Subject
to the terms and conditions set forth in the Merger Agreement, at the effective time
of the Merger (the “Effective Time”), each issued and
outstanding share of Class A common stock, par value $0.01 per share, of William Lyon
Homes (the “Target Class A Common Shares”), and each
issued and outstanding share of Class B common stock, par value $0.01 per share, of William
Lyon Homes (the “Target Class B Common Shares,”
and together with the Target Class A Common Shares, the “Target Common
Shares”), (excluding any shares (i) that are restricted Target Common
Shares; (ii) held by any stockholder who properly demands and perfects his, her or its
appraisal rights with respect to such shares; or (iii) owned directly by William Lyon
Homes (or any wholly owned subsidiary of William Lyon Homes, the Company or Merger Sub
immediately prior to the Effective Time) will be converted into the right to receive
and become exchangeable for (A) 0.8000 validly issued, fully paid and nonassessable shares
(the “Stock Consideration”) of common stock, $0.00001
par value per share, of the Company (“Company Shares”)
and (B) $2.50 in cash, without any interest thereon (together with the Stock Consideration,
the “Merger Consideration”). No fractional Company Shares
will be issued in the Merger, and William Lyon Homes stockholders will receive cash in
lieu of any fractional shares.
Pursuant
to the Merger Agreement, at the Effective Time, each outstanding and unexercised stock option (each, a “Target
Option”), whether vested or unvested, exercisable or not exercisable, of William Lyon Homes will be substituted
and converted by the Company granting an option (each, a “Company Option”) in substitution
of such Target Option, to purchase a number of whole Company Shares (rounded down to the nearest whole share) equal to the
product obtained by multiplying (i) the number of Target Common Shares subject to such Target Option immediately prior to
the Effective Time by (ii) the sum (the “Equity Award Exchange Ratio”) of (x) 0.8000 and
(y) the quotient obtained by dividing $2.50 by the volume weighted average per-share price of Company Shares during the
ten full trading days ending on (and including) the trading day immediately preceding the Effective Time. The exercise
price per share of such Company Option (rounded up to the nearest cent) will be equal to the quotient obtained by dividing
(i) the exercise price per Target Common Share of such Target Option immediately prior to the Effective Time by (ii) the
Equity Award Exchange Ratio. Following the Effective Time, such Company Options will be subject to the same vesting
and acceleration of vesting terms and conditions as, and have other terms and conditions that are substantially similar
to, those that applied to the Target Options immediately prior to the Effective Time.
In
addition, at the Effective Time, (i) each outstanding award of restricted Target Common Shares (each, a “Target
Restricted Stock Award”) and (ii) each outstanding performance stock unit award in respect of Target Common
Shares (each, a “Target PSU Award”) will be substituted and converted by the Company granting
in substitution a corresponding award in respect of Company Shares (each, a “Company Award”),
with the number of whole Company Shares underlying each such Company Award equal to (rounded down to the nearest whole share)
the product obtained by multiplying (i) the number of Target Common Shares underlying such Target Restricted Stock Award
or Target PSU Award, as applicable, immediately prior to the Effective Time (assuming that any performance-based vesting
conditions applicable to such Target Restricted Stock Award or Target PSU Award, as applicable, for any performance period
that has not been completed as of the Effective Time are achieved at target) by (ii) the Equity Award Exchange Ratio.
Following the Effective Time, such Company Awards will be subject to the same vesting and acceleration of vesting terms
and conditions (other than any performance-based vesting conditions) as, and have other terms and conditions that are substantially
similar to, those that applied to the corresponding Target Restricted Stock Award or Target PSU Award, as applicable, immediately
prior to the Effective Time.
Pursuant
to the Merger Agreement, at the Effective Time, the warrant held by Lyon Shareholder 2012, LLC related to Target Class B
Common Shares (the “Class B Warrant”) will be substituted and converted by the Company
issuing a warrant (the “Company Warrant”) to be settled in Company Shares in substitution
of the Class B Warrant exercisable for a number of whole Company Shares (rounded down to the nearest whole share) equal
to the product obtained by multiplying (i) the number of Target Common Shares subject to the Class B Warrant immediately
prior to the Effective Time by (ii) the Equity Award Exchange Ratio. The exercise price per share of the Company Warrant
(rounded up to the nearest cent) will be equal to the quotient obtained by dividing (i) the exercise price per Target Class
B Common Share of the Class B Warrant immediately prior to the Effective Time by (ii) the Equity Award Exchange Ratio.
