DHHCU DiamondHead Holdings Corporation

Business Combination Agreement

On September 10, 2022, DiamondHead Holdings Corp., a Delaware corporation (“DHHC”), entered into a Business Combination Agreement (the “Business Combination Agreement”) with Hestia Merger Sub, Inc., a South Carolina corporation and wholly-owned subsidiary of DHHC (“Merger Sub”), and Great Southern Homes, Inc., a South Carolina corporation (“GSH”).

Pursuant to the terms of the Business Combination Agreement, a business combination between DHHC will be effected through the merger of Merger Sub with and into GSH (the “Merger”), with GSH surviving the Merger as a wholly-owned subsidiary of DHHC. Upon the consummation of the transactions contemplated by the Business Combination Agreement (the “Transactions”), DHHC expects to be renamed United Homes Group, Inc.

Pre-Closing Recapitalization of GSH

Prior to the effective time of the Merger (the “Effective Time”), in order to facilitate the consummation of the Transactions, GSH will effect a pre-closing recapitalization (the “Pre-Closing Recapitalization”), including (i) authorizing two new classes of GSH common stock, such that the capitalization of GSH will consist of GSH Class A common stock, no par value, which will carry one vote per share (“GSH Class A Shares”) and GSH Class B common stock, no par value, which will carry two votes per share (“GSH Class B Shares”, and together with GSH Class A Shares, “GSH Shares”), (ii) exchanging each share of GSH common stock, no par value (“GSH Common Stock”), held by the Majority Stockholders (as defined in the Business Combination Agreement) immediately prior to the Pre-Closing Recapitalization for a GSH Class B Share on a 1:1 basis, (iii) exchanging each share of GSH Common Stock held by each remaining stockholder of GSH for a GSH Class A Share on a 1:1 basis, (iv) amending, restating, supplementing or otherwise modifying GSH’s governing documents to reflect the Pre-Closing Recapitalization, and (v) entering into, terminating, amending, restating, supplementing or otherwise modifying any contracts relating to equity securities of GSH to reflect the Pre-Closing Recapitalization.

Merger Consideration

Upon the terms and subject to the conditions set forth in the Business Combination Agreement, at the Effective Time:

Pursuant to the terms of the Business Combination Agreement, DHHC is required to cause the DHHC Class A Shares to be issued in connection with the Transactions to be listed on the NASDAQ Capital Market (“Nasdaq”) prior to the closing of the Merger (the “Closing” and the date on which the Closing occurs, the “Closing Date”).

Earn Out Consideration

The holders of GSH Shares, GSH Options and GSH Warrants, as of immediately prior to the Effective Time, will also have the contingent right to receive up to an aggregate of 20,000,000 Earn Out Shares (as defined in the Business Combination Agreement). Each such holder will be entitled to receive Earn Out Shares in accordance with their Earn Out Pro Rata Share (as defined in the Business Combination Agreement) in three tranches upon the occurrence of the following milestones during the period commencing on the 90th day following the Closing Date and ending on the fifth anniversary of the Closing Date: (i) a one-time issuance of 7,500,000 Earn Out Shares on the first date on which the volume weighted average price of DHHC Shares over any 20 trading days within the preceding 30 consecutive trading day period (as adjusted, the “VWAP Price”) is greater than or equal to $12.50 (“Triggering Event I”); (ii) a one-time issuance of 7,500,000 Earn Out Shares on the first date on which the VWAP Price is greater than or equal to $15.00 (“Triggering Event II”); and (iii) a one-time issuance of 5,000,000 Earn Out Shares on the first date on which the VWAP Price is greater than or equal to $17.50 (“Triggering Event III”, together with Triggering Event I and Triggering Event II, the “Earn-Out Milestones”).

The Sponsor has agreed not to transfer approximately 2.1 million Sponsor Earnout Shares (as defined below) until such shares are released by DHHC upon the achievement of the Earn-Out Milestones pursuant to the Sponsor Support Agreement (as defined below). The Sponsor has also agreed that in the event that Closing DHHC Cash is less than $100,000,000, up to 1.0 million Sponsor Shares (as defined below) will be Sponsor Earnout Shares, subject to release upon the achievement of the Earn-Out Milestones. For more information regarding the Sponsor Earnout Shares and Earn-Out Milestones, see “Sponsor Support Agreement” below.

Representations and Warranties

The Business Combination Agreement contains customary representations and warranties of the parties thereto with respect to, among other things, (a) organization and qualification, (b) capital structure, (c) authorization to enter into the Business Combination Agreement, (d) approvals and permits, (e) financial statements, (f) absence of certain changes, (g) absence of undisclosed liabilities, (h) material contracts, (i) litigation, (j) employee matters, (k) compliance with laws, (l) taxes, (m) real and personal property, (n) homeowners associations, (o) construction matters, (p) intellectual property, (q) environmental matters, (r) insurance matters, (s) transactions with affiliates, and (t) regulatory compliance.

