MEMBERSHIP INTEREST PURCHASE AGREEMENT
Exhibit 2.2
Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.
EXECUTION VERSION
MEMBERSHIP INTEREST PURCHASE AGREEMENT (“Agreement”) dated as of this 3d day of October, 2011, by and between NorthStar Hawaii, LLC, a Delaware limited liability company or its assigns (the “Buyer”) on one hand, and Vestin Realty Mortgage I, Inc., a Maryland corporation (“VRMI”) and Vestin Realty Mortgage II, Inc., a Maryland corporation (“VRMII”, and collectively with VRMI, referred to as “Sellers”) and Buyer and Sellers are collectively referred to as the “Parties”).
WHEREAS, Sellers are commercial real estate lenders. Sellers acquired title to the assets of the Hawaiian Businesses, as defined herein, via judicial foreclosure sale of a loan and protracted litigation with the State of Hawaii. The foreclosure sale was completed and approved by an Hawaiian court on July 10, 2010 and approved by the State of Hawaii Department of Commerce and Consumer Affairs (“DCCA”) for licensure on July 10, 2010. Since that date, Sellers have contracted with Hawaiian Funeral Services Management, Inc. ( the “Management Company”) to manage the assets and businesses of the Hawaiian Businesses.
WHEREAS, the Parties entered into a letter of intent dated October 7, 2010 (the “Letter of Intent”) whereby Sellers agreed to negotiate with Buyer for the sale of the operating assets and certain of the liabilities of the Hawaiian cemetery and funeral entities, as more fully described on Exhibit “A” (“Hawaiian Businesses”); and
WHEREAS, Sellers own one hundred percent (100%) of the outstanding ownership interests (the “Membership Interests”) in Hawaii Funeral Services, LLC, an Hawaiian limited liability company (the “Company”); and
ARTICLE I
(a) On the terms and subject to the conditions of this Agreement, the purchase price for the Membership Interests shall be Fifteen Million Three Hundred Thousand Dollars ($15,300,000.00) (the “Purchase Price”).
(b) The Purchase Price shall be paid by Buyer to Sellers at Closing as follows:
(i) Twelve Million Three Hundred Thousand Dollars ($12,300,000) in cash by bank wire transfer of immediately available funds to such account as the Sellers shall designate to the Buyer.
(ii) Three Million Dollars ($3,000,000) into an escrow account held by Provident Trust Company as escrow agent (the “Escrow Agent”) pursuant to the terms of an escrow agreement (the “Escrow Agreement), as attached hereto as Exhibit E. Such an amount and all interest or other earnings on such funds shall be the “Escrow Funds”.
(iii) Disbursement of such Escrow Funds shall be made in accordance with the terms of the Escrow Agreement.
(c) Subject to the Closing of the transaction contemplated hereby and the terms and conditions of this Agreement, Buyer shall pay to the Escrow Agent the sum of One Million Dollars ($1,000,000) (the “Management Company Payment”). The Management Company Payment shall be delivered by bank wire transfer of immediately available funds to such account as the Sellers shall designate to the Buyer.
(a) Sellers will fully pay and discharge and be solely responsible for all Retained Liabilities, as defined herein, and any prepayment penalties or other fees and expenses associated with such payment. To the extent such Retained Liabilities are known to Sellers or Company, such Retained Liabilities shall be paid and discharged at or before the Closing Date. For purposes hereof, “Retained Liabilities” shall mean any (a) obligations relating to indebtedness for borrowed money by the Company or the Hawaiian Businesses, including any bank overdraft, (b) obligations evidenced by a bond, note, debenture or similar instrument of the Company or Hawaiian Businesses, (c) obligations in respect of reimbursement obligations related to banker’s acceptances or letters of credit by the Company or the Hawaiian Businesses, (d) obligations for the deferred purchase price of property or services (other than current accounts and notes payable to suppliers and similar accrued liabilities incurred in the ordinary course of business that are thirty days old or less and except for customer/consumer pre need contracts and for private estate sales as described in Schedule 1.4(a) hereto), (e) indebtedness or obligations of the types referred to in the preceding clauses (a) through (d) of any other Person secured by any Lien on any assets of any of the Hawaiian Businesses, even though such Hawaiian Business has not assumed or otherwise become liable for the payment thereof, (f) obligations in the nature of guarantees of obligations of the type described in clauses (a) through (e) above of any other Person, (g) liabilities under any synthetic lease, Tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product where the transaction is considered indebtedness for borrowed money for federal income Tax purposes but is classified as an operating lease in accordance with generally accepted accounting principles (“GAAP”) for financial reporting purposes, (h) all liabilities, obligations, debts, duties or commitments of the Hawaiian Businesses related to or arising from the conduct and operation of the Business, including but not limited to (A) any accounts payable aged over 30 days or not arising in the ordinary course of business, or (B) any payable to Hawaii Management Company except such payment in Section 1.2(c) and (i) any liabilities associated with those matters set forth in the Escrow Agreement. Anything contained herein to the contrary notwithstanding, the Retained Liabilities shall not include any Accepted Liability.
(b) Buyer shall assume and accept only the following liabilities and obligations (collectively the “Accepted Liabilities”):
(i) the obligations pursuant to the terms and conditions of any preneed funeral and/or cemetery merchandise and/or service agreements (“Preneed Agreements”) to which any Hawaiian Business is a party and/or agreements are performable by the Hawaiian Businesses, including but not limited to those obligations set forth in the RRA and the ARRA, as those terms are defined herein;
(ii) the current accounts payable of the Company; for purposes of this section all accounts payable arising in the ordinary course of business that are thirty (30) days old or less shall be deemed “current accounts payable” but only up to the amount set forth therein;
(iii) the obligations of the Hawaiian Businesses or the Company under and pursuant to the terms and conditions of those contracts and leases and other liabilities set forth on Schedule 1.4(b)(iii) hereto; and
(iv) any liabilities, obligations, debts and/or commitments relating to or arising from the conduct or operations of the Hawaiian Businesses or the Company from and after the Closing Date, except as otherwise specifically set forth in this Agreement.