Following the Effective Time, the Company Warrant will have and will be subject to substantially identical terms to those
of the Class B Warrant immediately prior to the Effective Time, except that the Company Warrant will be exercisable on a
net exercise basis.
The Merger Agreement also provides that the Company
and board of directors of the Company (the “Company Board”) will take all actions necessary
such that, at the Effective Time, the Company Board will include two individuals, mutually selected by the Company and William
Lyon Homes, who are currently members of the board of directors of William Lyon Homes (the “Target Board”).
Subject to applicable law (including the fiduciary duties of the members of the Company Board), prior to the next annual
meeting of the Company stockholders following the Effective Time, the Company will take all necessary action to cause the
Company Board to nominate the two selected individuals for election at such annual meeting.
The
Company will file with the U.S. Securities and Exchange Commission (the “SEC”) a registration
statement on Form S-4 (the “Form S-4”) in connection with the issuance of Company Shares
in the Merger, which will include as a prospectus and a joint proxy statement relating to (i) the meeting of the Company’s
stockholders to be held to vote on the approval of the issuance of Company Shares pursuant to the Merger and (ii) the meeting
of William Lyon Homes’ stockholders to be held to vote on the adoption of the Merger Agreement and approval of the
Merger.
The
completion of the Merger is subject to the satisfaction or waiver of certain customary conditions, including (i) the adoption
of the Merger Agreement and approval of the Merger by William Lyon Homes’ stockholders, (ii) the approval of the issuance
of Company Shares pursuant to the Merger by the Company’s stockholders, (iii) the absence of any law or order prohibiting
the Merger, (iv) the effectiveness of the Form S-4 and the approval for listing on the NYSE of the Company Shares to be
issued pursuant to the Merger; (v) the absence of a material adverse effect on William Lyon Homes, (vi) the absence of a
material adverse effect on the Company, (vii) delivery of an opinion stating that the Merger will qualify as a “reorganization”
within the meaning of Section 368(a) of the Internal Revenue Code and (viii) certain other customary conditions relating
to the parties’ representations and warranties in the Merger Agreement and the performance of their respective obligations.
The Merger is not subject to any financing condition, and the Company represents and warrants in the Merger Agreement that
it will have at the Effective Time cash on hand and available borrowing capacity sufficient in the aggregate to fund all
of its payment obligations under the Merger Agreement and in connection with the transactions contemplated thereby, including
the Merger.
The
Merger Agreement contains customary representations and warranties made by each of William Lyon Homes and the Company, and
also contains customary pre-closing covenants, including covenants, among others, (i) by William Lyon Homes and the Company
to operate their respective businesses, in all material respects, in the ordinary course consistent with past practice and
to refrain from taking certain actions without the other party’s consent, (ii) by William Lyon Homes not to initiate,
solicit, knowingly facilitate or knowingly encourage and, subject to certain exceptions, not to participate in any discussions
or negotiations with, any person making any proposal for an alternative transaction, (iii) by the Company not to initiate,
solicit, knowingly facilitate or knowingly encourage and, subject to certain exceptions, not to participate in any discussions
or negotiations with, any person making any proposal for an alternative transaction, (iv) by William Lyon Homes to call
and hold a special stockholders meeting and, subject to certain exceptions, require the Target Board to recommend to William
Lyon Homes’ stockholders that they vote in favor of the adoption of the Merger Agreement and approval of the Merger,
(v) by the Company to call and hold a special stockholders meeting and, subject to certain exceptions, require the Company
Board to recommend to the Company’s stockholders that they vote in favor of the approval of the issuance of Company
Shares pursuant to the Merger and (vi) by each of the Company, Merger Sub and William Lyon Homes to use reasonable best
efforts to consummate the Merger and obtain governmental and third party approvals.