Covenants

The Business Combination Agreement includes customary covenants of the parties with respect to the operation of their respective businesses prior to consummation of the Merger and their respective efforts to consummate the Merger. The Business Combination Agreement also contains additional covenants of the parties, including, among others, (a) covenants providing for DHHC, Merger Sub and GSH to cooperate in the preparation of the Registration Statement / Proxy Statement (as defined in the Business Combination Agreement) required to be filed in connection with the Transactions, (b) covenants for DHHC to hold a special meeting of its stockholders to vote on, among other things, the approval of the Business Combination Agreement and the Merger, (c) covenants for GSH to obtain all required consents from third parties and lenders under its financing arrangements, including the Lender Consents (as defined in the Business Combination Agreement) or obtaining Alternative Financing (as defined in the Business Combination Agreement), (d) covenants for GSH to obtain and deliver the Company Stockholder Written Consent (as defined in the Business Combination Agreement) within one (1) Business Day following the date of the Business Combination Agreement, (e) covenants for GSH to effect the Pre-Closing Recapitalization and (f) covenants for GSH to take all actions and execute documentation required to deconsolidate with certain affiliated entities.

DHHC Equity Incentive Plan

Prior to the Effective Time, DHHC will adopt the DHHC Incentive Equity Plan (as defined in the Business Combination Agreement) subject to the receipt of the requisite approval of DHHC’s stockholders.

GSH Non-Solicitation Restrictions

During the period between the date of the Business Combination Agreement and the earlier of (x) the Closing or (y) the termination of the Business Combination Agreement in accordance with its terms, GSH has agreed not to, among other things, (i) solicit, initiate, knowingly encourage (including by means of furnishing or disclosing information), knowingly facilitate, discuss or negotiate, directly or indirectly, any inquiry, proposal or offer (written or oral) with respect to a Company Acquisition Proposal (as defined in the Business Combination Agreement), (ii) furnish or disclose any non-public information to any person in connection with, or that would reasonably be expected to lead to, a Company Acquisition Proposal, (iii) enter into any contract or other arrangement or understanding regarding a Company Acquisition Proposal, (iv) other than as contemplated by the Business Combination Agreement, prepare or take any steps in connection with a public offering of any equity securities of GSH or its subsidiaries or (v) otherwise cooperate in any way, or assist or participate in, or knowingly facilitate or encourage any effort or attempt by any person to do or seek to do any of the items set forth above. As of the date of the Business Combination Agreement, GSH will immediately cease any and all existing discussions or negotiations with any person conducted prior to the execution and delivery of the Business Combination Agreement with respect to, or which is reasonably likely to give rise to or result in, a Company Acquisition Proposal.

DHHC Exclusivity Restrictions

During the period between the date of the Business Combination Agreement and the earlier of (x) the Closing or (y) the termination of the Business Combination Agreement in accordance with its terms, DHHC has agreed not to, among other things, (i) solicit, initiate, knowingly encourage (including by means of furnishing or disclosing information), knowingly facilitate, discuss or negotiate, directly or indirectly, any inquiry, proposal or offer (written or oral) with respect to a DHHC Acquisition Proposal (as defined in the Business Combination Agreement), (ii) furnish or disclose any non-public information to any person in connection with, or that would reasonably be expected to lead to, a DHHC Acquisition Proposal, (iii) enter into any contract or other arrangement or understanding regarding a DHHC Acquisition Proposal, (iv) other than as contemplated by the Business Combination Agreement, prepare or take any steps in connection with an offering of any securities of DHHC or its subsidiaries or (v) otherwise cooperate in any way with, or assist or participate in, or knowingly facilitate or encourage any effort or attempt by any person to do or seek to do any of the items set forth above.

DHHC Change in Recommendation

DHHC is required to include in the Registration Statement/ Proxy Statement the recommendation of DHHC’s board of directors (the “DHHC Board”) to DHHC’s stockholders that they approve the Transaction Proposals (as defined in the Business Combination Agreement) relating to the Transactions (the “DHHC Board Recommendation”), except in the case of a Change in Recommendation. The DHHC Board shall be permitted to withdraw or modify the DHHC Board Recommendation (a “Change in Recommendation”) if the DHHC Board determines in good faith, after consultation with its legal counsel, that a failure to make a Change in Recommendation would be inconsistent with its fiduciary duties under applicable law. If the DHHC Board makes a Change in Recommendation, DHHC will still be required to submit the Transaction Proposals to DHHC’s stockholders for approval as contemplated by the Business Combination Agreement.