ARTICLE II
ARTICLE III
Subject to and qualified by the items disclosed in the disclosure schedule (the “Disclosure Schedule”) delivered by the Sellers contemporaneously with the execution of this Agreement, the Sellers, jointly and severally, hereby represent and warrant to the Buyer as of the date hereof and on the Closing Date, and acknowledge and confirm that the Buyer is relying upon such representations and warranties in connection with the purchase of the Membership Interests and, by extension, the Acquired Assets. For purposes hereof, except for the representations and warranties in Sections 3.1 and 3.3, the term the “Company” shall include the Company and each of the Hawaiian Businesses.
(a) Each Seller is a corporation duly formed, validly existing and in good standing under the laws of the State of Maryland. The Company is a limited liability company duly formed, validly existing and in good standing in the State of Hawaii. The Company is qualified to do business in each jurisdiction in which the failure to qualify would reasonably be expected to have a material adverse effect on the results of operations, assets, or financial condition of the Business (a “Material Adverse Effect”). The Company has all requisite power, authority and capacity (corporate and otherwise) to carry on the Business in the places and in the manner as it is now being conducted, and to own and lease the properties and assets that it now owns or leases.
(b) Each Hawaiian Business is a limited liability company duly formed, validly existing and in good standing in the State of Hawaii.
(a) Except as otherwise set forth on Schedule 3.5 of the Disclosure Schedule, the Company has complied in all respects with all applicable federal, state or local statutes, laws and regulations including, without limitation, any applicable building, zoning, or other law, ordinance or regulation affecting the Acquired Assets, including without limitation, the Real Property, as applicable, or the operation of the Hawaiian Businesses except where such non-compliance would not have a Material Adverse Effect.
(b) The Sellers have the full power and authority to enter into, and perform its obligations under, this Agreement and the other agreements, documents and instruments entered into by such person in connection with this Agreement (this Agreement together with such other agreements, documents and instruments collectively, the “Seller Agreements”) without the consent of any person, entity or court, agency or authority. The Seller Agreements constitute, or will, when executed and delivered, constitute the valid and legally binding obligations of each Seller or the Company, enforceable against each party in accordance with their respective terms.
(a) no portion of the Real Property is subject to any pending condemnation proceeding or proceeding by any Governmental Entity materially adverse to the Real Property and to the Actual Knowledge of Sellers, there is no threatened condemnation or proceeding with respect thereto;
(b) other than the Real Property leases set forth on Schedule 3.7 of the Disclosure Schedule and except as otherwise set forth on Schedule 3.7(b) of the Disclosure Schedule, there are no contracts or agreements to which the Company or any Hawaiian Business is a party or by which any of the Real Property is bound, granting to any Person the right of use or occupancy of any portion of the Real Property; and
(c) except as set forth in Schedule 3.7, none of the Real Property leases have to be assigned and no landlord has a right to terminate any lease as a result of this Agreement or the transactions contemplated hereby.
Except as set forth in Schedule 3.8, the consummation of the transactions contemplated by this Agreement by Sellers will not result in or constitute any of the following:
(a) a breach of any Law;
(b) a default or an event that, with notice or lapse of time or both, would be a default, breach, or violation of the limited liability company agreement, operating agreement, partnership agreement, articles of incorporation, bylaws, declaration of express trust or other organizational document of the Sellers, the Company or any Hawaiian Business or of any lease, license, promissory note, conditional sales contract, commitment, indenture, mortgage, deed of trust, or other agreement, instrument or arrangement to which the Sellers, the Company or any Hawaiian Business is a party, or by which any of them, or the property of any of them, is bound (other than any Material Contract referenced in Schedule 3.8 to which Sellers have provided Buyer with a true, correct and materially complete copy);
(c) an event that would permit any party to terminate any agreement, or to accelerate the maturity of any indebtedness or other obligation of the Company or any Hawaiian Business; or
(d) the creation or imposition of any Lien of any nature in favor of a third party upon or against the Company or any Hawaiian Business or any of their respective assets, including without limitation, the Real Property.
(a) made or authorized any payment to any officers, directors, members, shareholders, employees or other persons in connection with the Business except at the regular rates of salary, bonus or other remuneration payable to them as of such date;
(b) made any loan or advance to any person;
(c) subjected any of its assets to any Lien;
(d) bought, sold, leased or otherwise transferred or disposed of any assets except in the ordinary course of business;
(e) modified, amended or terminated any agreement except in the ordinary course of business consistent with past practice, or waived or released any rights under any Material Contract;
(f) incurred any debt, obligation or liability of any nature, whether accrued, absolute, contingent or otherwise except disclosed on the face of the Interim Financial Statements or incurred in the ordinary course of business after June 30, 2011 and aged thirty days or less as of the Closing Date;
(g) issued or sold any equity or debt security;
(h) made any changes or amendments to the articles of incorporation, bylaws, trust documents or other organizational document; or
(i) authorized or agreed to do any of the matters described in the preceding clauses (a) through (h).
Except as set forth in Schedule 3.10 of the Disclosure Schedules, since December 31, 2010, neither the Company nor any Hawaiian Business experienced, nor to the Actual Knowledge of the Sellers have any occurrence or event which has had, or might reasonably be expected to have, a Material Adverse Effect.
(a) To the Actual Knowledge of the Sellers, each Hawaiian Business possesses all material environmental Permits and approvals necessary for such Hawaiian Business to conduct its respective business as the same is now being conducted. Set forth on Schedule 3.12(a) of the Disclosure Schedule is a complete and accurate list of all environmental Permits possessed by each Hawaiian Business.
(b) To the Actual Knowledge of the Sellers, except as set forth on Schedule 3.12(b) of the Disclosure Schedule, no Hawaiian Business has engaged in or permitted any operations or activities upon, or any use or occupancy of, the Real Property, or any portion thereof, resulting in the storage, emission, release, discharge, dumping or disposal of any Hazardous Materials on, under, in or about the Real Property, in violation of any applicable environmental Laws in any material respect. Except as set forth on Schedule 3.12(c) of the Disclosure Schedule, to the Actual Knowledge of Sellers, there are no Hazardous Materials present on or under any Real Property in quantities or concentrations that exceed applicable standards established under applicable Laws.
