ASSUMPTION AGREEMENT
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THIS ASSUMPTION AGREEMENT (the "Assumption Agreement") is executed as
of this 31st day of December, 1996, by among Monterey Management, Inc., an
Arizona corporation ("MMI"); Monterey Homes Corporation, an Arizona corporation
("MHC"); Monterey Management-Tucson, Inc., an Arizona corporation ("MMT"),
Monterey Homes-Tucson Corporation, an Arizona corporation ("MHT" and,
collectively with MMI, MHC, and MM-TI, the "Company"); and Norwest Bank,
Minnesota, NA ("Warrant Agent"). Capitalized terms used and not defined herein
shall have the meanings ascribed to them in the Warrant Agreement (the "Warrant
Agreement"), dated as of October 17, 1994, by and among MMI, MHC and the Warrant
Agent.
W I T N E S S E T H:
WHEREAS, MMI has agreed to merge with and into MMT and MHC has agreed
to merge with and into MHT (the "Monterey Mergers"), with MMT and MHT assuming
the obligations of MMI and MHC under the Warrant Agreement; and
WHEREAS, MMT and MHT have agreed, subsequent to the Monterey Mergers
and subject to the execution and delivery of an Agreement and Plan of
Reorganization (the "HPX Merger Agreement") with Homeplex Mortgage Investments
Corporation, a Maryland corporation ("HPX") and satisfaction of the conditions
thereto, to merge with and into HPX (the "HPX Merger"), with HPX assuming the
obligations of MMT and MHT under the Warrant Agreement;
WHEREAS, pursuant to the HPX Merger Agreement, on the effective date of
the HPX Merger, the Warrants will be converted into warrants ("HPX Warrants") to
purchase shares of HPX common stock, par value $.01 per share, in an amount and
at an exercise price as set forth herein;
WHEREAS, pursuant to Section 6.07 of the Warrant Agreement, the parties
hereto desire to modify the Warrant Agreement to clarify certain ambiguous
provisions.
NOW THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
A G R E E M E N T
1. Assumption by MMT and MHT. As of the effective date of the Monterey
Mergers, MMT and MHT hereby expressly assume all rights, responsibilities,
obligations, and liabilities of MMI and MHC under the Warrant Agreement and
represent and warrant that MMT and MHT will timely discharge the same.
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2. Effect of Monterey Mergers and Assumption by MMT and MHT. The
parties hereto agree that the Monterey Mergers will not result in any change in
the overall stock ownership or operations of the Company and are an "internal
reorganization" as that term is used in Section 2.02 of the Warrant Agreement.
Consequently, as a result of the Monterey Mergers: (i) the Warrants will not
become exercisable or transferable; and (ii) no adjustment will be made with
respect to the number of shares of stock or other securities covered by each
Warrant, the number of Warrants outstanding, or the Purchase Price at which a
Warrantholder may purchase shares of stock or other securities upon the exercise
of the Warrants.
3. Assumption by HPX. As of the Effective Date of the HPX Merger
Agreement and upon the execution and delivery of the acceptance set forth as
Supplement A hereto (the "HPX Assumption Date"), HPX hereby expressly assumes
all rights, responsibilities, obligations, and liabilities of MMT and MHT under
the Warrant Agreement and represents and warrants that it will timely discharge
the same.
4. Effect of Merger and Assumption by HPX. On the HPX Assumption Date,
the Warrants will be converted into HPX Warrants to purchase shares of HPX
Common Stock. The number of shares covered by the HPX Warrants and the Purchase
Price of the HPX Common Stock issuable upon exercise of the HPX Warrants shall
be determined as follows:
(a) Number of Shares. The number of shares of HPX Common Stock
issuable upon exercise of each HPX Warrant shall be equal to the sum of: (i) the
total number of Exchange Shares (as such term is defined in the Merger
Agreement) issued in the HPX Merger (calculated in accordance with the terms of
the HPX Merger Agreement) divided by 2,427,776 (the number of shares of Common
Stock of the Company outstanding following the Monterey Mergers on a fully
diluted basis) (the "Warrant Conversion Ratio"); and (ii) 131,840 (the Warrant
holders' proportionate share of the 800,000 shares of Contingent Stock (as such
term is defined in the Merger Agreement) to be issued by HPX in the HPX Merger)
divided by 400,000 (the number of shares issuable upon the exercise of currently
outstanding Warrants). The number of shares of HPX Common Stock issuable upon
exercise of the HPX Warrants shall be subject to further adjustment pursuant to
Article 3 of the Warrant Agreement with respect to any events that may occur
after the effective date of the HPX Merger.
(b) Purchase Price. The Purchase Price of each HPX Warrant
will be determined by: (i) subtracting from the current Purchase Price of $6.25
an amount determined by dividing the Previously Taxed Earnings Distribution (as
such term is defined in the HPX Merger Agreement) by 2,027,776 (the number of
issued and outstanding shares of Common Stock of the Company following the
Monterey Mergers); (ii) dividing the resulting number by the Warrant Conversion
Ratio; and (iii) subtracting $.15. This adjusted Purchase Price will be reduced
by an additional $.20 if during the 18 month period following the HPX Merger the
closing price of the HPX Common Stock on the New York Stock Exchange does not
exceed $3.00 per share for five consecutive trading days.