Conditions to Each Party’s Obligations

The obligations of DHHC, Merger Sub and GSH to consummate the Merger are subject to the satisfaction or waiver of certain closing conditions, including, but not limited to, (i) the absence of any governmental order or law restraining, prohibiting or making illegal the consummation of the Merger, (ii) the approval of DHHC’s stockholders of the Transaction Proposals, (iii) the approval of GSH’s stockholders of the Business Combination Agreement and the Transactions (including the Merger and the Pre-Closing Recapitalization), (iv) the effectiveness of the Registration Statement/Proxy Statement under the Securities Act of 1933, as amended (the “Securities Act”), and (v) DHHC having at least $5,000,001 of net tangible assets as of immediately after the Effective Time.

The obligation of DHHC to consummate the Merger is also subject to the satisfaction or waiver of other closing conditions, including, but not limited to, (i) the representations and warranties of GSH being true and correct to the standards applicable to such representations and warranties, (ii) each of the covenants of GSH having been performed or complied with in all material respects, (iii) the Lender Consents or Alternative Financing (each as defined in the Business Combination Agreement) being obtained, (iv) each of the written consents as required under certain scheduled contracts being obtained, (v) the Pennington De-Consolidation (as defined in the Business Combination Agreement) being completed in compliance with the terms of the Business Combination Agreement, and certain agreements relating thereto being executed, (vi) the Pre-Closing Recapitalization being completed in compliance with the terms of the Business Combination Agreement, (vii) the absence of a Company Material Adverse Effect (as defined in the Business Combination Agreement) and (viii) the delivery of customary closing certificates and transaction documents.

The obligation of GSH to consummate the Merger is also subject to the satisfaction or waiver of other closing conditions, including, but not limited to, (i) the representations and warranties of DHHC and Merger Sub being true and correct to the standards applicable to such representations and warranties, (ii) each of the covenants of DHHC having been performed or complied with in all material respects, (iii) Closing DHHC Cash (as defined in the Business Combination Agreement) being equal to or exceeding $125,000,000 (the “Minimum Cash Condition”), (iv) the approval by Nasdaq of the listing of the DHHC Class A Shares to be issued in connection with the Merger, (v) the adoption of the DHHC A&R Certificate of Incorporation and DHHC A&R Bylaws (each as defined in the Business Combination Agreement), (vi) the Lender Consents or Alternative Financing being obtained, (vii) the DHHC Incentive Equity Plan being approved by the DHHC Board and stockholders, (viii) the absence of a DHHC Material Adverse Effect (as defined in the Business Combination Agreement), (ix) the composition of the board of DHHC post-Business Combination and (x) the delivery of customary closing certificates and transaction documents.

If any of the conditions to a party’s obligation to consummate the Merger is not satisfied or waived in writing by such party, then such party will not be required to consummate the Merger. There can be no assurance that the Minimum Cash Condition will be satisfied on the Closing Date. In the event that the public shareholders exercise their redemption rights with respect to a number of DHHC Shares such that the Minimum Cash Condition would not be met based on cash held in the DHHC trust account, DHHC would need to seek to arrange for additional third-party financing to be able to satisfy the Minimum Cash Condition. DHHC plans to pursue third-party financing to satisfy the Minimum Cash Condition; however, there can be no assurance that any third-party financing will be entered into in connection with the Merger and there can be no assurance that the Minimum Cash Condition will be satisfied. If the Minimum Cash Condition is not satisfied, amended or waived by GSH pursuant to the terms of the Business Combination Agreement, then the Merger would not be consummated.

Waivers

If permitted under applicable law, either DHHC or GSH may waive in writing any conditions for the benefit of itself contained in the Business Combination Agreement or in any document delivered pursuant to the Business Combination Agreement. Notwithstanding the foregoing, pursuant to DHHC’s current certificate of incorporation, DHHC cannot consummate the proposed transaction if it has less than $5,000,001 of net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), remaining after the Closing or fails to meet any greater net tangible asset or cash requirement contained in the Business Combination Agreement after the Closing.

Termination

The Business Combination Agreement may be terminated under certain customary and limited circumstances prior to the Closing, including, but not limited to:

If the Business Combination Agreement is validly terminated, none of the parties to the Business Combination Agreement will have any liability or any further obligation under the Business Combination Agreement other than customary confidentiality obligations, except in the case of Willful Breach or Fraud (each as defined in the Business Combination Agreement).

