Party or destroy any Confidential Information in their possession
and shall certify in writing to such Selling Party that they have done so.
6.12 Non-Competition.
(i) In order to induce Buyer to enter into this Agreement and to
consummate the transactions contemplated by this Agreement, and as
additional consideration for the Purchase Price to be paid by Buyer for the
Assets, for a period commencing on the Closing Date and ending on the third
anniversary of the Closing Date (the "Non-Compete Period"), each of the
Selling Parties agree and shall cause their Affiliates (so long as such
Affiliates are under the control of the Selling Parties) to agree that they
will not, except as set forth below, directly or indirectly, either as an
employee, employer, consultant, agent, principal, partner, member,
stockholder, officer, director, or in any other individual or
representative capacity, engage or participate in any business or activity
involving the construction or sale of residential homes in Cook (other than
the City of Chicago), McHenry, Lake, DuPage, Will, Kendall and Kane
Counties in the State of Illinois, except with respect to the liquidation
of those suburban subdivisions described in Schedule 1.2 hereto; provided
that nothing in this Section 6.12 shall prevent the Selling Parties from
owning beneficially, as an investment, up to an aggregate of one percent of
a class of equity securities that is publicly traded and registered under
Section 12 of the Exchange Act. The Selling Parties represent to Buyer that
the enforcement of the restriction contained in this Section 6.12 would not
be unduly burdensome to them.
(ii) During the Non-Compete Period, the Selling Parties will not,
directly or indirectly, (1) hire any person as an employee, representative,
agent, consultant, independent contractor, or other service provider who
was, at any time from and after the date which is six months prior to the
Closing Date, an employee of the Selling Parties and at Closing became an
employee of Buyer unless such person's employment was terminated on or
after the Closing Date (including termination by reason of such person's
resignation unsolicited by the Selling Parties), or (2) solicit or
otherwise induce any of the employees of Buyer to leave the employment of
Buyer.
(iii) The Selling Parties agree that a breach or violation of the
covenants contained in this Section 6.12 shall entitle Buyer, as a matter
of right, to an injunction issued by any court of competent jurisdiction,
restraining any further or continued breach or violation of these covenant.
Such right to an injunction shall be cumulative and in addition to, and not
in lieu of, any other remedies to which Buyer may show itself justly
entitled. Further, during any period in which any Selling Party is in
breach of the covenants contained in this Section 6.12, the time period of
the covenants shall be extended for an amount of time that any Selling
Party is in breach hereof.
(iv) The representations and covenants contained in this Section 6.12 on
the part of the Selling Parties will be construed as ancillary to and
independent of any other provisions of this Agreement, and the existence of
any claim or cause of action of the Selling Parties against Buyer or any
officer, director, or shareholder of Buyer, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement
by Buyer of the covenants of the Selling Parties contained in this Section
6.12.
(v) The parties to this Agreement agree that the limitations contained
in this Section 6.12 with respect to time, geographical area, and scope of
activity are reasonable. However, if any court shall determine that the
time, geographical area, or scope of activity of any restriction contained
in this Section 6.12 is unenforceable, it is the intention of the parties
that such restrictive covenant set forth herein shall not thereby be
terminated but shall be deemed amended to the extent required to render it
valid and enforceable.
6.13 Employees and Employee Benefits.
(i) Before the end of the Feasibility Period, Buyer shall deliver to the
Company a list of, and the personnel records related to, each employee of
the Company or Subsidiary, as appropriate, that Buyer has identified as
integral to Buyer's operation of the Business. The Selling Parties shall
cause the termination of each such employee on the last Business Day
immediately preceding the Closing Date. The Selling Parties
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will assist Buyer in offering employment to and hiring those employees of
the Selling Parties engaged in the Business designated by Buyer on such
terms and conditions as designated by Buyer. Buyer is not hereby, and at no
time hereafter will be, adopting, accepting, or assuming any employee
benefit plan or collective bargaining agreement of the Selling Parties
relating to any of their employees or any other agreement, trust, plan,
fund, or other arrangement of the Selling Parties (including, but not
limited to flexible contribution plans) that provides for employee benefits
or perquisites (collectively, "Employment Arrangements"), and Buyer shall
have no liability or obligation whatsoever under any Employment Arrangement
to the Selling Parties or to any employees of the Selling Parties, whether
or not any of such employees are offered employment by or become employees
of Buyer. Buyer is not obligated to replace any of the Employment
Arrangements for any employees of the Selling Parties who become employees
of Buyer, nor is Buyer obligated to provide such persons with any similar
agreements, plans, or arrangements. The Selling Parties are responsible for
and shall timely pay all wages, salaries, employment benefits of any kind
or nature, arising out of service performed prior to the Closing Date
including, without limitation, retirement, health and other benefits,
vacation pay and any termination or severance pay, whether due immediately
or at some future date, whether or not required under any collective
bargaining agreement. All wages, salaries, vacation and sick pay,
termination or severance pay and any other employment benefit or other
compensation earned with respect to or arising out of service performed
prior to the Closing Date shall be paid, or caused to be paid, by the
Selling Parties within the time limits permitted by law. In connection with
all matters related to this Section 6.13, the Selling Parties agree to
comply with all Applicable Laws, including without limitation the Worker
Adjustment and Retraining Notification Act or any similar law or
regulation, and the Selling Parties agree to indemnify, defend and hold
harmless Buyer from any and all liability related to such matters. All
employees of the Selling Parties who become employees of Buyer following
the Closing Date will receive service credit for eligibility and vesting
purposes for periods of service with the Selling Parties under Buyer's
employee benefit plans and with respect to similar matters, including the
severance and vacation plans, if any, of Buyer in which such employees are
eligible to participate.
(ii) Buyer shall deliver to the Selling Parties a copy of an offer of
employment to Tom Small within five (5) Business Days after the expiration
of the Feasibility Period. If Tom Small accepts such offer of employment,
Buyer agrees that after the Closing Date it shall allow Tom Small a
reasonable amount of time to assist the Selling Parties in the defense of
the Parkside Condominium Association litigation.
(iii) The parties acknowledge that certain employees of the Selling
Parties owe to the Selling Parties amounts representing draws taken by such
employees in the course of their employment against future commissions in
accordance with written sales agreements between such persons and the
Selling Parties. Seller hereby acknowledges that Buyer will in no way be
responsible for such amounts owed by the employees to the Selling Parties;
provided, however, Buyer shall withhold, pursuant to the terms and
conditions of such sales agreements, such amounts from the proceeds from
the close of the Sales Contracts, less any commission payable to other
employees, as are owed to the Selling Parties and shall pay such amounts to
the appropriate Selling Parties.
(iv) The Selling Parties will comply after the Closing Date with the
requirements of Sections 601 through 608 of ERISA and Section 4980B of the
Code with respect to any employee or former employee of the Selling Parties
(and any qualified beneficiary thereof) who experiences a qualifying event
(as defined in Section 4980B of the Code or Section 603 of ERISA) on or
before the Closing Date under any group health plan maintained by a Selling
Party. For purposes of the preceding sentence, the Closing Date shall be
considered a qualifying event with respect to those employees of the
Selling Parties who become employees of Buyer in connection with Buyer's
purchase of the Assets.
6.14 Good Title: Title Insurance. At least ten (10) days prior to the
Closing Date the Selling Parties shall deliver to Buyer preliminary title
commitments issued by TICOR Title Insurance Company showing title to the Real
Property and Developed Property being subject only to Permitted Encumbrances
and any other title exceptions pertaining to liens or encumbrances of a
definite or ascertainable amount which may and shall, at the option of Buyer,
either: (x) be removed by the payment of money by any Selling Party at the
Closing, or (y) be insured over by a title company in a manner reasonably
satisfactory to Buyer; provided, however, if such title
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exception(s) pertains to mechanics liens, the Selling Parties may, at their
option, cause the exception(s) either to (a) be removed by the payment of
money by any Selling Party at the Closing, or (b) be insured over by the title
company. Each title commitment shall contain an agreement by the title company
stating that the title policy which, subject to the mechanic's lien exception
definition set forth as the last two paragraphs of this Section 6.14, shall
result in the deletion of the general exceptions, and which agreement shall
confirm that the title policy for the Real Property shall contain the
following affirmative endorsements or disclose and insure over known
violations of the same:
(i) An endorsement insuring Buyer that, except for Permitted
Encumbrances, there are no violations of any restrictive covenants,
conditions or restrictions affecting the Real Property, that there are no
encroachments by any building onto any easements or any building lines or
setbacks affecting the Real Property, or onto any adjacent property, or any
encroachments onto the parcel of existing improvements located on adjoining
land.
(ii) An access endorsement insuring that the streets and roads adjacent
to the Real Property are public streets and that there is direct and
unencumbered access to the same from each parcel of the Real Property.
(iii) A survey endorsement insuring that all the improved property
insured is legally described on a specifically mentioned survey and
foundations in place as of the date of such policy are within the lot lines
and applicable setback lines, that no building encroaches onto adjoining
land or onto any easements, and that there are no encroachments of
improvements from adjoining land onto any parcel of the Real Property or
any part thereof.
(iv) An endorsement insuring that all the unimproved property insured is
legally described on a specifically mentioned plat of subdivision, and that
there are no encroachments of improvements from adjoining land onto any
parcel of the Real Property or any part thereof.
(v) As to vacant lots, an ALTA 3.0 zoning endorsement insuring that each
parcel of the Real Property is zoned for single family residential use and
insuring against loss or damage arising due to a prohibition of said use
and as to lots under construction, an ALTA 3.1 zoning endorsement insuring
that each parcel of the Real Property is zoned for single family
residential use and insuring against loss or damage arising due to a
prohibition of said use or requiring removal of the Improvements existing
or under construction due to a violation of applicable ordinances and
amendments relating to area of the parcel, floor area of any building,
setbacks, height and number of parking spaces.
(vi) A contiguity endorsement insuring that the land comprising the
original subdivision did not contain any gaps.
(vii) An endorsement insuring that all parcels of the Real Property are
covered by one (1) or more permanent index numbers which do not cover other
property, where available.
(viii) An endorsement deleting the creditors' rights exception, if
available.
(ix) A utility facility endorsement.
(x) As to the Developed Property, in addition to the foregoing
endorsements in Sections (i)-(ix) above, the preliminary title commitments
shall insure the contract interest of the Selling Parties in such Developed
Property in a form reasonably acceptable to Buyer and the Selling Parties.
The title company shall also undertake to obtain reinsurance policies with
"Right of Direct Access" in such amounts and with such companies as may be
reasonably satisfactory to Buyer.
Set forth below is the form of mechanic's and materialmen's lien
endorsement that is acceptable to Buyer (it being understood by the parties
hereto that if the endorsement is different than as set forth below such
modified or revised endorsement shall be subject to Buyer's review and
approval):
The Company insures Buyer against loss or damage arising out of any lien
or right to a lien for services, labor or material furnished or delivered
except as set forth below:
(a) Any lien or right to a lien for services, labor or material
furnished or delivered after the Closing Date; and
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(b) Any lien or right to a lien for services, labor or material that
Buyer is obligated to assume or pay under the terms of the
Agreement.
The endorsement will specifically provide that: Buyer agrees that it will
not present a claim for a lien arising out of services, labor or material
furnished on or before the Closing Date until it has either (a) obtained a
court determination that the Selling Parties are liable for said lien under the
terms of this Agreement or (b) unless and until the Selling Parties agree in
writing that they are liable for the specific lien under the terms of this
Agreement. TICOR Title Company shall be bound by either a settlement or a court
adjudication where the Selling Parties, or in lieu thereof, TICOR Title Company
(on behalf of the Selling Parties), has contested whether Buyer is liable under
this Agreement. If Buyer is unable for any reason to obtain a court
adjudication of the Selling Parties' liability under this Agreement, the issue
of the Selling Parties' liability under this Agreement shall be arbitrated by
Buyer and TICOR Title Company pursuant to "Conditions and Stipulations 14" in
the title commitment.
6.15 Further Assurances. Following the Closing the Selling Parties will (a)
at their expense take any action which may be reasonably necessary in order to
put Buyer in actual possession and operating control of the Assets, and (b)
from time to time at the request of Buyer and without further consideration,
execute and deliver such other instruments of assignment, transfer and
conveyance and take such other action as Buyer reasonably may require to more
effectively assign (provided, however, that no such documents shall expand the
Selling Parties' economic obligation or materially increase Selling Parties'
liability hereunder), convey and transfer to, and vest in Buyer, and to put
Buyer in possession of, all of the Assets. In addition, the Selling Parties
will make its Books and Records regarding the Assets available to Buyer and its
representatives, upon reasonable prior notice, to inspect and copy during
normal business hours. The Selling Parties, at its cost and expense, shall
preserve the Books and Records for a period of at least five years after the
Closing Date.