The
Merger Agreement contains certain termination rights, including (i) in the event that the parties mutually agree to termination,
(ii) for either of William Lyon Homes or the Company, if the Merger is not consummated on or before May 5, 2020, (iii) for
either of William Lyon Homes or the Company, if any law or order permanently prohibits consummation of the Merger, (iv)
for either of William Lyon Homes or the Company, if the requisite approval of William Lyon Homes’ stockholders is
not obtained, (v) for either of William Lyon Homes or the Company, if the requisite approval of the Company’s stockholders
is not obtained, (vi) for either of William Lyon Homes or the Company, if the other party is in breach of its respective
representations and warranties or covenants under the Merger Agreement such that a closing condition is not satisfied (subject
to notice and cure and other customary exceptions), (vii) for the Company, if the Target Board changes its recommendation
to William Lyon Homes’ stockholders, (viii) for William Lyon Homes, if the Company Board changes its recommendation
to the Company’s stockholders or (ix) for William Lyon Homes, in order to enter into an agreement providing for a
superior alternative transaction.
The
Merger Agreement provides that, in connection with the termination of the Merger Agreement under specified circumstances,
William Lyon Homes may be required to pay to the Company a termination fee equal to $18,000,000 in cash. In addition,
if the Merger Agreement is terminated by either of William Lyon Homes or the Company because the requisite approval of William
Lyon Homes’ stockholders is not obtained, then William Lyon Homes will be required to reimburse the
Company
for all reasonable out-of-pocket fees and expenses incurred in connection with the negotiation of the Merger Agreement or
the consummation of any of the transactions contemplated by the Merger Agreement, for an amount not to exceed $9,000,000
in cash. Such amount will be credited against any termination fee that becomes payable by William Lyon Homes upon
entry into an agreement for, or consummation of, certain alternative transactions within twelve months of termination of
the Merger Agreement.
The
Merger Agreement also provides that, in connection with the termination of the Merger Agreement under specified circumstances,
the Company may be required to pay to William Lyon Homes a termination fee equal to $40,000,000 in cash. In addition,
if the Merger Agreement is terminated by either of William Lyon Homes or the Company because the requisite approval of the
Company’s stockholders is not obtained, then the Company will be required to reimburse William Lyon Homes for all
reasonable out-of-pocket fees and expenses incurred in connection with the negotiation of the Merger Agreement or the consummation
of any of the transactions contemplated by the Merger Agreement, for an amount not to exceed $15,000,000 in cash.
The
foregoing description of the Merger Agreement is only a summary, does not purport to be complete and is qualified in its
entirety by reference to the full text of the Merger Agreement, which is attached hereto as Exhibit 2.1 and incorporated
herein by reference. The Merger Agreement has been attached to provide investors with information regarding its terms. It
is not intended to provide any other factual information about the Company or William Lyon Homes. In particular, the assertions
embodied in the representations and warranties contained in the Merger Agreement are qualified by information in confidential
disclosure schedules provided by each of the Company and William Lyon Homes in connection with the signing of the Merger
Agreement. These confidential disclosure schedules contain information that modifies, qualifies and creates exceptions to
the representations and warranties and certain covenants set forth in the Merger Agreement. Moreover, certain representations
and warranties in the Merger Agreement were used for the purpose of allocating risk between the Company and William Lyon
Homes rather than establishing matters as facts. Accordingly, the representations and warranties in the Merger Agreement
should not be relied upon as characterizations of the actual state of facts about the Company or William Lyon Homes.
Voting
Agreement
Concurrently
with the execution and delivery of the Merger Agreement, on November 5, 2019, the Company entered into a voting agreement
(the “Voting Agreement”) with William H. Lyon, Lyon Shareholder 2012, LLC and The William
Harwell Lyon Separate Property Trust established July 28, 2000 (collectively, the “Lyon Stockholders”).
Pursuant to the terms of the Voting Agreement, the Lyon Stockholders agreed, among other things, to vote all issued and
outstanding Target Common Shares currently held or thereafter acquired by the Lyon Stockholders (the “Lyon
Shares”) in favor of the adoption of the Merger Agreement and against any proposal by third parties to
acquire William Lyon Homes, and to take certain other actions in furtherance of the transactions contemplated by the Merger
Agreement, including consenting to the treatment of the Class B Warrant as contemplated by the Merger Agreement, in each
case subject to the limitations set forth in the Voting Agreement. In the event that the Target Board changes its
recommendation that William Lyon Homes stockholders vote in favor of the adoption of the Merger Agreement and approval of
the Merger, the Lyon Stockholders will only be required under the Voting Agreement to vote shares representing 30% of the
aggregate voting power of the outstanding Target Common Shares in favor of the adoption of the Merger Agreement and approval
of the Merger.