(c) There are no legal, administrative, arbitral or other proceedings, claims, actions, causes of action or notices with respect to any environmental, health or safety matters or any private or governmental environmental, health or safety investigations or remediation activities of any nature, whether relating to the Real Property or otherwise, seeking to impose, or, to the Actual Knowledge of Sellers, and except as set forth on Schedule 3.12(b) of the Disclosure Schedule, that are reasonably likely to result in, any material liability or obligation of any Hawaiian Business arising under Law, including any local, state or federal environmental, health or safety statute, regulation or ordinance, or any other requirement of any Governmental Entity, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and any similar state laws, pending or, to the Actual Knowledge of Sellers, threatened against any Hawaiian Business.
(d) Except as set forth in Schedule 3.12(d) of the Disclosure Schedule, no Hawaiian Business or Seller is subject to any agreement, order, judgment, decree, letter or memorandum by or with any Governmental Entity or third party imposing any material liability or obligation with respect to any of the foregoing set forth on Schedule 3.12(a)-(c).
As used herein, “Hazardous Materials” shall be construed to include any toxic or hazardous substance, material, or waste, and any other contaminant, pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge and/or gaseous, including without limitation, chemicals, compounds, by-products, pesticides, asbestos containing materials, petroleum or petroleum products, and polychlorinated biphenyls, the presence of which requires investigation or remediation under any environmental Laws or which are or become regulated, listed or controlled by, under or pursuant to any environmental Laws.
(a) All monies paid to the Hawaiian Businesses since July 10, 2010 in respect to prearranged Funeral and Cemetery Contracts (“Funeral and Cemetery”) have been set aside; Schedule 3.14(a) of the Disclosure Schedule sets forth the names of the accounts, account balances and depository institutions as of May 30, 2011. Except as set forth on Schedule 3.14 of the Disclosure Schedule, since July 10, 2010 the Company has paid into trust all sums required and within the time periods mandated under all applicable Laws and has complied with the terms and conditions of the Funeral and Cemetery Contracts and is not aware of any defaults by the Company or, to its Actual Knowledge, any other party to the Funeral and Cemetery Contracts. To the Actual Knowledge of Sellers, none of the participation agreements were assumed as part of the purchase of the Business by Sellers and no party has asserted a claim that such participation agreements remain in effect.
(b) The funds (including interest) held in trust in respect of each of the Funeral and Cemetery Contracts including, without limitation, endowment care funds, extended care funds, prepayment trust funds, merchandise trust funds and prearranged mortuary trust funds (collectively, the “Funds”) are held in conformity with the Laws of the State of Hawaii except where such non-conformity has been provided for in the ARRA, and will be so held on the Closing Date with respect to all of the Funeral and Cemetery Contracts in effect at that time. All withdrawals from the Funds since July 10, 2010 have been made in accordance with all applicable Laws, the ARRA and any other agreement and practices have been consistent during such period, and the Hawaiian Businesses will have paid on the Closing Date all commissions collected on behalf of commissioned sales people in respect of the Funeral and Cemetery Contracts, except for those commissions that are applicable to reserves which commissions shall be payable by the respective Hawaiian Businesses at the time such commissions are due.
(c) For those Funeral and Cemetery Contracts that are funded by insurance, the applicable Hawaiian Business has purchased all such insurance policies required to fully fund all such Funeral and Cemetery Contracts, and no future premiums remain to be paid, save and except those instances indicated on Schedule 3.14(c) of the Disclosure Schedule where, pursuant to the terms of such insurance policies, the policies specify payment of premiums over time. All such insurance policies, and the Funeral and Cemetery Contracts that were purchased to fund such insurance, are fully identified on Schedule 3.14(c) of the Disclosure Schedule.
(d) Except as set forth on Schedule 3.14(d) of the Disclosure Schedules, each Hawaiian Business, as fiduciary, or through its respective trustee, has the Funds on hand by way of deposits to interest bearing trust accounts or other investments that are eligible investments under all applicable laws, rules and regulations or the ARRA. The Funds are more particularly described under Schedule 3.14(d) of the Disclosure Schedule hereof, which Schedule also includes a list of any and all trust agreements on behalf of the Business entered into by any Seller or Hawaiian Business and a list of the financial institutions described therein and the account statements for each of the six months prior to the Closing Date. The Sellers make no representations or warranties concerning any shortages in the funds or sales of bundled contracts prior to July 10, 2010.
(e) Except as set forth on Schedule 3.14(e), to the Actual Knowledge of Sellers, the trust reporting and audit completed at the time the DCCA issued Licenses to the Hawaiian Businesses are true, correct and complete in all material respects and attached hereto as Schedule 3.14(e).
(a) Schedule 3.16(a) of the Disclosure Schedule contains true, correct and complete copies of the management compiled and internally generated balance sheets of each Hawaiian Business as of December 31, 2010 and June 30, 2011and the related statement of income for the fiscal year ended December 31, 2010 and the six (6) month period ended June 30, 2011 for such Hawaiian Business (the “Interim Financial Statements”). Except as set forth in Schedule 3.16(a) of the Disclosure Schedule, the Interim Financial Statements are complete, have been prepared in accordance with historical accounting policies and procedures (except that the Interim Financial Statements do not contain any notes thereto and are subject to normal year-end adjustments, which individually and in the aggregate, will not materially affect the total net worth shown on, or the results indicated by, the Interim Financial Statements), consistently applied, fairly present the financial condition for the Hawaiian Businesses as of the respective dates thereof and disclose all liabilities of the Hawaiian Businesses, whether absolute, contingent, accrued or otherwise, existing as of the date thereof which are of a nature required to be reflected in financial statements.
(b) None of the Hawaiian Businesses has any liability or obligation (whether accrued, absolute, contingent or otherwise) which is of a nature required to be reflected in financial statements prepared in accordance with the historical accounting policies and procedures of the Company, consistently applied, except for (a) the liabilities and obligations which are disclosed or reserved against in the Interim Financial Statements to the extent and in the amounts so disclosed or reserved against, and (b) liabilities incurred or accrued in the ordinary course of business since July 1, 2011.
(c) To the Actual Knowledge of Sellers, the number of funerals, by type, cremations, inurnments, entombments, and burials for the Business for each of 2010, 2009, 2008 and 2007 and year to date to June 30, 2011 are as set forth on Schedule 3.16(c) of the Disclosure Schedule.