6.16 Selling Parties' Name. The Selling Parties at Closing shall transfer to
Buyer the exclusive (as to the Selling Parties), unlimited and permanent right
to the use of the name "Rembrandt Homes" and all names similar thereto, and the
Selling Parties shall furnish such written consents as Buyer shall reasonably
request to the use by Buyer of such names. As soon as practicable after the
Closing the Selling Parties will change their corporate names, if applicable,
and execute and file withdrawal notices for any assumed name certificates
bearing the name "Rembrandt Homes" or any derivative thereof. From and after
the Closing, the Selling Parties agree that none of Selling Parties nor any of
their Affiliates shall use or employ in any manner, directly or indirectly, the
name "Rembrandt Homes" or any derivatives thereof or any names deceptively or
confusingly similar thereto in any of its present or future business operations
or for any other purpose.
6.17 Release of Bonds. Buyer will take all reasonable steps to procure the
release of the Selling Parties and their Affiliates, and any officers or
directors of the Selling Parties or any such Affiliates who are personally
obligated, from any financial responsibility to the issuer(s) of the
subdivision improvement bonds or other financial securities listed on Schedule
6.17 with respect to any of the Assets; provided, however, that with respect to
such releases, Buyer shall only be responsible for those subdivision
improvement bonds or other financial securities that relate to the current and
future phases of development of the Developed Property. Further, following
Closing Buyer will continue to use its good faith efforts to procure any such
release not obtained by Closing. Buyer will reimburse the Company for (i) the
servicing fees and costs, if any, necessary to maintain such improvement bonds
or other financial securities of the Selling Parties that remain outstanding
and (ii) amounts, if any, drawn under such outstanding improvement bonds and
charged to the Selling Parties or against their financial security in
connection with development of the Housing Property that occurs after Closing.
With respect to subdivision improvement bonds that remain outstanding and as to
which the beneficiary will not accept a substitute bond or security from Buyer,
the Selling Parties may require Buyer to issue a bond or letter of credit to
the benefit of the Selling Parties as backup collateral for Buyer's
responsibility under this Section 6.17, but in that case, Buyer will not have
any obligation to reimburse the Company for servicing fees and costs on the
outstanding bond as provided in clause (i) above.
6.18 Kaco Partnership. Before the last day of the Feasibility Period, Buyer
shall deliver written notice to the Selling Parties disclosing whether Buyer
wishes to be assigned the interests of the Selling Parties in the Kaco
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Partnership and the profit participation agreement. If Buyer notifies the
Selling Parties that it does wish to be assigned such interests, then the
Selling Parties shall take all reasonable steps necessary to restructure or
amend the Kaco Partnership and the profit participation agreement such that at
the Closing, Buyer shall be substituted for the Selling Parties in such
partnership and the profit participation agreement with all of the rights,
interests and obligations of the Selling Parties in such partnership and the
profit participation agreement; provided, however, that the failure of the
Selling Parties to restructure or amend the Kaco Partnership and the profit
participation agreement (after using all of their reasonable efforts) so as to
permit the substitution of Buyer shall not constitute a default under this
Agreement or excuse Buyer from any obligation hereunder other than its
obligation to purchase the Selling Parties' interest in the Kaco Partnership
and the profit participation agreement.
6.19 Illinois Income Tax Withholding. At least five days prior to the
Closing Date, the Selling Parties shall deliver to Buyer evidence that the
sale of the Assets to Buyer is not subject to, and does not subject Buyer to
liability under 35 ILCS 5/902 or 35 ILCS 120/5j (the "Act") and that at least
fifteen (15) days prior to the Closing, the Selling Parties shall have
notified the Illinois Department of Revenue (the "Department") of the intended
sale of the Assets pursuant to this Agreement and requested that the
Department make a determination as to whether the Selling Parties have an
assessed, but unpaid, amount of tax, penalties, or interest under the Act. The
Selling Parties agree that, unless the Selling Parties deliver to Buyer a
waiver from the Illinois Department of Revenue, Buyer may, at the Closing,
deduct and withhold from the proceeds that are due to the Selling Parties the
amount necessary to comply with the withholding requirements imposed by the
Act. Buyer shall deposit the amount so withheld in a separate escrow with
TICOR Title Insurance Company pursuant to the terms and conditions acceptable
to Buyer and the Selling Parties, but in any event, complying with the Act.
6.20 Compliance with Illinois Responsible Transfer Act of 1988.
(i) Within thirty (30) days after the Effective Date, Buyer shall
deliver to the Selling Parties either (a) an affidavit (the "Affidavit") by
which the Selling Parties shall represent and warrant to Buyer that neither
the Assets nor the transfer of the Assets as set forth in this Agreement is
subject to the Illinois Responsible Property Transfer Act of 1988, 765 ILCS
90/5 ("RPTA") or (b) a fully completed and executed RPTA disclosure form
for each Asset as required by RPTA (the "Disclosure Document"). Nothing
contained in this Section 6.20 shall limit any obligation of the Selling
Parties or any right of Buyer pursuant to RPTA.
(ii) At the Closing, if appropriate, the Disclosure Document shall be
recorded (along with the applicable deeds) in the applicable recorders'
offices, and Buyer shall file a copy of such deeds with the Environmental
Protection Agency not later than thirty (30) days after the Closing. The
Selling Parties shall pay all charges and take all responsibility with
respect to the recording and filing of the Disclosure Document.
6.21 Design Center. Buyer shall allow the Selling Parties non-exclusive use
of the Design Center located at 150 West Center Court, Schaumburg, Illinois on
terms and conditions satisfactory to Buyer in its sole and absolute
discretion.
6.22 Work-in Progress. The parties acknowledge that at the Closing, Buyer
will pay to the Selling Parties as a portion of the Purchase Price an amount
representing work-in-progress on the Assets (see Schedule 1.3(b)(iv)) for
which an invoice has been delivered to the Selling Parties up to and including
the date of the Pre-Closing Balance Sheet (the "Closing Invoices").
Thereafter, pursuant to Section 1.7(v) of this Agreement, Buyer will pay all
amounts due under new invoices delivered to the Selling Parties and Buyer
after the date of the Pre-Closing Balance Sheet for work-in-progress on the
Assets (the "Post-Closing Invoices"). In order to facilitate the payment of
the Post-Closing Invoices, the Selling Parties hereby agree to deliver to
Buyer no later than the tenth (10) Business Day after the Closing Date and
again thereafter every tenth (10) Business Day (until such time as the Selling
Parties no longer receive Post-Closing Invoices), the Post-Closing Invoices.
Furthermore, the Selling Parties acknowledge that they are solely responsible
for the payment to the vendors of the Closing Invoices and agree to timely pay
all Closing Invoices.
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6.23 Warranty and Winter Work Agreement. The parties shall enter into a
Warranty and Winter Work Agreement pursuant to which Buyer shall, at the
Company's sole expense, (i) perform warranty work with a direct cost in excess
of One Thousand Dollars ($1,000) per residential home or an average of Three
Hundred Dollars ($300) per residential home, (ii) complete punch list work on
certain residential homes sold by the Selling Parties in the preceding twelve
(12) months and (iii) perform Winter Work on certain residential homes sold by
the Selling Parties in the preceding twelve (12) months.
6.24 Fairness Opinion. Within two (2) Business Days following the Effective
Date, the Company shall request from an investment banking firm or other
financial advisor an opinion that the transactions contemplated by the
Agreement are fair to the common shareholders of the Company (a "Fairness
Opinion").
6.25 Assignment of Remedies Against Subcontractors. If any of the Selling
Parties breaches the representation and warranty set forth in Section
3.12(xviii) with respect to any Housing Property or Improvement, then Buyer
shall first exhaust any contingency reserves related to such Housing Property
or Improvement contained in the applicable cost-to-complete budget referenced
on Exhibit A to Schedule 1.3, if any, and use its reasonable efforts to
enforce any legal remedies available to Buyer against any subcontractors
responsible for such breach before exercising its indemnification rights under
Section 11.1 against the Selling Parties. If, however, in any particular
situation Buyer elects not to pursue a subcontractor or subcontractors because
Buyer is unable to enforce any legal remedies it may have against the
subcontractors responsible for the breach, or concludes that recovery from the
subcontractor(s) will be slow or unlikely, Buyer's indemnification rights
against the Selling Parties will not be prejudiced but Buyer shall assign any
rights it may have to collect such losses from any such subcontractors to the
Selling Parties.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SELLING PARTIES
The obligations of the Selling Parties to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment on or
before the Closing Date of each of the following conditions:
7.1 Covenants and Agreements Performed. Buyer shall have performed and
complied with in all material respects all covenants and agreements required
by this Agreement to be performed or complied with by it on or before the
Closing Date and the Selling Parties shall have received the certification of
Buyer to such effect.
7.2 Representations and Warranties True. The representations and warranties
of Buyer contained in this Agreement, and in any agreement, instrument, or
document delivered pursuant hereto or in connection herewith on or before the
Closing Date shall be true and correct in all material respects on and as of
the Closing Date with the same force and effect as if such representations and
warranties had been made on and as of the Closing Date. The President or any
Vice President of the managing general partner of Buyer shall certify at
Closing that all such representations and warranties are true on and as of the
Closing Date.
7.3 Reserved.
7.4 Reserved.
7.5 Board of Directors of Each Selling Party and Shareholder Approval. The
Company shall have received the necessary shareholder approval of this
Agreement and the transactions contemplated by this Agreement. In addition,
the Board of Directors of the Company shall have approved this Agreement and
the transactions contemplated by this Agreement no later than six days after
the Effective Date which approval may be conditioned on the receipt of a
fairness opinion; provided, however, that if the Board of Directors of the
Company shall not have approved this Agreement and the transactions
contemplated by this Agreement within the proscribed six day period, such
approval shall no longer be a condition to closing.
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ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment on or before the Closing
Date of each of the following conditions:
8.1 Feasibility Period. During the Feasibility Period, Buyer shall not have
become aware of any facts relating to the Business or Assets, or prospects of
the Business or Assets which, in Buyer's sole discretion, makes it inadvisable
for Buyer to proceed with the consummation of the transactions contemplated by
this Agreement.
8.2 Covenants and Agreements Performed. The Selling Parties shall have
performed or complied with in all material respects, all covenants and
agreements required by this Agreement to be performed or complied with by them
on or before the Closing Date and Buyer shall have received the certificate of
the Selling Parties to such effect.
8.3 Default. The Selling Parties shall not be in default in any material
respect under this Agreement and no event shall have occurred which, with
notice or lapse of time or both, will constitute such a default under this
Agreement, and Buyer shall have received the certificate of the Selling
Parties to such effect.
8.4 Representations and Warranties True. The representations and warranties
of the Selling Parties contained in this Agreement, and in any agreement,
instrument, or document delivered pursuant hereto or in connection herewith on
or before the Closing Date, shall be true and correct in all material respects
on and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date,
except for changes resulting from the Selling Parties having done business in
the ordinary course. Buyer shall have received the certificate of the Selling
Parties at Closing that all such representations and warranties are true on
and as of the Closing Date, except for changes resulting from the Selling
Parties having done business in the ordinary course (for example, the closing
of the sale of homes pursuant to Sales Contracts listed on Schedule 3.12(iii))
and except for other changes as may be listed on an exhibit to such
certificate; provided, however, that this procedure for the listing of
extraordinary changes does not constitute the waiver by Buyer of any condition
to Buyer's obligation to close the transactions contemplated by this
Agreement.
8.5 No Material Adverse Change. Subsequent to the Effective Date and prior
to the Closing Date, there shall have been no material adverse change in the
Business, Assets or Gross Profit Margin (calculated as defined in Schedule
1.3) of the backlog of sold but unclosed homes of the Selling Parties that has
an impact on the value of the Business, Assets or backlog, as the case may be,
that exceeds the Termination Threshold, and Buyer shall also receive the
certificate of the Selling Parties to such effect; provided, however, if a
casualty loss has occurred with respect to the Assets, then Buyer shall
consider the availability of insurance related to such casualty in determining
whether the casualty is a material adverse change that has an impact on the
value of the Business, Assets or backlog, as the case may be, exceeds the
Termination Threshold.
8.6 Consents. Except for consents that the Selling Parties cannot obtain
and the delivery of which Buyer has agreed in writing to waive, all consents
or approvals of any third party set forth on Schedule 3.7 shall have been
given, including (without limitation) any necessary consents to the assignment
of the Intellectual Property, and shall be in full force and effect at the
time of Closing.
