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EXHIBIT 2
December 30, 1998
The Xxxxxxx Companies
00 Xxxxxxxxx Xxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: General Xxxxx Xxxxxx
Re: AGREEMENT IN PRINCIPLE CONCERNING
THE XXXXXXX COMPANIES AND
XXXXXXX XXXX HOMES, INC.
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Ladies and Gentlemen:
This letter sets forth our mutual, preliminary understanding with
respect to the proposed acquisition by The Xxxxxxx Companies, a Delaware
corporation ("Xxxxxxx-Del."), of substantially all of the assets of Xxxxxxx Xxxx
Homes, Inc., a California corporation ("WL Homes"), and the purchase by WL Homes
of between 40% and 49% of the outstanding Common Stock of Xxxxxxx-Del.
1. The Transaction. On the conditions set forth below and to be
included in a definitive agreement (the "Definitive Agreement"):
(a) The Xxxxxxx Companies, a California corporation and a
wholly owned subsidiary of Xxxxxxx-Del. ("Xxxxxxx-Cal.," and together
with Xxxxxxx-Del., "Xxxxxxx"), will purchase all or substantially all of
the assets of WL Homes for a cash purchase price of two times (2x) book
value and the assumption of all or substantially all of the liabilities
of WL Homes (such purchase and assumption being referred to herein as
the "Acquisition"); and
(b) WL Homes will make a tender offer (the "Offer") to
purchase between 40% and 49% of the outstanding Common Stock of
Xxxxxxx-Del. for a purchase price of $0.62 per share. In the event that
more than 49% of the outstanding Common Stock of Xxxxxxx Del. is
tendered, WL Homes will purchase shares from each tendering stockholder
on a pro rata basis.
The Acquisition and the Offer are hereinafter referred to
collectively as the "Transactions."
2. Terms and Conditions. Our preliminary understanding includes
the following additional terms and conditions, which will be addressed in
greater detail in the Definitive Agreement:
(a) The consummation of the Acquisition and the Offer
shall each be conditioned upon the successful completion and closing of
the other.
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(b) The Offer is premised on (i) Xxxxxxx-Del. having an
aggregate of 52,195,678 shares of Series A Common Stock and Series B
Common Stock outstanding, (ii) there being no outstanding options to
acquire Xxxxxxx-Del. Common Stock with an exercise price of less than
$1.00 per share, and (iii) there being no other securities outstanding
which are convertible into or exchangeable for shares of Common Stock of
Xxxxxxx-Del.
(c) The Offer shall be conditioned upon there being
tendered and not withdrawn prior to expiration of the Offer a number of
shares which constitutes at least 40% of the outstanding shares of
Common Stock of Xxxxxxx-Del.
(d) Concurrent with the execution and delivery of the
Definitive Agreement, each of the following entities shall have
consented to the Transactions and executed a written agreement (in form
and substance satisfactory to WL Homes) to tender their shares of
Xxxxxxx-Del. Common Stock in the Offer:
(i) Foothill Capital Corporation;
(ii) The Foothill Group, Inc.;
(iii) Pearl Street, L.P.;
(iv) First Plaza Group Trust; and
(v) International Nederlande (U.S.) Capital
Corporation.
(e) The parties contemplate that Xxxxxxx-Del.'s 12 1/2 %
Senior Notes due 2001 (the "Xxxxxxx Notes") shall remain outstanding
without modification following consummation of the Transactions. The
parties shall use reasonable efforts to structure the Transactions so as
to eliminate the need to obtain any consents to the Transactions from
holders of the Xxxxxxx Notes.
(f) Xxxxxxx and WL Homes shall have received all required
regulatory approvals (including, without limitation, expiration of the
applicable waiting period under the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act) and third party consents (including, without
limitation, lender consents), in each case without the imposition of any
condition which is reasonably unacceptable to Xxxxxxx or WL Homes. The
parties shall use reasonable efforts to structure the Transactions so as
to eliminate the need to obtain any consents to the Transactions from
the lenders under Xxxxxxx'x existing bank credit facility (the "Xxxxxxx
Bank Facility").