(a) Set forth on Schedule 3.20(a) of the Disclosure Schedule is a correct and complete list of all Benefit Plans (as defined below) currently maintained or contributed or required to be contributed by any Seller or the Company with respect to the Business (“Hawaii Benefit Plans”). For purposes hereof, “Benefit Plan” means any compensation or employee benefit plan, program, policy, arrangement, commitment, practice or agreement, including, without limitation, any “employee welfare benefit plan” or “employee pension benefit plan”, as defined in Sections 3(1) and 3(2), respectively, of the Employee Retirement Income Security Act of 1974 (“ERISA”) (whether or not subject to ERISA), any bonus, incentive compensation, deferred compensation, stock purchase, stock option, stock ownership, phantom stock, leave of absence, layoff, vacation, cafeteria, education, life, health, disability, severance, employment, separation or other employee benefit plan, practice, policy, agreement, or arrangement of any kind, whether written or oral, contributed to, sponsored or maintained by either Seller, the Company or the Hawaiian Businesses or with respect to which either Seller, the Company or the Hawaiian Businesses a party or has any obligation, as of the date hereof for the benefit of any current or former employee, officer, agent, independent contractor, or director of any Seller or the Company or any dependent or beneficiary thereof.
(b) Each Hawaii Benefit Plan has been operated and maintained in all material respects with its terms and in compliance in all material respects with all applicable requirements of Law, including, but not limited to, ERISA and the Internal Revenue Code of 1986, as amended (the “Code”).
(c) Each Hawaii Benefit Plan that is intended to be “qualified” within the meaning of Section 401(K) of the Code has received a favorable determination letter from the IRS (or can rely on a favorable opinion letter obtained by a prototype or volume submitter plan sponsor). Each such Hawaii Benefit Plan has been timely amended for all changes in the law and has been amended for all changes in the law required so that its favorable determination letter from the IRS is still effective. No event has occurred since the date of the last such determination letter which has resulted in, or, to the Actual Knowledge of the Sellers, is reasonably likely to result in, the revocation of any such determination. Each Hawaii Benefit Plan has filed all returns required by the IRS and the Department of Labor that it is required to file. Each of such returns accurately reflects the activity of the respective plan in all material respects. No Hawaii Benefit Plan has committed a prohibited transaction. Furthermore, no Hawaii Benefit Plan has been audited nor has any Seller received any notice of impending audit.
(d) Except as required by Hawaiian statutes, rules or regulations or as set forth on Schedule 3.20(d) of the Disclosure Schedule, neither Sellers nor Company has any obligations to provide any Hawaii Employee (as defined below) with health or life benefits under any Hawaii Benefit Plan following termination of employment, other than coverage as may be required under Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA, or under the continuation of coverage provisions of any applicable Law.
(e) Except as set forth on Schedule 3.20(e) of the Disclosure Schedule, the execution of this Agreement and the consummation of the transactions contemplated hereby do not constitute a triggering event under any Hawaii Benefit Plan, policy, arrangement, statement, commitment or agreement, whether or not legally enforceable, which (either alone or in connection with the occurrence of any additional or subsequent event) will or may result in any “parachute payment” (as such term is defined in Section 280G of the Code), acceleration, vesting or increase in benefits to any present or former Hawaii Employee.
(a) Schedule 3.21(a) of the Disclosure Schedule lists all current employees of any Hawaiian Business or employees of the Management Company but who work exclusively for the Hawaiian Businesses (“Hawaii Employees”) as of the date hereof, their permanent classifications (if applicable), their terms and conditions, their hourly rates of compensation, base salaries, their total 2010 annual compensation and projected 2011 compensation, and the commencement date of their employment or engagement. To the Actual Knowledge of the Sellers and Company, except as set forth on Schedule 3.21(a) of the Disclosure Schedule, no officer of the Business or group of Hawaii Employees has notified any Seller of an intention to terminate employment or engagement with the Company or the Hawaiian Businesses.
(b) Except as set forth on Schedule 3.21(b) of the Disclosure Schedule, (i) neither Sellers nor Company is delinquent in payments to any of its Hawaii Employees or independent contractors for any wages, salaries, commissions, bonuses or other direct compensation for any services performed by them to date or amounts required to be reimbursed to such employees or independent contractors for any Hawaiian Business, (ii) there is no unfair labor practice complaint or, to the Actual Knowledge of the Sellers or Company, investigation against Company, Sellers or any Hawaiian Business currently pending before the National Labor Relations Board or any other Governmental Entity, or, to the Actual Knowledge of the Sellers, which has been threatened against Company, Sellers or any Hawaii Business, in each case, with respect to the Business, and (iii) there is no labor strike, unrest, material dispute, slowdown or stoppage actually pending or, to the Actual Knowledge of the Sellers or Company, which has been threatened against or involving the Hawaiian Business.
(c) Except as set forth on Schedule 3.21(c) of the Disclosure Schedule, neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby will (i) result in any bonus payment or severance payment becoming due to any Hawaii Employee from any Seller, the Company or any Hawaiian Business, under any Hawaii Benefit Plan or otherwise; (ii) increase any benefits otherwise payable to any Hawaii Employee under any Hawaii Benefit Plan or otherwise; or (iii) result in the acceleration of the time of payment or vesting of any such benefits.
(d) Except as set forth on Schedule 3.21(d) of the Disclosure Schedule, no Hawaii Employee has any agreement as to length of notice or severance payment required to terminate his or her employment, including on a change of control, other than such as results by Law from the employment of an employee without an agreement as to notice or severance.
(e) Except as set forth on Schedule 3.21(e), the Hawaiian Businesses, as operated by the Sellers, have not engaged in layoffs or employment terminations sufficient in number to trigger application of the federal Worker Adjustment and Retraining Notification Act (“WARN”) or any similar state or local law (including, but not limited to, any State WARN Acts).