8.7 RPTA. The Selling Parties shall have delivered the Disclosure Document
or Buyer shall have determined that RPTA is applicable, notwithstanding the
Selling Parties' delivery of the Affidavit.
8.8 Closing Deliveries. The Selling Parties shall have delivered all of the
documents required by this Agreement to be delivered by it on or prior to the
Closing Date.
8.9 Litigation. No Proceeding before any federal or state court or other
Government Authority shall be instituted or threatened which, in the
reasonable judgment of Buyer, shall have the effect or be expected to have
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the effect of (i) making illegal, impeding or otherwise restraining or
prohibiting any of the transactions contemplated by this Agreement, (ii)
resulting in the payment of damages in excess of Five Hundred Thousand Dollars
($500,000) by the Selling Parties or Buyer as a result of or in connection
with the transactions contemplated by this Agreement, (iii) imposing any
material limitations on the ownership or operation by Buyer of any substantial
portion of the Assets, or compelling Buyer or the Selling Parties to dispose
of or hold separate any substantial portion of the Assets, as a result of or
in connection within any such transactions or (iv) imposing any material
limitations on the ability of Buyer to exercise full rights of ownership with
respect to the Assets or compelling Buyer to dispose of any of the Assets.
8.10 Environmental Audit. Buyer shall have received, at Buyer's expense, an
environmental review report on those properties reasonably identified to the
Selling Parties by Buyer during the Feasibility Period and acceptable in scope
and content, and from a person satisfactory to Buyer, as to the absence of any
evidence of material noncompliance with, or reclamation or remediation
obligations under, applicable Environmental Laws that could materially affect
the Assets.
8.11 Reserved.
8.12 Board of Directors of Each of the Selling Parties and Shareholder
Approval. The Selling Parties shall have received the necessary shareholder
approval of this Agreement and the transactions contemplated by this
Agreement. In addition, the Board of Directors of the Company shall have
approved this Agreement and the transactions contemplated by this Agreement no
later than six days after the Effective Date which approval may be conditioned
on the receipt of a fairness opinion.
ARTICLE IX
TERMINATION
9.1 Termination. At any time before Closing (except where a shorter time
period is indicated below), this Agreement may be terminated:
(i) By mutual written consent of the parties hereto;
(ii) By either Buyer or the Company, provided that the party terminating
has diligently and in good faith performed or complied in all material
respects with the agreements and covenants required to be performed by it
hereunder, if any federal or state court or other Governmental Authority
shall have issued an order, writ, injunction, judgment or decree which
shall have the effect of making illegal, impeding or otherwise restraining
or prohibiting any of the transactions contemplated by this Agreement and
such order, writ, injunction, judgment or decree shall have become final
and nonappealable or any material Proceeding shall have been instituted,
and not dismissed, or threatened by any creditor of any of the Selling
Parties against any of the Assets (other than the filing of a mechanic's
lien against any of the Assets against which Buyer will receive adequate
title insurance coverage at the Closing);
(iii) By Buyer if:
(a) Buyer shall have determined, in its reasonable discretion, that
the condition set forth in Section 8.12 hereof is unlikely to be
fulfilled within a reasonable period of time; provided, however, that
Buyer shall only be entitled to terminate this Agreement pursuant to
this clause (a) if it delivers a written notice of termination to the
Company before the Closing Date but subsequent to the later of that
date which is (x) forty (40) days following the commencement of the
solicitation of approval of this Agreement by the Company from its
shareholders, all in accordance with the Securities and Exchange
Commission rules and regulations or (y) thirty (30) days following the
date of the commencement of resolicitation of such shareholders by the
Company, again in accordance with the rules and regulation of the
Securities and Exchange Commission, and the Company has not satisfied
Section 8.12 before delivery of such notice;
(b) Reserved.
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(c) the shareholders of the Company shall not have approved this
Agreement and the transactions contemplated by this Agreement or the
Closing shall not have occurred on or before June 30, 1999 for any
reason;
(d) ten (10) calendar days shall have elapsed after the delivery by
the Company of an Overbid Notice to Buyer, unless the Company shall
have notified Buyer in writing before such time that it has irrevocably
determined not to participate in any further discussions or
negotiations with any Third Party with respect to the Acquisition
Proposal that was the subject of such notice;
(e) any of the Selling Parties shall have become a proponent, co-
proponent or the subject of any voluntary or involuntary plan of
reorganization under the Bankruptcy Code;
(f) there shall have been any violation or breach on the part of the
Selling Parties of any covenant or agreement contained in Section 6.3
hereof, and such violation or breach has not been waived by Buyer;
(g) there shall have been any violation or breach on the part of the
Selling Parties of any covenant or agreement contained in Article III
hereof or Sections 6.1 or 6.5 hereof which shall not have been cured
within five days after receipt of notice of such violation or breach
from Buyer;
(h) there shall have been any material violation or breach by any of
the Selling Parties of any covenant or agreement (other than the
covenants and agreements referred to in Sections 9.1(iii)(f) and (g)
above) contained in this Agreement which shall not have been cured
within twenty (20) days after receipt of notice of such violation or
breach from Buyer;
(i) there shall have been any violation or breach by any of the
Selling Parties of any representation or warranty contained in this
Agreement or a Proceeding shall have been instituted or threatened,
which in the reasonable judgment of Buyer, has resulted or is
reasonably expected to result in any claims by Buyer or against the
Assets or the Business in an aggregate amount exceeding the Termination
Threshold (as defined below) (it being understood and agreed that for
purposes of this clause all such representations and warranties shall
be construed as if they were not qualified in any manner as to
knowledge or materiality);
(j) Buyer determines during the Feasibility Period, in its sole
discretion, that it is not in its best interest to complete the
transactions set forth in this Agreement and provides to the Selling
Parties the required notice;
Provided, however, that, in the case of any termination pursuant to Section
9.1(iii)(c), (f), (g), (h) or (i) above, Buyer has diligently and in good
faith performed or complied in all material respects with the agreements and
covenants required to be performed by it hereunder.
(iv) By the Selling Parties if:
(a) All of the Overbid Termination Conditions shall have been
satisfied;
(b) There shall have been any material violation or breach by Buyer
of any covenant or agreement contained in this Agreement which shall
not have been cured within twenty (20) days after receipt of notice of
such violation or breach from the Company;
(c) There shall have been any violation or breach by Buyer of any
representation or warranty contained in this Agreement which, in the
reasonable judgment of the Company, has resulted or is reasonably
expected to cause the Selling Parties to incur or be subject to claims
or liabilities in an aggregate amount exceeding the Termination
Threshold (it being understood and agreed that for purposes of this
clause (c) all such representations and warranties shall be construed
as if they were not qualified in any manner as to knowledge or
materiality);
(d) Notwithstanding good faith efforts on the part of the Selling
Parties, Section 8.12 of this Agreement is not satisfied as of June 30,
1999;
(e) The Closing shall not have occurred on or before July 30, 1999
for any reason;
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(f) The Company shall have requested and not received a Fairness
Opinion. This termination right expires twelve (12) days after the
Effective Date.
provided, however, that, in the case of any termination pursuant to
Sections 9.1(iv)(b), (c), (d) or (e) above, the Selling Parties have
diligently and in good faith performed or complied in all material respects
with the agreements and covenants required to be performed by them
hereunder.
9.2 Effect of Termination.
(i) In the event of the termination of this Agreement pursuant to
Section 9.1 by Buyer, on the one hand, or the Selling Parties, on the
other, written notice thereof shall forthwith be given to the other party
specifying the provision of this Agreement pursuant to which such
termination is made and describing the facts or circumstances supporting
such termination, and, except as provided in this Section 9.2, this
Agreement shall become void and have no effect, except that the agreements
contained in this Section 9.2, in Article X and in Sections 6.7, 6.8, 6.9
and 6.11 hereof shall survive any termination of this Agreement.
(ii) Nothing contained in this Section 9.2 shall relieve any party from
liability for damages incurred as a result of any breach of this Agreement.
Each of the Selling Parties and Buyer hereby stipulate that the Business is
a unique business opportunity. Therefore, for that and other reasons, the
remedy of specific performance of the Selling Parties' obligations under
this Agreement is hereby expressly granted to Buyer by the Selling Parties.
If the Selling Parties fail or refuse to consummate the transaction
contemplated by this Agreement, other than as a result of termination by
mutual written consent under Section 9.1(i) hereof, by either party under
Section 9.1(ii), by Buyer under Section 9.1(iii) or by the Selling Parties
pursuant to Section 9.1(iv) hereof, then Buyer shall have the right to
bring an action in a court of proper jurisdiction to compel the Selling
Parties to specifically perform the transaction contemplated by this
Agreement in accordance with the terms set forth in this Agreement. The
Selling Parties' sole remedy against Buyer shall be a claim against Buyer
for liquidation damages in an amount not to exceed the Earnest Money
Deposit as set forth in Article X hereof.
ARTICLE X
TERMINATION PAYMENTS
10.1 Termination Fee Deposit. (a) Within five (5) Business Days of the
execution of this Agreement (i) the Company shall deliver a promissory note
payable to the order of Buyer in the form attached hereto as Exhibit H in the
aggregate principal amount of One Million Five Hundred Thousand Dollars
($1,500,000) (the "Termination Fee Note") to Buyer. If this Agreement is
terminated (whether automatically or by Buyer or any of the Selling Parties)
for any reason, the Termination Fee Note shall be handled, as follows:
(i) kept by Buyer, if this Agreement is terminated (whether
automatically or by Buyer or any of the Selling Parties) for any reason
other than as specified in clause (ii) below; or
(ii) returned to the Selling Parties, if this Agreement is terminated by
mutual written consent under Section 9.1(i) hereof, by either party under
Section 9.1(ii), by Buyer under Section 9.1(iii) or by the Selling Parties
pursuant to Section 9.1(iv)(b), (c), (d), (e) or (f) hereof.
(b) Within two Business Days after the execution of this Agreement, Buyer
and Maurice Sanderman shall enter into the Performance Guaranty Agreement
attached hereto as Exhibit I, pursuant to which Maurice Sanderman will
guarantee that either (i) any Qualified Third Party whose Acquisition Proposal
is accepted will fund the payment of the Termination Fee Note on behalf of the
Company or (ii) the Company will fund the payment of the Termination Fee Note.
10.2 Delivery of Earnest Money Deposit. If this Agreement is terminated for
any reason, the parties shall take all action necessary in order to cause the
Escrow Agent promptly to deliver the Earnest Money Deposit as follows:
(i) to Buyer, if this Agreement is terminated (whether automatically or
by Buyer or any of the Selling Parties) for any reason other than as
specified in clause (ii) below; or
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(ii) to the Selling Parties, if this Agreement is terminated by the
Selling Parties pursuant to Section 9.1(iv)(b) or (c) hereof, and payment
of the Earnest Money Deposit to the Selling Parties will constitute the
payment of liquidated damages as the Selling Parties' sole and exclusive
remedy under such circumstances; provided, however, that in the event that
the Selling Parties terminate this Agreement pursuant to Section
9.1(iv)(c), they shall only be entitled to actual damages up to but not
exceeding the Earnest Money Deposit and the balance of the Earnest Money
Deposit, if any, shall be promptly delivered to Buyer.
10.3 Judicial Enforcement. If Buyer or any of the Selling Parties is
required for any reason to seek judicial enforcement of any of the obligations
of the other party hereto under this Article X, such other party shall pay to,
or reimburse such party for, all costs and expenses (including fees and
disbursements of counsel) that are incurred by such party in enforcing the
provisions of this Article X.
Any amounts paid pursuant to this Article X shall be paid without set-off
or deduction.
ARTICLE XI
INDEMNIFICATION
11.1 Indemnification by the Selling Parties. The Selling Parties shall
defend at their cost, indemnify and hold harmless Buyer, its Affiliates and
their respective shareholders, directors, officers, employees, agents and
representatives from any and all liabilities (except the Assumed Liabilities),
obligations, claims (including third party claims), contingencies, damages,
losses, fines, penalties, interest, costs and expenses (including all court
costs, costs of investigation and reasonable attorneys' fees) (collectively,
"Losses") that Buyer or any such person may suffer or incur as a result of or
relating to:
(i) The breach or inaccuracy of any of the representations, warranties,
covenants or agreements made by any of the Selling Parties herein,
including, without limitation, the representations and warranties relating
to the physical condition of the Assets;
(ii) Any transaction, activity, liability or obligation, except for the
Assumed Liabilities and except to the extent such transaction, activity,
liability or obligation relates to the physical condition of the Assets for
which the Selling Parties have made representations and warranties (and as
to which indemnification is provided pursuant to Section 11.1(i) above), of
any of the Selling Parties that occurs or arises out of actions or events
occurring before the Closing Date, including, without limitation, the
claims and litigation set forth on Schedule 3.15;
(iii) Any and all Taxes arising out of the transactions contemplated by
this Agreement, except as expressly provided otherwise in this Agreement;
(iv) Any earnest money deposit paid by a Selling Party to the seller of
real property (and not placed in escrow), before the Closing Date, under a
contract for the purchase of the real property relating to the Business,
that is not returned to the Buyer because such seller wrongfully withholds
such deposit and refuses to return it to the Buyer in violation of the
terms of the purchase contract;
(v) Any violation of the Bulk Sales Laws of the State of Illinois or any
other similar state laws to which the Assets are subject; or
(vi) An adjustment of the Purchase Price as determined in accordance
with Schedule 1.3 that results in an additional amount owing by the Selling
Parties to Buyer because of an overpayment to the Selling Parties of the
Purchase Price paid to the Selling Parties at the Closing that is not
timely paid as provided in Schedule 1.3.