(g) The respective Boards of Directors of Xxxxxxx and WL
Homes shall have approved the Definitive Agreement by March 31, 1999 and
caused the Definitive Agreement to have been executed by such date
(unless the term of this letter is extended by mutual agreement of the
parties).
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(h) Xxxxxxx shall have received a fairness opinion or
opinions with respect to the Transactions from Warburg Dillon Read LLC
(or such other investment banking firm or firms of national standing and
reasonably acceptable to Xxxxxxx and WL Homes), which opinion or
opinions shall include an opinion to the effect that the Acquisition is
fair to Xxxxxxx from a financial point of view. With respect to the real
property to be acquired from WL Homes by Xxxxxxx Xxx., Xxxxxxx shall
also have received a determination of value by a real estate appraisal
firm which is of regional standing in the region in which the subject
property is located and is MAI certified, in form and substance
reasonably satisfactory to Xxxxxxx and WL Homes. In addition, Xxxxxxx
shall have received a solvency opinion from a firm of national standing
with respect to the solvency of Xxxxxxx following the consummation of
the Transactions.
(i) The parties shall structure the Transactions
(including, if necessary, the amendment of Xxxxxxx'x certificate of
incorporation and bylaws to restrict transfers of shares) so as to avoid
triggering the change of control tax provisions that would result in the
loss of Xxxxxxx-Del.'s net operating losses for tax purposes ("NOL's").
Shareholders of Xxxxxxx-Del. which, after giving effect to the proposed
Transactions, would exceed any applicable percentage ownership
limitations shall have approved and agreed to be bound by such
restrictions, and, to the extent required by applicable law, such
amendments shall have been approved by Xxxxxxx-Del. shareholders.
(j) Prior to the execution of the Definitive Agreement,
Xxxxxxx shall have completed to its satisfaction its due diligence
review of the business, financial condition, assets, liabilities,
results of operations and prospects of WL Homes.
(k) The closing of the Offer shall be conditioned upon the
absence of any material adverse change in the business, financial
condition, assets, liabilities, operations or prospects of Xxxxxxx. The
closing of the Acquisition shall be conditioned upon the absence of any
material adverse change in the business, financial condition, assets,
liabilities, results of operations or prospects of WL Homes.
(l) The Closing of the Acquisition shall be conditioned
upon Xxxxxxx (i) having borrowing capacity under the terms of the
Xxxxxxx Bank Facility, and/or (ii) obtaining other bank or third-party
financing on terms reasonably acceptable to Xxxxxxx, in any case, in an
amount sufficient to enable Xxxxxxx to finance the Transactions as
contemplated herein.
3. The Definitive Agreement.. The Definitive Agreement shall
contain terms, conditions, representations, warranties and covenants customary
and appropriate for transactions of the type contemplated, including those
summarized herein, together with a commitment on behalf of Xxxxxxx to issue a
favorable recommendation to its shareholders with respect to the Offer, such
obligation being subject to the Xxxxxxx-Del. Board of Directors' fiduciary
duties under applicable law. The Definitive Agreement may be terminated at any
time by mutual consent of the parties, or, among other circumstances,
unilaterally by either party (provided that such party is not then in breach of
the Definitive Agreement) if (a) the closing of the Transactions has not
occurred by June 30, 1999, or (b) there has been a material adverse change in
the business, financial condition, assets, liabilities, results of operations or
prospects of the other party.
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4. Exclusive Negotiations. To induce the parties to expend money and
otherwise devote resources to structure and negotiate the proposed Transactions,
each of the parties agrees that until 11:59 p.m. PST on March 31, 1999 (the
"Exclusivity Period"), it will negotiate exclusively with the other party hereto
with respect to any proposal to acquire (whether by merger, stock or asset
purchase, direct investment, or otherwise) any equity interest in the other
party hereto, any of its subsidiaries, or all or any material portion of its
assets (except with respect to sales of homes in the ordinary course of
business). Any such proposal is hereinafter referred to as an "Acquisition
Proposal."