(a) Sellers and Company have, as of the date hereof, and will prior to Closing have, correctly and properly prepared, and duly and timely filed, all Tax Returns required to be filed by it prior to such dates and have duly and timely paid, or will prior to Closing duly and timely pay, all Taxes due (whether or not shown on any Tax Return), including all withholding or other payroll related taxes. Except as described on Schedule 3.22 of the Disclosure Schedule to this Agreement, no Hawaiian Business shall become subject to any additional Taxes with respect to taxable periods (or partial periods) which end on or before the Closing Date. No assessments or notices of deficiency have been received by any Hawaiian Business with respect to any Tax Returns which the Sellers have filed in connection with the Hawaiian Businesses which have not been paid in full, completely discharged or fully reserved in the Interim Financial Statements or disclosed on Schedule 3.22 of the Disclosure Schedule. There are no agreements between any Hawaiian Business and any taxing authority, including, without limitation, the Internal Revenue Service, waiving or extending any statute of limitations for assessment or collection of any Tax which any Hawaiian Business has filed which remain in effect as of the date hereof.
(b) Each Seller has timely withheld proper and correct amounts in compliance with all applicable Laws requiring the withholding of Taxes in connection with the Business and has duly and timely paid and remitted to the appropriate taxing authorities the amounts so withheld.
(c) No issue has been raised by the Internal Revenue Service or any state or local taxing authority in connection with any Tax Return which any Seller has filed that will have, or can be expected to have, an adverse effect on the Tax liability of any Hawaiian Business or the Business for any taxable year of such Hawaiian Business or the Business which, as of the date hereof, remains open for assessment.
(d) The Interim Financial Statements include, and the accounts of the Hawaiian Businesses will include, for all periods up to and including the Closing Date (including the final partial period which ends on such date), adequate provision for all unpaid Taxes of such Hawaiian Business for taxable periods (or portions thereof) ending on or before the Closing. Sellers shall be solely responsible for Taxes for all periods prior to the Closing Date.
(e) No Hawaiian Business is, or has been at any point during since its respective organization a “United States real property holding corporation” as defined in Section 897(c)(2) of the Code.
(f) No Hawaiian Business is party to any tax sharing agreement.
As used herein, “Taxes” shall mean any and all taxes (including, without limitation, income, withholding, transfer, ad valorem and franchise taxes and any alternative minimum taxes to the extent applicable), charges, fees, levies or other assessments, imposed by the Internal Revenue Service or any taxing authority, and such term shall include any interest whether paid or received, fines, penalties or additional amounts attributable to, or imposed upon, or with respect to, any such taxes, charges, fees, levies or other assessments. As used herein, “Tax Returns” shall mean any report, return, document or other filing required to be supplied to any taxing authority or jurisdiction (foreign or domestic) with respect to Taxes.
ARTICLE IV
The Buyer hereby represents and warrants to the Sellers as of the date hereof and as of the Closing Date as follows:
ARTICLE V
(a) Promptly upon becoming aware of any breach of (i) any fact or condition which constitutes a material breach of any of the representations or warranties of the Sellers contained in or referred to in this Agreement or (ii) the occurrence of any event that would constitute, or could reasonably be expected to cause or result in, a material breach of any of the representations and warranties of the Sellers contained in or referred to in this Agreement, the Sellers shall give detailed written notice thereof to the Buyer and shall use commercially reasonable efforts to remedy the same.
(b) At any time, and from time to time, prior to the Closing, the Sellers shall supplement or amend any Disclosure Schedule with respect to any material fact, matter or circumstance that the Sellers learn of and that is required to make each representation and warranty set forth in Article III accurate as of the date such supplement or amendment is made (the “Updated Schedules”). Such Updated Schedules will be accompanied by a written statement that unless such schedules are accepted, Sellers will not be able to deliver the certificate referenced in Section 7.2(a). Buyer may elect to accept the Updated Schedules and proceed to a Closing and in such circumstance such Updated Schedules shall amend the Disclosure Schedule as if disclosed on the date of this Agreement for the purposes of any indemnification rights existing under Article VIII hereto. In the event Buyer does not elect to accept the Updated Schedules, such Updated Schedules shall not be effective to amend the Disclosure Schedule or the representations and warranties thereto and Sellers shall have the right to terminate this Agreement by paying the Break Up Fee to Buyer together with such documentation reasonably requested by Buyer or Sellers evidencing the termination of this Agreement. Notwithstanding the foregoing, the Buyer acknowledges that there are certain items noted on Schedules 1.4(b)(iii) and 3.8 of the Disclosure Schedules that will be supplied after the execution of this Agreement. In the event that Buyer objects to anything delivered therewith, Buyer may terminate this Agreement with no liability to either party, but Buyer would not be entitled to a Break Up Fee. Sellers and Buyer acknowledge that the default notice sent from the Landlord of Hawaiian Memorial Park Mortuary (“HMPM”) to Lessee is reflected in the Disclosure Schedules and that resolution of such dispute is not likely to occur prior to Closing. Sellers have represented that it believes no default under such lease exists but notwithstanding if a default does exist, Sellers shall be responsible for any Losses subject to the limitations set forth in Section 8.4(c).
(c) The “Break Up Fee” under this paragraph shall be the actual Third Party Costs of the Buyer since the date of the Letter of Intent through to the date of termination plus $100,000. “Third Party Costs” shall include, but not be limited to, hard costs of consultants, attorneys, accountants, surveyors, other third party providers of services, travel costs and other out-of-pocket expenses of Buyer as evidenced by invoices or receipts.
(a) Except as expressly permitted by this Agreement or with the prior written consent of Buyer, which consent will not be unreasonably withheld during the period from the date of this Agreement to the Closing Date, each Seller shall cause the Hawaiian Businesses to (i) conduct the Business in the ordinary course of business and in compliance in all material respects with all applicable Laws; provided, however, to the extent cash held by the Company is an Excluded Asset hereunder, HFS may distribute the cash to Sellers or Xxxxxx, Xxxx Xxxxx and Inc., (ii) use commercially reasonable efforts to maintain and preserve intact its business organization, its management, the Acquired Assets and advantageous business relationships with its customers, suppliers and others having business dealings with it and retain the services of its officers and key employees, (iii) cooperate with Buyer as reasonably necessary and take no action that is intended to or would reasonably be expected to adversely affect or materially delay the ability of Sellers or Buyer to obtain any necessary approvals of any Governmental Entity required for the transactions contemplated hereby or to perform its covenants and agreements under this Agreement or to consummate the transactions contemplated hereby and (iv) not take any action which might cause any representation or warranty under Article III to become untrue.