The foregoing description of the Business Combination Agreement and the Transactions, including the Merger, does not purport to be complete and is qualified in its entirety by the terms and conditions of the Business Combination Agreement, a copy of which is attached hereto as Exhibit 2.1 and is incorporated herein by reference. The Business Combination Agreement contains representations, warranties and covenants that the parties made to each other as of the date of the Business Combination Agreement or other specific dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among the parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating the Business Combination Agreement. The Business Combination Agreement has been attached to provide investors with information regarding its terms and is not intended to provide any other factual information about DHHC, GSH or any other party to the Business Combination Agreement. In particular, the representations, warranties, covenants and agreements contained in the Business Combination Agreement, which were made only for purposes of the Business Combination Agreement and as of specific dates, were solely for the benefit of the parties to the Business Combination Agreement, may be subject to limitations agreed upon by the contracting parties (including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Business Combination Agreement instead of establishing these matters as facts) and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors and reports and documents filed with the U.S. Securities and Exchange Commission (the “SEC”). Investors should not rely on the representations, warranties, covenants and agreements, or any descriptions thereof, as characterizations of the actual state of facts or condition of any party to the Business Combination Agreement. In addition, the representations, warranties, covenants and agreements and other terms of the Business Combination Agreement may be subject to subsequent waiver or modification. Moreover, information concerning the subject matter of the representations and warranties and other terms may change after the date of the Business Combination Agreement, which subsequent information may or may not be fully reflected in DHHC’s public disclosures.

Sponsor Support Agreement

In connection with the execution of the Business Combination Agreement, DHP SPAC-II Sponsor LLC, a Delaware limited liability company (together with any permitted affiliate transferees thereunder, the “Sponsor”) entered into a sponsor support agreement (the “Sponsor Support Agreement”) with DHHC and GSH, pursuant to which the Sponsor agreed to, among other things, (i) vote at any meeting of the shareholders of DHHC all of its DHHC’s Class B common stock, par value $0.0001 per share (the “Sponsor Shares”) and any securities acquired after the execution of the Sponsor Support Agreement, in favor of each Transaction Proposal, (ii) be bound by certain other covenants and agreements related to the Transactions and (iii) be bound by certain transfer and redemption restrictions with respect to such Sponsor Shares, in each case, on the terms and subject to the conditions set forth in the Sponsor Support Agreement.

The Sponsor has also agreed, subject to certain exceptions, not to transfer approximately 2.1 million Sponsor Earnout Shares (as defined in the Sponsor Support Agreement) until such shares are released under the Sponsor Support Agreement. Pursuant to the Sponsor Support Agreement, 37.5%, 37.5% and 25% of such Sponsor Earnout Shares will be released by DHHC, respectively, upon the achievement of the Earn-Out Milestones, on the terms and subject to the conditions set forth in the Sponsor Support Agreement. Any such Sponsor Earnout Shares not vested prior to the fifth anniversary of the Closing will be deemed to be forfeited.

The Sponsor has also agreed that in the event that Closing DHHC Cash is less than $100,000,000, up to 1.0 million Sponsor Shares will be Sponsor Earnout Shares, subject to the same release conditions set forth in the preceding paragraph. In addition, members of the Sponsor have made a commitment to purchase and not redeem an aggregate of 2.5 million DHHC public shares.

The Sponsor has also agreed, pursuant to the terms of the Sponsor Support Agreement, to forfeit approximately 1.8 million Sponsor Shares and approximately 50% of its warrants that were acquired in a privately placement consummated simultaneously with the closing of DHHC’s initial public offering.

The foregoing description of the Sponsor Support Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Sponsor Support Agreement, a copy of which is attached as Exhibit 10.1 hereto, and the terms of which are incorporated herein by reference.

Amended and Restated Registration Rights Agreement

The Business Combination Agreement contemplates that, upon completion of the Merger, DHHC (which expects to be named United Homes Group, Inc. (“UHG”) at that time), the Sponsor, certain securityholders of DHHC and certain former stockholders of GSH will enter into an Amended and Restated Registration Rights Agreement (the “A&R Registration Rights Agreement”). Pursuant to the A&R Registration Rights Agreement, among other things, UHG agrees to file a shelf registration statement with respect to the registrable securities under the A&R Registration Rights Agreement within 45 days of the Closing. Up to two times in any 12-month period, certain legacy DHHC securityholders and legacy GSH stockholders may request to sell all or any portion of their registrable securities in an underwritten offering that is registered pursuant to the shelf registration statement, so long as the total offering price is reasonably expected to exceed $10,000,000. The combined company will also provide customary “demand” and “piggyback” registration rights. The A&R Registration Rights Agreement will provide that UHG will pay certain expenses relating to such registrations and indemnify the securityholders against certain liabilities.

Further, each securityholder party to the A&R Registration Rights Agreements agrees not to transfer any of their registerable securities subject to lock-up transfer restrictions (as described in the A&R Registration Rights Agreement) until the end of the applicable Lock-Up Period (as defined in the A&R Registration Rights Agreement) subject to certain customary exceptions described therein.

The foregoing description of the A&R Registration Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the form of A&R Registration Rights Agreement, a copy of which is attached as Exhibit 10.2 hereto, and the terms of which are incorporated herein by reference.