11.2 Indemnification by Buyer. Except as otherwise provided in this
Agreement, Buyer shall defend at its cost, indemnify and hold harmless the
Selling Parties and their Affiliates, and their respective shareholders,
directors, officers, employees, agents and representatives from any and all
Losses that the Selling Parties or any such person may suffer or incur as a
result of or relating to:
(i) the breach or inaccuracy of any of the representations, warranties,
covenants or agreements made by Buyer herein including, without limitation,
Buyer's agreement to assume responsbility for the Assumed Liabilities; and
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(ii) any transaction, activity, liability or obligation relating to the
Assets arising after the Closing Date, excluding however any liability,
cost or expense incurred by the Selling Parties as a result of actions
taken by Buyer or the Selling Parties to enforce their rights under this
Agreement.
For purposes of this Article XI, the party(ies) seeking indemnification
pursuant to this Article XI shall be referred to as "Indemnitee" and the
party(ies) from whom Indemnitee seeks indemnification shall be referred to as
"Indemnitor."
11.3 Third-Party Claims. If any claim for indemnification by the Indemnitee
arises out of a third-party claim (i.e., out of a claim made by or an action of
a person or entity other than Indemnitee), the Indemnitor may, by written
notice to Indemnitee, undertake to conduct the defense thereof and to take all
other steps or proceedings to defeat or compromise any such action or claim,
including the employment of counsel reasonably satisfactory to Indemnitee;
provided that Indemnitor shall reasonably consider the advice of Indemnitee as
to the defense or compromise of such actions and claims, and Indemnitee shall
have the right to participate in such proceedings (at the sole cost and expense
of Indemnitee), but control of such proceedings shall remain exclusively with
Indemnitor. Indemnitee shall provide all reasonable cooperation to Indemnitor
in connection with such proceedings. Counsel and auditor costs and expenses and
court costs and fees of all proceedings with respect to any such action or
claim shall be borne by Indemnitor. If any such claim is made hereunder and
Indemnitor does not elect to undertake the defense thereof by written notice to
Indemnitee, then Indemnitee shall be entitled to control such proceedings and
shall be entitled to indemnity with respect thereto pursuant to the terms of
Section 11.3 of this Agreement. If the Indemnitor shall assume the defense of
such claim, it shall not settle such claim unless such settlement includes as
an unconditional term thereof the giving by the claimant or the plaintiff of a
release of the Indemnitee, satisfactory to the Indemnitee, from all liability
with respect to such claim.
11.4 Notice. Within fifteen (15) days after notice of any action, receipt of
any claim in writing or similar form of actual notice of any claim as to which
it asserts a right to indemnification, Indemnitee shall notify the Indemnitor.
The failure of Indemnitee to give the notification to Indemnitor shall not
relieve Indemnitor from any liability or obligation that it may have pursuant
to this Agreement unless the failure to give such notice within such time shall
have been materially damaging or prejudicial to Indemnitor, and in no event
shall the failure to give such notification relieve Indemnitor from any
liability it may have other than pursuant to this Agreement.
11.5 Right of Set Off. Buyer shall be entitled to setoff or recoupment as
set forth in this Section 11.5.
(i) Liquidated Losses; Set Off. Subject to the Selling Parties' right to
object to any set off or recoupment of any Loss as provided below, Buyer
shall be entitled to set off or recoup any Loss (a "Liquidated Loss") that
has been actually incurred by or imposed upon Buyer or any other entity or
person entitled to indemnification pursuant to Section 11.1 herein (a
"Buyer Indemnitee") against the Holdback (a "Set Off") as provided in
Section 1.4 of this Agreement. Before or concurrently with each exercise by
Buyer of its right of Set Off, Buyer shall deliver a written notice to the
Selling Parties (the "Set Off Notice"), which notice shall set forth the
amount of the Liquidated Loss, together with a reasonably detailed
statement of the circumstances under which such Liquidated Loss was
incurred by or imposed upon the applicable Buyer Indemnitee and the total
of all Liquidated Losses that have been Set Off by Buyer through the date
of the Set Off Notice.
(ii) Unliquidated Losses; Set Off Reserves.
(a) Establishment of Set Off Reserves. Subject to the Selling
Parties' right to object to any set off or recoupment of any Loss as
provided below, at any time before the second anniversary of the
Closing Date, if and to the extent that Buyer reasonably determines
that it is reasonably likely that any Loss that has not yet become a
Liquidated Loss (an "Unliquidated Loss") will be incurred by or imposed
upon a Buyer Indemnitee at any time in the future with respect to any
claim that has arisen, Buyer shall be entitled to establish a
reasonable reserve (a "Set Off Reserve") against the Holdback in
respect of such Unliquidated Loss. Buyer shall take into consideration
the availability of insurance coverage for any Unliquidated Loss in
establishing any Set Off Reserve.
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(b) Set Off Reserve Notice. Before or concurrently with the
establishment of a Set Off Reserve, Buyer shall deliver a written
notice to the Selling Parties (the "Set Off Reserve Notice"), which
notice shall set forth the amount of the Unliquidated Loss, together
with a reasonably detailed statement of the basis for Buyer's
determination that such Unliquidated Loss is reasonably likely to be
incurred by or imposed upon the applicable Buyer Indemnitee and the
total of all Unliquidated Losses that have been reserved by Buyer
through the date of the Set Off Reserve Notice.
(c) Suspension of Obligations. The obligation of Buyer to pay the
Holdback to the Selling Parties shall be suspended (but not the accrual
of interest) to the extent of the aggregate amount of Set Off Reserves
not settled pursuant to Section 11.5(ii)(f) hereof at the time of such
payment.
(d) Settlement of Set Off Reserves. If at any time it is determined
(either pursuant to the dispute resolution procedures set forth in
Section 11.5(ii)(e) and (f) hereof, or as a result of a judicial
determination of the Final Loss Amount (as defined below) that any Set
Off Reserve exceeds the aggregate amount of the Losses ultimately
incurred by or imposed upon Buyer Indemnitees as a result of or based
upon the events or conditions to which the Set Off Reserve relates (the
"Final Loss Amount"), the amount of such Set Off Reserve in excess of
such Final Loss Amount shall be retained by Buyer, or if the Holdback
period shall have terminated, shall be returned to the Selling Parties.
(e) Objection Procedure. If a Selling Party disputes any exercise by
Buyer of its right to make a Set Off or a Set Off Reserve, then such
Selling Party shall deliver a written notice to Buyer ("Objection
Notice") on or before ten (10) days following receipt of a Set Off
Notice or a Set Off Reserve Notice. Any Objection Notice delivered
after such ten (10) day period shall be null, void and without effect.
The Objection Notice shall state the portion of the applicable Loss to
which such Selling Party objects and a reasonably detailed description
of the basis of such objection. Such Selling Party and Buyer shall
negotiate in good faith to resolve any dispute with respect to the
matters set forth in the Objection Notice for a period of twenty (20)
days following receipt of such Objection Notice by Buyer.
(f) Arbitration. If such Selling Party and Buyer are not able to
resolve any dispute set forth in an Objection Notice on a mutually
acceptable basis during the dispute resolution period provided above,
either Buyer or such Selling Party may submit the dispute described in
such Objection Notice to the American Arbitration Association for
arbitration under the commercial arbitration rules of that institution
within twenty (20) days following the expiration of the dispute
resolution period provided above. The arbitration will be conducted in
Chicago, Illinois and the finding of the arbitrators will be binding on
all parties for all purposes.
The cost of arbitration will be borne fifty-percent (50%) by the Selling
Parties and fifty-percent (50%) by Buyer unless otherwise determined by the
arbitrator. At any time after ten (10) days following the issuance of the final
arbitration ruling, the party entitled to an award in said proceeding may, at
its election and at the expense of the non-prevailing party, provide for the
entry of the award for enforcement purposes in any court of competent
jurisdiction.
It is the intent of the parties that the arbitration procedure set forth
herein shall be the sole and exclusive remedy available to resolve any
disputes arising under Section 11.5 hereof that cannot be resolved pursuant
to Section 11.5(ii)(e) hereof, and neither Buyer nor any Selling Party
shall have any right to file a lawsuit in connection with any dispute
arising under Section 11.5 hereof except for claims based on fraud or
intentional misrepresentation or to enforce the arbitration decision.
11.6 Good Faith Exercise; No Breach. Buyer shall act in good faith in the
exercise of its rights under Section 11.5 hereof. It is expressly agreed that
the exercise in good faith by Buyer of the right to Set Off and to make Set Off
Reserves and the other rights and remedies granted to it pursuant to Section
11.5 hereof shall in no event be deemed to constitute or give rise to a
violation or breach of, or a default under, this Agreement.
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11.7 Indemnity Basket and Maximum Recovery.
(i) Except for claims based on fraud, Indemnitee shall not have any
rights of indemnification, set off or recoupment under this Agreement
against the other party for breaches of representations or warranties until
the aggregate amount of all Losses subject to indemnification, set off or
recoupment for such claims shall exceed a Fifty Thousand Dollar ($50,000)
threshold (the "Basket"). After the aggregate amount of all such Losses
exceeds the Basket, indemnification shall be paid for the full amount of
all Losses from and relating back to the first dollar of Loss without
regard to the Basket (and without deduction for tax benefits). With respect
to claims for indemnification asserted by Buyer, Buyer will first assert
such claims as rights of setoff against the Holdback and only after the
entire Holdback has been paid out or claimed (either through Liquidation
Losses or Setoff Reserves) will Buyer make claims for indemnification
unrelated to the Holdback. Both types of claims those made against the
Holdback and those made otherwise, will count toward the limits on
indemnification described in Section 11.7 (ii) below.
(ii) Except for claims based on fraud, the maximum amount of claims for
indemnification which may be made by Indemnitee for breaches of
representations or warranties shall not exceed (a) Four Million Dollars
($4,000,000) for the period beginning as of the Closing Date and ending on
the date that is one year after the Closing Date, (b) the lesser of (i)
Three Million Dollars ($3,000,000) or (ii) $4,000,000 less the sum of all
amounts that have been paid (or are unpaid, but still subject to claims
from the previous year) during the period beginning one year and one day
after the Closing Date and ending on the date that is two years after the
Closing Date; and (c) the lesser of (i) Two Million Dollars ($2,000,000) or
(ii) $4,000,000 less the sum of all amounts claimed in the previous two (2)
years during the period beginning two years and one day after the Closing
Date and ending on the date that is three years after the Closing Date.
(iii) The indemnification provided for in this Article XI shall be
subject to the limitations that Indemnitor shall not be obligated to pay
any amount for indemnification hereunder relating to a claim to the extent
of any indemnity, insurance, contribution or similar payment paid to the
Indemnitee from any third party with respect thereto (excluding the cost of
such insurance coverage to and the deductible paid by the Indemnitee).
ARTICLE XII
SURVIVAL
12.1 Survival of Representations and Warranties. The representations and
warranties of the parties to this Agreement contained in this Agreement, or in
any certificate, instrument or document delivered pursuant to this Agreement,
shall survive the Closing, regardless of any investigation made by or on
behalf of any party to this Agreement until the third anniversary of the
Closing Date (such anniversary, a "Survival Date"). The above time limitations
shall not apply to instances of fraud, intentional misrepresentations or
breaches of representations and warranties set forth in Sections 3.16 and
3.28, which shall survive the Closing, regardless of any investigation made by
or on behalf of any party to this Agreement until the expiration of the
limitation period under the applicable statute of limitations.
12.2 Survival of Agreements and Covenants. Except as expressly set forth in
Section 12.1, the parties' obligations to perform their respective agreements
and covenants set forth in this Agreement shall not be limited or
extinguished.