(b) Without limiting the generality of Section 5.4(a) above, during the period from the date of this Agreement to the Closing Date, except as set forth in Schedule 5.4(b) of the Disclosure Schedule or as otherwise permitted by this Agreement, no Hawaiian Business shall and the Sellers shall not permit any Hawaiian Business to, without the prior written consent of Buyer, which consent shall not be unreasonable withheld:
(i) incur any indebtedness for borrowed money, or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other Person except for obligations which will be satisfied in full by Sellers prior to or at the Closing;
(ii) (a) except in the ordinary course of business consistent with past practice, increase in any material manner the compensation or benefits including severance benefits of any Hawaii Employees, (b) pay any pension, severance or retirement benefits to Hawaii Employees, (c) become a party to, establish, amend, commence, participate in, terminate or commit itself to the adoption of any Hawaii Benefit Plan, (d) accelerate the vesting of any long-term incentive compensation under any Hawaii Benefit Plans, or (e) negotiate, amend or enter into any collective bargaining agreement with any labor organization, union or association except that Buyer understands and acknowledges that a new Collective Bargaining Agreement for Valley of the Temples has been negotiated and is currently out for execution and the Buyer hereby consents to the execution of such Collective Bargaining Agreement;
(iii) sell, transfer, pledge, lease, grant, license, mortgage, encumber or otherwise dispose of any of its properties or assets other than the termination of the Xxxxxxxx location to any Person other than another Hawaiian Business, or create any Lien of any kind with respect to any such property or asset other than a Permitted Lien, or cancel, release or assign any indebtedness to any such Person or any claims held by any such Person, in each case other than in the ordinary course of business or pursuant to contracts in force at the date of this Agreement;
(iv) enter into any new line of business or change in any material respect its operating policies, except as required by applicable Law;
(v) transfer ownership, or grant any license or other rights, to any person or entity of or in respect of any Hawaii Intellectual Property;
(vi) acquire (whether by merger, consolidation or acquisition of stock or assets or otherwise) any corporation, partnership or other business organization or division thereof or make any material investment either by purchase of stock or securities, contributions to capital, property transfers, or purchase of any property or assets of any other Person;
(vii) amend the organizational documents of any Hawaiian Business, or terminate, amend or waive any provisions of any confidentiality or standstill agreements in place with any third parties;
(viii) (a) amend or otherwise modify, or violate the terms of, or terminate, any Material Contract, (b) create, renew or amend any agreement or contract, other than in the ordinary course of business and cancellable without penalty on not more than thirty (30) days notice or, except as may be required by applicable Law, other binding obligation of any Hawaiian Business containing (1) any material restriction on the ability of it to conduct the Hawaiian Businesses as it is presently being conducted or (2) any material restriction on the ability of any Hawaiian Business or their affiliates to engage in any type of activity or business or (c) enter into any new, or amend any existing, contract, agreement or arrangement with any affiliate;
(ix) With the exception of any SCI/Alderwoods/Xxxxxx litigation in existence at the date of signing, any lawsuits which the Seller is named but no Hawaiian Business is named as a party and the ADP litigation which Sellers are solely responsible for and for which Sellers have the right to settle or litigate, the Hawaiian Businesses and the Company will not commence or settle any claim, action or proceeding in excess of $50,000 individually or $100,000 in the aggregate; provided all settlements must be completed prior to Closing without the consent of Buyer which consent will not be unreasonably withheld, except that Sellers may settle such cases after the Closing without the consent of the Buyer provided that such settlement is only a monetary settlement;
(x) take any action or willfully fail to take any action that is intended, or may reasonably be expected, to result in any of the conditions to this Agreement set forth in Article VII not being satisfied;
(xi) make any capital expenditure in excess of $25,000 in the aggregate or enter into any contract or commitment therefore, except for those capital expenditures set forth in the Capital Expenditure Budget affixed to the Disclosure Schedules, and those expenditures relating to the expansion of Maui Memorial Park, purchase of a retort at Nakamura Mortuary, those capital expenditures necessary to repair the roof the Maui Mausoleum, and renovation of the preparation room at HMPM and all other projects which have commenced prior to the execution of this Agreement and are included in Schedule 5.4;
(xii) enter into any contract for the purchase, sale or lease of real property other than the sale of cemetery inventory in the ordinary course of business and upon approval of the Buyer, which approval shall not be unreasonably withheld, the acquisition of the Maui land from Maui-Xxxx;
(xiii) fail to keep in force insurance policies providing insurance coverage with respect to the assets, operations and activities of any Hawaiian Business as currently in effect; or
(xiv) agree to take, make any commitment to take, or adopt any resolutions of its board of directors or members in support of, any of the actions prohibited by, or any material action in furtherance of any of the actions prohibited by, this Section 5.4(b).
(c) Notwithstanding the foregoing, within five (5) days following execution of this Agreement, Management Company shall provide notice to any of its employees who work exclusively for the Hawaiian Businesses as required under the WARN Act or the Plant closing Act in Hawaii, chapter 394B of the Hawaiian statutes. All liabilities associated with such notice and termination of such employees shall be the sole responsibility of the Sellers as a Retained Liability.
(a) Each party shall use its commercially reasonable efforts to obtain each consent of, and filing with, a Governmental Entity, which if not obtained or made is reasonably likely to have a material adverse effect on the ability of the parties to consummate the transactions contemplated by this Agreement, including without limitation, the Hawaii Consent.
(b) Prior to Closing, and to the extent necessary, the Buyer shall use commercially reasonable efforts to obtain all those consents and waivers set forth on Schedule 5.5(b) of the Disclosure Schedule. The Sellers shall use commercially reasonable efforts to provide cooperation and assistance in this regard. From and after the Closing, the Buyer shall be responsible for obtaining any consents and waivers referred to above and the Seller shall use commercially reasonable efforts to provide cooperation and assistance in this regard.
. In consideration of the payment by the Buyer of the Purchase Price, each Seller agrees as follows:
(a) Until the date that is three (3) years from the Closing Date (the “Non-Compete Period”), neither Seller nor any of their respective affiliates shall engage in any business within any Restricted Territory that is directly competitive with the Business, as the Business exists as of the Closing Date or (ii) persuade or attempt to persuade any existing customer of the Business not to purchase products of the Business from the Buyer or any of its affiliates, or to purchase products that are directly competitive with those of the Business, as the Business exists on the Closing Date. As used in this Agreement, the term “Restricted Territory” means the State of Hawaii. The Non-Compete Period shall be extended by the length of any period during which the Seller is in breach of the terms of this Section 5.10.