Each of the parties further agrees that, during the Exclusivity
Period, neither it nor any of its directors, officers, employees,
representatives or agents (including financial advisors and attorneys)
(collectively referred to herein as "Representatives") will (i) solicit,
initiate, encourage or facilitate the submission of, or consider, enter into
discussions concerning or agree to, any Acquisition Proposal other than from the
other party hereto, or (ii) provide any information concerning it or its assets
or business operations to any person or permit any person to visit its premises
in connection with or for the purpose of soliciting or facilitating any
Acquisition Proposal, in each case, other than the other party hereto and its
Representatives. In the event any other potential acquiror or Representative
thereof contacts a party or any of its Representatives with respect to an
Acquisition Proposal, such party shall notify the other party hereto and provide
such party with the details of such contact. Further, the person so contacted
will inform the contacting party that the party is in a period of exclusive
negotiations and terminate such contact without disclosing any details
concerning the negotiations with the other party hereto.
Notwithstanding the foregoing provisions of this Section 4, if
prior to the execution of a Definitive Agreement, the Board of Directors of
Xxxxxxx-Del. or WL Homes, as the case may be, after receiving advice from
outside legal counsel, determines that a failure to act would be inconsistent
with such Board of Directors' fiduciary duties to stockholders under applicable
law, such party may (a) furnish information with respect to such party to any
person in response to an unsolicited request pursuant to a confidentiality
agreement with terms and conditions similar to those contained in the
confidentiality agreements by and between Xxxxxxx-Del. and WL Homes, and (b)
participate in discussions and negotiations regarding any potential Acquisition
Proposal. Such party shall promptly notify the other party hereto of any request
received by such party with respect to a potential competing Acquisition
Proposal. If a party receives a competing Acquisition Proposal, such party shall
promptly, and in any event at least three (3) business days prior to entering
into any agreement with respect to such competing Acquisition Proposal, notify
the other party of the receipt of such competing Acquisition Proposal,
specifying the material terms and conditions of the proposal and identifying the
person making such proposal. If a party enters into a definitive agreement with
respect to a competing Acquisition Proposal, such party shall concurrently with
entering into such agreement pay, or cause to be paid, all fees and expenses
incurred by the other party through such date in connection the proposed
Transactions (including, without limitation, all attorneys', accountants',
financial advisors', bankers', appraisers' and similar professional fees and
expenses).
Notwithstanding the Exclusivity Period, the parties agree to use
their best efforts to structure the proposed Transactions and to draft and
complete negotiation of the Definitive Agreement as soon as practicable.
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5. Access; Confidentiality. Each party, subject to the need to
preserve attorney-client privilege, will make available such financial, legal,
business and other documents and information concerning its business, assets,
liabilities and operations as the other party may reasonably request. All such
documents and information provided hereunder shall be subject to, and governed
by, the applicable confidentiality agreements existing between WL Homes and
Xxxxxxx. Xxxxxxx acknowledges that General Xxxxxxx Xxxx and Xxxx Cable,
directors of Xxxxxxx, have participated in the preparation of WL Homes' proposal
and are sharing information regarding Xxxxxxx with WL Homes' advisors in
connection with the proposed Transactions.
In furtherance of the foregoing, WL Homes shall, promptly
following the execution and delivery of this letter by each of the parties
hereto, provide Xxxxxxx and its Representatives with access to copies of all
loan agreements, instruments and other documents governing or relating to any
indebtedness of WL Homes which is proposed to be assumed by Xxxxxxx in
connection with the Acquisition.
6. Publicity. Xxxxxxx and WL Homes shall endeavor to coordinate
all publicity relating to the proposed Transactions. No party herein shall issue
any press release, publicity statement or other notice relating to the proposed
Transactions or this letter without the prior consent of the other parties
hereto unless required under applicable securities laws (in which case each
party agrees to give reasonable notice to and consult with the other parties
prior to issuing any such release, statement or other notice).
7. Finder's Fee. Each party represents that it has not engaged or
authorized any broker, finder or similar agent who would be entitled to a
commission or other fee in respect of the proposed Transactions, except for
Xxxxxxx'x engagement of Warburg Dillon Read LLC, whose fees will be paid by
Xxxxxxx. It is further understood that, in connection with the Transactions,
Xxxxxxx may, after consultation with WL Homes, engage additional firms with
respect to the fairness opinions, appraisals and solvency issues set forth in
Section 2(h) hereof.
8. Expenses. Subject to Section 4 hereof, (a) Xxxxxxx shall pay
all fees, costs and expenses incurred in connection with obtaining the fairness
and solvency opinions referenced in Section 2(h) hereof and any appraisals of
Xxxxxxx assets that may be required in connection with the Transactions, and (b)
WL Homes shall pay all fees, costs and expenses incurred in connection with
obtaining any financing commitments and any appraisals of WL Homes assets that
may be required in connection with the Transactions. Except as provided in
Section 4 hereof and in the foregoing sentence of this Section 8, each party
shall otherwise pay its own expenses incurred in connection with the proposed
Transactions.
9. Not an Offer. This letter is not intended as an offer to
stockholders of Xxxxxxx. The Offer by WL Homes will be made pursuant to and only
in compliance with applicable federal and state securities laws.
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10. Effect of Letter; Enforceability. Except as provided in this
Section, this letter is not intended to be, and does not constitute, a binding
or enforceable agreement, but is merely an outline of intention to facilitate
the negotiation and preparation of a Definitive Agreement and related documents.
This letter merely lists proposed points that may or may not become part of a
Definitive Agreement. It is not based on any existing agreement between the
parties and (except as provided in this Section) is not intended to impose any
obligation whatsoever on any party, including but not limited to any obligation
to bargain in good faith or in any way other than at arms' length. Except as to
Sections 4 through 9 above, and this Section 10, no legal or equitable duties,
responsibilities or rights are created hereby. Each party covenants not to
institute or participate in any proceeding seeking to establish a contrary
position. Neither party may reasonably rely on any promises inconsistent with
this Section.
THIS SECTION SUPERSEDES ANY AND ALL OTHER CONFLICTING OR
AMBIGUOUS LANGUAGE IN THIS LETTER OR ANY CONTEMPORANEOUS OR OTHER COMMUNICATION
PRECEDING THIS LETTER.
11. Term. This letter, unless extended by mutual agreement, shall
terminate (other than Sections 6 through 9, which shall survive) at 11:59 p.m.
PST on March 31, 1999 or upon the earlier to occur of either of the following:
(a) the execution of the Definitive Agreement; or
(b) ten days following the delivery of written notice by
Xxxxxxx to WL Homes (together with copies of all supporting
correspondence received from Xxxxxxx'x financial advisors) to the effect
that (i) Xxxxxxx and its financial advisors have substantially completed
the appraisal and due diligence processes contemplated in Sections 2(h)
and 2(j) hereof, and (ii) one or more of Xxxxxxx'x financial advisors
have confirmed to Xxxxxxx in writing that they do not reasonably believe
that they will be able to render the fairness or solvency opinions
contemplated in Section 2(h) hereof.
12. Compliance. All matters referred to herein are subject to and
conditioned upon compliance with all applicable laws and the consistency of the
terms hereof with any material rights of any third parties.
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If this letter is satisfactory to you as a basis for proceeding toward a
Definitive Agreement, please so signify on the enclosed copy of this letter and
return it to us at the above address.
XXXXXXX XXXX HOMES, INC.,
A CALIFORNIA CORPORATION
By: /s/ Xxxxxxx Xxxx
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Xxxxxxx Xxxx
Chairman, President & CEO
AGREED, AS OF DECEMBER 31, 1998:
THE XXXXXXX COMPANIES,
A DELAWARE CORPORATION
By: /s/ Xxxxx Xxxxxx
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Xxxxx Xxxxxx
Senior Vice President and General Counsel
By: /s/ Xxxxx Xxxxxx
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Xxxxx Xxxxxx
Vice President and Corporate Secretary
THE XXXXXXX COMPANIES,
A CALIFORNIA CORPORATION
By: /s/ Xxxxx Xxxxxx
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Xxxxx Xxxxxx
Senior Vice President and General Counsel
By: /s/ Xxxxx Xxxxxx
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Xxxxx Xxxxxx
Vice President and Corporate Secretary
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