ARTICLE XIII
MISCELLANEOUS
13.1 Predecessors Included. Each representation, warranty, covenant and
indemnification made by the Selling Parties that relates or could relate to
the conduct of any predecessor of the Selling Parties that is or was an
Affiliate of the Selling Parties, or relates or could relate to a time during
which the Selling Parties did not
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exist but such predecessors did, is made by the Selling Parties not just on its
own behalf but also on behalf of each such predecessor and as if the Selling
Parties were in existence at such time.
13.2 Notices. Any notice, request, instructions or other document to be
given hereunder to any party shall be in writing delivered personally or sent
by mail, facsimile or bonded air courier, confirmed in writing, as follows:
If to the Selling Parties: Sundance Homes, Inc.
30 East Lake Street, Suite
Chicago, Illinois
Attention: Maurice Sanderman
Telephone: (312) 782-7100
Facsimile: (312) 793-9933
With copy to:Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attention: Gerald Penner, Esq.
Telephone: (312) 902-5245
Facsimile: (312) 577-8863
If to Buyer:Centex Homes
12400 Whitewater Dr., Suite 120
Minnetonka, Minnesota 55343
Attention: Tom Boyce
Telephone: (612) 988-8230
Facsimile: (612) 936-0486
With copy to:
Centex Homes
12400 Whitewater Dr., Suite 120
Minnetonka, Minnesota 55343
Attention: Tim Hoyt
Telephone: (612) 988-8234
Facsimile: (612) 936-0486
and to: Brian J. Woram
Centex Homes
2728 N. Harwood, 8th Floor
Dallas, Texas 75201
Telephone: (214) 981-6544
Facsimile: (214) 981-6002
Any party may change its address for purposes of this Article XIII by giving
notice of such change of address to the other party in the manner herein
provided for giving notice. Any notice to be given or served upon any party
hereto in connection with this contract must be in writing, and shall be
delivered in person to the other party, shall be given by certified mail,
return receipt requested, shall be given by facsimile or shall be given by
bonded air courier and shall be deemed to have been given when received by the
addressee; provided, however, that notice delivered by facsimile mail with the
original sent by overnight delivery shall be deemed to have been received on
the day it is faxed to the addressee.
13.3 Bulk Sales Law. The Selling Parties hereby agrees to indemnify Buyer
from any liability which may arise by virtue of the failure of the Selling
Parties to comply with any of the provisions of the Bulk Sales Law of the State
of Illinois or any other similar state laws.
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13.4 No Obligation of Buyer Before the Closing. Notwithstanding anything
contained in this Agreement or any other instrument or agreement to the
contrary, in no event shall Buyer have any obligation or liability of any kind
or character whatsoever with respect to the Assumed Liabilities or the Assets
before the Closing hereunder, except only the obligation to purchase the Assets
in accordance with the terms and provisions of this Agreement. Following the
Closing, Buyer will have all obligations and liabilities with respect to the
Assumed Liabilities and Assets as are contemplated under this Agreement.
13.5 Entire Agreement. This Agreement, together with the Schedules, Exhibits
and other writings delivered pursuant to this Agreement, constitute the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement. This
Agreement may not be amended except by an instrument in writing executed by all
the parties hereto.
13.6 Binding Effect; Assignment; No Third Party Benefit. This Agreement
shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns; provided, however, that neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties (by operation of law or otherwise) without
the prior written consent of the other parties, except that Buyer may assign
this Agreement and all of its rights, interests, and obligations under this
Agreement to an Affiliate upon notice to the Company, provided that Buyer shall
remain liable under this Agreement if such Affiliate fails to perform its
obligations under this Agreement as so assigned.
13.7 Reserved.
13.8 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Illinois without
references to the choice of laws principles of the State of Illinois.
13.9 Descriptive Headings. The descriptive headings in this Agreement are
inserted for convenience of reference only, do not constitute a part of this
Agreement and shall not affect in any manner the meaning or interpretation of
this Agreement.
13.10 Gender. Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
13.11 References. All references in this Agreement to Articles, Sections and
other subdivisions refer to the Articles, Sections and other subdivisions of
this Agreement unless expressly provided otherwise. The words "this Agreement",
"herein", "hereof", "hereby", "hereunder" and words of similar import refer to
this Agreement as a whole and not to any particular subdivision unless
expressly so limited. Whenever the words "include", "includes" and "including"
are used in this Agreement, such words shall be deemed to be followed by the
words "without limitation". Each reference in this Agreement to a Schedule or
Exhibit refers to the item identified separately in writing by the parties as
the described Schedule or Exhibit to this Agreement. All Schedules and Exhibits
are hereby incorporated in and made a part of this Agreement as if set forth in
full in this Agreement.
13.12 Counterparts. This Agreement may be executed by the parties in any
number of counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same agreement. Each counterpart may consist
of a number of copies of this Agreement each signed by less than all, but
together signed by all, the parties.
13.13 Construction. This Agreement shall be interpreted without regard to
any presumption or rule requiring construction against the party causing this
Agreement to be drafted.
13.14 Reserved.
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13.15 Waiver of Jury Trial. THE PARTIES IRREVOCABLY WAIVE ANY RIGHT TO TRIAL
BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT,
THE DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTIONS
RELATING TO THIS AGREEMENT.
ARTICLE XIV
DEFINITIONS
14.1. Certain Defined Terms. As used above, the terms set forth below shall
have the following meanings:
"Applicable Law" shall mean any statue, law, rule or regulation or any
judgment, order, writ, injunction or decree of any Governmental Entity to which
a specified person or property is subject, including, without limitation, all
Environmental Laws and Health and Safety Laws.
"Acquisition Proposal" means any bona fide proposal relating to an
acquisition of all or any substantial part of the Selling Parties, the Business
or the Assets (whether by merger, consolidation, purchase of assets or purchase
of stock) or any other transaction of a similar nature; provided, however, that
no proposal relating to a transaction that would be in the ordinary course of
business shall constitute an "Acquisition Proposal."
"Affiliate" means, with respect to any person, any other person who,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such person. As used in this definition, the term "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a person, whether by contract or
otherwise.
"Business Day" means any day except a Saturday, Sunday or federal holiday.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"Debt" shall mean, with respect to any person, without duplication, (a)
indebtedness of such person for borrowed money, (b) obligations of such person
evidenced by bonds, debentures, notes, or other similar instruments, (c)
obligations of such person to pay the deferred purchase price of property or
services (other than trade debt and normal operating liabilities incurred in
the ordinary course of business), (d) obligations of such person as lessee
under capital leases, (e) obligations of such person under or relating to
letters of credit, guaranties, purchase agreements, or other creditor
assurances assuring a creditor against loss in respect of indebtedness or
obligations of others of the kinds referred to in clauses (a) through (d) of
this definition, and (f) nonrecourse indebtedness or obligations of others of
the kinds referred to in clauses (a) through (e) of this definition secured by
any Encumbrance on or in respect of any property of such person. For the
purposes of determining the amount of any Debt, the amount of any Debt
described in clause (e) of the definition of Debt shall be valued at the
maximum amount of the contingent liability thereunder.
"Encumbrances" shall mean liens, charges, pledges, options, mortgages, deeds
of trust, security interests, restrictions (whether on voting, sale, transfer,
disposition or otherwise), easements and other encumbrances of every type and
description, whether imposed by Applicable Law, agreement, understanding or
otherwise.
"Environmental Laws" shall mean all federal, state, local and foreign laws
(including common law), statutes, codes, ordinances, rules and regulations
relating to pollution or protection of human health or the environment
(including, but not limited to, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws, statutes,
codes, ordinances, rules and regulations relating to emissions, discharges,
releases or threatened releases of Hazardous Materials, or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.
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"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended.
"GAAP" shall mean generally accepted accounting principles in the United
States of America from time to time as used by the Buyer.
"Governmental Entity" shall mean any court or tribunal in any jurisdiction
(domestic or foreign) or any public, governmental, or regulatory body, agency,
department, commission, board, bureau or other authority or instrumentality
(domestic or foreign).
"Governmental Authority" shall mean any nation or government, any state or
political subdivision thereof, any federal or state court and any other agency
or authority exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Hazardous Materials" shall mean (i) any substance, material or waste
defined or characterized as hazardous, extremely hazardous, toxic or dangerous
within the meaning of any Environmental Law, (ii) any substance, material or
waste classified as a contaminant or pollutant under any Environmental Law or
(iii) any other substance (including, but not limited to, petroleum), material
or waste, the manufacture, processing, distribution, use, treatment, storage,
placement, disposal, removal or transportation of which is subject to
regulation under any Environmental Law.
"Hazardous Waste" means any waste listed, defined, designated or regulated
to be a "hazardous waste" under any Environmental Law by any Governmental
Entity having jurisdiction over the Selling Parties or any of their Real
Property, Developed Property or Leased Property, including any such waste
determined as such pursuant to Section 1004(5) of the Resource Conservation and
Recovery Act, 42 U.S.C.A. (S) 6901, et seq. ("RCRA").
"HSR Act" means Section 7A of the Clayton Act (Title II of the Hart-Scott-
Rodino Antitrust Improvement Act of 1976), as amended (included any successor
statute).
"Intellectual Property" shall mean any patents, copyrights, trade secrets,
trademarks (registered or unregistered), trade names, service marks, logos or
other marks or labels, computer software, pending applications for any of the
foregoing, and other intellectual and proprietary rights, whether or not
subject to statutory registration or protection that is used in the Business.
"Lien" means (i) any mortgage, pledge, hypothecation, assignment, security
interest, option, lien or any preference, priority or other right or interest
granted pursuant to a security agreement or preferential arrangement of any
kind or character whatsoever (including, but not limited to, any conditional
sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction), and (ii) any other lien, charge,
levy or encumbrance, whether arising by operation of law or otherwise.
"Material Adverse Effect" shall mean any change or changes in, or effect or
effects on, the Company or the Subsidiaries or the Business, operations, Assets
or condition (financial or otherwise) of the Company or the Subsidiaries, the
individual or aggregate liability, damage, loss, penalty, cost or expense
(including reasonable attorneys fees and costs of investigating and defending
against lawsuits, complaints, actions or other pending or threatened
litigation) of which could be reasonably expected to exceed Twenty Five
Thousand Dollars ($25,000.00).
"Overbid Transaction" means an Acquisition Proposal made in writing by a
Qualified Third Party (i) which would provide for consideration attributable to
the Assets subject to the Acquisition Proposal having a fair market value, as
determined by an investment banking firm of national standing selected by the
Selling Parties
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and reasonably acceptable to Buyer, which exceeds the aggregate Purchase Price
(or, if Buyer has delivered a Topping Offer to the Company, the amount of the
Topping Offer) by at least One Million Dollars ($1,000,000) and (ii) the terms
and conditions of which (including the amount and value of the consideration
attributable to the stock or the assets subject to the Acquisition Proposal)
are reasonably determined by the Board of Directors of the Company to be, when
taken in their entirety, no less favorable to the Selling Parties than the
terms and conditions set forth in this Agreement. Notwithstanding anything to
the contrary contained in the preceding sentence, if the Acquisition Proposal
relates to the assets of the Company and its subsidiaries (and includes any
part of the Assets), or fails to include all of the Assets, then for such
Acquisition Proposal to qualify as an Overbid Transaction, the Acquisition
Proposal must provide for consideration attributable to the Assets having a
fair market value, as determined by an investment banking firm of national
standing selected by the Selling Parties and reasonably acceptable to Buyer,
which exceeds the aggregate Purchase Price (or, if Buyer has delivered a
Topping Offer to the Company, the amount of the Topping Offer) by at least One
Million Dollars ($1,000,000).
"Permits" shall mean federal, state and local franchises, permits, licenses,
approvals, consents, waivers and other authorizations (including but not
limited to those relating to real property and environmental matters).
"Permitted Encumbrances" shall mean, with respect to property owned or
leased by the Selling Parties, (i) liens of landlords, carriers, warehousemen,
mechanics, materialmen and the like arising in the ordinary course of business
for sums not yet due and payable, and (ii) with respect to the Real Property
and the Developed Property, recorded easements, covenants, conditions and
restrictions which are not violated by existing uses or improvements and do not
unreasonably interfere with the use of such property.
"person" shall mean any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
enterprise, unincorporated organization or Governmental Entity.
"Proceeding" shall mean all proceedings, actions, claims, suits, charges,
petitions, investigations and inquiries by or before any mediator, arbitrator
or Governmental Entity.
"Qualified Third Party" means (subject to the last sentence of Section
6.3(ii)) a Third Party who the Board of Directors of the Company has reasonably
determined is financially able to consummate an Overbid Transaction.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Straddle Period" shall mean any Tax period beginning before the Closing
Date and ending after the Closing Date.
"Tax" shall include but not be limited to any income taxes or similar
assessments or any sales, use, gross receipt, excise, goods and services,
occupation, ad valorem, property, production, severance, transportation,
employment, payroll, franchise, dividend, state profit share, export, import,
customs duty, capital, branch or other tax imposed by any United States
federal, state, local or foreign taxing authority, including any interest,
penalties or additions attributable thereto.
"Tax Return" shall mean any return or report, including any related or
supporting information, with respect to Taxes.
"Termination Threshold"means Five Hundred Thousand Dollars ($500,000).
"Third Party" means any person other than the Selling Parties or Buyer or
any of their respective Affiliates.
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<PAGE>
14.2 Certain Additional Defined Terms. In addition to such terms as are
defined in Section 14.1 the following terms are used in this Agreement as
defined in the Section set forth opposite such terms.
Defined Term Section Reference
Act 6.19
Affidavit 6.20(i)
Agreement Introduction
Assets 1.1
Assumed Liabilities 1.7
Basket 11.7(i)
Bill of Sale 2.2(viii)
Business Recitals
Buyer Introduction
Buyer Indemnitee 11.5(i)
Closing 2.1
Closing Date 2.1
Closing Invoices 6.22
Company Introduction
Company Agreements 3.19
Confidential Information 6.11(ii)
Contracts 1.1(iii)
Department 6.19
Design Center Lease Agreement 6.21
Developed Property 3.12(ii)
Disclosure Document 6.20(i)
Earnest Money Deposit 1.5
Earnest Money Escrow Agreement 1.5
Effective Date Introduction
Employment and Labor Agreements 3.25(ii)
Employment Arrangements 6.13(i)
Excluded Assets 1.2
Excluded Liabilities 1.8
Fairness Opinion 7.3
Feasibility Period 6.1
Final Loss Amount 11.5(ii)(d)
Financial Statements 3.8(i)
Health and Safety Laws 3.14
Holdback 1.4
Housing Property 1.1(i)
Improvements 3.12(vii)
Indemnitee 11.2
Indemnitor 11.2
Kaco Partnership 1.1(iii)
Land Purchase Agreement 1.1(iii)
Latest Balance Sheet 3.8(i)
Latest Financial Statements 3.8(i)
Leased Model Homes 1.1(iii)
Leased Property 3.13
Liquidated Loss 11.5(i)
Lockport Introduction
Losses 11.1
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Defined Term Section Reference
Material Contracts 3.19
Matteson Introduction
Miscellaneous Property 1.1(iv)
MMDI Introduction
Model Homes 1.1(iii)
NLRB 3.25(iii)
Non-Compete Period 6.12(i)
Noncompetition Agreement 2.2(xviii)
Objection Notice 11.5(ii)(e)
OSHA 3.14
Overbid Notice 6.3(i)
Overbid Termination Conditions 6.3(ii)
Owned Model Homes 1.1(i)
PCB's 3.22(v)(e)
Personal Property 1.1(ii)
Post-Closing Invoices 6.22
Property Agreements 3.12 (xii)
Purchase Price 1.3
Purchase Price Allocation Schedule 1.6
RCRA 14.1
Real Property 3.12(i)
Rembrandt Introduction
RPTA 6.20(i)
Sales Contracts 1.1(iii)
SAR Introduction
SEC Filings 3.8(ii)
Selling Parties Recitals
Set Off 11.5(i)
Set Off Notice 11.5(i)
Set Off Reserve 11.5(ii)(a)
Set Off Reserve Notice 11.5(ii)(b)
SLRB Introduction
Special Warranty Deeds 2.2(ix)
SSPI Introduction
Subsidiaries Introduction
Sutton Introduction
Survival Date 12.1
Termination Fee Note 10.1
Topping Offer 6.3(ii)
transfer 1.1
Unliquidated Loss 11.5(ii)(a)
Walnut Introduction
Winter Work 1.8(x)
Year-End Financial Statements 3.8(i)
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the dates set forth by their signatures below, to be effective as
of the Effective Date.
Sundance Homes, Inc.
/s/ Maurice Sanderman
By: _________________________________
Maurice Sanderman
Name: ____________________________
Chairman
Title: ___________________________
April 2, 1999
Date: ____________________________
Sundance Suburban Properties, Inc.
/s/ Maurice Sanderman
By: _________________________________
Maurice Sanderman
Name: ____________________________
Chairman
Title: ___________________________
April 2, 1999
Date: ____________________________
Rembrandt Homes, Inc.
/s/ Maurice Sanderman
By: _________________________________
Maurice Sanderman
Name: ____________________________
Chairman
Title: ___________________________
April 2, 1999
Date: ____________________________
Lockport Development, Inc.
/s/ Maurice Sanderman
By: _________________________________
Maurice Sanderman
Name: ____________________________
Chairman
Title: ___________________________
April 2, 1999
Date: ____________________________
McCarty's Mill Development, Inc.
/s/ Maurice Sanderman
By: _________________________________
Maurice Sanderman
Name: ____________________________
Chairman
Title: ___________________________
April 2, 1999
Date: ____________________________
Sutton Development, Inc.
/s/ Maurice Sanderman
By: _________________________________
Maurice Sanderman
Name: ____________________________
Chairman
Title: ___________________________
April 2, 1999
Date: ____________________________
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SAR Development, Inc.
/s/ Maurice Sanderman
By: _________________________________
Maurice Sanderman
Name: ____________________________
Chairman
Title: ___________________________
April 2, 1999
Date: ____________________________
Matteson Development, Inc.
/s/ Maurice Sanderman
By: _________________________________
Maurice Sanderman
Name: ____________________________
Chairman
Title: ___________________________
April 2, 1999
Date: ____________________________
Walnut Pointe Development, Inc.
/s/ Maurice Sanderman
By: _________________________________
Maurice Sanderman
Name: ____________________________
Chairman
Title: ___________________________
April 2, 1999
Date: ____________________________
Centex Homes
By: Centex Real Estate Corporation,
its managing partner
/s/ Andrew J. Hannigan
By: _________________________________
Andrew J. Hannigan
Name: ____________________________
President
Title: ___________________________
April 2, 1999
Date: ____________________________
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<PAGE>
SCHEDULE 1.3
Purchase Price
(a) The Purchase Price to be paid at the Closing will be based upon an
estimate made by Buyer and the Selling Parties in accordance with this
Schedule 1.3. The estimated Purchase Price will be adjusted by the parties
after the Closing Date in the manner described in paragraph (f) of this
Schedule 1.3 to determine the final Purchase Price.
No later than five (5) Business Days before the Closing Date, the Company
will deliver to Buyer for its review and approval a draft consolidated balance
sheet of the Selling Parties, relating only to the Assets, as of a date that
is seven (7) days before the Closing Date. The draft balance sheet will be
prepared in accordance with GAAP (to the extent applicable) and will identify
the Assets in the detail required by this Schedule 1.3 (the "Pre-Closing
Balance Sheet"). The Pre-Closing Balance Sheet will project the book value of
the Assets to the Closing Date, but only to reflect the reduction in Assets
that will result from home sale closings occurring through the Closing Date,
and will reflect the liabilities as of the date of the Pre-Closing Balance
Sheet. Based on the Pre-Closing Balance Sheet, and where appropriate, the
books and records of the Selling Parties, the parties will estimate the
components of the Purchase Price listed in paragraph (b) below.
(b) The Purchase Price is the sum of the amounts described below, less the
amount described in paragraph (c) below:
(i) For each neighborhood listed on Exhibit 1 to this Schedule 1.3, the
difference between (x) the product of (1) the number of lots in that
neighborhood owned by the Selling Parties on the Closing Date (including
those lots on which the Model Homes are situated) and (2) the per-lot price
specified in the applicable column of Exhibit 1, and (y) the remaining
cost-to-complete for such neighborhood, if any, specified in the applicable
column of Exhibit 1, reduced by the sum of any specifically identifiable
costs listed in the cost to complete budgets that the Selling Parties can
demonstrate at Closing were paid between the Effective Date and the Closing
Date. This total figure will be the "Land Price".
(ii) The sum of the Improvement Prices for Model Homes listed in Exhibit
2 to this Schedule 1.3 (the "Model WIP");
(iii) Advertising expenses of the Selling Parties, not to exceed
$150,000.00, incurred between February 1, 1999 and the Closing Date
determined from the books and records of the Selling Parties;
(iv) Book value of homebuilding work-in-progress ("WIP") on the
Developed Property as set out on the Pre-Closing Balance Sheet, including
work completed, invoiced and recorded as accounts payable, but not yet paid
(as adjusted only to reflect the reduction in WIP due to home sales
closings through the Closing Date);
(v) Book value of the Assets as listed on Schedule 1.1 to the Agreement
that are not otherwise described in this paragraph (b); and
(vi) The product of (x) the Field Overhead Multiplier (as defined below)
and (y) the sum of the WIP and the Model WIP.
(c) Buyer will receive a credit against the Purchase Price for the
aggregate amount of the contractual retention obligations listed on Schedule
1.7(vii) to the Agreement, for which Buyer will assume the payment
responsibility.
(d) If the Closing does not occur by the close of business on April 30,
1999, the Purchase Price will be adjusted as follows:
(i) Increased by the product of (i) the sum of the Land Price, the WIP
and the Model WIP at the Closing Date, and (ii) a multiplier derived from a
4% annualized interest rate, which rate of interest will accrue for the
period beginning on, and including, May 1, 1999 through, but not including,
the Closing Date (the "Pre-Closing Period"); and
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(ii) Reduced by the Pre-Tax Net Income (as defined below) from the
Assets for the Pre-Closing Period.
This adjustment will not be made at Closing but rather will be made at the
same time as the adjustment described in paragraph (f), and will be one of the
"Closing Adjustments" governed by paragraph (f).
(e) Definitions:
"Arbitrating Firm" means one of the following independent public accounting
firms: PricewaterhouseCoopers LLP, Arthur Andersen LLP, Ernst & Young LLP and
Deloitte & Touche LLP.
"Expected Overhead" means $21,500.00 per day.
"Field Overhead Multiplier" is a multiplier that varies depending upon the
Projected Gross Profit Margin on the contracts for sale of completed homes.
The Field Overhead Multiplier is calculated in the following manner:
(i) The parties to this Agreement anticipate that the Projected Gross
Profit Margin will be between 15.5% and 16.5% (the "Expected Profit Margin
Range").
(ii) If the Projected Gross Profit Margin is within the Expected Profit
Margin Range, then the Field Overhead Multiplier is 0.066.
(iii) If the Projected Gross Profit Margin is less than 15.5%, then the
Field Overhead Multiplier will be decreased by 0.001 for every one-tenth of
a percentage point that 15.5% exceeds the Projected Gross Profit Margin.
For example, if the Projected Gross Profit Margin equals 15%, then the
Field Overhead Multiplier is 0.061.
(iv) If the Projected Gross Profit Margin exceeds 16.5%, then the Field
Overhead Multiplier will be increased by 0.001 for every one-tenth of a
percentage point that the Projected Gross Profit Margin exceeds 16.5%. For
example, if the Projected Gross Profit Margin equals 17%, then the Field
Overhead Multiplier is 0.071.
"Model Homes" means those 11 model homes described on Schedule 1.1 to the
Agreement.
"Pre-Tax Gross Income" means the gross proceeds received by the Company
from closings of homes in the Assets in the Pre-Closing Period minus the sum
of (i) the cost of the lots under such homes (as specified in Exhibit 1), (ii)
the associated direct construction cost, and (iii) 3% of gross proceeds as an
agreed approximation of field overhead.
"Pre-Tax Net Income" means Pre-Tax Gross Income minus the sum of (i) the
Expected Overhead multiplied by the number of days in the Pre-Closing Period,
(ii) interest at the Prime Rate on the land and direct construction costs of
the homes closed during the Pre-Closing Period, and (iii) sales commissions
and closing costs incurred for the sales closed during the Pre-Closing Period.
"Prime Rate" means the prime rate in effect from time to time as published
in The Wall Street Journal under the caption "Money Rates"; provided, however,
that (i) if The Wall Street Journal publishes a split prime rate, the lower of
such prime rates will apply, and (ii) if The Wall Street Journal ceases
publishing a prime rate, "Prime Rate" means the prime rate or base rate in
effect from time to time at The Chase Manhattan Bank.
"Projected Gross Profit" means Projected Revenue for the Backlog minus
projected Cost of Sales for the Backlog. "Projected Revenue" is the sum of the
following for all Backlog: base home sales prices plus customer options plus
lot or location premiums, minus discounts. "Projected Cost of Sales" is the
sum of the following projected costs for all Backlog: base construction costs
plus building permits and fees incurred plus construction costs for options,
plus the lot cost set forth on Exhibit 1, together with a field overhead
allocation of 3% on all of the Projected Revenue.
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"Projected Gross Profit Margin" means Projected Gross Profit divided by
Projected Revenue. The parties hereby agree that during the Feasibility Period
they will use their best efforts to select a mutually agreeable date on which
to determine the Projected Gross Profit Margin on the contracts for sale of
completed homes, which date will fall between the Feasibility Period and the
Closing Date; provided, however, that if the parties fail to agree upon a date
during the Feasibility Period, then such date shall be the date that is ten
days before the Closing Date. The contracts for sale of completed homes (and
the affected homes) are called the "Backlog".
(f) Within fifteen (15) Business Days after the Closing Date, the Company
will deliver to Buyer a final consolidated balance sheet as of the Closing
Date, which will identify the Assets of the Selling Parties in the detail
required by this Schedule 1.3 and will (to the extent applicable) be prepared
in accordance with GAAP (the "Final Closing Balance Sheet") and the home sales
closing records for the period up to and including the Closing Date. Within
ten (10) Business Days of receipt of the Final Closing Balance Sheet and the
home sales closing records, Buyer will deliver to the Company a schedule
("Buyer Schedule") setting forth in reasonable detail the computation of the
adjustments to the Purchase Price (the "Closing Adjustments") as determined
from the Final Closing Balance Sheet and the home sales closing records.
Solely for the purpose of determining the component of the Purchase Price
described in paragraph (b)(vi) above, the WIP shall be increased by the amount
of invoices received by the Selling Parties between the date of the Pre-
Closing Balance Sheet and the Closing Date. Buyer's computation of the Closing
Adjustments set forth in the Buyer Schedule will be conclusive and binding on
all parties to this Agreement and will be the basis for the final
determination of the Purchase Price, unless, within twenty-five (25) days
following the Selling Parties' receipt of the Buyer Schedule, the Selling
Parties notify Buyer in writing that they disagree with Buyer's computation of
the Closing Adjustments. If the Selling Parties disagree with Buyer's
computation of the Closing Adjustments, Buyer and the Selling Parties will use
all reasonable efforts to resolve such disagreement, but if such disagreement
cannot be resolved by the parties within forty (40) days following Buyer's
receipt of the Selling Parties' notice of disagreement, Buyer and the Selling
Parties will request an Arbitrating Firm mutually agreeable to Buyer and the
Selling Parties to compute the Closing Adjustments as promptly as possible,
which computation will be conclusive and binding on all parties to this
Agreement. If Buyer and the Selling Parties cannot agree on an Arbitrating
Firm, then an Arbitrating Firm will be selected by lottery until one such
Arbitrating Firm is willing to compute the disputed Closing Adjustments for
purposes of this Agreement. The fees and expenses of the Arbitrating Firm
selected to resolve computational disputes hereunder will be borne equally by
Buyer and the Selling Parties. Following the computation and any
recomputations of the Closing Adjustments in accordance with the provisions of
this paragraph (f), any adjustment to the Purchase Price resulting from such
computation or recomputations, as finally and conclusively determined pursuant
to this paragraph (f), will:
(i) in the case of an adjustment that results in an additional amount
owing by Buyer to the Selling Parties because of an underpayment to the
Selling Parties of the Purchase Price paid to the Selling Parties at the
Closing, be paid by Buyer to the Selling Parties within 10 days after the
date such computation or recomputation of the Closing Adjustments becomes
conclusive and binding on the parties; and
(ii) in the case of an adjustment that results in an amount owing by the
Selling Parties to Buyer because of an overpayment to the Selling Parties
of the Purchase Price paid to the Selling Parties at the Closing, be paid
by the Selling Parties to Buyer within 10 days after the date such
computation or recomputation of the Closing Adjustments becomes conclusive
and binding on the parties.
Any amount payable by Buyer or the Selling Parties, as applicable, will be
accompanied by cash equal to interest on such amount from and including the
Closing Date to but excluding the date of payment at a rate per annum equal to
the Prime Rate in effect from time to time during such period. Any amounts so
payable will be paid by wire transfer in immediately available funds.
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Exhibit 1 to Schedule 1.3
SUMMARY OF LAND AND LOTS
FOR SUNDANCE HOMES--SUBURBAN DIVISIONS
As of December 31, 1998
<TABLE>
<CAPTION>
Estimated
cost to
Number Price per lot Total complete
of fully improved (inc. land Models
Subdivision Backlog lots improved lot & debt) owned Leased
----------- ------- ------ ------------- ----------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Arrowhead TH............ 10 43 $32,300 $ 1,388,900 None 3 0
Arrowhead TH............ -- 139 28,800 4,003,200 2,284,600 0 0
Arrowhead SF............ 18 84 44,000 3,696,000 None 3 0
Arrowhead SF
(Rembrandt)............ -- 7 60,000 420,000 None 0 0
Preserve TH............. 12 105 58,000 6,090,000 5,250,000 4 0
Sutton SF............... 48 232 33,866 7,857,000 1,692,000 0 9
Bellchase............... 20 227 41,200 9,352,400 1,441,985 0 10
St. Andrews............. 17 71 112,859 8,012,989 120,000 0 2
McCarty's Mill.......... 8 71 42,000 2,982,000 488,000 0 2
Walnut Pointe........... 22 135 36,000 4,860,000 817,000 1 2
Cedar Creek............. 40 123 38,000 4,674,000 561,000 0 4
Turtle Bay.............. -- 13 144,000 1,872,000 140,000 0 0
Other Rembrandt......... 1 22 156,954 3,452,988 1,283,000 0 0
Other Rembrandt Options. -- 10 -- -- -- -- --
--- ----- ------- ----------- ----------- --- ---
Total................... 196 1,282 $58,661,477 $14,077,585 11 29
=== ===== =========== =========== === ===
</TABLE>
A-53
<PAGE>
Exhibit 2 to Schedule 1.3
Model Home Costs
<TABLE>
<CAPTION>
Location of Model Home Improvement Price
- ---------------------- -----------------
<S> <C>
Arrowhead:
9640A #8-1.................................................. $ 108,385
9841A #8-2.................................................. 90,103
96422C #8-3................................................. 82,653
M21D Alcott 158............................................. 191,420
94056 Oakridge 157.......................................... 104,785
M62 Redwood 156............................................. 109,534
Preserve:
Easton #3-1................................................. 163,937
Laurel #3-2................................................. 168,636
Hampton #3-3................................................ 155,532
Savannah #3-4............................................... 162,024
Walnut Pointe:
M21A Alcott................................................. 146,553
----------
Total..................................................... $1,483,562
==========
</TABLE>
A-54
<PAGE>
APPENDIX B
Opinion of Financial Advisors
<PAGE>
[HOULIHAN LOKEY LETTERHEAD]
April 2, 1999
The Board of Directors of
Sundance Homes, Inc.
70 East Lake Street
Suite 1600
Chicago, IL 60601
Dear Committee Members:
We understand that Sundance Homes, Inc. ("Sundance" or the "Company") has
entered into a Sale and Purchase Agreement dated April 2, 1999 with Centex
Homes ("Centex") in which Sundance will sell substantially all the assets of
its suburban home building operations to Centex. Under the terms of the
agreement, Centex will pay approximately $60.0 million in cash at closing for
selected developed and undeveloped lots, work in process, and other assets of
Sundance's subsidiaries Rembrandt Homes, Inc., Sundance Suburban Properties,
Inc. and other entities of Sundance's suburban home building operations (the
"Divisions" hereinafter). The precise amount of cash to be received is
determined by a complex formula reflecting the fact that during the period
between the signing of the Sale and Purchase Agreement and the closing of the
transaction, Sundance will be continuing to operate in the normal course of
business, which means it will be closing sales of finished homes to purchasers
and continuing construction of homes-in-progress, called "work-in-process". To
the extent that the number of finished homes which are sold prior to the
closing date of the transaction varies from the number originally estimated,
the actual purchase price will vary from the estimated purchase price. If a
greater number of finished homes are sold, the actual purchase price will be
less than the estimated purchase price, but, of course Sundance will retain
the proceeds from the sale of these finished homes. Conversely, if fewer
finished homes are sold than originally estimated, the actual purchase price
will be more than the estimated purchase price. Additionally, if the amount of
construction work completed on the homes-in-progress on the closing date of
the transaction is more or less than the amount originally estimated, the
actual purchase price will be more or less, respectively, than the estimated
purchase price, but in any event, Sundance will be reimbursed for the cost of
all such construction work invoiced prior to the closing date. Thus, these
potential variances in the actual cash received at closing as compared to the
estimated purchase price will not materially affect the financial benefits of
the proposed transaction. Such transaction and all related transactions
identified to us are referred to collectively herein as the "Transaction."
You have requested our opinion (the "Opinion") as to the maters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested, and did not solicit
third party indications of interest in acquiring all or any part of the
Company. Furthermore, at your request, we have not negotiated the Transaction
or advised you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders for the fiscal
years ended 1993, 1997, and 1998; annual reports on Form 10-K for the
fiscal years ended 1996 through 1998; quarterly reports on Form 10-Q for
the quarter ended December 31, 1997 and 1998; Company-prepared financial
statements for the year ended September 30, 1998 and for the quarters
ended December 31, 1997 and 1998 for the Divisions, which the Company's
management has identified as being the most current financial statements
available.
2. reviewed copies of the following agreements: the Sale and Purchase
Agreement by and among Sundance Homes, Inc. and its subsidiaries and
Centex Homes dated April 2, 1999 ("Sale and Purchase Agreement");
B-1
<PAGE>
3. reviewed a draft of the preliminary proxy statement to be filed April 5,
1999 (Draft dated April 2, 1999);
4. met with members of the senior management of the Company to discuss the
operations of Sundance, Rembrandt Homes, Inc., Sundance Suburban
Properties, Inc. and other entities of Sundance's suburban home building
operations; the current financial condition of Sundance in regard to its
lending arrangements; the alternatives available to Sundance to
restructure its debt with and without the proposed sale; the anticipated
focus of Sundance after the proposed sale; and met with representatives
of the Company's counsel to discuss the proposed sale and related
matters;
5. visited the company's offices located at 70 East Lake St., Chicago, IL;
6. reviewed copies of certain real estate appraisals provided by Sundance;
7. reviewed the certificate of the Company's chief financial officer
addressed to Houlihan Lokey dated March 19, 1999 and schedules attached
to the certificate;
8. reviewed the historical market prices and trading volume for the
Company's publicly traded securities;
9. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company, and publicly available
prices and premiums paid in other transactions that we considered
similar to the Transaction;
10. reviewed drafts of certain documents to be delivered at the closing of
the Transaction; and
11. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
As you are aware, certain schedules to the Sale and Purchase Agreement have
not been finalized; the only documentation with respect thereto that we have
received is referred to above in Items 2 and 7. Accordingly, this Opinion is
subject to the assumption that the final schedules will conform in all
material respects to the provisions and representations contained in Items 2
and 7 above. At the request of the Board, Houlihan Lokey is prepared to review
the final schedules to the Sale and Purchase Agreement to determine whether
they conform in all material respects with the Company's representations made
as of the date of this Opinion. Said determination will be provided to the
Board under separate letter. Houlihan Lokey's review of the final schedules
will not constitute an updated analysis or bring-down opinion to a date
subsequent to the date of this Opinion.
This Opinion is furnished solely for your benefit and may not be relied
upon by any other person without our express, prior written consent. This
Opinion is delivered to each recipient subject to the conditions, scope of
engagement, limitations and understandings set forth in this Opinion and our
engagement letter, and subject to the understanding that the obligations of
Houlihan Lokey in the Transaction are solely corporate obligations, and no
officer, director, employee, agent, shareholder or controlling person of
Houlihan Lokey shall be subjected to any personal liability whatsoever to any
person, nor will any such claim be asserted by or on behalf of you or your
affiliates.
We have relied upon and assumed, without independent verification, that the
financial information provided to us has been reasonably prepared and reflects
the best currently available estimates of the financial results and condition
of the Company, and that there has been no material change in the assets,
financial condition, business or prospects of the Company since the date of
the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other
conditions as they exist and can be evaluated by us at the date of this
letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the consideration to be received by the Company in connection with the
Transaction is fair to the Company from a financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
/s/ Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
B-2
<PAGE>
APPENDIX C
Section 11.70 of the Illinois Business Corporation Act
<PAGE>
APPENDIX C
Section 11.70 of the Illinois Business Corporation Act
Sec. 11.70. Procedure to Dissent.
(a) If the corporate action giving rise to the right to dissent is to be
approved at a meeting of shareholders, the notice of meeting shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to the meeting, the corporation furnishes to the shareholders material
information with respect to the transaction that will objectively enable a
shareholder to vote on the transaction and to determine whether or not to
exercise dissenters' rights, a shareholder may assert dissenters' rights only
if the shareholder delivers to the corporation before the vote is taken a
written demand for payment for his or her shares if the proposed action is
consummated, and the shareholder does not vote in favor of the proposed
action.
(b) If the corporate action giving rise to the right to dissent is not to
be approved at a meeting of shareholders, the notice to shareholders
describing the action taken under Section 11.30 or Section 7.10 shall inform
the shareholders of their right to dissent and the procedure to dissent. If,
prior to or concurrently with the notice, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to determine whether or not to exercise
dissenters' rights, a shareholder may assert dissenter's rights only if he or
she delivers to the corporation within 30 days from the date of mailing the
notice a written demand for payment for his or her shares.
(c) Within 10 days after the date on which the corporate action giving rise
to the right to dissent is effective or 30 days after the shareholder delivers
to the corporation the written demand for payment, whichever is later, the
corporation shall send each shareholder who has delivered a written demand for
payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as
of the end of a fiscal year ending not earlier than 16 months before the
delivery of the statement, together with the statement of income for that year
and the latest available interim financial statements, and either a commitment
to pay for the shares of the dissenting shareholder at the estimated fair
value thereof upon transmittal to the corporation of the certificate or
certificates, or other evidence of ownership, with respect to the shares, or
instructions to the dissenting shareholder to sell his or her shares within 10
days after delivery of the corporation's statement to the shareholder. The
corporation may instruct the shareholder to sell only if there is a public
market for the shares at which the shares may be readily sold. If the
shareholder does not sell within that 10 day period after being so instructed
by the corporation, for purposes of this Section the shareholder shall be
deemed to have sold his or her shares at the average closing price of the
shares, if listed on a national exchange, or the average of the bid and asked
price with respect to the shares quoted by a principal market maker, if not
listed on a national exchange, during that 10 day period.
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are canceled or
modified by the consummation of the proposed corporate action. Upon
consummation of that action, the corporation shall pay to each dissenter who
transmits to the corporation the certificate or other evidence of ownership of
the shares the amount the corporation estimates to be the fair value of the
shares, plus accrued interest, accompanied by a written explanation of how the
interest was calculated.
(e) If the shareholder does not agree with the opinion of the corporation
as to the estimated fair value of the shares or the amount of interest due,
the shareholder, within 30 days from the delivery of the corporation's
statement of value, shall notify the corporation in writing of the
shareholder's estimated fair value and amount of interest due and demand
payment for the difference between the shareholder's estimate of fair value
and interest due and the amount of the payment by the corporation or the
proceeds of sale by the shareholder, whichever is applicable because of the
procedure for which the corporation opted pursuant to subsection (c).
C-1
<PAGE>
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon the
fair value of the shares and interest due, the corporation shall either pay
the difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose demands remain unsettled parties to the proceeding as an action against
their shares and all parties shall be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication
as provided by law. Failure of the corporation to commence an action pursuant
to this Section shall not limit or affect the right of the dissenting
shareholders to otherwise commence an action as permitted by law.
(g) The jurisdiction of the court in which the proceeding is commenced
under subsection (f) by a corporation is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the power
described in the order appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court find that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation
and expenses of the appraisers, if any, appointed by the court under
subsection (g), but shall exclude the fees and expenses of counsel and experts
for the respective parties. If the fair value of the shares as determined by
the court materially exceeds the amount which the corporation estimated to be
the fair value of the shares or if no estimate was made in accordance with
subsection (c), then all or any part of the costs may be assessed against the
corporation. If the amount which any dissenter estimated to be the fair value
of the shares materially exceeds the fair value of the shares as determined by
the court, then all or any part of the costs may be assessed against that
dissenter. The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable, as
follows:
(1) Against the corporation and in favor of any or all dissenters if the
court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and in favor of any
other party if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this Section.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees
for those services should not be assessed against the corporation, the court
may award to that counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who are benefitted. Except as otherwise provided in
this Section, the practice, procedure, judgment and costs shall be governed by
the Code of Civil Procedure.
(j) As used in this Section:
(1) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the consummation of the corporate action
to which the dissenter objects excluding any appreciation or depreciation
in anticipation of the corporate action, unless exclusion would be
inequitable.
(2) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances. Amended by P.A. 84-1308, eff.
Aug. 25, 1986; P.A. 86-1156, eff. Aug. 10, 1990.
C-2
<PAGE>
PROXY This proxy is solicited
on behalf of the
Board of Directors
SUNDANCE HOMES, INC.
150 West Center Court, Schaumburg, Illinois 60195
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
To Be Held On_______, 1999
TO VOTE AT THE SPECIAL MEETING IN ACCORDANCE WITH THE RECOMMENDATIONS OF
THE BOARD OF DIRECTORS OF SUNDANCE HOMES, INC., SIGN AND DATE THE REVERSE SIDE
OF THIS CARD WITHOUT CHECKING ANY BOX.
The undersigned holder of Common Stock, par value $.01 per share, of
Sundance Homes, Inc. (the "Company") hereby appoints Maurice Sanderman and
Charles Engles, or either of them, with full power of substitution in each, as
proxies to cast all votes which the undersigned shareholder is entitled to cast
at the Special Meeting of Shareholders to be held on __________, ____________,
1999, at 9:00 a.m. local time, at the offices of Katten Muchin & Zavis, 525 West
Monroe Street, Suite 1600, Chicago, Illinois 60661, and at any adjournments or
postponements thereof, upon the following matters. The undersigned shareholder
hereby revokes any proxy or proxies heretofore given.
1. PROPOSAL TO APPROVE AND ADOPT THE SALE AND PURCHASE AGREEMENT DATED
APRIL 2, 1999 BETWEEN THE COMPANY AND CENTEX HOMES, A NEVADA GENERAL
PARTNERSHIP AND A WHOLLY OWNED SUBSIDIARY OF CENTEX CORPORATION, A
NEVADA CORPORATION, PURSUANT TO WHICH THE COMPANY HAS AGREED (PENDING
SHAREHOLDER APPROVAL) TO SELL FOR CASH SUBSTANTIALLY ALL OF THE ASSETS
AND CERTAIN LIABILITIES OF ITS SUBURBAN HOUSING OPERATIONS, WHICH
INCLUDE SUBSTANTIALLY ALL OF THE ASSETS AND CERTAIN LIABILITIES OF ITS
SUBURBAN PROPERTY DIVISION AND ITS REMBRANDT HOMES DIVISION.
[_] FOR [_] AGAINST [_] ABSTAIN
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING, OR ANY
ADJOURNMENTS THEREOF.
(continued, and to be signed, on reverse side)
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
(continued from other side)
This proxy, when properly executed, will be voted in the manner as directed
herein by the undersigned shareholder. UNLESS CONTRARY DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED FOR PROPOSAL 1 AND IN ACCORDANCE WITH THE DETERMINATION OF
THE BOARD OF DIRECTORS AS TO OTHER MATTERS. The undersigned shareholder may
revoke this proxy at any time before it is voted by delivering to the Corporate
Secretary of the Company either a written revocation of the proxy or a duly
executed proxy bearing a later date, or by appearing at the Special Meeting and
voting in person. The undersigned shareholder hereby acknowledges receipt of the
Notice of Special Meeting of Shareholders and Proxy Statement.
PLEASE MARK, SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE POSTAGE-PREPAID
ENCLOSED ENVELOPE. If you receive more than one proxy card, please sign and
return ALL cards in the enclosed envelope.
DATED: _________________________________
________________________________________
Signature
________________________________________
Signature (if held jointly)
Please date and sign exactly as the name
appears hereon. When signing as executor,
administrator, trustee, guardian,
attorney-in-fact or other fiduciary,
please give title as such. When signing
as corporation, please sign in full
corporate name by President or other
authorized officer. If you sign for a
partnership, please sign in partnership
name by an authorized person.
<PAGE>
APPENDIX C
Section 11.70 of the Illinois Business Corporation Act
Sec. 11.70. Procedure to Dissent.
(a) If the corporate action giving rise to the right to dissent is to be
approved at a meeting of shareholders, the notice of meeting shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to the meeting, the corporation furnishes to the shareholders material
information with respect to the transaction that will objectively enable a
shareholder to vote on the transaction and to determine whether or not to
exercise dissenters' rights, a shareholder may assert dissenters' rights only
if the shareholder delivers to the corporation before the vote is taken a
written demand for payment for his or her shares if the proposed action is
consummated, and the shareholder does not vote in favor of the proposed
action.
(b) If the corporate action giving rise to the right to dissent is not to
be approved at a meeting of shareholders, the notice to shareholders
describing the action taken under Section 11.30 or Section 7.10 shall inform
the shareholders of their right to dissent and the procedure to dissent. If,
prior to or concurrently with the notice, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to determine whether or not to exercise
dissenters' rights, a shareholder may assert dissenter's rights only if he or
she delivers to the corporation within 30 days from the date of mailing the
notice a written demand for payment for his or her shares.
(c) Within 10 days after the date on which the corporate action giving rise
to the right to dissent is effective or 30 days after the shareholder delivers
to the corporation the written demand for payment, whichever is later, the
corporation shall send each shareholder who has delivered a written demand for
payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as
of the end of a fiscal year ending not earlier than 16 months before the
delivery of the statement, together with the statement of income for that year
and the latest available interim financial statements, and either a commitment
to pay for the shares of the dissenting shareholder at the estimated fair
value thereof upon transmittal to the corporation of the certificate or
certificates, or other evidence of ownership, with respect to the shares, or
instructions to the dissenting shareholder to sell his or her shares within 10
days after delivery of the corporation's statement to the shareholder. The
corporation may instruct the shareholder to sell only if there is a public
market for the shares at which the shares may be readily sold. If the
shareholder does not sell within that 10 day period after being so instructed
by the corporation, for purposes of this Section the shareholder shall be
deemed to have sold his or her shares at the average closing price of the
shares, if listed on a national exchange, or the average of the bid and asked
price with respect to the shares quoted by a principal market maker, if not
listed on a national exchange, during that 10 day period.
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are canceled or
modified by the consummation of the proposed corporate action. Upon
consummation of that action, the corporation shall pay to each dissenter who
transmits to the corporation the certificate or other evidence of ownership of
the shares the amount the corporation estimates to be the fair value of the
shares, plus accrued interest, accompanied by a written explanation of how the
interest was calculated.
(e) If the shareholder does not agree with the opinion of the corporation
as to the estimated fair value of the shares or the amount of interest due,
the shareholder, within 30 days from the delivery of the corporation's
statement of value, shall notify the corporation in writing of the
shareholder's estimated fair value and amount of interest due and demand
payment for the difference between the shareholder's estimate of fair value
and interest due and the amount of the payment by the corporation or the
proceeds of sale by the shareholder, whichever is applicable because of the
procedure for which the corporation opted pursuant to subsection (c).
C-1
<PAGE>
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon the
fair value of the shares and interest due, the corporation shall either pay
the difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose demands remain unsettled parties to the proceeding as an action against
their shares and all parties shall be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication
as provided by law. Failure of the corporation to commence an action pursuant
to this Section shall not limit or affect the right of the dissenting
shareholders to otherwise commence an action as permitted by law.
(g) The jurisdiction of the court in which the proceeding is commenced
under subsection (f) by a corporation is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the power
described in the order appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court find that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation
and expenses of the appraisers, if any, appointed by the court under
subsection (g), but shall exclude the fees and expenses of counsel and experts
for the respective parties. If the fair value of the shares as determined by
the court materially exceeds the amount which the corporation estimated to be
the fair value of the shares or if no estimate was made in accordance with
subsection (c), then all or any part of the costs may be assessed against the
corporation. If the amount which any dissenter estimated to be the fair value
of the shares materially exceeds the fair value of the shares as determined by
the court, then all or any part of the costs may be assessed against that
dissenter. The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable, as
follows:
(1) Against the corporation and in favor of any or all dissenters if the
court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and in favor of any
other party if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this Section.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees
for those services should not be assessed against the corporation, the court
may award to that counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who are benefitted. Except as otherwise provided in
this Section, the practice, procedure, judgment and costs shall be governed by
the Code of Civil Procedure.
(j) As used in this Section:
(1) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the consummation of the corporate action
to which the dissenter objects excluding any appreciation or depreciation
in anticipation of the corporate action, unless exclusion would be
inequitable.
(2) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances. Amended by P.A. 84-1308, eff.
Aug. 25, 1986; P.A. 86-1156, eff. Aug. 10, 1990.
C-2