Nothing herein shall prohibit either Seller from being a passive owner of not more than 2% of the outstanding stock of any class of a corporation which is publicly traded, so long as such Seller has no active participation in the management of such corporation.
(b) During the Non-Compete Period, Sellers agree not to knowingly, directly or indirectly through another Person induce or attempt to induce any Hawaii Employee who is hired by the Buyer on the Closing Date to leave the employ of such Buyer or violate their terms of employment; provided, however, (A) this Section 5.10(b) shall not prevent any Seller, directly or indirectly, from soliciting by means of, or employing or engaging any such Person responding to, a general solicitation or advertisement for employment or engagement, and (B) this Section 5.10(b) shall not apply to any person who has ceased to be an employee of the Buyer for at least one hundred eighty (180) days (365 days, if the employee terminates his or her employment).
(c) If, at the time of enforcement of this Section 5.10, a court holds that the restrictions stated herein are unreasonable under the circumstances then existing, the Parties agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area so as to protect the Buyer to the greatest extent possible under applicable Law from improper competition. The Parties hereto acknowledge that money damages might be an inadequate remedy for any breach of this Section 5.10 and that the Buyer may be irreparably damaged if any Party were to breach the covenants set forth in this Section 5.10. Therefore, in the event of a breach or threatened breach of this Section 5.10, the Buyer or their respective successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provisions of this Section 5.10.
ARTICLE VI
[Intentionally Omitted]
ARTICLE VII
All charges and premiums in connection with the Owner’s Policies shall be paid half by Seller and half by Buyer.
(a) by Buyer if a material breach of any provision of this Agreement has been committed by any of the Sellers and such breach has not been waived by Buyer;
(b) by the Sellers if a material breach of any provisions of this Agreement has been committed by the Buyer and such breach has not been waived by the Sellers;
(c) by mutual consent of the Buyer and the Sellers;
(d) by Buyer if the Sellers have not been able to satisfy the conditions of closing on or before December 15, 2011, or such later date as the parties may agree upon, unless the Buyer is in material breach of this Agreement; provided, however, Buyer shall have the right by providing written notice to Sellers to extend the Closing Date up to sixty (60) additional days to December 31, 2011 in order to (i) receive any federal, state or local regulatory approval for this transaction or (ii) obtain the Commitment satisfactory to Buyer.
(e) by the Sellers if Buyer has not been able to satisfy its conditions to Closing on or before December 15, 2011, or such later date as the Parties may agree upon, unless the Sellers are in material breach of this Agreement.
(f) In the event of a termination by Buyer under (d) hereto if occasioned by a failure of Seller to satisfy its conditions under Sections 7.2(a), (b), (c) or (h), Seller shall pay to Buyer the Break Up Fees within three (3) business days following written notice of termination by Buyer. In the event of a termination under Section 7.4(a) hereto, Buyer shall provide notice of such breach and Sellers shall have thirty (30) days in which to cure such breach to Buyer’s reasonable satisfaction. If such breach is not cured during such thirty (30) day period, Buyer shall notify Sellers of its election to terminate this Agreement and the Break Up Fee shall be due within three (3) days thereof.
ARTICLE VIII
(a) After the Closing, the Sellers shall not be required to indemnify the Buyer Indemnitees for Losses under Section 8.2 until the aggregate amount of all such Losses exceeds [***] (the “Basket”), in which event Sellers shall be responsible for the amount of such Losses in excess of the Basket; provided, however, that the Basket shall not apply with respect to any Excluded Representation or Retained Liability, any matter covered by the Escrow Agreement or a breach of Sections 5.10 or 5.16, or fraud on the part of any Seller.
(b) Buyer shall not be required to indemnify the Seller Indemnitees for Losses under Section 8.3 until the aggregate amount of all such Losses exceeds the Basket, in which event Buyer shall be responsible for the amount of such Losses in excess of the Basket; provided, however, the Basket shall not apply with respect to any Accepted Liability or fraud on the part of Buyer or any matters covered by the Escrow Agreement.
(c) Sellers shall not be required to indemnify Buyer Indemnitees for Losses in excess of [***] (“CAP”), other than any Excluded Representation, Retained Liability, matters covered by the Escrow Agreement, or fraud on the part of any Seller. Sellers obligations to indemnify under this Article shall be based on their respective ownership percentages of the Company The CAP related to any Losses related to the HMPM lease shall be limited to [***] (the “HMPM CAP”). The HMPM CAP shall be exclusive of any attorney’s fees related to litigation concerning the HMPM lease for which Sellers shall be solely responsible. For sake of clarity, the parties agree that any litigation concerning the HMPM lease is a Retained Liability and not subject to the Basket.
(d) Buyer shall not be required to indemnify Seller Indemnitees for Losses in excess of the CAP other than with respect to any Accepted Liability or fraud on the part of Buyer.
(e) The liability of Sellers for all Losses shall be reduced by the net amount of any proceeds of insurance actually received by a Buyer Indemnitee from non-Affiliate third parties in connection with a claim for indemnification by such Buyer Indemnitee (but only to the extent insurance proceeds are actually received by a Buyer Indemnitee within twelve (12) months of the Buyer Indemnitee’s submission to its insurer(s) of its claim and appropriate supporting documentation, unless the Buyer Indemnitee fails to diligently attempt throughout such twelve (12) month period to collect promptly such insurance proceeds). If a Buyer Indemnitee receives such insurance payment subsequent to such period and following indemnification by Sellers, Buyer Indemnitee shall remit to the Sellers the amount so paid by the insurance company but not in excess of the indemnification payment by Sellers. In the event of any Third Party Claim as defined in Section 8.5 hereof, provided Sellers have accepted responsibility for any such claim without reservation, Buyer and Sellers shall cooperate in submitting, pursuing and collecting indemnity claims.