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5. Escrowed Shares. Upon the HPX Assumption Date and pursuant to the
HPX Merger Agreement, all Exchange Shares issued in the Merger will be issued in
the name of the Monterey Stockholders; provided, that HPX will hold in escrow
approximately 16.5% of the Exchange Shares issued in the names of the Monterey
Stockholders for issuance to Warrant holders upon exercise of the HPX Warrants,
and HPX will remit the Purchase Price paid upon such exercises to the Monterey
Stockholders. Upon expiration of any unexercised HPX Warrants, HPX will
distribute the Exchange Shares underlying such unexercised HPX Warrants to the
Monterey Stockholders.
6. Failure to Close Merger. In the event that the HPX Merger does not
become effective, the Warrants will not be converted into HPX Warrants and no
adjustment will be made to the number of shares covered by the Warrants or the
Purchase Price of the Warrants; provided, that pursuant to the terms of that
certain Limited Guarantee of Payment, dated as of , 1996, the Monterey
Stockholders, on or before March 31, 1997, will re-contribute to the Company the
amount of the Previously Taxed Earnings Distribution which would exceed the
amount permitted to be distributed under the Indenture relating to the Company's
13% Senior Subordinated Notes Due 2001 (which were issued with the Warrants).
7. Clarifications. Pursuant to Section 6.07 of the Warrant Agreement,
the Warrant Agent may, without the concurrence of the Warrant holders, by
supplemental agreement or otherwise, concur with the Company in making any
changes or corrections to the Warrant Agreement that are necessary to cure or
correct any ambiguity or defective or inconsistent provision or clerical
omission or mistake or manifest error therein contained and that are not
prejudicial to the rights of the Warrant holders. The parties hereto agree that
certain provisions of the Warrant Agreement are ambiguous and in need of
clarification and that the Warrant Agreement is modified as follows:
(a) Section 3.03 of the Warrant Agreement, entitled "When No
Adjustment Required," is hereby modified to provide that, following the HPX
Merger: (i) any shares of stock issued upon the exercise of options granted to
HPX officers or employees prior to the Merger will not be counted in determining
whether the aggregate number of shares of stock issued pursuant to any option or
stock purchase agreement entered into with officers or employees of HPX
following the HPX Merger exceeds 15% of the issued and outstanding HPX Common
Stock as of the date of adoption of any such plans or agreements; and (ii)
options granted to the Monterey Stockholders in connection with employment
agreements entered into by HPX and the Monterey Stockholders following the HPX
Merger will be counted against the 15% limitation referred to above only to the
extent that the exercise price of such options is lower than the Purchase Price
of the HPX Warrants as of the date of such option grants.
(b) The Warrant Agreement is hereby modified to provide that
the HPX Merger constitutes the Company's "initial public offering" as that term
is used in the Warrant Agreement.
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8. Successors and Assigns. This Assumption Agreement shall be binding
on and inure to the benefit of the parties and their respective successors and
assigns.
9. Captions. The captions of this Assumption Agreement are solely for
the convenience of reference and shall not affect its interpretation.
10. Counterparts. This Assumption Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
11. Governing Law. This Assumption Agreement shall be governed by and
interpreted in accordance with the laws of the State of Arizona (without regard
to conflict of law principles).
12. No Other Changes. The parties acknowledge that, except as provided
herein, all terms of the Warrant Agreement remain unchanged and are in full
force and effect.
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IN WITNESS WHEREOF, the undersigned, by their duly authorized officers,
have set their hands effective as of the day and year first noted above.
MONTEREY MANAGEMENT, INC.,
an Arizona corporation
By: /s/ Larry W. Seay
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Name: Larry W. Seay
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Title: Vice President
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MONTEREY HOMES CORPORATION,
an Arizona corporation
By: /s/ Larry W. Seay
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Name: Larry W. Seay
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Title: Vice President
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MONTEREY MANAGEMENT-TUCSON, INC.,
an Arizona corporation
By: /s/ Larry W. Seay
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Name: Larry W. Seay
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Title: Vice President
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MONTEREY HOMES-TUCSON CORPORATION,
an Arizona Corporation
By: /s/ Larry W. Seay
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Name: Larry W. Seay
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Title: Vice President
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NORWEST BANK, MINNESOTA, NATIONAL
ASSOCIATION
By: /s/ Raymond S. Hamstadt
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Name: Raymond S. Hamstadt
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Title: Vice President
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SUPPLEMENT A
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Homeplex Mortgage Investments Corporation, a Maryland corporation
("HPX"), hereby agrees that it shall assume all rights, responsibilities,
obligations, and liabilities of Monterey Management-Tucson, Inc., an Arizona
corporation ("MMT"), and Monterey Homes-Tucson Corporation, an Arizona
corporation ("MHT"), under that certain Warrant Agreement, dated as of October
17, 1994, by and among Monterey Management, Inc., an Arizona corporation (as
predecessor to MMT with respect to such Warrant Agreement), Monterey Homes
Corporation, an Arizona corporation (as predecessor to MHT with respect to such
Warrant Agreement), and Norwest Bank, Minnesota, National Association, as
Warrant Agent, and further agrees to abide by and be subject to all of the terms
and conditions of the Warrant Agreement, as modified.
DATED this ____ day of ___________________ , 1996.
HOMEPLEX MORTGAGE INVESTMENTS
CORPORATION, a Maryland corporation
By:
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Name:
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Title:
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