Subject to certain
exceptions, the Voting Agreement prohibits certain transfers by the Lyon Stockholders of any of the Lyon Shares and certain
other actions that would impair the ability of the Lyon Stockholders to fulfill their respective obligations under the Voting
Agreement. The Voting Agreement also contains non-solicitation covenants with respect to alternative transactions generally
similar to those contained in the Merger Agreement with respect to William Lyon Homes.
The Voting Agreement
also provides a six-month lock-up, from the Effective Time, on any Company Shares received by the Lyon Stockholders as consideration
in the Merger, restricting the Lyon Stockholders from transferring or disposing of such Company Shares for such period (the
“Lock-Up”).
The
Voting Agreement will terminate automatically on the first to occur of (i) certain amendments or waivers of the Merger Agreement
without the Lyon Stockholders’ prior consent, (ii) the Effective Time (with the exception of the obligations under
the Lock-Up, which shall terminate six months after the Effective Time) and (iii) the termination of the Merger Agreement.
The
foregoing description of the Voting Agreement is only a summary, does not purport to be complete and is qualified in its
entirety by reference to the full text of the Voting Agreement, which is attached hereto as Exhibit 10.1 and incorporated
herein by reference.
Debt
Financing
In
connection with the Merger Agreement, on November 5, 2019, certain subsidiaries of the Company entered into a debt financing
commitment letter (the “Debt Commitment Letter”) with Citigroup Global Markets Inc. (the
“Lender”). Pursuant to the Debt Commitment Letter, the Lender has committed to arrange
and provide the Company with up to $1.1 billion aggregate principal amount of unsecured term loans with a 364 day maturity
(the “Bridge Facility”) to finance the repurchase of any senior unsecured notes of William
Lyon Homes tendered pursuant to a change of control offer that may be made in connection with the consummation of the Merger.
The commitment in respect of the Bridge Facility will be reduced by the amount of certain indebtedness incurred by the Company
(other than indebtedness under the Company’s existing revolving credit facility), the net cash proceeds of certain
equity issuances and the net cash proceeds of certain asset sales.
The proceeds of
the Bridge Facility may be used to finance the repurchase of William Lyon Homes’ senior unsecured notes as described
above. The availability of the borrowings under the Bridge Facility is subject to the satisfaction of certain customary
conditions, including the consummation of the Merger.
Item
9.01 Financial Statements
and Exhibits
(d)
Exhibits
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Exhibit No.
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Description
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2.1
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10.1
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104
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Cover Page Interactive Data File (embedded with the Inline XBRL document)
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†
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Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the SEC.
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FORWARD-LOOKING
STATEMENTS
Some
of the statements in this Current Report on Form 8-K are forward-looking statements (or forward-looking information) within
the meaning of applicable U.S. securities laws. These include statements using the words “believe,” “target,”
“outlook,” “may,” “will,” “should,” “could,” “estimate,”
“continue,” “expect,” “intend,” “plan,” “predict,” “potential,”
“project,” “intend,” “estimate,” “aim,” “on track,” “target,”
“opportunity,” “tentative,” “positioning,” “designed,” “create,”
“seek,” “would,” “upside,” “increases,” “goal,” “guidance”
and “anticipate,” and similar statements and the negative of such words and phrases, which do not describe the
present or provide information about the past. There is no guarantee that the expected events or expected results will actually
occur. Such statements reflect the current views of management of the Company or William Lyon Homes, and are subject to
a number of risks and uncertainties. These statements are based on many assumptions and factors, including general economic
and market conditions, industry conditions, operational and other factors. Any changes in these assumptions or other factors
could cause actual results to differ materially from current expectations. All forward-looking statements attributable to
William Lyon Homes or the Company or persons acting on their behalf, and are expressly qualified in their entirety by the
cautionary statements set forth in this paragraph. Undue reliance should not be placed on such statements. In addition,
material risks and uncertainties that could cause actual results to differ from forward-looking statements include, among
other things: the inherent uncertainty associated with financial or other
projections,
including anticipated synergies; the integration of the Company and William Lyon Homes and the ability to recognize the
anticipated benefits from the combination of the Company and William Lyon Homes, and the amount of time it may take to realize
those benefits, if at all; the risks associated with the Company’s and William Lyon Homes’ ability to satisfy
the conditions to closing the consummation of the merger, including obtaining the requisite stockholder approvals, and the
timing of the closing of the merger; the failure of the merger to close for any other reason; the outcome of any legal proceedings
that may be instituted against the parties and others related to the merger; any unanticipated difficulties or expenditures
relating to the merger; the effect of the announcement and pendency of the merger on the respective business relationships
or operating results of the Company, William Lyon Homes, or the combined company; risks relating to the value of the Company
common stock to be issued in connection with the merger, and the value of the combined company’s common stock after
the merger is consummated; the anticipated size of the markets and continued demand for the Company’s and William
Lyon Homes’ homes and the impact of competitive responses to the announcement and pendency of the merger; the diversion
of attention of management of the Company or William Lyon Homes from ongoing business concerns during the pendency of the
merger; and the access to available financing on a timely basis, and the terms of any such financing. Additional risks and
uncertainties are described in the Company’s and William Lyon Homes’ respective filings with the U.S. Securities
and Exchange Commission (the “SEC”), including as described under the heading “Risk
Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC
on February 20, 2019, in William Lyon Homes’ Annual Report on Form 10-K for the year ended December 31, 2018 filed
with the SEC on February 28, 2019, and in their respective subsequent Quarterly Reports on Form 10-Q. Forward-looking statements
speak only as of the date they are made. Except as required by law, neither the Company nor William Lyon Homes has any intention
or obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to
reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the
forward-looking statements.
IMPORTANT
ADDITIONAL INFORMATION AND WHERE TO FIND IT
This communication
is not intended to and does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy or an
invitation to purchase or subscribe for any securities or the solicitation of any vote or approval in any jurisdiction,
nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law.
In connection with the proposed merger between the Company and William Lyon Homes, the Company will file with the SEC a
registration statement on Form S-4 that will include a joint proxy statement of the Company and William Lyon Homes that
also constitutes a prospectus of the Company (the “Joint Proxy Statement/Prospectus”).
The Company and William Lyon Homes plan to mail to their respective shareholders the definitive Joint Proxy Statement/Prospectus
in connection with the merger. INVESTORS AND SECURITY HOLDERS OF THE COMPANY AND WILLIAM LYON HOMES ARE URGED TO READ THE
JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY WHEN IT BECOMES
AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE COMPANY, WILLIAM LYON HOMES, THE MERGER AND RELATED MATTERS.
Investors and security holders will be able to obtain free copies of the Joint Proxy Statement/Prospectus (when available)
and other documents filed with the SEC by the Company and William Lyon Homes through the website maintained by the SEC at
www.sec.gov. In addition, investors and security holders will be able to obtain free copies of the documents filed with
the SEC by the Company in the Investor Relations section of the Company’s website at http://investors.taylormorrison.com
or by contacting the Company’s Investor Relations at investor@taylormorrison.com or by calling (480) 734-2060, and
will be able to obtain free copies of the documents filed with the SEC by William Lyon Homes in the Investor Relations section
of William Lyon Homes’ website at www.lyonhomes.com or by contacting William Lyon Homes’ Investor Relations
at WLH@finprofiles.com or by calling (310) 622-8223.
PARTICIPANTS
IN THE MERGER SOLICITATION
The
Company, William Lyon Homes and certain of their respective directors, executive officers and employees may be considered
participants in the solicitation of proxies in connection with the proposed merger. Information regarding the persons who
may, under the rules of the SEC, be deemed participants in the solicitation of the shareholders of the Company and William
Lyon Homes in connection with the merger, including a description of their respective direct or indirect interests, by security
holdings or otherwise, will be included in the Joint Proxy Statement/Prospectus described above when it is filed with the
SEC. Additional information regarding the Company’s directors and executive officers is also included in the Company’s
proxy statement for its 2019 Annual Meeting of Shareholders, which was filed with the SEC on April 16, 2019, and information
regarding William Lyon Homes’ directors and executive officers is also included in William Lyon Homes’ proxy
statement for its 2019 Annual Meeting of Stockholders, which was filed with the SEC on March 29, 2019. These documents are
available free of charge as described above.