(a) In the event Losses incurred by Sellers for indemnifiable claims under this Article VIII exceed Two Million Dollars ($2,0000,000) in the aggregate in the fifteen months following the Closing, or in the event an indemnification claim has been made within such fifteen (15) month period which alleges Losses which would cause the Losses hereunder to exceed $2,000,000, Sellers shall have a right, but not an obligation, upon written notice to Buyer (the “Option Notice”), to repurchase all of the membership interests or other equity interests of the Company (the “Repurchase Option”). For purposes of this section the amount of indemnifiable claims necessary to reach the threshold level of $2,000,000 shall not include any amounts paid out of the Escrow Funds.
(b) The exercise price for the Repurchase Option shall equal [***], plus the cash component of any capital expenditures invested in the Company by Buyer since the Closing Date and all third party costs expended by Buyer from the date of the letter of intent to the Closing Date plus an 8% annual rate of return for the period from closing to the date on which the repurchase shall occur, less any distributions taken by Buyer (the “Exercise Price”) to be paid in cash at such closing.
(c) The Repurchase Option shall be for all of the membership interests or other equity interests of the Company and its subsidiaries and be completed upon execution and delivery of an executed membership equity transfer assignment and power in exchange for the Exercise Price (the “Assignment”). Such Assignment shall contain only limited representations and warranties related to the ownership of the membership interests in the Company and its subsidiaries.
(d) The Repurchase Option shall be exercisable immediately after the Losses exceed $2,000,000 in the aggregate (the “Option Trigger Event”). Such option shall expire ninety (90) days after the Option Trigger Event.
(e) Sellers shall deliver written notice of exercise of this option in accordance with the notice provisions of this Agreement in the form set forth as Exhibit D hereto (the “Exercise Notice”). Such Exercise Notice shall specify a closing date. Within seven (7) days thereafter Buyer shall deliver to Sellers a computation of the Exercise Price.
(f) The closing of the Repurchase Option shall occur within thirty (30) days following delivery of the Exercise Notice.
(g) For purposes of this section, “Losses” shall be calculated after the Basket maximum has been reached and shall mean any actual payment, accepted known liability, expense (including cost of investigation and defense and reasonable attorney fees) net of any tax benefits inuring to Sellers and any insurance proceeds received by Sellers as a result of such indemnifiable claim.
ARTICLE IX
(a) the Legal Opinion of the Sellers’ attorneys, dated the Closing Date;
(b) certificate of good standing of each of the Hawaiian Businesses;
(c) a certificate indicating the account balances of pre-need trust accounts;
;
(d) a certificate under Section 1445 of the Internal Revenue Code and the regulations promulgated whereby the Sellers certify that neither Seller is a nonresident alien or a foreign corporation, foreign partnership, foreign trust or, foreign estate (as those terms are defined in the Code and the Income Tax Regulations promulgated thereunder) for purposes of U.S. income taxation and is not a disregarded entity as defined in Regulation Section 1.1445-2(b)(2)(iii) of the Internal Revenue Code.
(e) an assignment and assumption agreement in form acceptable to the Buyer whereby the Hawaiian Businesses assign the Retained Assets to the Sellers or an affiliate of Sellers.
(f) the certificate to be delivered pursuant to Sections 7.2(a) and (b);
(g) a certificate from a trustee or secretary, as applicable, of the Sellers, in standard form, certifying as to such entity’s organizational documents contemplated hereby and the incumbency of the Persons signing on behalf of the Sellers;
(h) an executed copy of the Escrow Agreement by Sellers; and
(i) all other documents, acts, things and assurances as may be required in the reasonable opinion of the attorneys for the Buyer for insuring that all of the transactions contemplated by this Agreement are carried out to the fullest extent possible.
(a) a certificate of good standing of the Buyer;
(b) an Officer’s Certificate, in standard form, certifying as to the Buyer’s certificate of formation, operating agreement, resolutions of the managers and/or members approving the transactions contemplated hereby and the incumbency of the Persons signing the same on behalf of the Buyer;
(c) a certificate to be delivered pursuant to Sections 7.3(a) and (b);
(d) all other documents, acts, things and assurances as may be required in the reasonable opinion of the attorneys of the Sellers for insuring that all of the transactions contemplated by this Agreement are carried out to the fullest extent possible;
(e) execution of the Escrow Agreement by Buyer; and
(f) wire transfer of the Purchase Price to Sellers and Escrow Account and fee for Management Company paid into escrow.
ARTICLE X
(a) When delivered to the individual, or to an officer of the company, to which the notice is directed;
(b) Three (3) days after the same has been deposited in the United States mail, sent Certified or Registered mail with Return Receipt Requested, postage prepaid and addressed as provided in this Section; or
(c) When delivered by a generally recognized overnight delivery service (including United States Express Mail), with receipt acknowledged and with all charges prepaid by the sender addressed as provided in this Section. Notices shall be directed as follows:
(1) if to Sellers to:
0000 X. Xxxxxx Xxxx
Xxxxx 000
Xxx Xxxxx, Xxxxxx 00000
Attn: Vestin Mortgage, Inc.
Xxxxxxx Xxxxxxx
with a copy to:
Xxx X. Xxxxxx, Esq.
Xxxxxx Xxxxxxxxx & Xxxx
0000 X. Xxxxxx Xxxx
Xxxxx 000
Xxx Xxxxx, Xxxxxx 00000
(2) if to the Buyer, to:
NorthStar Hawaii, LLC
c/o NorthStar Memorial Group, LLC
0000 Xx. Xxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Chief Executive Officer
with a copy to:
Xxxx Xxxxx & Xxxxxxx, LLP
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
or at such other place or places or to such other person or persons as shall be designated by like notice by any party hereto.
(a) This Agreement together with the other agreements provided for herein embody the whole agreement of the parties. There are no promises, terms, conditions, or obligations other than those contained herein. All previous negotiations between the parties, either verbal or written, not herein contained are hereby withdrawn and annulled. This Agreement shall supersede all previous communications, representations, or agreements, either verbal or written, between the parties hereto.
(b) This Agreement may not be amended except by an instrument in writing signed on behalf of the Sellers and the Buyer.
(signature page to follow)
BUYER:
NORTHSTAR HAWAII, LLC
By:
Name:
Title:
SELLERS:
VESTIN REALTY MORTGAGE I, INC.,
a Maryland corporation
By:
Name:
Title:
a Maryland corporation
By:
Name:
Title: