SECURITIES PURCHASE AGREEMENT by and among COLD SPRING CAPITAL INC., SEDONA DEVELOPMENT PARTNERS, LLC, SEVEN CANYONS INVESTORS, L.L.C., DAVID V. CAVAN and CAVAN MANAGEMENT SERVICES, L.L.C. Dated as of November 3, 2006
Exhibit
2.1
by
and among
SEDONA
DEVELOPMENT PARTNERS, LLC,
SEVEN
CANYONS INVESTORS, L.L.C.,
XXXXX
X. XXXXX and CAVAN MANAGEMENT SERVICES, L.L.C.
Dated
as of November 3, 2006
TABLE
OF
CONTENTS
Page
|
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ARTICLE
1
|
|
|
THE
TRANSACTIONS; CLOSING
|
1
|
|
1.1.
|
Purchase
and Sale of Securities
|
1
|
1.2.
|
Payment
at Closing
|
4
|
1.3.
|
Closing
|
4
|
1.4.
|
Allocation
|
4
|
1.5.
|
Escrow |
4
|
1.6.
|
Deliveries at Closing by the Company and the Seller |
4
|
1.7.
|
Deliveries at Closing by the Purchaser |
4
|
ARTICLE
2
|
||
REPRESENTATIONS
AND WARRANTIES OF THE SELLER
|
5
|
|
2.1.
|
Title |
5
|
2.2.
|
Organization and Authority |
5
|
2.3.
|
No Conflict; Indebtedness |
5
|
2.4.
|
Validity and Enforceability |
6
|
2.5.
|
Investment Representations |
6
|
ARTICLE
3
|
||
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
|
7
|
|
3.1.
|
Organization, Power and Standing |
7
|
3.2.
|
Subsidiaries |
8
|
3.3.
|
Foreign Qualifications |
8
|
3.4.
|
Due Authorization; No-Conflict |
8
|
3.5.
|
Validity and Enforceability |
8
|
3.6.
|
Capitalization |
9
|
3.7.
|
Financial Information; Indebtedness |
9
|
3.8.
|
No Material Adverse Changes |
10
|
3.9.
|
Material Contracts |
10
|
3.10.
|
Real Property |
12
|
3.11.
|
Personal Property |
17
|
3.12.
|
Intellectual Property |
17
|
3.13.
|
Receivables |
18
|
3.14.
|
Information |
18
|
3.15.
|
Warranty Claims |
19
|
3.16.
|
Business Relationships |
19
|
3.17.
|
Regulatory and Legal Compliance |
19
|
3.18.
|
Licenses and Permits |
19
|
3.19.
|
Tax Matters |
20
|
3.20.
|
Litigation |
22
|
3.21.
|
Employees and Compensation |
23
|
3.22.
|
ERISA; Compensation and Benefit Plans |
23
|
3.23.
|
Environmental Matters |
25
|
3.24.
|
Insurance |
26
|
i
TABLE
OF CONTENTS
(cont'd)
Page
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3.25.
|
Affiliate Transactions |
26
|
3.26.
|
Absence of Undisclosed Liabilities |
26
|
3.27.
|
Banking Relationships |
27
|
3.28.
|
Brokers |
27
|
3.29.
|
Disclosure |
27
|
ARTICLE
4
|
||
REPRESENTATIONS
AND WARRANTIES OF THE PURCHASER
|
27
|
|
4.1.
|
Organization and Authority |
27
|
4.2.
|
No-Conflict |
27
|
4.3.
|
Validity and Enforceability |
28
|
4.4.
|
Brokers |
28
|
4.5.
|
Reports and Financial Statements |
28
|
4.6.
|
Investment Representations |
29
|
4.7.
|
Litigation |
30
|
4.8.
|
Sufficient Funds |
30
|
4.9.
|
Purchaser Common Stock |
30
|
4.10.
|
Disclosure |
30
|
ARTICLE
5
|
||
COVENANTS
OF THE COMPANY AND THE SELLER
|
30
|
|
5.1.
|
Conduct of the Business |
30
|
5.2.
|
Access |
32
|
5.3.
|
Efforts; Cooperation |
33
|
5.4.
|
Stub Period and Other Financial Statements; Reports; Controller |
33
|
5.5.
|
Nonsolicitation |
34
|
5.6.
|
Confidentiality |
36
|
5.7.
|
Non-competition |
36
|
5.8.
|
Injunctive Relief |
36
|
5.9.
|
Reasonable Restrictions
|
37
|
5.10.
|
Company Intellectual Property |
37
|
5.11.
|
General Release |
37
|
5.12.
|
Notification of Certain Matters; Update of Schedules |
37
|
5.13.
|
Purchaser’s Trust Account |
38
|
5.14.
|
Affiliate Legends |
38
|
5.15.
|
Compliance with Securities Laws |
39
|
5.16.
|
Solvency |
39
|
5.17.
|
Information for Proxy Statement |
39
|
5.18.
|
Hedging Transactions, Etc |
39
|
ARTICLE
6
|
39
|
|
COVENANTS
OF THE PURCHASER
|
39
|
|
6.1.
|
Efforts |
39
|
6.2.
|
Confidentiality |
40
|
6.3.
|
Purchaser Stockholder Meeting |
40
|
ii
TABLE
OF CONTENTS
(cont'd)
Page
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||
6.4.
|
American Stock Exchange Listing |
40
|
6.5.
|
Indemnification |
41
|
6.6.
|
Compliance with Organization Documents |
41
|
6.7.
|
Notification of Certain Matters |
41
|
6.8.
|
Board Visitation Rights |
41
|
6.9.
|
Release of Guarantees |
41
|
ARTICLE
7
|
||
TAX
COVENANTS
|
42
|
|
7.1.
|
Consistent Tax Reporting |
42
|
7.2.
|
Tax Periods Ending on or Before the Closing Date |
42
|
7.3.
|
Tax Periods Beginning Before and Ending After the Closing Date |
43
|
7.4.
|
Cooperation on Tax Matters |
43
|
7.5.
|
Control of Audits |
43
|
7.6.
|
Certain Taxes |
43
|
ARTICLE
8
|
||
CONDITIONS
TO CLOSING
|
44
|
|
8.1.
|
Conditions to Obligations of the Purchaser |
44
|
8.2.
|
Conditions to Obligations of the Company and the Seller |
47
|
ARTICLE
9
|
||
TERMINATION
|
49
|
|
9.1.
|
Termination |
49
|
9.2.
|
Effect of Termination |
50
|
ARTICLE
10
|
|
|
SURVIVAL;
INDEMNIFICATION
|
50
|
|
10.1.
|
Survival |
50
|
10.2.
|
Indemnification Limits |
51
|
10.3.
|
Indemnification by the Seller |
51
|
10.4.
|
Indemnification by the Purchaser |
52
|
10.5.
|
Procedures for Indemnification of Third Party Claims |
52
|
10.6.
|
Right of Set-Off |
53
|
10.7.
|
Adjustment to Purchase Price |
53
|
10.8.
|
Exclusive Remedy |
53
|
ARTICLE
11
|
|
|
MISCELLANEOUS
|
53
|
|
11.1.
|
Notices |
53
|
11.2.
|
Severability and Governing Law; Forum |
55
|
11.3.
|
Amendments, Waivers |
55
|
11.4.
|
Expenses |
55
|
11.5.
|
Successors and Assigns |
55
|
11.6.
|
Entire Agreement |
55
|
11.7.
|
Counterparts |
56
|
iii
TABLE
OF CONTENTS
(cont'd)
Page
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11.8.
|
Headings |
56
|
11.9.
|
Further Assurances |
56
|
11.10.
|
Third Party Beneficiaries |
56
|
11.11.
|
No Strict Construction |
56
|
11.12.
|
Publicity |
56
|
11.13.
|
Schedules and Exhibits |
56
|
11.14.
|
Waiver of Jury Trial |
57
|
11.15.
|
Limitations With Respect to Cavan |
57
|
ARTICLE
12
|
||
DEFINITIONS
|
57
|
List
of Exhibits
Exhibit
1.1
|
Form
of Assignment
|
Exhibit
1.2(a)(ii)
|
Form
of First Tranche Note
|
Exhibit
1.2(a)(iii)
|
Form
of Convertible Note
|
Exhibit
8.1(j)
|
Form
of Opinion of the Seller's Counsel
|
Exhibit
8.1(k)
|
Form
of Escrow Agreement
|
Exhibit
8.1(s)
|
Summary
Terms of Management Contract
|
Exhibit
8.1(t)
|
Form
of Registration Rights Agreement
|
Exhibit
8.1(u)
|
Summary
Terms of Brokerage Agreement
|
Exhibit
8.1(v)
|
Form
of Affiliate Note
|
Exhibit
8.2(g)
|
Form
of Opinion of the Purchaser's
Counsel
|
iv
This
Securities Purchase Agreement (this “Agreement”)
is
entered into as of November 3, 2006 by and among (i)
Cold
Spring Capital Inc., a Delaware corporation (the “Purchaser”),
(ii)
Sedona
Development Partners, LLC, an Arizona limited liability company (the
“Company”),
(iii)
Seven
Canyons Investors, L.L.C., an Arizona limited liability company (the
“Seller”),
and
(iv)
solely
for purposes of Sections 5.3(b) and 5.5 through 5.11, Xxxxx X. Xxxxx and Cavan
Management Services, L.L.C., an Arizona limited liability company (together,
“Cavan”).
Introduction
The
Seller owns all of the outstanding limited liability company interests and
equity of the Company (the “Securities”).
The
Purchaser wishes to purchase the Securities from the Seller, and the Seller
wishes to sell the Securities to the Purchaser, on the terms set forth herein.
The purchase and sale of the Securities and the other transactions contemplated
hereby are sometimes collectively referred to herein as the “Transactions.”
An
index
of defined terms used in this Agreement is set forth in Article 12.
NOW,
THEREFORE, in consideration of the mutual covenants and agreements hereinafter
set forth, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE
1
THE
TRANSACTIONS; CLOSING
1.1. Purchase
and Sale of Securities.
In
reliance upon the representations and warranties contained herein, and subject
to the terms and conditions hereof, at the Closing (as hereinafter defined),
the
Seller agrees to sell, transfer and assign to the Purchaser, and the Purchaser
agrees to purchase from the Seller, the Securities. At the Closing, the Seller
will execute and deliver an assignment, in substantially the form attached
hereto as Exhibit
1.1,
transferring the Securities to the Purchaser free and clear of all Liens (as
hereinafter defined), other than restrictions on transfers under applicable
securities laws.
1.2. Payment
at Closing.
(a) Certain
Definitions.
For
purposes of this Agreement, the following terms shall have the meanings
indicated below:
“Closing
Consideration”
means,
in the aggregate, (i)
$82,130,168.44 in cash (the “Cash
Consideration”),
(ii)
$5,000,000 in aggregate principal amount of subordinated notes of the Purchaser,
substantially in the form of Exhibit
1.2(a)(ii)
attached
hereto (the “First
Tranche Notes”),
and
(iii)
$45,000,000 in aggregate principal amount of convertible subordinated notes
of
the Purchaser, substantially in the form of Exhibit
1.2(a)(iii)
(the
“Convertible
Notes”
and,
together with the First Tranche Notes, the “Seller
Notes”).
“Contract”
means
any notes, bonds, mortgages, indentures, guaranties, licenses, franchises,
permits, leases, instruments, contracts, agreements, commitments, purchase
orders or other binding contractual obligations, whether written or oral,
including all amendments thereto
“Escrow
Amount”
means
$1,000,000 of cash (the “Escrow
Cash”)
and
$7,500,000 in principal amount of the Convertible Notes (the “Escrow
Note”),
which
will be deposited at the Closing with the Escrow Agent (as hereinafter defined)
pursuant to the Escrow Agreement (as hereinafter defined).
“Governmental
or Regulatory Authority”
shall
mean any instrumentality, subdivision, court, administrative agency, commission,
official or other authority of the United States or any other country or any
state, province, county, municipality, locality or other government or political
subdivision thereof, or any quasi-governmental or private body exercising any
regulatory, taxing, importing or other governmental or quasi-governmental
authority.
“Indebtedness”
means
all (i)
outstanding principal, interest, fees, expenses and other indebtedness owed
in
respect of borrowed money or indebtedness issued or incurred in substitution
or
exchange for indebtedness for borrowed money, (ii)
obligations under leases of property, real or personal, that are capitalized
on
the consolidated balance sheet of the Company and the Subsidiaries (as
hereinafter defined), or should be, in accordance with GAAP, recorded as capital
leases, (iii)
monetary commitments or obligations in the nature of guarantees, (iv)
amounts
owing as deferred purchase price for property or services, including all seller
notes and “earn-out” payments, (v)
indebtedness evidenced by any note, bond, debenture, mortgage or other debt
instrument or debt security, (vi)
obligations or commitments to repay deposits or other similar amounts advanced
by and owing to third parties, (vii)
interest rate, currency or other hedging agreements or (viii)
guarantees or other contingent liabilities (including so called take-or-pay
or
keep-well agreements) with respect to any indebtedness, obligation, claim or
liability of a type described in clauses (i) through (vii) above.
“Legal
Requirements”
means,
with respect to any Person, all statutes, laws, ordinances, licenses, permits,
judgments, decrees, orders, rules, regulations, published policies and common
law of any Governmental or Regulatory Authority applicable to such
Person.
“Liens”
means
claims, encumbrances, indentures, deeds of trust, mortgages, attachments,
security interests and other restrictions of any kind.
“Knowledge
of the Seller and the Company”
or
any
other similar phrase shall mean the actual knowledge of the Persons set forth
in
Schedule
1.2(a)
(collectively, the “Key
Employees”),
in
each case, after reasonable inquiry into the matters to which such qualification
relates that are within the scope of such individual’s job
responsibilities.
“Material
Adverse Effect”
means
any material adverse change, event, circumstance or development with respect
to,
or material adverse effect on, (x)
the
Business or the assets, financial condition, prospects or results of operations
of the Company and the Subsidiaries, taken as a whole, (y)
the
ability of the Purchaser to operate the Business immediately after the Closing
substantially in the same manner as the Business was operated immediately prior
to the Closing or (z)
the
ability of the Seller and the Company to consummate the Transactions. For
avoidance of doubt, the parties agree that the terms “material,” “materially” or
“materiality” as used in this Agreement with an initial lower case “m” shall
have their respective customary and ordinary meanings, without regard to the
meaning ascribed to Material Adverse Effect.
2
“Ordinary
Course of Business”
means
the ordinary course of business of the Company and the Subsidiaries consistent
with past custom and practice (including with respect to amount and
frequency).
“Purchaser
Common Stock”
means
the common stock, $0.001 par value per share, of the Purchaser.
“Seller’s
Expenses”
means
the aggregate payments, costs and expenses incurred by the Company, its
Subsidiaries or the Seller in connection with the Transactions including,
without limitation, all amounts in respect of legal, accounting, investment
banking and other similar fees and expenses (including, without limitation,
fees
and expenses of any Person (as hereinafter defined) set forth on Schedule
3.28).
For
clarity, it is understood that all costs and expenses incurred by the Purchaser
in connection with this Agreement and the Transactions (including, without
limitation, the costs and expenses of the Purchaser’s financial advisor) shall
be paid by the Purchaser and not by the Seller or the Company.
“Transaction
Liabilities”
means
any and all change of control, sale and/or transaction bonus or similar amounts
owed by the Company or any Subsidiary that become due and payable as a result
of
the Transactions.
(b) Pre-Closing
Deliveries.
At least
two (2) but no more than five (5) days prior to the Closing, the Seller will
furnish to the Purchaser (i)
a final
xxxx and wire transfer instructions from each payee of any portion of the
Seller’s Expenses, together with a letter from each law firm and investment bank
that is owed fees by the Company acknowledging that, after the Closing, it
will
seek payment of any portion of the Seller’s Expenses solely from the Seller and
not from the Company or any Subsidiary (and such portion shall not be deemed
to
be part of the Seller’s Expenses for purposes of Section 1.2(c)), (ii)
payoff
letters, in form and substance reasonably satisfactory to the Purchaser, from
each of the parties set forth on Schedule
2.3(e)(i)
indicating the amount required to discharge at Closing in full the Indebtedness
(the “Repaid
Indebtedness”)
set
forth on Schedule
2.3(e)(i)
and an
undertaking by such parties to discharge at Closing all Liens securing such
Indebtedness, and (iii)
a
schedule that sets forth an itemization of all Transaction Liabilities payable
to employees as a result of the Transactions.
(c) Payments
and Deliveries at Closing.
At the
Closing, (i)
the
Purchaser will make or cause to be made the following payments (in an amount,
in
the aggregate, equal to the Cash Consideration) by wire transfer as follows:
(A)
the
Purchaser will pay the Repaid Indebtedness to the holders thereof, (B)
the
Purchaser will pay the Seller’s Expenses and the Transaction Liabilities to the
respective payees thereof based on the deliveries made under Section 1.2(b),
(C)
the
Purchaser will pay the Escrow Cash to the Escrow Agent to be held in accordance
with the terms of the Escrow Agreement and (D)
the
Purchaser will pay the balance of the Cash Consideration to the Seller,
(ii)
the
Purchaser will deliver the Escrow Note to the Escrow Agent to be held in
accordance with the terms of the Escrow Agreement and (iii)
the
Purchaser will deliver the balance of the Seller Notes to the
Seller.
3
1.3. Closing.
The
purchase and sale of the Securities and the other Transactions shall take place
at a closing (the “Closing”)
to be
held at 10:00 a.m., local time, at the offices of Xxxxxx, Hall & Xxxxxxx LLP
in Boston, Massachusetts three business days after the satisfaction or waiver
of
the conditions of the parties hereto to consummate the Transactions (other
than
those conditions that by their nature are normally satisfied at the Closing,
but
subject to the satisfaction or waiver of those conditions), or such other date
as is mutually agreed upon in writing by the Purchaser and the Company (the
“Closing
Date”).
In no
event shall the Closing Date be earlier than January 5, 2007, without the prior
consent of the Seller.
1.4. Allocation.
The
total amount of the Closing Consideration and the liabilities of the Company
and
its Subsidiaries, shall be allocated among the consolidated assets of the
Company for tax purposes in a manner consistent with the appraisal to be
obtained as set forth on Schedule
1.4.
It is
agreed that such method was arrived at by arm’s length negotiation and in the
judgment of the parties properly reflects the fair market value of such assets.
It is agreed that the allocations under this Section 1.4 will be binding on
all
parties for all federal, state, local and other Tax (as hereinafter defined)
purposes and will be consistently reflected by each party on such party’s Tax
returns.
1.5. Escrow.
On
the
Closing Date, the Purchaser shall deposit with the Escrow Agent the Escrow
Amount (consisting of the Escrow Cash and the Escrow Note), for the purpose
of
securing the indemnification obligations of the Seller set forth in this
Agreement. The Escrow Amount, along with any interest earned thereon while
it is
held in escrow, is referred to herein as the “Escrow
Fund.”
The
Escrow Fund shall be held by the Escrow Agent under the Escrow Agreement
pursuant to the terms thereof. The Escrow Fund shall be held as a trust fund
and
shall not be subject to any Lien, trustee process or any other judicial process
of any creditor of any party, and shall be held and disbursed solely for the
purposes, and in accordance with the terms, of the Escrow
Agreement.
1.6. Deliveries
at Closing by the Company and the Seller.
At the
Closing, and upon satisfaction or waiver of the conditions set forth in Section
8.2, the Company and the Seller will deliver or cause to be delivered to the
Purchaser the instruments, consents, certificates and other documents required
of the Seller and the Company by Section 8.1.
1.7. Deliveries
at Closing by the Purchaser.
At the
Closing, and upon satisfaction or waiver of the conditions set forth in Section
8.1, the Purchaser will deliver or cause to be delivered to the Seller the
instruments, consents, certificates and other documents required of the
Purchaser by Section 8.2.
4
ARTICLE
2
REPRESENTATIONS
AND WARRANTIES OF THE SELLER
The
Seller represents and warrants to the Purchaser that the information contained
in this Article 2 is true and correct and will be true and correct as of the
Closing Date:
2.1. Title.
On the
Closing Date, the Seller shall transfer to the Purchaser good title to the
Securities, free and clear of all Liens. The Seller has not granted any option
or right, and is not a party to any Contract that requires (or, upon the passage
of time, the payment of money or occurrence of any other event, would require)
the Seller to transfer any of the Securities to anyone other than the Purchaser
pursuant to this Agreement.
2.2. Organization
and Authority.
The
Seller (a)
is a
limited liability company duly formed, validly existing and in good standing
under the laws of the State of Arizona, (b)
has the
requisite power and authority to execute and deliver this Agreement and the
other agreements, documents and instruments of the Seller contemplated hereby
and to perform its obligations hereunder and thereunder, and (c)
such
execution, delivery and performance by the Seller have been duly and validly
authorized by all requisite action on the part of the Seller. The Seller owns
all of the membership interests in the Company. There are no outstanding
options, warrants, convertible or exchangeable securities or other rights that
could, directly or indirectly, obligate the Seller to issue additional
membership interests, limited liability company interests or any other
securities of the Company.
2.3. No
Conflict; Indebtedness.
(a) No
consent, order, approval, authorization, declaration or filing with or from
any
Governmental or Regulatory Authority or any party to a Contract is required
on
the part of the Seller for or in connection with the execution and delivery
of
this Agreement and the other agreements, documents and instruments contemplated
hereby or the consummation of the Transactions by the Seller.
(b) The
execution, delivery and performance of this Agreement and the other agreements,
documents and instruments contemplated hereby by the Seller will not result
in
any violation of, be in conflict with, constitute a default under, any of the
terms, conditions or provisions of the Seller’s articles of organization or
operating agreement (collectively, the “Organizational
Documents”).
(c) The
execution, delivery and performance of this Agreement and the other agreements,
documents and instruments contemplated hereby by the Seller will not result
in
any violation of, be in conflict with, constitute a default under or cause
the
acceleration of any obligations or loss of any rights under, any of the terms,
conditions or provisions of any Legal Requirement, or of any order, writ,
injunction, judgment, permit or license or decree of any Governmental or
Regulatory Authority or of any arbitration award to which the Seller is a party
or by which the Seller or its assets are bound.
(d) Except
as
set forth on Schedule
2.3(d),
the
Seller is not a party to, or bound by, any Contract under the terms of which
the
execution, delivery or performance of this Agreement or any of the other
agreements, documents and instruments contemplated hereby by the Seller will
be
a breach, default or an event of acceleration, or grounds for termination,
modification or cancellation, or result in the loss of any rights.
5
(e) The
Seller has no Indebtedness for borrowed money other than as set forth in
Schedule
2.3(e)(i)
and will
have no Indebtedness for borrowed money at the Closing other than as set forth
in Schedule
2.3(e)(ii).
2.4. Validity
and Enforceability.
This
Agreement is, and each of the other agreements, documents and instruments
contemplated hereby to which the Seller is a party shall be when executed and
delivered by the Seller, the valid and binding obligations of the Seller
enforceable in accordance with their terms, except to the extent that
enforcement may be affected by laws relating to bankruptcy, reorganization,
fraudulent conveyance, insolvency and creditors’ rights and by the availability
of injunctive relief, specific performance and other equitable
remedies.
2.5. Investment
Representations.
(a) The
Seller is an “accredited investor” within the meaning of Regulation D under the
Securities Act of 1933, as amended (the “Securities
Act”).
(b) The
Seller understands that the Seller Notes and the shares of Purchaser Common
Stock issuable upon conversion of the Convertible Notes have not been registered
under the Securities Act or under the securities laws of any jurisdiction,
by
reason of reliance upon certain exemptions, and that the reliance of the
Purchaser on such exemptions is predicated upon the accuracy of the Seller’s
representations and warranties in this Agreement.
(c) The
Seller has had the opportunity to ask questions of and receive answers from
representatives of the Purchaser and to obtain additional information, documents
and records relating to the Purchaser and its businesses, assets, results of
operations and financial condition and the Transactions. The Seller
(i)
has
such knowledge, experience and skill in evaluating and investing in common
stocks and other securities, so that it is capable of evaluating the merits
and
risks of an investment in the Seller Notes and the shares of Purchaser Common
Stock issuable upon conversion of the Convertible Notes, (ii)
has
such knowledge, experience and skill in financial and business matters that
it
is capable of evaluating the merits and risks of investment in the Purchaser
and
the suitability of the Seller Notes and the shares of Purchaser Common Stock
issuable upon conversion of the Convertible Notes for the Seller, and
(iii)
can
bear the economic risk of acquiring the Seller Notes and the shares of Purchaser
Common Stock issuable upon conversion of the Convertible Notes. The Seller
has
reviewed the Purchaser Reports, including the risk factors contained
therein.
(d) The
Seller understands that the Seller Notes and the shares of Purchaser Common
Stock issuable upon conversion of the Convertible Notes are characterized as
“restricted securities” under the federal securities laws inasmuch as they are
being acquired from the Purchaser in a transaction not involving a public
offering, and that, under such laws and applicable regulations, such shares
may
be transferred or resold without registration under the Securities Act only
in
certain limited circumstances and in accordance with the terms and conditions
set forth in the legend described in Section 2.5(e) below. The Seller is
familiar with Rule 144 promulgated by the Securities and Exchange Commission
(the “SEC”),
as
presently in effect, and understands the resale limitations imposed thereby
and
by the Securities Act. The Seller will observe and comply with the Securities
Act and the rules and regulations thereunder, as now in effect and as from
time
to time amended and including those hereafter enacted or promulgated, in
connection with any offer, sale, exchange, transfer, pledge or other disposition
of the Seller Notes, the shares of Purchaser Common Stock issuable upon
conversion of the Convertible Notes or any part thereof.
6
(e) The
Seller Notes and all certificates representing the Purchaser Common Stock
issuable upon conversion of the Convertible Notes and any certificates
subsequently issued with respect thereto or in substitution therefor shall
bear
a legend that such shares may only be sold or disposed of in accordance with
(i)
the
provisions of Rule 144 under the Securities Act, (ii)
pursuant to an effective registration statement or (iii)
pursuant to an exemption provided by the Securities Act. The Purchaser, at
its
discretion, may cause stop transfer orders to be placed with its transfer agent
with respect to the certificates representing such Purchaser Common Stock as
to
which such legend is applicable.
ARTICLE
3
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Seller and the Company hereby jointly and severally represent and warrant to
the
Purchaser that each of the statements contained in this Article 3 is true and
correct and will be true and correct as of the Closing Date:
3.1. Organization,
Power and Standing.
The
Company is a limited liability company duly organized, validly existing and
in
good standing under the laws of the State of Arizona and has all requisite
power
and authority to own, lease and operate its properties and to carry on its
business as currently conducted and as proposed to be conducted (the
“Company
Business”).
The
proposed business to be conducted by the Company consists of constructing and
operating Projects (as hereinafter defined), selling lots, Fractional Interests
(as hereinafter defined) and Golf Memberships and continuing to carry on its
operations in the Ordinary Course of Business.
3.2. Subsidiaries.
Except
as set forth on Schedule
3.2,
the
Company has no Subsidiaries and does not, directly or indirectly, own or have
the right to acquire any capital stock, membership interest or other equity
or
voting interest in any Person. As used in this Agreement, (a)
the
term “Subsidiary”
means
any (i)
corporation 50% or more of the outstanding securities having ordinary voting
power of which are owned or controlled, directly or indirectly, by the Company
or by one or more of its Subsidiaries or by the Company and one or more of
its
Subsidiaries, or (ii)
partnership, association, joint venture, limited liability company or similar
business organization 50% or more of the ownership interests having ordinary
voting power of which are so owned or controlled or in which the Company or
any
Subsidiary is the general partner, and (b)
the
term “Person”
means
any natural person or corporation, limited liability company, partnership,
Governmental or Regulatory Authority, trust or other entity. Each Subsidiary
is
duly organized, validly existing and in good standing under the laws of the
state or jurisdiction in which it is organized, as set forth on Schedule
3.2.
Each of
the Subsidiaries has full power and authority to own, lease and operate its
properties and to carry on its business as currently conducted and as proposed
to be conducted (with respect to each Subsidiary, the “Subsidiary
Business”
and,
together with the Company Business, the “Business”).
The
Company has delivered to the Purchaser complete and accurate copies of the
charter, bylaws, operating agreement, partnership agreement or other
organizational documents of the Company and each Subsidiary. Neither the Company
nor any Subsidiary is in default under or in violation of any provision of
its
charter, bylaws, operating agreement, partnership agreement or other
organization documents. Except as set forth on Schedule
3.2,
there
are no property, condominium, timeshare or other homeowner associations (each
individually, an “Association”
and
collectively, the “Associations”)
related to any property owned or sold by the Company. Each Association is a
not-for-profit non-stock corporation, duly organized, validly existing and
in
good standing under the laws of the State of Arizona, and is duly qualified
and
in good standing, with full power and authority to own its properties and assets
and carry on lawfully its business as currently conducted.
7
3.3. Foreign
Qualifications. The
Company and each of its Subsidiaries are duly qualified and authorized to do
business and are in good standing in each of the jurisdictions listed on
Schedule
3.3.
Neither
the Company nor any of its Subsidiaries is required to qualify to do business
as
a foreign entity in any other jurisdiction.
3.4. Due
Authorization; No-Conflict.
(a) The
Company has full power and authority and has taken all required action on its
part necessary to permit it to execute and deliver and to carry out the terms
of
this Agreement and the other agreements, instruments and documents of the
Company contemplated hereby.
(b) Except
as
specified on Schedule
3.4(b),
no
material consent, order, approval, authorization, declaration or filing,
including, without limitation, any consent, approval or authorization of or
declaration or filing with any Governmental or Regulatory Authority or
non-governmental authority, any party to a Material Contract (as hereinafter
defined) or any other Person is required on the part of the Company or any
Subsidiary for or in connection with its execution, delivery or performance
of
this Agreement and the other agreements, documents and instruments contemplated
hereby, or the conduct of the Business by the Company or any Subsidiary after
the Closing. The matters reflected on Schedule
3.4(b)
are
collectively referred to as the “Required
Consents.”
Subject to obtaining the Required Consents specified on Schedule
3.4(b),
the
execution, delivery and performance of this Agreement and the other agreements,
documents and instruments contemplated hereby by the Company will not result
in
any violation of, be in conflict with, constitute a default under, or cause
the
acceleration of any obligation or loss of any rights under, any Legal
Requirement, agreement, contract, instrument, charter, by-laws, operating
agreement, partnership agreement, governing document, organizational document,
license, permit, authorization, franchise or certification to which the Company,
any Subsidiary or any Association is a party or by which the Company, any
Subsidiary or any Association is bound.
3.5. Validity
and Enforceability. This
Agreement is, and each of the other agreements, documents and instruments
contemplated hereby to which the Company is a party shall be when executed
and
delivered by the Company, the valid and binding obligations of the Company
enforceable in accordance with their terms, except to the extent that
enforcement may be affected by laws relating to bankruptcy, reorganization,
fraudulent conveyance, insolvency and creditors’ rights and by the availability
of injunctive relief, specific performance and other equitable
remedies.
8
3.6. Capitalization.
(a) Except
as
set forth in Schedule
3.6(a),
the
Seller is the record and beneficial owner of all of the Securities, free and
clear of all Liens, other than restrictions on transfer under applicable
securities laws. The Securities constitute all of the Company’s outstanding
limited liability company interests, are owned beneficially and of record by
the
Seller, and are duly authorized, validly issued, fully paid and nonassessable.
All offers, issuances, sales and transfers of the Securities were made in
compliance in all material respects with all applicable securities laws and
all
applicable preemptive and similar rights.
(b) Each
Subsidiary’s authorized and outstanding capital stock or other equity interests
are as set forth on Schedule
3.6(b)
hereto.
Each Subsidiary’s outstanding capital stock or other equity securities are owned
beneficially and of record by the Persons and in the amounts set forth on
Schedule
3.6(b)
and are
duly authorized, validly issued, fully paid and nonassessable and are free
and
clear of all Liens (other than Liens securing Permitted Indebtedness (as
hereinafter defined)). All offers, issuances, sales and transfers of such shares
of capital stock and other equity securities were made in compliance in all
material respects with all applicable securities laws and all applicable
preemptive and similar rights.
(c) There
are
no outstanding options, warrants, convertible or exchangeable securities or
other rights or claims of any character, contingent or otherwise, that could,
directly or indirectly, obligate the Company or any Subsidiary to issue its
shares, interests or other securities. Except as set forth on Schedule
3.6(c),
there
are no outstanding or authorized stock appreciation, phantom stock, profit
participation or similar rights with respect to the Company or any
Subsidiary.
(d) Except
as
described on Schedule
3.6(d):
(i)
there
are no Contracts (as hereinafter defined) relating to the securities of the
Company or any Subsidiary including, without limitation, the acquisition,
disposition, repurchase, voting or registration thereof, and (ii)
there
is no Indebtedness of the Company or any Subsidiary that allows the holder
thereof to vote with the equity holders of the Company or any Subsidiary on
any
matter.
(e) Neither
the Company nor any Subsidiary is subject to any obligation (contingent or
otherwise) to redeem, purchase or otherwise acquire or retire any of its equity
securities. No Person has any right of first offer, right of first refusal,
preemptive right or other similar right in connection with the issuance or
sale
of the Securities or any outstanding securities of any Subsidiary, or with
respect to any future offer, sale or issuance of securities by the Company
or
any Subsidiary. Except as required by applicable Legal Requirements or as set
forth on Schedule
3.6(e),
there
are no restrictions of any kind that prevent or restrict the payment of
dividends or the making of distributions by the Company or any of its
Subsidiaries.
3.7. Financial
Information; Indebtedness.
(a) The
Company has delivered to the Purchaser the audited, consolidated balance sheets
of the Company and the Subsidiaries as at December 31, 2003, December 31, 2004,
and December 31, 2005 (the audited consolidated balance sheet of the Company
and
its Subsidiaries as at December 31, 2005 being referred to as the “Balance
Sheet,”
and
the date thereof being referred to as the “Balance
Sheet Date”),
and
the audited, consolidated statements of cash flows, income and members’
deficit/equity for the fiscal years then ended. The Company has also furnished
to the Purchaser the unaudited, consolidated balance sheet of the Company and
the Subsidiaries as at June 30, 2006, and the unaudited, consolidated statements
of cash flows, income and members’ deficit/equity of the Company and the
Subsidiaries for the six-month period then ended.
9
(b) As
used
herein, “Financial
Statements”
means
the financial statements referenced in clause (a) above together with (as of
the
Closing) the financial statements delivered pursuant to Section 5.4 (the
“Stub
Period Statements”).
The
Financial Statements and the notes thereto, if any, (i)
are as
of the dates thereof, or as to any Stub Period Statements as of the dates
thereof will be, complete and accurate in all material respects and do or will,
as applicable, fairly present the financial condition of the Company and its
Subsidiaries, taken as a whole, at the respective dates thereof and the results
of operations for the periods then ended, and (ii)
were
or, as to the Stub Period Statements, will be, prepared in accordance with
the
books and records of the Company and its Subsidiaries, taken as a whole, in
conformity with generally accepted accounting principles consistently applied
during the periods covered thereby (“GAAP”),
except, in the case of unaudited Financial Statements, for the omission of
footnotes and normal year-end adjustments which are not, individually and in
the
aggregate, material. As of the respective dates thereof, none of the Financial
Statements contains, or, as to any Stub Period Statements, will contain, any
material, non-recurring items, except as expressly set forth
therein.
(c) At
the
date hereof, neither the Company nor any Subsidiary has any Indebtedness
outstanding except as set forth on Schedule
3.7(c)
(“Outstanding
Indebtedness”).
Neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.
3.8. No
Material Adverse Changes.
Since
the Balance Sheet Date, other than as shown on Schedule
3.8,
(a)
the
Company and each Subsidiary have operated only in the usual and Ordinary Course
of Business, (b)
there
has been no event or condition which individually, or together with any other
events or conditions, has had or could reasonably be expected to have a Material
Adverse Effect, and (c)
the
Company and its Subsidiaries have complied with the covenants set forth in
Section 5.1 of this Agreement to the same extent as if this Agreement had been
executed as of and in effect from and after the Balance Sheet Date.
3.9. Material
Contracts. Schedule
3.9
sets
forth a complete and accurate list of all of the following Contracts to which
the Company or any Subsidiary is a party or by which any of them is
bound:
(a) Contracts
with respect to which the Company or any Subsidiary has or will reasonably
be
expected to have any liability or obligation involving more than $25,000,
contingent or otherwise within any 12 month period from and after the date
hereof;
(b) Contracts
under which the amount payable by the Company or any Subsidiary is determined
by
reference to the revenue, income or other similar measure of the Company, any
Subsidiary or any other Person;
10
(c) Contracts
evidencing a Lien on any properties or assets of the Company or any Subsidiary
or Contracts, other than construction Contracts that may result in the
imposition of a Lien on Company Property and other than rights mechanics and
materialmen may have in the Ordinary Course of Business that could result in
Liens on Company Property as a result of sums not paid by the Company or a
Subsidiary in the future;
(d) Contracts
relating to any Indebtedness or the guarantee thereof;
(e) Contracts
(including, without limitation, those relating to compensation) of the Company
or any Subsidiary with any officer, director, manager, stockholder, member
or
Affiliate of the Company or any Subsidiary or any of their respective relatives
or Affiliates;
(f) Contracts
which place any material limitation on the method of conducting or scope of
the
Business, including, without limitation, any Contract that contains any
exclusivity, non-competition, non-solicitation or no-hire
provisions;
(g) Contracts
relating to capital expenditures in excess of $25,000 individually or $200,000
in the aggregate;
(h) financial
advisory or similar Contracts and all Contracts with any investment or
commercial bank;
(i) Contracts
relating to the settlement or resolution of any pending or threatened
litigation, arbitration, claims or other disputes;
(j) employment,
severance, consulting, deferred compensation, collective bargaining, union,
labor, benefits and similar plans or Contracts involving the Company or any
Subsidiary;
(k) Contracts
relating to or involving any franchise, agency, distributor, broker, sales
representative, partnership, joint venture or other similar
arrangement;
(l) management,
operating, service, membership, partnership, teaming or affiliation Contract
or
Contracts, including without limitation with any Association;
(m) Contracts
with respect to mergers or acquisitions, sales of securities or sales of assets
outside the Ordinary Course of Business, investments (other than notes
receivable in the Ordinary Course of Business), or Contracts for amounts in
excess of $250,000 with respect to acquisitions of property or assets by the
Company or any Subsidiary;
(n) Contracts
with Governmental or Regulatory Authorities;
(o) Contracts
with respect to material marketing or advertising services or other related
services;
(p) Contracts
pursuant to which the Company or any Subsidiary has agreed to indemnify or
hold
harmless any other Person or to pay liquidated damages of any kind;
11
(q) Contracts
relating to the purchase, sale, leasing, use, occupancy, disposition,
development, engineering, design, financing or marketing of the Real Property;
and
(r) other
Contracts of the Company or any Subsidiary which are material to the Business
or
which a reasonable purchaser would consider material in deciding whether or
not
to acquire the Company.
All
the
foregoing Contracts, including all amendments or modifications thereto, all
Real
Estate Leases (as hereinafter defined) and all IP Licenses (as hereinafter
defined) are sometimes collectively referred to as “Material
Contracts.”
The
Company has furnished to the Purchaser true and correct copies of all Material
Contracts (or reasonable descriptions of the material terms thereof, in the
case
of oral Contracts). Each written Material Contract sets forth the entire
agreement and understanding between the Company and/or each Subsidiary and
the
other parties thereto, and each description of an oral Material Contract sets
forth the material terms of such Material Contract. Each Material Contract
is
valid, binding and in full force and effect. There is no event or condition
which has occurred or exists which constitutes or which, with or without notice,
the happening of any event and/or the passage of time, could constitute a
default or breach under any such Material Contract by the Company and/or any
Subsidiary or, to the knowledge of the Seller and the Company, any other party
thereto, or could cause the acceleration of any obligation or loss of any rights
of any party thereto or give rise to any right of termination or cancellation
thereof. Except as set forth on Schedule
3.9,
all
payments currently due under Material Contracts have been duly paid in
accordance with the terms thereof, and the Company and the Seller have no
knowledge that the parties to any Material Contract will not fulfill their
obligations thereunder in all material respects. Except as set forth on
Schedule
3.9,
(x)
the
Transactions will not afford any other Party the right to terminate any Material
Contract, and (y)
none of
the Material Contracts contains any “change of control” or other similar
provisions triggered by the consummation of the Transactions. Prior to the
Closing, all Contracts between the Company or any Subsidiary and Cavan or any
Affiliate of Cavan shall have been terminated, except for those Contracts
specifically identified as not so terminating on Schedule
3.9,
and
Cavan or such Affiliate, as the case may be, shall have fully released the
Company and the Subsidiaries.
3.10. Real
Property.
(a) Schedule
3.10(a)
sets
forth (i)
a list
of all of the material real property directly or indirectly owned by the Company
and the Subsidiaries (collectively, “Company
Property”),
(ii)
a legal
description of all condominiums, undivided interests and other dwelling units
that have been constructed on the Company Property (collectively, the
“Dwelling
Units”),
as
well as a list of all fractional or undivided ownership interests therein (the
“Fractional
Interests”),
identifying which have been sold (the “Sold
Inventory”),
and
(iii)
a list
of all real property leases, easements, licenses or similar possessory
agreements pursuant to which the Company, any Subsidiary or any Association
uses
or occupies any real property (collectively, the “Real
Estate Leases”).
Schedule
3.10(a)
sets
forth all policies of title insurance (“Title
Policies”)
and
the most recent commitment for the policy of title insurance required under
Section 8.1(p) (“Title
Commitments”)
that
have been issued to the Company or the Subsidiaries, as the case may be. The
Title Policies are in full force and effect and, except as set forth on
Schedule
3.10(a),
no
claim has been made under any such Title Policy, and, to the knowledge of the
Seller and the Company, there is no current fact or information which would
result in a claim or constitute a defense by the issuer of any such Title Policy
or an exclusion from coverage. True and correct copies of all such Title
Policies and the Title Commitment (together with copies of all documents
referenced in the Title Commitment as exceptions to title) have been delivered
by the Company to Purchaser. Except as specifically reflected or described
on
Schedule
3.10(a),
no
Association or Affiliate of the Company or any Subsidiary or any other Person
owns, leases or has any other interest in the Real Property or any other
property or asset (real, personal or mixed) used in the Business. The Real
Property includes easements (which may be in common with others) to use and
maintain the roadways lying within the Coconino Natural Forest and located
within the gap between Unit II on the east and Units I and III on the west,
and
neither the Company nor any Subsidiary shall have any Losses with respect to
the
continuation of such easements.
12
(b) To
the
knowledge of the Seller and the Company, except as set forth in Schedule
3.10(b),
there
is no uninsured physical damage to any Company Property in excess of $50,000.
To
the knowledge of the Seller and the Company, except as set forth in Schedule
3.10(b):
(i)
all
buildings and improvements located on the Real Property are in good operating
condition and repair and are structurally sound and free of material defects,
(ii)
the
Company Property complies in all material respects with all Legal Requirements
and insurance company requirements. The Company has made available to the
Purchaser true and complete copies of all engineering reports, inspection
reports, maintenance plans and other documents relating to the condition of
any
Company Property prepared for the Company or otherwise in the Company’s or a
Subsidiary’s possession.
(c) Except
as
set forth in Schedule
3.10(c),
(i)
no
condemnation, eminent domain or rezoning proceedings are pending or, to the
knowledge of the Seller and the Company, threatened with respect to any of
the
Company Properties; (ii)
no road
widening or change of grade of any road adjacent to any Company Property is
underway or, to the knowledge of the Seller and the Company, has been proposed;
(iii)
there
is no proposed change in the assessed value of any Company Property, other
than
changes that will occur as a result of the valuation and assessment of the
Company Property under policies and procedures of Yavapai County, Arizona,
existing from time to time, from and after the date of this Agreement;
(iv)
no
special assessment has been made or, to the knowledge of the Seller and the
Company, threatened against any Company Property; (v)
no
Company Property is subject to any “impact fee” or to any agreement with any
Governmental or Regulatory Authority to pay for sewer extension, oversizing
utilities, lighting or like expenses or charges for work or services by such
Governmental or Regulatory Authority; and (vi)
no
building or development moratoria exists or is proposed.
(d) Except
as
set forth on Schedule
3.10(d),
to the
knowledge of the Seller and the Company, neither the Real Property nor the
existing buildings and improvements owned by the Company and the Subsidiaries,
and the operation and maintenance thereof as operated and maintained, contravene
any Legal Requirements or violate any restrictive covenants or agreements in
any
material respect. All Dwelling Units in which Fractional Interests have been
sold and for which certificates of occupancy have been obtained, are furnished
for the present or intended use thereof with all improvements and furniture,
fixtures and equipment therein in the operating condition required by the
applicable Contracts to which the Company, the Subsidiaries or Association
are
parties and, to the knowledge of the Seller and the Company, are in the
operating condition required under such Contracts. All sales of Fractional
Interests and Lots made to date have complied with all Legal
Requirements.
13
(e) Legal
access to the Real Property is provided via a county road, which is a paved
public road. Except as set forth on Schedule
3.10(e),
the
Real Property is served by electricity, telephone, water and sewer services,
natural gas, television service and internet access (collectively, the
“Utilities”)
in
such quantity and quality as are sufficient to satisfy the current normal
business activities as conducted at such Company Property. All Utilities enter
the Real Property via public ways or via validly existing legal easements
appurtenant to the Real Property. Neither the Company nor any Subsidiary has
received any notice of any condition which would result in the discontinuation
of existing electricity, telephone, water and sewer services, natural gas,
television service and internet access to such Real Property which are necessary
and required for the current or intended use and operation thereof. Except
as
provided on Schedule
3.10(e),
all
impact, tap, utility connection and similar fees have been completely and fully
paid (i)
with
respect to all buildings now located on Company Property for which a certificate
of occupancy has been issued, and (ii)
to the
extent required to be paid by the lessee, with respect to property improved
with
buildings and leased by the Company, any Subsidiary or any Association
(“Leased
Property”
and,
collectively with the Company Property, the “Real
Property”).
(f) Except
as
set forth on Schedule
3.10(f),
the
legal descriptions for the parcels of Real Property contained in the deeds
thereof (true and correct copies of which have been delivered to the Purchaser)
describe such parcels fully and adequately; the buildings and improvements
located on the Real Property (i)
are
located within the boundary lines of the described parcels of land,
(ii)
are not
in violation of applicable setback requirements, local comprehensive plan
provisions, zoning laws and ordinances (iii)
are not
subject to any “permitted non-conforming use” or “permitted non-conforming
structure” classifications, (iv)
do not
encroach on any easement which may burden the land or on any other real
property, and (v)
are not
located within any governmentally designated flood plain (such that a mortgagee
would require a mortgagor to obtain flood insurance) or subject to any similar
type restriction for which any permits or licenses necessary to the use thereof
have not been obtained. In addition to the foregoing, except as set forth on
Schedule
3.10(f),
no
buildings or improvements owned by third parties encroach upon the Real Property
or any part thereof.
(g) The
Seller is neither a disregarded entity nor a “foreign person” within the meaning
of the United States tax laws and to which reference is made in Code Section
1445(b)(2) and the regulations thereunder. The Company and the Seller
acknowledge and agree that the Purchaser shall be entitled to fully comply
with
Code Section 1445 and all related sections and regulations, as same may be
modified and amended from time to time, and the Company, the Subsidiaries and
the Seller shall act in accordance with all reasonable requirements of the
Purchaser to effect such full compliance by the Purchaser.
(h) Except
as
set forth on Schedule
3.19(h),
the
Company and the Subsidiaries possess all material contractual rights and own
all
material assets necessary for the operation of the Business, including, but
not
limited to, all material licenses, regulatory permits, approvals and licenses,
intellectual property, software and other personal property. To the knowledge
of
the Seller and the Company, no such license, permit, approval or other right
will not be renewed in the Ordinary Course of Business. To the knowledge of
the
Seller and the Company, (i)
the
conduct of the Business currently proposed to be conducted will require the
additional material contractual rights set forth on Schedule
3.10(h)
and
(ii)
the
Company and the Subsidiaries will be able to obtain such rights in the Ordinary
Course of Business.
14
(i) The
marketing, sale, franchising, offering for sale, rental, solicitation of
purchasers and the financing of Fractional Interests sales by the Company and
the Subsidiaries do not constitute the sale, or the offering for sale, of
securities subject to the registration requirements of the Securities Act,
or
any other applicable securities laws and otherwise comply in all material
respects with all applicable Legal Requirements. All marketing and sales
activities are performed by employees or independent contractors of the Company
or the Subsidiaries, all of whom are properly licensed in accordance with
applicable Legal Requirements.
(j) Each
Association has been duly formed, is validly existing and has a board of
directors duly appointed by the Company or a Subsidiary or duly elected by
the
owners, in either case in accordance with the bylaws of such Association.
Schedule
3.10(j)
sets
forth the following with respect to each Association: (i)
a list
of the applicable bylaws, member agreements, restrictive covenants or other
applicable governing documents, (ii)
a list
of all Contracts that create any ongoing duties and obligations of the
Association, the Company and any Subsidiary, (iii)
a
description of any uncompleted development, upgrade or other similar work
required to be completed by the Company or any Subsidiary with respect to any
Fractional Interest that has been sold, and (iv)
the
Person(s) responsible for managing the property. The financial obligations
of
the Company and its Subsidiaries to each such Association are current in all
material respects. Correct and complete copies of the most recent audited
financial statements and interim unaudited financial statements of each
Association have been delivered to the Purchaser. Except as set forth on
Schedule
3.10(j),
to the
knowledge of the Seller and the Company, (i)
the
2006 and 2007 budgets established by each such Association are adequate to
fund
the projected 2006 and 2007 operating expenditures of such Association in all
material respects, subject to payment by all owners, including the Company
and
its Subsidiaries, of the dues and assessments levied by the respective
Association and (ii)
the
reserves for capital replacements maintained by each such Association, when
supplemented by additional reserve contributions in future years as set forth
in
the reserve analysis delivered to the Purchaser by the Company prior to the
date
hereof, will be adequate to fund in all material respects the replacement of
capital items owned by the Association over their anticipated useful lives.
The
Tax Returns of each Association have been timely filed (giving effect to all
extensions) and are true, correct and complete in all material respects, and
copies of such Tax Returns for the most recent tax year have been delivered
to
the Purchaser. All Taxes owed by each Association for or with respect to any
taxable period or partial taxable period ending on or before the Closing Date,
whether or not stated as due on such Tax Returns have been paid or will be
timely paid by the Association.
(k) The
Company has made available to the Purchaser each survey, study or report
prepared by or for the Company or any Subsidiary.
15
(l) Schedule
3.10(l)
sets
forth a complete and accurate list of all Contracts existing made or entered
into by the Company or any Subsidiary (i)
to
sell, mortgage, pledge or hypothecate any Company Property, (ii)
to
otherwise enter into a transaction in respect of the ownership or financing
of
any Company Property or (iii)
to
purchase or acquire an option, right of first refusal or similar right in
respect of any real property. The Company has made available to the Purchaser
a
true and correct copy of each such Contract. With respect to the Contracts
set
forth on Schedule
3.10(l)
and the
Real Estate Leases, to the knowledge of the Seller and the Company,
(i)
there
is no material breach or event of default on the part of the Company, any
Subsidiary or Association or any other party thereto, and (ii)
no
event that, with the giving of notice or lapse of time or both, would constitute
such breach or event of default on the part of the Company, any Subsidiary,
any
Association or any other party thereto, has occurred and is
continuing.
(m) Except
set forth in Schedule
3.10(m),
the
Company and the Subsidiaries have the right to sell, assign, transfer, lease,
and finance, without limitations, the Company Properties.
(n) Attached
as Schedule
3.10(n)
is a
capital expenditure budget that describes the capital expenditures which the
Company has budgeted for the period ending December 31, 2007. To the knowledge
of the Seller and the Company: (i)
the
costs and the schedules set forth therein are reasonable estimates and
projections, and (ii)
there
are no currently-existing facts or circumstances which would cause the Company
to exceed the capital expenditure budget in the aggregate in any material
respect.
(o) Schedule
3.10(o)
contains
a list of each property that is intended to be or is in the process of being
developed or materially rehabilitated by the Company or any Subsidiary
(“Development
Properties”)
and a
brief description of the development or material rehabilitation intended by
the
Company or any Subsidiary to be carried out or completed therein (collectively,
the “Projects”).
Each
Development Property is currently zoned for the lawful development thereon,
without special permit or variance, subject to all design, development review,
permitting and other Legal Requirements that are a condition to development
or
rehabilitation of such Development Property. The Company has obtained, or,
to
the knowledge of the Seller and the Company, will be able to obtain in the
Ordinary Course of Business, all material licenses, permits, authorizations,
franchises and certifications of Governmental or Regulatory Authority and
non-governmental authorities required for the lawful development or
rehabilitation thereon of such Project in accordance with the Company’s current
plans. The Company has made available to the Purchaser all feasibility studies,
soil tests, due diligence reports and other studies, tests or reports performed
by or for the Company, or otherwise in the possession of the Company, which
relate to the Development Properties.
(p) As
of the
date of this Agreement, certificates of occupancy have been issued for 19
Dwelling Units and the Company has sold 112 Fractional Interests and 211 Golf
Memberships.
16
3.11. Personal
Property.
Except
as set forth on Schedule
3.11,
the
Company and each Subsidiary has good title to or a valid leasehold or license
interest in each material item of personal property used by it in the Business,
free and clear of all Liens, other than (a)
Liens
securing Permitted Indebtedness, (b)
such
imperfections of title, easements, encumbrances, restrictions or Liens that
do
not materially detract from the value of such property or materially impair
the
current use by the Company or any Subsidiary of such property, (c)
statutory Liens for ad
valorem
property
Taxes not yet due and payable and (d)
statutory Liens of landlords, carriers, warehousemen, mechanics and materialmen
incurred in the Ordinary Course of Business for sums not yet due and payable.
To
the knowledge of the Seller and the Company, all material tangible assets of
the
Company and each Subsidiary are in good operating condition and repair, normal
wear and tear excepted. The assets and properties of the Company and each
Subsidiary include all assets and properties necessary for or currently used
in
the conduct of the Business, and are adequate to conduct the operations of
the
Company and the Subsidiaries as currently conducted, subject to the acquisition
by the Company of furniture, fixtures and equipment required for Dwelling Units
that have not yet been made available for occupancy by owners of Fractional
Interests and for club facilities to be developed by the Company in accordance
with its current plans. Schedule
3.11
sets
forth a
list of
each piece of equipment leased by the Company or any Subsidiary that has an
annual rent in excess of $10,000.
3.12. Intellectual
Property.
(a) As
used
herein “Intellectual
Property”
means
all intellectual property rights of every kind including all (i)
trademarks, service marks, trade dress, trade names, logos and corporate names
(in each case, whether registered or unregistered) and registrations and
applications for registration thereof, (ii)
computer software, data, data bases and documentation thereof, (iii)
drawings, specifications, designs, plans, proposals, financial and marketing
plans and customer and supplier lists and information, (iv)
World
Wide Web addresses and domain name registrations and (v)
goodwill associated with any of the foregoing. As used herein “Company
Intellectual Property”
means
any Intellectual Property in which the Company or any Subsidiary has rights,
including Intellectual Property controlled, licensed, franchised, owned or
used
by the Company or any Subsidiary. Neither the Company nor any Subsidiary has
any
intellectual property rights with respect to any patents, patent applications,
patent disclosures, inventions, copyrights (registered or unregistered) or
registrations or applications for registration thereof, trade secrets or work
of
authorship (including, without limitation, computer programs, source code and
executable code, whether embodied in software, firmware or otherwise,
documentation, designs, files, records, data or mask works).
(b) Schedule
3.12(b)
hereto
contains a complete and accurate list of all Company Intellectual Property
included in clauses (i), (ii) and (iv) of the definition of Intellectual
Property. Schedule
3.12(b)
contains
a complete and accurate list of all licenses, franchises and other rights
granted by the Company or any Subsidiary to any Person with respect to any
Company Intellectual Property that is owned by the Company and all licenses,
franchises, and other rights granted by any Person to the Company or any
Subsidiary with respect to any Company Intellectual Property (for this purpose,
excluding so-called “off-the-shelf” products and “shrink wrap” software licensed
to the Company or any Subsidiary in the Ordinary Course of Business and easily
obtainable without material expense) identifying the subject Company
Intellectual Property (collectively, the “IP
Licenses”).
Neither the Company nor any Subsidiary is required to pay any royalties or
other
compensation to any third parties in respect of its ownership or use of any
Company Intellectual Property, other than payments in the Ordinary Course of
Business for so-called “off-the-shelf” products or “shrink wrap”
software.
17
(c) The
Company and each Subsidiary owns or possesses sufficient legal rights to use
all
material Intellectual Property currently being used in the Business. To the
knowledge of the Seller and the Company, neither the Company nor any Subsidiary
has violated or infringed, is violating or infringing or, by conducting the
Business, could violate or infringe any Intellectual Property of any other
Person, and the Seller and the Company have no knowledge of any violation or
infringement by any Person of any Company Intellectual Property. None of the
Company or any Subsidiary has received any notice from any Person claiming
any
violation or infringement of a Person’s Intellectual Property
rights.
(d) The
Company has registered the name “Seven Canyons” and the World Wide Web address
and domain name xxx.xxxxxxxxxxxx.xxx
as
described on Schedule
3.12(d).
Each
material item of Company Intellectual Property owned by the Company or its
Subsidiaries is valid and subsisting. To the extent required to maintain any
existing registration of Company Intellectual Property, (a)
all
registration, maintenance and renewal fees in connection with such Company
Intellectual Property due to Governmental or Regulatory Authorities or to other
Persons have been paid, and (b)
all
documents and certificates in connection with such Company Intellectual Property
required to be filed for the purposes of maintaining an existing registration
of
Company Intellectual Property have been filed with the relevant authorities
in
the United States. There is no threatened or reasonably foreseeable loss or
expiration of any material Company Intellectual Property.
(e) The
Company and each Subsidiary’s rights in and to its Company Intellectual Property
are free and clear of all Liens, other than Liens securing Permitted
Indebtedness.
3.13. Receivables.
The
accounts receivable owned by the Company and the Subsidiaries are valid, genuine
and existing, subject to any reserve set forth in the Balance Sheet (which
reserves have been determined in accordance with GAAP). Except as set forth
in
Schedule
3.13,
all
accounts receivable of the Company and the Subsidiaries are owned free and
clear
of all Liens other than Liens securing Permitted Indebtedness. All such accounts
receivable arise out of bona fide transactions in the Ordinary Course of
Business and are not subject to defenses, set-offs or counterclaims. Neither
the
Company nor any Subsidiary has extended any financing to any Person in
connection with the sale of real estate or interests in real estate or
otherwise. For clarity, it is understood by the Purchaser that this
representation is not a guarantee as to the collectibility of any of the
Company’s or any Subsidiaries’ receivables.
3.14. Information.
None of
the information supplied or to be supplied by the Company, the Subsidiaries
or
the Seller pursuant to Section 5.14 for inclusion in the proxy statement (the
“Proxy
Statement”)
to be
distributed by the Purchaser to its stockholders in connection with the special
meeting of the Purchaser to be held to seek approval of this Agreement and
the
Transactions (the “Purchaser
Stockholder Meeting”)
will,
at the date such information is provided to the Purchaser contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they
are
made, not misleading. The Company will promptly advise the Purchaser if any
information supplied by the Company, the Subsidiaries or the Seller pursuant
to
Section 5.14 ceases to be accurate in any material respect.
18
3.15. Warranty
Claims.
Except
as set forth on Schedule
3.15,
there
are not pending, nor are there, to the knowledge of the Seller and the Company,
threatened, any material claims against the Company or any Subsidiary alleging
any defects in the Company’s or any Subsidiary’s services, real estate interests
or products, or alleging any failure of the products, real estate interests
or
services of the Company or any Subsidiary to meet applicable specifications,
warranties or contractual commitments.
3.16. Business
Relationships.
To the
knowledge of the Seller and the Company, all suppliers, vendors and service
providers which are material to the Company or any Subsidiary will continue
after the Closing to sell the products and provide the services to the Company
and its Subsidiaries currently sold and provided by them. The Company’s and its
Subsidiaries’ relationships with such suppliers, vendors and service providers
are satisfactory commercial working relationships. Except as set forth on
Schedule
3.16,
during
the 18 months preceding the date of this Agreement, no significant supplier,
vendor or service provider (i)
has
terminated or, to the knowledge of the Seller and the Company, threatened to
terminate, its relationship with the Company or any Subsidiary, (ii)
has
decreased or limited materially or, to the knowledge of the Seller and the
Company, threatened to decrease or limit materially, the services, supplies
or
materials supplied to the Company or any Subsidiary, or (iii)
has
materially changed, or, to the knowledge of the Seller and the Company,
threatened to materially change, its business relationship with the Company
or
any Subsidiary.
3.17. Regulatory
and Legal Compliance.
(a) Except
as
set forth on Schedule
3.17(a),
(i)
the
Company and each Subsidiary is and has been in compliance in all material
respects with all applicable Legal Requirements, and (ii)
since
January 1, 2002, neither the Company nor any Subsidiary has received any notice
from any Governmental or Regulatory Authority or any other Person of any alleged
violation or noncompliance.
(b) Except
as
set forth on Schedule
3.17(b),
(i)
neither
the Company nor any Subsidiary nor any of any of their respective properties
is
a party to or is subject to any order, decree, Contract, memorandum of
understanding or similar arrangement with any Governmental or Regulatory
Authority, or is subject to any order or directive specifically naming or
referring to the Company or any Subsidiary by any Governmental or Regulatory
Authority which is currently in effect and restricts in any material respect
the
conduct of the Business, and (ii)
neither
the Company nor any Subsidiary has received written notification from any such
Governmental or Regulatory Authority that the Company or any Subsidiary may
be
requested to enter into, or otherwise be subject to, any such written Contract,
memorandum of understanding, cease and desist order or any other similar order
or directive.
3.18. Licenses
and Permits.
Schedule
3.18 sets
forth all licenses, permits, authorizations, franchises and certifications
of
Governmental or Regulatory Authority and non-governmental authorities held
by
the Company and each Subsidiary which are material to the Company, any
Subsidiary or the Business. The Company and each Subsidiary is and has been
in
compliance in all material respects with all such licenses, permits,
authorizations, franchises and certifications, all of which are in full force
and effect and, subject to receipt of the Required Consents, will be in full
force and effect immediately after giving effect to the Transactions. There
are
no other material licenses, permits, authorizations, franchises or
certifications that the Company or any Subsidiary is required to obtain or
which, in good industry practice, the Company or any Subsidiary should hold
for
the conduct of the Business as currently conducted. Except as set forth on
Schedule
3.18,
to the
knowledge of the Seller and the Company, there is no threatened suspension,
revocation, non-renewal or invalidation of any such licenses, permits,
authorizations, franchises or certifications, or any basis therefor. To the
extent that the conduct of the Business currently proposed to be conducted
requires additional licenses, permits, authorizations, franchises or
certifications, the Company and the Subsidiaries will, to the knowledge of
the
Seller and the Company, be able to obtain such rights in the Ordinary Course
of
Business.
19
3.19. Tax
Matters.
(a) Definitions.
For
purposes of this Agreement, the following definitions shall apply:
(i) “Tax”
or
“Taxes”
means
all taxes, charges, fees, levies, penalties, additions or other assessments
imposed by any foreign, federal, state, county or local taxing authority,
including, but not limited to, income, excise, property, sales, use, transfer,
franchise, payroll, withholding, value added, social security, transaction
privilege or other taxes, including any interest, penalties or additions
attributable thereto.
(ii) “Tax
Returns”
means
all reports, declarations of estimated Tax, information statements and returns
relating to, or required to be filed in connection with, any Taxes and any
schedules attached to or amendments of (including refund claims with respect
to)
any of the foregoing.
(b) Except
as
set forth on Schedule
3.19(b)
hereto:
(i)
all Tax
Returns required to be filed by or on behalf of the Company or any of the
Subsidiaries have been duly filed on a timely basis (giving effect to all
extensions), and all Tax Returns required to be filed by the Seller in respect
of the income, assets or other items relating to the Company or any Subsidiary
have been filed on a timely basis; (ii)
such
Tax Returns are true, complete and correct; (iii)
all
Taxes due and payable by the Seller or its direct or indirect owners (in respect
of the income, assets or other items relating to the Company or any Subsidiary)
for or with respect to any taxable period or partial taxable period ending
on or
before the Closing Date, whether or not stated as due on such Tax Returns,
have
been paid or will be timely paid by the Seller or its direct or indirect owners;
(iv)
all
Taxes due and payable by the Company or the Subsidiaries for or with respect
to
any taxable period ending on or before the Closing Date, whether or not stated
as due on such Tax Returns, have been or will be timely paid by the Seller;
(v)
all
Taxes measured by net income of the Company or any Subsidiary due and payable
for or with respect to any taxable period or partial taxable period ending
on or
before the Closing Date, whether or not stated as due on such Tax Returns,
if
not paid by the Company or the Subsidiaries, will be timely paid by the Seller;
(vi)
all
other Taxes owed by the Company or the Subsidiaries that are due prior to the
Closing, whether or not stated as due on such Tax Returns, have been paid or
will be paid by the Company or the Subsidiaries, respectively, on or before
the
due date; (vii)
the
Purchaser has been supplied with true and complete copies of each Tax Return
filed by the Company or by any of the Subsidiaries, including each franchise
or
excise Tax Return based on income filed for the last three taxable years;
(viii)
neither
the Company nor any Subsidiary (A)
has
ever been audited or received notice of initiation thereof by any governmental
taxing authority for which the statute of limitations for assessment of Taxes
remains open, (B)
has
ever extended any applicable statute of limitations regarding Taxes for which
the statute of limitations for assessment of Taxes remains open, (C)
is
liable, contractually or otherwise, for the Taxes of any other Person (other
than withholding Taxes arising in the Ordinary Course of Business),
(D)
is a
“consenting corporation” under Section 341(f) of the Internal Revenue Code of
1986, as amended (the “Code”),
(E)
has
agreed to or is required to make any adjustment under Code Section 481(a) or
263A, (F)
has
ever made any payments, is obligated to make any payments, or is a party to
any
Contract that under certain circumstances could obligate it to make any payments
that may not be deductible under Section 280G of the Code, (G)
is a
party to any allocation or sharing agreement with respect to Taxes,
(H)
has
ever participated in the filing of any consolidated, combined or unitary Tax
Return, (I)
is
currently the beneficiary of any extension of time within which to file any
Tax
Return which remains unfiled, and (J)
has
received notice of any claim by any authority in any jurisdiction where it
does
not file Tax Returns that it (or the Seller) is or may be subject to any Taxes
or future taxation in such jurisdiction; (ix)
all
Taxes which the Company and each Subsidiary is required to withhold or to
collect for payment have been duly withheld and collected and, to the extent
required, paid to the proper Governmental or Regulatory Authority; and
(x)
the
Seller and each Subsidiary that is a corporation is a “United States person” as
such term is used in Code Section 1445.
20
(c) The
Tax
Return workpapers of the Company and its Subsidiaries and other Tax related
information have been made available for inspection by the Purchaser at the
Company’s office.
(d) Neither
the Company nor any Subsidiary is a party to any joint venture, partnership
or
Contract that could be treated as a partnership for federal income tax purposes.
(e) There
are
(and immediately following the Closing there will be) no Liens on the assets
of
the Company or any Subsidiary relating to or attributable to Taxes other than
Liens for ad
valorem
property
Taxes not yet due and payable. There is no basis for the assertion of any claim
relating to or attributable to Taxes that, if adversely determined, would result
in any Lien on the assets of the Company or any Subsidiary.
(f) Neither
the Company nor any Subsidiary has filed any consent under Section 341(f) of
the
Code or agreed to have Section 341(f) of the Code apply to any disposition
of
any Section (f) asset (as defined in Section 341(f)(2) of the
Code).
(g) Neither
the Company nor any Subsidiary has been, at any time, a “United States Real
Property Holding Corporation” within the meaning of Section 897(c)(2) of the
Code.
(h) Neither
the Company nor any Subsidiary has constituted either a “distributing
corporation” or a “controlled corporation” in a distribution of stock intended
to qualify for tax-free treatment under Section 355 of the Code (i)
in the
two years prior to the date of this Agreement or (ii)
in a
distribution that could otherwise constitute part of a “plan” or “series of
related transactions” (within the meaning of Section 355(e) of the Code) in
connection with the transactions contemplated by this Agreement.
21
(i) Neither
the Company nor any Subsidiary has engaged in a transaction that is the same
or
substantially similar to one of the types of transactions that the Internal
Revenue Service has determined to be a Tax avoidance transaction and identified
by notice, regulation, or other form of published guidance as a listed
transaction, as set forth in Treasury Regulation Section
1.6011-4(b)(2).
(j) Each
of
the Company and the Subsidiaries is and has at all times been resident for
Tax
purposes in its place of incorporation or formation and is not and has not
at
any time been treated as resident in any other jurisdiction for any Tax purpose
(including any double taxation arrangement). Neither the Company nor any
Subsidiary is subject to Tax in any jurisdiction other than its place of
incorporation or formation by virtue of having a permanent establishment or
other place of business or by virtue of having a source of income in that
jurisdiction, except for income earned from services for which any income Tax
is
satisfied through withholding. Neither the Company nor any Subsidiary is liable
for any Tax as the agent of any other Person or business and does not constitute
a permanent establishment or other place of business of any other Person for
any
Tax purpose.
(k) Neither
the Company nor any Subsidiary is required to include any income or gain or
exclude any deduction or loss from taxable income as a result of any change
in
method of accounting under Section 481(c) of the Code, closing agreement under
Section 7121 of the Code, deferred intercompany gain or excess loss under
Treasury Regulations under Section 1502 of the Code (or, in each case, under
any
similar provision of applicable law).
(l) There
is
no Contract to which the Company or any Subsidiary is a party, including the
provisions of this Agreement, covering any employee that, individually or
collectively could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
(m) Neither
the Company nor any Subsidiary is a party to any nonqualified deferred
compensation plan that fails to meet the requirements of Section 409A(a)(2),
(3)
and (4) of the Code or is not operated in accordance with such
requirements.
(n) As
of the
Closing, the ability of the Company and each Subsidiary to use its net operating
loss and other carryforwards will not have been adversely affected by Sections
382, 383 or 384 of the Code (other than as a result of the
Transactions).
(o) Set
forth
on Schedule
3.19(o)
hereto
is the characterization for federal income tax purposes of the Company and
each
of the Subsidiaries.
3.20. Litigation.
Except
as set forth on Schedule
3.20,
no
action, arbitration, unsatisfied judgment, suit, proceeding or investigation
is
pending or, to the knowledge of the Seller and the Company, threatened
(a)
against
the Company and any Subsidiary or the Seller or, to the knowledge of the Seller
and the Company, against any stockholder, member, officer, director, manager
or
employee of the Company or any Subsidiary in relation to the affairs of the
Company or any Subsidiary or (b)
that
relates to any Project, any Real Property or to the Transactions. In addition,
Schedule
3.20
sets
forth all settlements and judgments since January 1, 2002 of matters that would
otherwise be disclosed pursuant to the immediately preceding sentence. Except
as
set forth on Schedule
3.20,
(i)
the
matters disclosed on such Schedule will be covered by the Company’s insurance
policies and (ii)
none of
the Company, any Subsidiary or the Seller is currently planning to initiate
any
action, suit, or proceeding before any court, arbitrator or Governmental or
Regulatory Authority.
22
3.21. Employees
and Compensation.
(a) The
Company and each Subsidiary is in compliance in all material respects with
all
applicable Legal Requirements respecting employment and employment practices
in
the jurisdictions within which they operate including, without limitation,
the
Age Discrimination in Employment Act of 1967, as amended, the Americans with
Disabilities Act of 1990, as amended, ERISA (as hereinafter defined), and state
fair employment practices laws. The Company and each Subsidiary has properly
classified all Persons who have performed or perform services for the Company
or
any Subsidiary as employees or independent contractors, as
applicable.
(b) Except
as
set forth on Schedule
3.21(b),
neither
the Company’s nor any Subsidiary’s employees are represented by a union, and
there is no labor strike, dispute, arbitration, grievance, slowdown, stoppage,
organizational effort, dispute or proceeding by or with any employee or former
employee of the Company or any Subsidiary or any labor union pending or, to
the
knowledge of the Seller and the Company, threatened against the Company or
any
Subsidiary.
(c) There
are
no employment or consulting contracts or arrangements (other than those
terminable at will without liability to the Company) with any employees or
consultants of the Company or any Subsidiary other than as described on
Schedule
3.9.
Schedule
3.21(c)
sets
forth a complete list of all employees of and consultants to the Company and
each Subsidiary, with annual compensation in excess of $50,000, showing date
of
hire, hourly rate or salary or other basis of compensation, other benefits
accrued as of a recent date and job function. To the knowledge of the Seller
and
the Company, no Person set forth on Schedule
3.21(c)
intends
to terminate his or her employment with the Company (or Administaff) or any
Subsidiary. For clarity, as used in this Section 3.21(c), “consultants” refers
to independent contractors providing services to the Company or its Subsidiaries
on a regular and substantially continuous basis in a manner comparable to
services provided by employees, and “consulting contracts” refers to Contracts
with such consultants.
3.22. ERISA;
Compensation and Benefit Plans.
(a) Schedule
3.22(a)
sets
forth all material employee compensation and benefit plans, agreements,
commitments, practices or arrangements of any type (including, but not limited
to, plans described in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended (“ERISA”))
offered, maintained or contributed to by the Company or any Subsidiary for
the
benefit of current or former employees or directors of the Company or any
Subsidiary, or with respect to which the Company or any Subsidiary has or may
have any liability, whether direct or indirect, actual or contingent (including,
but not limited to, liabilities arising from affiliation under Section 414(b),
(c), (m) or (o) of the Code or Section 4001 of ERISA) (collectively, the
“Benefit
Plans”),
and
includes a written description of the material terms of all oral Benefit Plans.
There are no material employee compensation or benefit plans, agreements,
commitments, practices or arrangements of any type providing benefits to
employees or directors of the Company or any Subsidiary, or with respect to
which the Company or any Subsidiary may have any liability, other than the
Benefit Plans.
23
(b) With
respect to each Benefit Plan, the Company and each Subsidiary has delivered
to
the Purchaser true and complete copies of: (i)
any and
all plan texts and agreements (including, but not limited to, trust agreements,
insurance contracts and investment management agreements); (ii)
any and
all material employee communications (including all summary plan descriptions
and material modifications thereto); (iii)
the two
most recent annual reports, if applicable; (iv)
the
most recent annual and periodic accounting of plan assets, if applicable;
(v)
the
most recent determination letter received from the Internal Revenue Service
(the
“Service”),
if
applicable; and (vi)
in the
case of any unfunded or self-insured plan or arrangement, a current estimate
of
accrued and anticipated liabilities thereunder.
(c) With
respect to each Benefit Plan: (i)
if
intended to qualify under Section 401(a) of the Code, such plan so qualifies,
and its trust is exempt from taxation under Section 501(a) of the Code;
(ii)
such
plan has been administered and enforced in accordance with its terms and all
applicable Legal Requirements in all material respects; (iii)
no
breach of fiduciary duty has occurred with respect to which the Company or
any
Subsidiary or any Benefit Plan may be liable or otherwise damaged in any
material respect; (iv)
no
material disputes nor any audits or investigations by any Governmental or
Regulatory Authority are pending or, to the knowledge of the Seller and the
Company, threatened; (v)
no
“prohibited transaction” (within the meaning of either Section 4975(c) of the
Code or Section 406 of ERISA) has occurred with respect to which the Company
or
any Subsidiary or any Benefit Plan may be liable or otherwise damaged in any
material respect; (vi)
all
contributions, premiums, and other payment obligations of the Company or any
Subsidiary under any Benefit Plans have been accrued on the consolidated
financial statements of the Company in accordance with GAAP, and, to the extent
due, have been made on a timely basis, in all material respects; (vii)
all
contributions or benefit payments made or required to be made under such plan
meet the requirements for deductibility under the Code; (viii)
subject
to any applicable Legal Requirement, the Company and each Subsidiary has
expressly reserved in itself the right to amend, modify or terminate such plan,
or any portion of it, at any time without liability to itself; and (ix)
no such
Benefit Plan requires the Company or any Subsidiary to continue to employ any
employee or director.
(d) No
Benefit Plan is, or has ever been, subject to Title IV of ERISA.
(e) With
respect to each Benefit Plan which provides welfare benefits of the type
described in Section 3(1) of ERISA: (i)
no such
plan provides medical or death benefits with respect to current or former
employees or directors of the Company or any Subsidiary beyond their termination
of employment, other than coverage mandated by Sections 601-608 of ERISA and
4980B(f) of the Code, (ii)
each
such plan has been administered in compliance with Sections 601-609 of ERISA
and
4980B(f) of the Code; (iii)
no such
plan is or is provided through a “multiple employer welfare arrangement” within
the meaning of Section 3(40) of ERISA; and (iv)
no such
plan has reserves, assets, surpluses or prepaid premiums.
24
(f) The
consummation of the Transactions contemplated by this Agreement will not
(i)
entitle
any individual to severance pay, (ii)
accelerate the time of payment or vesting under any Benefit Plan, or
(iii)
increase the amount of compensation or benefits due to any
individual.
3.23. Environmental
Matters.
Except
as set forth on Schedule
3.23,
(i)
to the
knowledge of the Seller and the Company, none of the business of the Company
or
any Subsidiary, or the operation thereof, or any condition or circumstance
at
any property, asset, improvement, fixture or equipment owned or leased by the
Company or any Subsidiary violates in any material respect any applicable Legal
Requirement relating to public or worker health and safety, the protection,
management, regulation or clean-up of the indoor or outdoor environment and
activities or conditions related thereto, including, without limitation, those
relating to the generation, handling, disposal, transportation or release of
hazardous or toxic materials, substances, wastes, pollutants and contaminants,
including, without limitation, asbestos, petroleum (whether crude oil or any
refined or altered products), radon, mold, urea formaldehyde, lead-based paint,
and polychlorinated biphenyls (collectively, “Environmental
Laws”);
(ii)
to the
knowledge of the Seller and the Company, no condition, circumstance or event
exists or has occurred that, with notice or the passage of time or both, would
constitute such a violation of any Environmental Law or that could reasonably
be
expected to result in material liability to the Company or any Subsidiary;
(iii)
the
Company and each Subsidiary is in possession of all material licenses, consents,
permits, authorizations, franchises and certifications required under any
applicable Environmental Law (“Environmental
Permits”)
for
its operations and the Company and each Subsidiary has been and is in compliance
in all material respects with all the requirements and limitations included
in
such Environmental Permits; (iv)
none of
the Company or its Subsidiaries has handled, disposed of, released, transported,
stored or used any materials, products, pollutants, contaminants, hazardous
or
toxic wastes, substances or other materials regulated by or subject to any
Environmental Law (collectively, the “Hazardous
Substances”)
on or
at any of its property in a manner that could reasonably be expected to result
in material liability to the Company or any Subsidiary under any Environmental
Law; (v)
to the
knowledge of the Seller and the Company, (A)
no
Person (other than the Company and its Subsidiaries) is violating, or has
violated, any Environmental Law applicable to the Business, or to any property,
assets, improvement, fixture or equipment owned, leased or operated by the
Company or any Subsidiary, and (B)
no such
Person has failed to obtain any Environmental Permits respecting any property,
asset, improvement, fixture or equipment necessary to the Company or any
Subsidiary in the conduct of the Business; (vi)
none of
the Company or any Subsidiary has received any notice, suit or claim from any
authority or any private person or entity alleging that the Company or any
Subsidiary or the operation of any of their respective properties is in
violation in any material respect of any Environmental Law or any Environmental
Permit or that is responsible (or potentially responsible) for the cleanup
of
any Hazardous Substances at, on or beneath any of the properties (including
ground water) of the Company or any Subsidiary, or at, on or beneath any land
adjacent thereto (including ground water) or in connection with any other site
that could reasonably be expected to result in material liability to the Company
or any of Subsidiary; (vii)
none of
the Company or its Subsidiaries has buried, dumped, disposed, spilled or
actively or passively released any material quantity or amount of Hazardous
Substances on, beneath or adjacent to any of its property or any other property
(including ground water); (viii)
each of
the Company and the Subsidiaries has timely filed all material reports required
to be filed with respect to all of its property, assets, improvements, fixtures
and equipment and has generated and maintained all material required data,
documentation and records required under all applicable Environmental Laws;
(ix)
to the
knowledge of the Seller and the Company, there are no underground storage tanks,
including any piping at, on or beneath any property used by the Company or
any
Subsidiary for any purpose; and (x)
to the
knowledge of the Seller and the Company, there are no conditions, circumstances
or events respecting any property, assets, improvement, fixture or equipment
owned or operated by any Person other than the Company or any Subsidiary that
could reasonably be expected to give rise to a Material Adverse Effect under
any
Environmental Law. All of the foregoing representation and warranties contained
in clauses (i) through (x), inclusive, concerning properties, assets,
improvements, fixtures and equipment of the Company or any Subsidiary shall
be
deemed to include all current and former properties, assets, improvements,
fixtures and equipment of the Company or its Subsidiaries.
25
3.24. Insurance. Schedule
3.24
sets
forth all insurance policies under which the Company or any Subsidiary is
insured, the name of the insurer of each policy, the type of policy provided
by
such insurer and the amount, scope and period covered thereby. Such insurance
policies are valid and in full force and effect but will terminate at the
Closing as a result of the Transactions. All premiums due under such policies
have been paid, no default exists thereunder and, with respect to any material
claims made under such policies, no insurer has made any “reservation of rights”
or refused to cover all or any portion of such claims. There is no material
claim by the Company or any Subsidiary pending under any insurance policies
as
to which coverage has been questioned, denied or disputed by the underwriters
of
such policies. Except as set forth on Schedule
3.24,
neither
the Company nor any Subsidiary has received any notice of any proposed material
increase in the premiums payable for coverage, or proposed reduction in the
scope (or discontinuation) of coverage, under any of such insurance policies.
Except as set forth on Schedule
3.24,
no
insurance policy or policies under which the Company or any Subsidiary is or
was
insured have been cancelled within the last three years. Schedule
3.24
lists
all claims made under insurance policies by the Company or any Subsidiary since
January 1, 2003. Schedule
3.24
also
lists all outstanding bonds and other surety arrangements issued or entered
into
by the Company or any Subsidiary.
3.25. Affiliate
Transactions.
Except
as set forth on Schedule
3.25,
(a)
neither
the Company nor any Subsidiary is a party to any Contract with, or indebted,
either directly or indirectly, to any of its officers, directors, managers,
members or equityholders, or any of their respective relatives or Affiliates,
and (b)
none of
such Persons is indebted to, or is owed any money by, the Company or any
Subsidiary or has any direct or indirect ownership interest in, or any
contractual or business relationship with, any Person with which the Company
or
any Subsidiary is or was Affiliated or with which the Company or any Subsidiary
has a business relationship, or any Person which, directly or indirectly,
competes with the Company or any Subsidiary. As used herein, “Affiliate”
has
the
meaning ascribed to it in Rule 405 promulgated under the Securities
Act.
3.26. Absence
of Undisclosed Liabilities.
Except
as set forth on Schedule
3.26
and
except for (a)
liabilities or obligations reflected on the Balance Sheet or specifically
disclosed in the footnotes thereto and current liabilities incurred in the
Ordinary Course of Business since the Balance Sheet Date, and (b)
obligations of future performance under Contracts set forth on a Schedule hereto
and under other Contracts entered into in the Ordinary Course of Business in
accordance with this Agreement which are not required to be listed on a Schedule
hereto, as of the Closing Date, none of the Company or any of its Subsidiaries
will have any material liabilities or obligations, whether absolute, accrued,
contingent or otherwise, and whether due or to become due.
26
3.27. Banking
Relationships. Schedule
3.27
hereto
accurately describes all arrangements that the Company or any Subsidiary has
with any banking or other financial institution, indicating with respect to
each
such arrangement the type of arrangement maintained and the person(s) authorized
in respect thereof. Neither the Company nor any Subsidiary has any outstanding
powers of attorney of any nature. Except as set forth in Schedule
3.27,
neither
the Company nor any Subsidiary has any obligation or liability (whether actual,
accrued, accruing, contingent or otherwise) as guarantor, surety, co-xxxxxx,
endorser, co-maker, indemnitor or otherwise) in respect of the obligation of
any
Person, except as endorser or maker of checks in the Ordinary Course of
Business.
3.28. Brokers.
Except
as set forth on Schedule
3.28,
no
finder, broker, agent, financial advisor or other intermediary has acted on
behalf of the Seller, the Company or any Subsidiary in connection with the
negotiation or consummation of this Agreement or the Transactions and no such
Person is entitled to any fee, payment, commission or other consideration in
connection therewith as a result of any arrangement made by any of them. The
fees and expenses of the Persons specified on Schedule
3.28
shall be
paid in accordance with Section 1.2 above.
3.29. Disclosure.
The
representations and warranties of the Company and the Seller contained in this
Agreement, taken as a whole, do not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
contained herein not misleading.
ARTICLE
4
REPRESENTATIONS
AND WARRANTIES OF THE PURCHASER
The
Purchaser represents and warrants to the Seller that each of the statements
contained in this Article 4 is true and correct and will be true and correct
as
of the Closing Date:
4.1. Organization
and Authority.
The
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and, subject to obtaining the Purchaser
Stockholder Approval (as hereinafter defined), has the full power and authority
and has taken all required action on its part necessary to permit it to execute
and deliver and to carry out the terms of this Agreement and the other
agreements, instruments and documents of the Purchaser contemplated hereby
and
to perform its obligations hereunder and thereunder and such execution, delivery
and performance have been duly and validly authorized by all requisite corporate
action (other than the Purchaser Stockholder Approval) on the part of the
Purchaser.
4.2. No-Conflict.
Except
for the Purchaser Stockholder Approval, no material consent, order, approval,
authorization, declaration or filing with or from any Governmental or Regulatory
Authority or a party to any Contract to which the Purchaser is a party is
required on the part of the Purchaser for or in connection with the execution,
delivery and performance of this Agreement and the other agreements, documents
and instruments contemplated hereby or the consummation of the Transactions
by
the Purchaser. Subject to the receipt of the Purchaser Stockholder Approval,
the
execution, delivery and performance of this Agreement and the other agreements,
documents and instruments contemplated hereby by the Purchaser will not result
in any violation of, be in conflict with, or constitute a default under, or
cause the acceleration of any obligations or loss of any right under, any Legal
Requirement, Contract, instrument, charter, by-laws, operating agreement,
partnership agreement, organizational document, authorization, franchise,
certification, order, writ, injunction, judgment, permit or license or decree
of
any Governmental or Regulatory Authority or of any arbitration award to which
the Purchaser is a party or by which the Purchaser is bound. “Purchaser
Stockholder Approval”
shall
mean the approval and adoption of this Agreement and the Transactions and of
an
amendment of the Purchaser’s amended and restated certificate of incorporation
by the Purchaser’s stockholders (including having the holders of less than 20%
of the Purchaser’s common stock issued in the Purchaser’s initial public
offering (other than shares held by holders who were holders of other shares
of
the Purchaser’s capital stock prior to such initial public offering) exercise
their conversion rights) in accordance with the Purchaser’s amended and restated
certificate of incorporation.
27
4.3. Validity
and Enforceability.
This
Agreement is, and each of the other agreements, documents and instruments
contemplated hereby to which the Purchaser is a party shall be when executed
and
delivered by the Purchaser, the valid and binding obligations of the Purchaser
enforceable in accordance with its terms, except to the extent that enforcement
may be affected by laws relating to bankruptcy, reorganization, fraudulent
conveyance, insolvency and creditors’ rights and by the availability of
injunctive relief, specific performance and other equitable
remedies.
4.4. Brokers.
Except
as set forth on Schedule
4.4,
no
finder, broker, agent, financial advisor or other intermediary has acted on
behalf of the Purchaser or any Subsidiary in connection with the negotiation
or
consummation of this Agreement or the Transactions and no such Person is
entitled to any fee, payment, commission or other consideration in connection
therewith as a result of any arrangement made by any of them. The Purchaser
shall be solely responsible for the fees and expenses of the Persons specified
on Schedule
4.4,
at no
cost to the Seller or the Company.
4.5. Reports
and Financial Statements.
(a) The
Purchaser has previously furnished or made available to the Company complete
and
accurate copies, as amended or supplemented, of the Purchaser Reports (as
hereinafter defined). The Purchaser Reports constitute all of the documents
required to be filed by the Purchaser under the Exchange Act with the SEC from
January 1, 2006 through the date of this Agreement. The Purchaser Reports
complied in all material respects with the requirements of the Exchange Act
and
the rules and regulations thereunder when filed. As of their respective dates,
the Purchaser Reports did not contain any untrue statement of a material fact
or
omit to state a material fact required to be stated therein or necessary to
make
the statements therein, in light of the circumstances under which they were
made, not misleading. The “Purchaser
Reports”
means
(a)
the
Purchaser’s Annual Report on Form 10-K for the fiscal year ended December 31,
2005, as filed with the SEC, and (b)
all
other reports filed by the Purchaser under the Exchange Act with the SEC since
January 1, 2006.
28
(b) Except
as
set forth on Schedule
4.5(b),
each of
the consolidated balance sheets included in or incorporated by reference into
the Purchaser Reports (including the related notes and schedules) fairly
presents in all material respects the consolidated financial position of the
Purchaser as of its date and each of the consolidated statements of operations,
cash flows and stockholders’ equity included in or incorporated by reference
into the Purchaser Reports (including any related notes and schedules) fairly
presents in all material respects the results of operations, cash flows or
changes in stockholders’ equity, as the case may be, of the Purchaser for the
periods set forth therein, in each case in accordance with GAAP consistently
applied during the periods involved, except as noted therein and, in the case
of
unaudited statements, except for the omission of footnotes and normal year-end
audit adjustments which are not, individually or in the aggregate, material.
There are no obligations or liabilities of any nature, whether accrued,
absolute, contingent or otherwise, of the Purchaser, other than those
liabilities and obligations (i)
that
are disclosed or otherwise reflected or reserved for in the financial statements
and the notes thereto included in the Purchaser Reports (the “Purchaser
Financial Statements”),
provided
that
such liabilities are reasonably apparent on the face of the Purchaser Financial
Statements, (ii)
that
are not required under GAAP to be disclosed, reflected or reserved for in the
Purchaser Financial Statements, (iii)
that
have been incurred in the ordinary course of business since June 30, 2006,
(iv)
related
to expenses associated with the Transactions, or (v)
that
have not had and would not reasonably be expected to have a material adverse
effect on Purchaser, its business, assets or financial condition.
(c) Based
on
the evaluation of its controls and procedures conducted in connection with
the
preparation and filing of the Purchaser’s most recent Quarterly Report on Form
10-Q, the Purchaser has no knowledge of (i) any significant deficiencies or
material weaknesses in the design or operation of the Purchaser’s internal
control over financial reporting that are likely to adversely affect the
Purchaser’s ability to record, process, summarize and report financial data; or
(ii) any fraud, whether or not material, that involves management or other
employees who have a role in the Purchaser’s internal control over financial
reporting.
4.6. Investment
Representations. The
Purchaser is an “accredited investor” within the meaning of Regulation D under
the Securities Act. The Purchaser understands that the sale of the Securities
has not been registered under the Securities Act or under the securities laws
of
any jurisdiction, by reason of reliance upon certain exemptions, and that the
reliance of the Seller on such exemptions is predicated upon the accuracy of
the
Purchaser’s representations and warranties in this Agreement. The Purchaser
understands that the Securities are characterized as “restricted securities”
under the federal securities laws inasmuch as they are being acquired from
the
Seller in a transaction not involving a public offering, and that, under such
laws and applicable regulations, such Securities may be transferred or resold
without registration under the Securities Act only in certain limited
circumstances. The Purchaser will observe and comply with the Securities Act
and
the rules and regulations thereunder, as now in effect and as from time to
time
amended and including those hereafter enacted or promulgated, in connection
with
any offer, sale, exchange, transfer, pledge or other disposition of the
Securities or any part thereof. The Purchaser is acquiring the Securities for
its own account for investment only, and not with a view to, or for sale in
connection with, any distribution of the Securities in violation of the
Securities Act, any rule or regulation under the Securities Act, or any state
securities laws.
29
4.7. Litigation.
No
action, arbitration, unsatisfied judgment, suit, proceeding or investigation
is
pending or, to the Purchaser’s knowledge, threatened against the Purchaser or,
to the Purchaser’s knowledge, against any stockholder, member, officer,
director, manager or employee of the Purchaser which, if determined adversely,
could reasonably be expected to have a material adverse effect on the ability
of
the Purchaser to perform its obligations under this Agreement.
4.8. Sufficient
Funds.
The
Purchaser will have available at the Closing sufficient funds available to
pay
the Cash Consideration and to perform its other obligations pursuant to this
Agreement.
4.9. Purchaser
Common Stock.
Subject
to the Purchaser Stockholder Approval, the Purchaser has reserved and will
reserve sufficient shares of Purchaser Common Stock to issue upon conversion
of
the Convertible Notes. The Purchaser Common Stock issuable upon conversion
of
the Convertible Notes, when so issued, will (a)
be duly
authorized, validly issued, fully paid, non-assessable and free of preemptive
rights granted by the Purchaser, (b)
not be
issued in violation of the terms of any Contract to which the Purchaser is
a
party, and (c)
be
issued in compliance with the amended and restated certificate of incorporation
and by-laws of the Purchaser and all applicable Legal Requirements.
4.10. Disclosure.
The
representations and warranties of the Purchaser contained in this Agreement,
taken as a whole, do not contain any untrue statement of a material fact or
omit
to state a material fact necessary in order to make the statements contained
herein and therein not misleading.
ARTICLE
5
COVENANTS
OF THE COMPANY AND THE SELLER
5.1. Conduct
of the Business.
(a) The
Company will, and the Company and the Seller will cause each Subsidiary to,
comply with the following covenants prior to the Closing, unless otherwise
approved in writing by the Purchaser:
(i) maintain
its legal existence;
(ii) use
all
reasonable efforts to preserve the Business and its business organization
intact, retain its licenses, permits, authorizations, franchises and
certifications, and preserve the existing contracts and goodwill of its
customers, suppliers, vendors, service providers, officers, employees,
independent contractors and others having business relations with
it;
(iii) conduct
its business only in the Ordinary Course of Business (including without
limitation construction of improvements to the Company Property, sales of lots,
Fractional Interests and Golf Memberships, the payment of payables and capital
expenditures) and in compliance in all material respects with all applicable
Legal Requirements;
30
(iv) have
in
effect and maintain at all times all insurance of the kinds, in the amounts
and
with the insurers as is presently in effect or equivalent insurance and assist
the Purchaser in arranging the insurance contemplated in Section
8.1(u);
(v) maintain
its books, accounts and records in its usual, regular and ordinary
manner;
(vi) confer
with representatives of the Purchaser to report material operational matters
and
the status of ongoing operations upon reasonable advance notice by the
Purchaser;
(vii) use
commercially reasonable efforts to obtain all Required Consents;
(viii) prepare
and timely file all Tax Returns required to be filed by it and pay all Taxes
when due; and
(ix) use
all
reasonable efforts to operate in such a manner as to assure that the
representations and warranties of the Company and the Seller set forth in this
Agreement will be true and correct in all material respects as of the Closing
Date with the same force and effect as if such representations and warranties
had been made on and as of the Closing Date, taking into account construction
of
improvements to the Company Property, sales of lots, Fractional Interests and
Golf Memberships, the payment of payables and capital expenditures, all in
the
Ordinary Course of Business.
(b) The
Company will not, and the Company and the Seller will not permit any Subsidiary
to, do any of the following prior to Closing, unless otherwise approved in
writing by the Purchaser, which approval shall not be unreasonably
withheld:
(i) change
its method of management or operations in any material respect;
(ii) sell,
lease, pledge, encumber, dispose of or license any assets or properties or
make
any commitment to do so, other than in the Ordinary Course of
Business;
(iii) incur
or
commit to incur any material Indebtedness or renew or refinance or commit to
incur any material Indebtedness or renew or refinance or commit to renew or
refinance any Outstanding Indebtedness or assume, guarantee or endorse or
otherwise become responsible for the obligation of any other Person, or subject
any of its properties or assets to any Lien (any Indebtedness approved by the
prior written consent of the Purchaser, together with the Outstanding
Indebtedness, is referred to herein as “Permitted
Indebtedness”);
31
(iv) make
any
loans or advances, other than (i)
deposits or advances in connection with construction of improvements to, or
the
acquisition of furniture, fixtures or equipment for, the Project(s) in the
Ordinary Course of Business, or (ii)
extensions of credit to members of the golf club operated by the Company, each
of (i) and (ii) in the Ordinary Course of Business and in compliance with
applicable Legal Requirements or the requirements of any Material Contract
and
other than travel and similar advances to employees of the Company and the
Subsidiaries in the Ordinary Course of Business;
(v) modify,
amend, cancel or terminate any Material Contract;
(vi) make
any
change in the compensation paid or payable to any officer, director, manager,
employee, agent, representative, independent contractor or consultant as shown
or required to be shown on Schedule
3.21,
or pay
or agree to pay any bonus or similar payment (other than establishing
compensation for new employees and independent contractors in a manner
reasonably consistent with existing Company and Subsidiary practices, and bonus
payments made to employees or independent contractors in the Ordinary Course
of
Business, or other amounts to which the Company or any Subsidiary is committed
and which are expressly disclosed in this Agreement) or terminate, amend, modify
or change any Benefit Plan;
(vii) promote,
change the job title of, or otherwise alter in any material respect the
responsibilities or duties of, any Person set forth on Schedule
3.21(c);
(viii) terminate
the services of any present employee, consultant or agent except in the Ordinary
Course of Business or for good cause shown, except that no Person set forth
on
Schedule
3.21(c)
shall be
terminated except for good cause shown;
(ix) except
for (i)
sales
in the Ordinary Course of Business of lots, Fractional Interests and Golf
Membership and (ii)
Contracts entered into in the Ordinary Course of Business for construction
of
drainage, roadways, infrastructure, Dwelling Units, clubhouse and other vertical
improvements (which sales and Contracts shall not require prior approval by
the
Purchaser), enter into any Contract with respect to which the Company or any
Subsidiary has any liability or obligation involving more than $50,000
contingent or otherwise, or which may otherwise have any continuing effect
after
the Closing, other than in the Ordinary Course of Business, or which may place
any limitation on the method of conducting or scope of the Business,
provided,
however,
that
neither the Company nor any Subsidiary shall enter into any loan, credit,
guarantee or similar Contract relating to Indebtedness, other than Permitted
Financing;
(x) declare,
make or cause to be made or set aside any dividend, distribution, redemption,
repurchase, recapitalization, reclassification, issuance, split, combination
or
other transaction involving the limited liability company interests, capital
stock or other equity securities of the Company or any Subsidiary; or authorize
the creation or issuance of any additional limited liability company interest,
capital stock or other equity securities, or any option, warrant or right to
acquire any such interests, capital stock or equity securities; or split,
combine or reclassify any limited liability company interest, capital stock
or
other equity securities;
32
(xi) propose
or adopt any amendment of any of its organizational documents;
(xii) make
any
change in its accounting practices or procedures, except as required by
GAAP;
(xiii) make
any
upward revaluation of any of its assets or, except as required by law, file
or
make any change to any material Tax practice, Tax election or any Tax
Return;
(xiv) change
its customer pricing, rebates or discounts, other than in the Ordinary Course
of
Business;
(xv) acquire
any material assets, properties, business or Person, whether by merger or
consolidation, purchase of assets or equity securities or any other manner,
in a
single transaction or a series of related transactions, other than improvements
constructed in the Ordinary Course of Business on the Company
Property;
(xvi) cancel
or
waive any rights of substantial value, or pay, discharge or settle any claim
of
substantial value, other than in the Ordinary Course of Business;
(xvii) make
any
capital expenditures that, individually or in the aggregate, exceed $25,000,
other than in connection with the construction of improvements to the Company
Property in the Ordinary Course of Business;
(xviii) settle
or
compromise any suit or claim or threatened suit or claim relating to the
Transactions or make any Tax election or settle or compromise any material
income tax liability;
(xix) take
any
other action which could have a Material Adverse Effect; or
(xx) commit
to
do any of the foregoing referred to in clauses (i) - (xix).
5.2. Access.
The
Company will, and the Company and the Seller will cause the Subsidiaries to,
permit the Purchaser, its financing sources and their respective counsel,
accountants, representatives and agents, during normal business hours, access
to
(a)
the
assets, properties, records, books of account, contracts and other documents
of
the Company and its Subsidiaries and (b)
any
employees, advisors, consultants, other personnel, customers, service providers,
vendors or suppliers of, or others having material business relations with,
the
Company or any of its Subsidiaries. Until the Closing Date, the Company will,
and the Company and the Seller will cause the Subsidiaries to, furnish promptly
to the Purchaser such additional data and other information as to its affairs,
assets, business, properties or prospects as the Purchaser, its financing
sources or their representatives may from time to time reasonably request.
The
Purchaser’s review of the Company and the Subsidiaries shall not in any way
affect the representations and warranties made by the Company and the Seller
in
this Agreement or the other agreements, documents and instruments contemplated
hereby or limit the remedies of the Purchaser for breaches thereof.
33
5.3. Efforts;
Cooperation.
(a) The
Company and the Seller will use commercially reasonable efforts to cause the
conditions specified in Section 8.1 to be satisfied as soon as
practicable.
(b) Cavan
will use commercially reasonable efforts to cause the conditions specified
in
clauses (s) and (u) of Section 8.1 to be satisfied as soon as
practicable.
5.4. Stub
Period and Other Financial Statements; Reports; Controller.
(a) During
the period commencing as of the date hereof and ending as of the Closing Date
or
the earlier termination of this Agreement in accordance with its terms, the
Company shall deliver to the Purchaser the (i)
unaudited consolidated balance sheet of the Company and the Subsidiaries for
the
month most recently ended, and (ii)
related
consolidated statements of cash flows and income and members’ deficit/equity for
the period then ended. Such financial statements shall be delivered within
15
days after the end of such month or, if earlier, contemporaneously with the
delivery of such financial statements to the members, managers, directors,
stockholders or lenders of the Company or any Subsidiary. In addition, if the
Closing Date shall not have occurred before February 15, 2007, the Company
shall
deliver to the Purchaser on or before March 1, 2007, audited, consolidated
balance sheet of the Company as at December 31, 2006, and the audited,
consolidated statements of cash flow and income and members’ deficit/equity for
the fiscal year then ended.
(b) During
the period commencing as of the date hereof and ending as of the Closing Date
or
the earlier termination of this Agreement in accordance with its terms, within
10 days following the end of each month, the Company shall deliver to the
Purchaser a sales report, in a form reasonably satisfactory to the Purchaser,
showing sales of lots, Fractional Interests and Golf Memberships during the
month most recently ended.
(c) The
Company, at its expense, will promptly hire and continue to employ through
the
Closing a controller reasonably satisfactory to the Purchaser. In addition,
the
Company will, at its expense promptly (and in any event within 10 days)
retain, and continue to retain through the Closing, Larson, Allen, Weishair
& Co., LLP to assist the Company in producing monthly consolidated financial
statements for the period from July 1, 2006 through the Closing. In addition,
the Company will on or before November 15, 2006, engage an independent
accountant reasonably satisfactory to the Purchaser to audit the year ending
December 31, 2006.
5.5. Nonsolicitation.
From the
date of this Agreement until the Closing or the earlier termination of this
Agreement in accordance with its terms, the Company, Cavan and the Seller will
not, and they will cause their respective subsidiaries, officers, stockholders,
directors, managers, agents, consultants, representatives and Affiliates not
to,
directly or indirectly, (a)
solicit
any competing offers for the recapitalization or purchase of the Seller, the
Company or any Subsidiary or the purchase of all or any substantial portion
of
the limited liability company interests (or other equity) or assets (including
by merger or in any other form of transaction) of the Seller, the Company or
any
Subsidiary, (b)
negotiate or otherwise respond, other than to decline to enter into such
negotiations, with respect to any unsolicited offer or indication of interest
with respect to any such transaction or (c)
furnish
confidential information to any Person in connection with any such transaction.
The foregoing shall not limit the Company’s or a Subsidiary’s right or ability
to seek Permitted Indebtedness or to provide information to prospective lenders
in connection with any such Permitted Indebtedness. The Company, Cavan and
the
Seller will promptly disclose to the Purchaser all such unsolicited offers
or
indications of interest and the terms of any proposed Permitted Indebtedness.
Neither the Seller nor Cavan shall have any obligation or liability to the
Purchaser as a result of actions taken by any member of Seller that is not
controlled by the Seller or Cavan that would be a breach of Seller’s obligations
under this Section 5.5 if it had been taken by the Seller, unless the Seller
or
Cavan participates in or directs such action by any such member of the
Seller.
34
5.6. Confidentiality.
At all
times following the Closing, neither Cavan nor the Seller shall, directly or
indirectly, disclose, divulge or make use of any trade secrets or other
confidential or proprietary information of a business, financial, marketing
or
technical nature pertaining to the Company, its Subsidiaries or the Business,
including information of others that the Company or any Subsidiary has agreed
to
keep confidential, except (a)
for
information that is lawfully and independently obtained by Cavan or the Seller
from a third party without restrictions as to disclosure by Cavan or the Seller,
(b)
for
information that enters the public domain through no fault of Cavan or the
Seller, (c)
for
information that is independently developed by Cavan or the Seller without
reference to confidential or proprietary information of the Company or the
Subsidiaries, (d)
to the
extent that such information shall have become public knowledge other than
by
breach of this Agreement by Cavan or the Seller, (e)
as
required in connection with the performance of Cavan’s duties as an employee or
an independent contractor of the Company, (f)
as
required to file Tax returns and comply with Tax laws, and (g) to the extent
that disclosure of such information is required by law or legal process (but
only after the Seller has provided the Company with reasonable notice and
opportunity to take action against any legally required
disclosure).
5.7. Non-competition.
(a) During
the Non-competition Period (as hereinafter defined), (i)
neither
Cavan nor the Seller shall, directly or indirectly, or as a stockholder,
partner, member, manager, employee, consultant or other owner or participant
in
any Person other than the Company, engage in or assist any other Person to
engage in any Covered Business (as hereinafter defined) within 100 miles of
any
boundary of the Company Property, (ii)
neither
Cavan nor the Seller shall, directly or indirectly, solicit or endeavor to
entice away from the Company, or offer employment or a consulting position
to,
or otherwise interfere with the business relationship of the Company with,
any
Person who is, or was within the one-year period prior to the Closing, an
employee of or consultant to the Company and (iii)
neither
Cavan nor the Seller shall, directly or indirectly, solicit or endeavor to
entice away from the Company, endeavor to reduce the business conducted with
the
Company by, or otherwise interfere with the business relationship of the Company
with, any Person who is, or was within the one-year period prior to the Closing,
a customer or client of, supplier, vendor or service provider to, or other
Person having business relations with, the Company. Nothing in this Section
5.7(a) shall be construed to prohibit Cavan or the Seller from engaging the
same
third party contractors as the Company if such engagement does not materially
interfere with the performance of any such Person’s obligations under a Contract
with the Company.
35
(b) In
the
event that the Seller or Cavan begins to consider the acquisition, directly
or
indirectly, of any ownership interest in any Covered Business outside of the
100-mile boundary of the Company Property during the Non-Competition Period,
the
Seller or Cavan, as the case may be, shall deliver to the Purchaser a
preliminary written notice describing the summary terms of such acquisition,
to
the extent then known. In the event that the Seller or Cavan proposes, directly
or indirectly, to acquire any ownership interest in any Covered Business outside
of the 100-mile boundary of the Company Property during the Non-Competition
Period, the Seller or Cavan, as the case may be, shall deliver to the Purchaser
a written notice (the “Offer
Notice”),
which
Offer Notice will provide all material information about such proposed
acquisition (including the amount of funds required to complete such
acquisition) and offer the Purchaser the right to acquire the Covered Business
at the Purchaser’s election. Following delivery of the Offer Notice, the Seller
or Cavan, as the case may be, shall promptly provide such additional materials
and information as to such Covered Business as the Purchaser shall reasonably
request. If the Purchaser notifies the Seller or Cavan within 20 days of the
Purchaser’s receipt of the Offer Notice that it wishes to participate in such
acquisition (the “Purchaser
Notice”),
then
the Seller or Cavan, as the case may be, and the Purchaser shall use reasonable
efforts to effect the Purchaser’s participation in such acquisition and shall
negotiate in good faith the terms under which the Purchaser would retain Cavan
to manage the development and operation of such Covered Business and the terms
of the “carried interest” to be provided to Cavan in connection therewith in the
profits from the Covered Business after repayment of capital and a reasonable
return thereon. If the Seller and Cavan, as the case may be, and the Purchaser
are not able in good faith to reach final agreement on agreements to govern
their relationship with respect to the Covered Business within 60 days following
delivery of the Purchaser Notice, then the Seller or Cavan, as the case may
be,
shall be free to acquire the Covered Business for its own account within the
60
days thereafter substantially on the terms set forth in the Offer Notice;
provided
that if
such acquisition is not consummated within such 60-day period on such terms,
the
Seller or Cavan, as the case may be, shall be required to offer such acquisition
to the Purchaser in accordance with this Section 5.7(b).
(c) For
purposes of this Section 5.7, the following terms shall have the following
meanings:
“Company”
shall
include the Company, each of its direct and indirect Subsidiaries and all of
their respective successors and assigns.
“Covered
Business”
shall
mean the development of a real estate project that includes a golf course,
together with either time shares or fractional interests in residential
improvements or residential lots, as components of such project; provided
that
“Covered Business” will not include any projects in which the Seller or Cavan is
currently involved or to which the Seller or Cavan is currently committed,
in
each case as have been disclosed to the Purchaser on Schedule
5.7(c).
“Non-competition
Period”
means
the period commencing as of the Closing and ending on the five year anniversary
of the Closing.
5.8. Injunctive
Relief.
The
Company, Cavan and the Seller acknowledge that any breach or threatened breach
of the provisions of Sections 5.5, 5.6 or 5.7 of this Agreement will cause
irreparable injury to the Purchaser and its respective subsidiaries (including
the Company and the Subsidiaries following the Closing) for which an adequate
monetary remedy does not exist. Accordingly, in the event of any such breach
or
threatened breach, the Purchaser (in the case of Section 5.5 and the Purchaser,
the Company and/or such Subsidiaries (in the cases of Sections 5.6 and 5.7)
shall be entitled, in addition to the exercise of other remedies, to seek and
(subject to court approval) obtain injunctive relief, without necessity of
posting a bond, restraining the Company, Cavan and/or the Seller, as the case
may be, from committing such breach or threatened breach. The right provided
under this Section 5.8 shall be in addition to, and not in lieu of, any other
rights and remedies available to the Purchaser, the Company, Cavan or such
Subsidiaries.
36
5.9. Reasonable
Restrictions.
Each of
Cavan and the Seller (a)
has
carefully read and understands all of the provisions of this Agreement and
has
had the opportunity for this Agreement to be reviewed by counsel, (b)
acknowledges that the duration, geographical scope and subject matter of
Sections 5.6 and 5.7 of this Agreement are reasonable and necessary to protect
the goodwill, customer relationships, legitimate business interests, trade
secrets and confidential information of the Business, (c)
acknowledges that the Purchaser would not have closed the Transactions without
the benefits contained in this Agreement, (d)
will be
able to earn a satisfactory livelihood without violating this Agreement and
(e)
understands that this Agreement is assignable by the Company and the Purchaser
to any Person that acquires all or substantially all of the Business and shall
inure to the benefit of their respective successors and permitted
assigns.
5.10. Company
Intellectual Property.
If the
Seller or Cavan owns or shall at any time hereafter acquire any rights in any
Company Intellectual Property, the Seller or Cavan, as applicable, shall, and
hereby does, transfer all of its rights, title and interest in such Company
Intellectual Property to the Company for no additional consideration. The Seller
or Cavan, as applicable, shall execute and deliver such additional documents
and
instruments and take such other actions as the Purchaser shall reasonably
request to give effect to the provisions of this Section.
5.11. General
Release.
Effective as of the Closing, each of the Seller and Cavan voluntarily, knowingly
and irrevocably releases and forever discharges the Company, the Subsidiaries
and their respective members, officers, directors, managers, employees and
Affiliates from any and all actions, agreements, amounts, claims, damages,
expenses, liabilities and obligations of every kind, nature or description,
known or unknown, arising or existing prior to the Closing, except for any
rights of the Seller or Cavan under this Agreement and the other agreements,
documents and instruments contemplated hereby.
5.12. Notification
of Certain Matters; Update of Schedules.
(a) The
Company and the Seller shall promptly inform the Purchaser in writing of:
(i)
the
occurrence, or failure to occur, of any event of which the Seller or the Company
obtains knowledge and which occurrence or failure would be likely to cause
any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Closing Date, which would require any amendment or supplement to any information
provided by the Seller to the Purchaser pursuant to Section 5.14 in connection
with the Proxy Statement (as hereinafter defined) or which would result in
a
default or event of default under any Contract related to Indebtedness;
(ii)
any
failure of the Company or any Subsidiary or the Seller or of any officer,
director, member, manager, employee or agent thereof, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
under this Agreement; (iii)
any
Material Adverse Effect of which the Seller or the Company obtains knowledge;
and (iv)
the
commencement against the Company or the Seller or any of their respective
properties of any litigation, or of any claim or controversy or contingent
liability that might reasonably be expected to become the subject of litigation,
against the Company or any Subsidiary or affecting any of their respective
properties; provided,
however,
that no
such notification shall affect the representations or warranties contained
herein or the conditions to the obligations of the Company or any Subsidiary
or
Seller hereunder.
37
(b) The
Company and the Seller may, no later than ten business days prior to the
Closing, deliver to the Purchaser a written update to the Schedules to this
Agreement (the “Updated
Disclosure Schedules”)
with
respect to (i)
any
matter occurring after the date of this Agreement that, if existing or occurring
on the date of this Agreement, would have been required to be set forth or
described in a Schedule to this Agreement (the “New
Matters”)
and
(ii)
other
matters that are not New Matters but should have been set forth or described
in
a Schedule to this Agreement as of the date of this Agreement (the “Old
Matters”).
Any
Updated Disclosure Schedules shall be prepared in a manner such that the Updated
Disclosure Schedules clearly indicates the differences between the Schedules
as
delivered on the date of this Agreement and the Updated Disclosure Schedules
and
indicating which updates are New Matters and which are Old Matters. If the
Updated Disclosure Schedules are delivered by the Company and the Seller, such
Updated Disclosure Schedules shall not be deemed made for purposes of
determining satisfaction of the condition to Closing in Section 8.1(a) or for
purposes of Section 9.1(b) and shall not otherwise alter the representations
and
warranties of the Company and the Seller as set forth in this Agreement and
the
Schedules hereto, and the only effect of the Updated Disclosure Schedules shall
be as provided in the last sentence of Section 10.2.
5.13. Purchaser’s
Trust Account.
Reference is made to the final prospectus of the Purchaser, dated November
11,
2005 (the “IPO
Prospectus”).
The
Company and the Seller have read the IPO Prospectus and understand that the
Purchaser has established the trust account (as described in the IPO Prospectus)
(the “Trust
Account”),
initially in an amount of $109,826,000 for the benefit of the Public
Stockholders (as defined in the IPO Prospectus) and that the Purchaser may
disburse monies from the Trust Account only (a)
to the
Public Stockholders in the event of the redemption or conversion of their shares
or the liquidation of the Purchaser or (b)
to the
Purchaser in connection with an Initial Transaction (as defined in the IPO
Prospectus). The Company and the Seller hereby agree that they do not and shall
not have any right, title, interest or claim of any kind in or to any monies
in
the Trust Account and hereby waive any claim they may have in the future as
a
result of, or arising out of, any negotiations, contracts or agreements with
the
Purchaser and will not seek recourse against the Trust Account for any reason
whatsoever.
5.14. Affiliate
Legends.
The
Company shall notify the Purchaser in writing of the identity of those Persons
who are “affiliates” of the Company within the meaning of Rule 145 promulgated
under the Securities Act (“Rule
145 Affiliates”)
prior
to the Closing Date. The Purchaser shall be entitled to place appropriate
legends on the certificates evidencing any shares of Purchaser Common Stock
to
be received by Rule 145 Affiliates in the Transactions reflecting the
restrictions set forth in Rule 145 promulgated under the Securities Act and
to
issue appropriate stop transfer instructions to the transfer agent for the
Purchaser Common Stock.
38
5.15. Compliance
with Securities Laws.
The
Seller agrees and covenants that the Seller Notes and the shares of Purchaser
Common Stock issuable upon conversion of the Convertible Notes shall not be
transferred or resold other than in accordance with the terms and conditions
set
forth in the legend described in Section 2.5(e) and that the Seller will observe
and comply with the Securities Act and the rules and regulations thereunder
and
applicable state law and the rules and regulations thereunder, all as now in
effect and as from time to time amended and including those hereafter enacted
or
promulgated, in connection with any offer, sale, exchange, transfer, pledge
or
other disposition of the Seller Notes, the shares of Purchaser Common Stock
issuable upon conversion of the Convertible Notes or any part thereof.
Notwithstanding the foregoing, the holder of any Seller Notes and the shares
of
Purchaser Common Stock issuable upon conversion of the Convertible Notes being
transferred shall not consummate such transfer until (a)
the
prospective transferee has confirmed to the Purchaser in writing its agreement
to be bound by the provisions of this Section 5.15 and made the representations
and warranties set forth in Section 2.5 and (b)
the
Purchaser shall have received a legal opinion reasonably acceptable to the
Purchaser that such transfer does not require registration under the Securities
Act.
5.16. Solvency.
The
Seller agrees and covenants that, from and after the Closing, it shall remain
solvent and shall not make any distribution or pay any dividend or take any
other action that would render it incapable of discharging its obligations
under
this Agreement.
5.17. Information
for Proxy Statement.
The
Company and the Seller shall furnish to the Purchaser such information regarding
the Company, the Subsidiaries and the Seller as the Purchaser may reasonably
request and as shall be required in connection with the preparation, and the
filing and approval by the SEC, of the Proxy Statement. The Company and the
Seller shall use commercially reasonable efforts to obtain all required
auditors’ consents to the inclusion of the Company’s consolidated financial
statements in the Proxy Statement.
5.18. Hedging
Transactions, Etc.
Neither
the Seller, nor Cavan, nor any of their respective Affiliates will, from the
date hereof through the conversion or maturity of the Convertible Note, directly
or indirectly, make any short sale or otherwise enter into any arrangement
(including a monetization arrangement or hedging or similar transaction) which
has the effect of transferring any or all of the economic benefits of ownership
of any Purchaser Common Stock, or any securities convertible into any such
common stock, and will not announce an intention to do any of the
foregoing.
ARTICLE
6
COVENANTS
OF THE PURCHASER
6.1. Efforts.
Pending
the Closing, the Purchaser will use commercially reasonable efforts to cause
the
conditions specified in Section 8.2 to be satisfied as soon as
practicable.
39
6.2. Confidentiality.
Pending
the Closing, all proprietary information obtained by the Purchaser from or
on
behalf of the Company or any of its Subsidiaries or the Seller will be kept
confidential and will not be disclosed by the Purchaser other than to its
Affiliates, partners, directors, officers, employees, advisors and financing
sources; provided
that the
foregoing restriction shall not apply to information which (a)
is
lawfully and independently obtained by the Purchaser from a third party without
restriction as to disclosure by the Purchaser, (b)
was
known by the Purchaser prior to its disclosure by or on behalf of the Company
or
its Subsidiaries or the Seller, (c)
is in
the public domain or enters into the public domain through no fault of the
Purchaser, (d)
is
independently developed by the Purchaser without reference to information
provided by the Company or its Subsidiaries or the Seller or (e)
the
Purchaser is required by law or legal process to disclose. The Company and
the
Seller understand and acknowledge that, notwithstanding the foregoing, the
Purchaser shall be permitted to make such disclosures as are required by the
SEC
in connection with the Proxy Statement. If this Agreement is terminated, and
if
requested in writing by the Company, the Purchaser will cause to be delivered
to
the Company all materials obtained by the Purchaser from or on behalf of the
Company or its Subsidiaries or the Seller, whether obtained before or after
the
date of this Agreement.
6.3. Purchaser
Stockholder Meeting.
As
promptly as reasonably practicable after the date hereof and receipt by the
Purchaser of all financial and other information related to the Company and the
Subsidiaries as the Purchaser may reasonably request for the preparation of
the
Proxy Statement, the Purchaser shall prepare and file with the SEC a preliminary
form of the Proxy Statement, and other proxy materials related thereto, with
respect to the Purchaser Stockholder Meeting. As promptly as reasonably
practicable after comments are received from the SEC thereon, if any, and after
such comments are resolved to the satisfaction of the SEC, or if the SEC has
indicated that it does not intend to review the Proxy Statement and the
applicable period for review by the SEC shall have lapsed, the Purchaser shall
give notice of and hold the Purchaser Stockholder Meeting; provided
that the
Purchaser shall have no obligation to mail the Proxy Statement and give notice
of the Purchaser Stockholder Meeting unless and until the Purchaser’s financial
advisor shall have delivered a written opinion dated on or about the date of
such mailing to the effect that the Transactions are fair to the Purchaser
from
a financial point of view and that the fair value of the Company is equal to
at
least 80% of the net assets of the Purchaser (excluding the amounts held in
the
Purchaser’s trust fund representing a portion of the underwriters’ discount in
connection with the Purchaser’s initial public offering) (the “Fairness
Opinion”).
To
the extent not inconsistent with Legal Requirements or the fiduciary duties
of
the Purchaser’s board of directors, the Proxy Statement shall include the
recommendation of the Purchaser’s board of directors that its stockholders vote
in favor of the Transactions. If, at any time prior to the Purchaser Stockholder
Meeting, an event shall occur relating to the Purchaser, the Company or the
Transactions that should be set forth in an amendment or a supplement to the
Proxy Statement, the Purchaser shall promptly prepare, file with the SEC and
mail such amendment or supplement. The Purchaser shall consult with the Company
and the Seller with respect to the Proxy Statement and any amendments or
supplements thereto, and shall afford the Company and the Seller a reasonable
opportunity to comment thereon.
6.4. American
Stock Exchange Listing.
The
Purchaser shall use commercially reasonable efforts to cause the shares of
Purchaser Common Stock to be issued upon conversion of the Convertible Notes
to
be approved for listing on the American Stock Exchange (“AMEX”)
subject to notice of issuance, prior to the Closing.
40
6.5. Indemnification.
For six
years following the Closing Date, the Company shall, and the Purchaser shall
cause the Company to, indemnify, defend and hold harmless each Person who is
a
manager, member, officer, director, employee or agent of the Company on the
Closing Date or who served in such capacity prior to the Closing Date, in each
case to the fullest extent permitted or required pursuant to Section 5.12 of
the
Company’s operating agreement in effect on the date of this
Agreement.
6.6. Compliance
with Organization Documents.
The
Purchaser will comply in all material respects with its amended and restated
certificate of incorporation.
6.7. Notification
of Certain Matters. The
Purchaser shall promptly inform the Company in writing of: (a)
the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty contained in this Agreement
to
be untrue or inaccurate in any material respect at any time from the date hereof
to the Closing Date; (b)
any
failure of the Purchaser or of any officer, director, employee or agent thereof,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it under this Agreement; (c)
any
material adverse change that shall have occurred or have been threatened in
the
financial condition, results of operations, business or assets of the Purchaser;
and (d)
any
litigation, or of any claim or controversy or contingent liability that might
reasonably be expected to become the subject of litigation, against the
Purchaser or affecting any of its properties; provided,
however,
that no
such notification shall affect the representations or warranties contained
herein or the conditions to the obligations of the Purchaser
hereunder.
6.8. Board
Visitation Rights.
As long
as the Seller or Cavan, in any combination, owns or own at least 51% of the
aggregate principal amount of the Seller Notes (and at least 51% of any
Purchaser Common Stock issued upon conversion of the Convertible Notes), the
Purchaser shall allow a representative designated by the Seller, who shall
be
reasonably acceptable to the Purchaser, to attend all meetings of the board
of
directors of the Purchaser in a non-voting capacity and to participate in
matters brought to the board of directors; provided,
however,
that
(a)
the
Purchaser may exclude such representative from access to any material or meeting
or portion thereof if the Company believes that such exclusion is reasonably
necessary to preserve the attorney-client privilege, to protect highly
confidential proprietary information or for other similar reasons and
(b)
such
representative shall have entered into a confidentiality agreement with the
Purchaser, in form and substance reasonably satisfactory to the
Purchaser.
6.9. Release
of Guarantees.
The
Purchaser shall use commercially reasonable efforts to assist the Seller in
obtaining the termination of the guarantees, indemnities or other financial
assurances by Cavan or its Affiliates (other than the Company and the
Subsidiaries) of Permitted Indebtedness or other obligations of the Company
or
any Subsidiary set forth on Schedule
6.9
(the
“Cavan
Guarantees”);
provided
that
nothing herein shall require the Purchaser to pay any amounts or agree to any
amendments or modifications of the Contracts relating to such Permitted
Indebtedness or other obligations of the Company or any Subsidiary in connection
with the obtaining of such terminations of the Cavan Guarantees. The Purchaser
agrees to indemnify Cavan or its Affiliates (other than the Company or any
Subsidiary), as the case may be, that is a party to any guarantee, indemnity
or
other financial assurance of Permitted Indebtedness or other obligations of
the
Company or any Subsidiary, whether or not listed on Schedule
6.9,
from
and against all amounts payable thereunder;
provided
that the
Purchaser shall be obligated to indemnify Cavan or its Affiliates pursuant
to
this Section 6.9 only with respect to the Cavan Guarantees and other guarantees,
indemnities and financial assurances that relate to obligations of the Company
or a Subsidiary pursuant to Contracts that have been disclosed on Schedule
3.9;
and
provided
further
that the Purchaser shall not be obligated to indemnify Cavan or its Affiliates
from any Losses for which the Seller has an indemnity obligation under Article
10.
41
ARTICLE
7
TAX
COVENANTS
7.1. Consistent
Tax Reporting.
The
parties hereto agree that the purchase of the Securities by the Purchaser is
properly treated as the purchase of the Company’s assets and those of any
Subsidiary limited liability company in which the Company is the sole member.
Inasmuch as the Purchaser will file a consolidated federal income tax return
with respect to any Subsidiary that is classified as an association taxable
as a
corporation for federal income tax purposes, the taxable year of any Subsidiary
corporation will close at the close of business on the Closing Date. The Seller,
the Company and the Purchaser shall treat and report the Transactions for
purposes of any federal, state, local or foreign Tax in all respects
consistently with the provisions of Section 1.4, this Section 7.1 and any other
provision of this Agreement that specifies an intended Tax treatment or
reporting position.
7.2. Tax
Periods Ending on or Before the Closing Date.
The
Seller shall prepare or cause to be prepared and file or cause to be filed
all
Tax Returns of the Company and all Subsidiaries for taxable periods ending
on or
before the Closing Date (“Pre-Closing
Taxable Periods”)
which
have not been filed prior to the date of this Agreement. The Seller shall permit
the Purchaser to review and comment on each such Tax Return described in the
prior sentence at least ten (10) days prior to filing and shall make such
revisions to such Tax Returns as are reasonably requested by Purchaser, to
the
extent such revisions are consistent with the terms of this Agreement. All
Tax
Returns to be prepared by or for the Seller pursuant to this Section 7.2 shall
be prepared in a manner consistent with the past practice of the Company, except
as otherwise required by law. The Seller shall be responsible for all Taxes
of
the Company or any Subsidiary for all Pre-Closing Taxable Periods to the extent
due and payable prior to the Closing and shall pay to (or as directed by) the
Company any such Taxes of the Company or any Subsidiary to the extent such
Taxes
have not already been paid by the Company, the Subsidiaries or the Seller prior
to the Closing, and such payments shall be made no later than five (5) business
days prior to the due date for paying such amount of Taxes to the relevant
tax
authority. The provisions of this Section 7.2 shall not limit the rights of
the
Purchaser for a breach of representations or warranties made in Section 3.19
of
this Agreement.
7.3. Tax
Periods Beginning Before and Ending After the Closing Date.
The
Company shall cause to be prepared and filed any Tax Returns of the Company
and
all Subsidiaries for taxable periods which begin before the Closing Date and
end
after the Closing Date.
42
7.4. Cooperation
on Tax Matters.
(a) The
Purchaser, the Company and the Seller shall cooperate fully, to the extent
reasonably requested, in connection with the filing of Tax Returns pursuant
to
Sections 7.2 and 7.3 or otherwise, and any audit, litigation, or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other party’s request) the provision of records and information
which are reasonably relevant to any such Tax Return filing, audit, litigation,
or other proceeding and making employees available on a mutually convenient
basis to provide additional information and explanation of any material provided
hereunder.
(b) The
Seller agrees (i)
to
provide to the Company, upon request, all books and records with respect to
Tax
matters pertinent to the Company in the possession of the Seller relating to
any
taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by the Company, any
extensions thereof) of the respective taxable periods, and to abide by all
record-retention agreements entered into with any Tax authority, and
(ii)
to give
the Company reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the Company so requests, the
Seller shall allow the Company to take possession of such books and records.
If
the Seller delivers its or the Company’s books and records to the Purchaser,
then the Purchaser shall thereafter make such books and records available during
normal business hours to the Seller in a manner consistent with the provisions
of this Article 7, upon reasonable prior notice.
(c) If
requested by the Purchaser, the Company and the Seller will cooperate with
the
Purchaser to obtain any certificate or other document from any Governmental
or
Regulatory Authority or any other Person as may be necessary to mitigate, reduce
or eliminate any Tax that could be imposed upon the Company or any Subsidiary
(including, but not limited to, with respect to the Transactions).
7.5. Control
of Audits.
After
the Closing Date, except as set forth in the next sentence, the Company shall
control the conduct, through counsel of its own choosing, of any audit, claim
for refund, or administrative or judicial proceeding involving any asserted
Tax
liability or refund with respect to the Company or any of its Subsidiaries
(each, a “Contest”).
In
the case of a Contest after the Closing Date that relates solely to Pre-Closing
Tax Periods, the Seller shall control the conduct of such Contest, but the
Company shall have the right to participate in such Contest at its own expense,
and Seller shall not settle, compromise and/or concede any portion of such
Contest that could affect the Tax liability of the Company or its Subsidiaries
for any taxable year (or portion thereof) after the Closing Date without the
written consent of Company, which shall not be unreasonably withheld;
provided
that, if
the Seller fails to assume control of the conduct of any such Contest within
30
days following the receipt by the Seller of notice of such Contest, the Company
shall have the right to assume control of such Contest and shall be able to
settle, compromise and/or concede any portion of such Contest.
7.6. Certain
Taxes.
All
transfer, documentary, sales, use, real property gains, stamp, registration,
transaction privilege and other such Taxes and fees incurred as a result of
the
Transactions shall be paid by the Seller when due, and the Company will, at
the
Seller’s expense, file all necessary Tax Returns and other documentation with
respect to all such transfer, documentary, sales, use, real property gains,
stamp, registration, transaction privilege and other Taxes and fees, and, if
required by applicable law, the Purchaser and the Seller will join in the
execution of any such Tax Returns and other documentation.
43
ARTICLE
8
CONDITIONS
TO CLOSING
8.1. Conditions
to Obligations of the Purchaser.
Unless
expressly waived in writing by the Purchaser, the obligation of the Purchaser
to
consummate the Transactions is expressly subject to the satisfaction at or
prior
to the Closing of the following conditions:
(a) Representations
and Warranties True. The
representations and warranties of the Seller and the Company contained in this
Agreement shall be true and accurate in all respects on and (except to the
extent such representations and warranties expressly relate to an earlier date,
in which case such representations and warranties shall be true and correct
in
all respects as of such earlier date) as of the date of the Closing with the
same effect as though made on and as of such date; provided
that the
condition set forth in this Section 8.1(a) shall be deemed not to have been
satisfied only if the failure of such representation(s) or warranty(ies) to
be
true, individually or in the aggregate, has a Material Adverse Effect (other
than the representations and warranties contained in Section 3.6, which shall
be
true and correct in all respects).
(b) Covenants
Performed. The
Company and the Seller shall have performed and complied in all material
respects with the covenants, agreements and conditions required to be performed
or complied with by them under this Agreement on or prior to the date of the
Closing.
(c) No
Defaults under Indebtedness Agreements.
There
shall be no event or condition which has occurred or exists that constitutes
or
that, with or without notice, the happening of any event and/or passage of
time,
could constitute a default or breach under any Contracts relating to any
Indebtedness by the Company and/or any Subsidiary, or could cause the
acceleration or termination or cancellation thereof.
(d) Available
Units. As
of the
Closing, construction shall have been substantially completed on at least 10
villa units included in Parcel A, as evidenced by a certificate from the
applicable Project architect to the Purchaser, and there shall be at least
100
Fractional Interests in Parcel A that are either available for immediate sale
or
that are under a sales contract that has not yet closed.
(e) Compliance
Certificate.
The
Purchaser shall have received a certificate of the Seller and an authorized
officer of the Company certifying as to the matters set forth in Sections
8.1(a), (b), (c) and (d) above.
(f) Required
Consents Received.
The
Company and the Seller shall have obtained and delivered to the Purchaser all
Required Consents listed on or required to be listed on Schedule
3.4
on terms
reasonably satisfactory to the Purchaser, and no such Required Consents shall
have been withdrawn, suspended or conditioned.
44
(g) No
Injunction.
No
Governmental or Regulatory Authority, court or third party shall have commenced
or threatened to commence any action that would prohibit, restrain or invalidate
the Transactions.
(h) Certificates;
Documents.
The
Purchaser shall have received copies of each of the following for the Company
certified to its satisfaction by an officer of the Company: (i)
the
Company’s articles of organization certified by the Arizona Corporation
Commission as of a recent date; (ii)
a
certificate of the Arizona Corporation Commission as of a recent date as to
the
legal existence and good standing of the Company; (iii)
the
Company’s operating agreement, as amended; (iv)
resolutions adopted by the Seller, as the sole member and manager of the
Company, authorizing the execution, delivery and performance of this Agreement
and the other agreements, documents and instruments contemplated hereby and
the
consummation of the Transactions; and (v)
evidence as of a recent date of the qualification of the Company as a foreign
corporation in the jurisdictions listed on Schedule
3.3.
The
Purchaser shall have also received copies of each of the following for each
Subsidiary certified to its satisfaction by an officer of such Subsidiary:
(x)
each
Subsidiary’s articles of organization or articles of incorporation, as
applicable, certified by the Arizona Corporation Commission as of a recent
date,
(y)
a
certificate as to each Subsidiary’s legal existence and good standing, certified
by the Arizona Corporation Commission as of a recent date, and (z)
each
Subsidiary’s bylaws, operating agreement or similar document.
(i) Purchaser
Stockholder Approval.
The
Purchase shall have received the Purchaser Stockholder Approval and shall have
met the requirements of an “initial transaction” as set forth in its amended and
restated certificate of incorporation.
(j) Opinion
of Counsel to the Company and the Seller.
The
Purchaser shall have received an opinion of Xxxxxxxxx Xxxxx, P.C., counsel
to
the Company and the Seller, dated as of the date of the Closing, in
substantially the form attached hereto as Exhibit
8.1(j).
(k) Escrow
Agreement.
The
Seller, the Purchaser and Mellon Trust of New England, N.A., as escrow agent
(the “Escrow
Agent”),
shall
have entered into the Escrow Agreement in substantially the form attached hereto
as Exhibit
8.1(k)
(the
“Escrow
Agreement”).
(l) Pre-Closing
Deliveries.
The
Seller and the Company shall have delivered, or caused to be delivered, the
items, certificates and documents required by Section 1.2.
(m) Licenses,
Consents, Etc. Received by Purchaser.
The
Purchaser shall have obtained all consents, licenses, approvals, authorizations
and permits required to be obtained by it as a result of the Transactions,
in
each case in which the failure to obtain the same would materially interfere
with the Purchaser’s ability to consummate the Transactions or to operate the
Business after the Closing, and no such consent, license, approval,
authorization or permit shall have been withdrawn, conditioned or
suspended.
(n) Fairness
Opinion.
The fair
market value of the Company and its Subsidiaries, as of the Closing Date shall
be equal to at least 80% of the net assets of the Purchaser (excluding amounts
held in the Purchaser’s trust fund representing a portion of the underwriters’
discount in connection with the Purchaser’s initial public offering), and the
Purchaser shall have received from its financial advisor a bring-down letter
dated as of the Closing Date of the Fairness Opinion to the effect that the
Transactions are fair to the Purchaser from a financial point of view and that
such fair market value test is met.
45
(o) Comfort
Letter.
The
Purchaser shall have received a “comfort” letter from RSM McGladrey Inc.,
independent certified public accountants for the Company, dated the date of
the
Proxy Statement and the Closing Date (or such other date reasonably acceptable
to the Purchaser) with respect to certain financial statements of the Company
and other customary financial information concerning the Company included in
the
Proxy Statement in form and substance reasonably acceptable to the
Purchaser.
(p) Real
Property.
With
respect to all of the Real Property, the Company shall have obtained an ALTA
extended policy of title insurance issued by the Xxxxxxx Title Insurance
Company, such policy to be in form and substance satisfactory to the Purchaser
(including, without limitation, deletion of the general “survey exception,”
provision of any reasonably requested affirmative coverage, a so-called
“non-imputation” endorsement and such other policy endorsements reasonably
required by the Purchaser). The Seller will, if any such item is required by
the
title company, execute and deliver an affidavit (and corresponding indemnity)
regarding parties-in-possession and also affidavit(s) regarding record(s) of
any
bankruptcy(ies) by any party with a name similar to name of the Company or
any
of its Subsidiaries. The cost of such title insurance and the cost of any survey
work needed to obtain the form of title insurance policy required by the
Purchaser shall be shared equally between the Seller and the
Purchaser.
(q) Absence
of Material Adverse Effect.
From the
Balance Sheet Date through the Closing, there shall not have occurred any event,
fact, circumstances or change that has or could reasonably be expected to have
a
Material Adverse Effect.
(r) Section
1445 Affidavit.
The
Seller shall have delivered to the Purchaser an affidavit to the effect that
the
Seller is neither a disregarded entity nor a “foreign person” within the meaning
of the United States tax laws and to which reference is made in Code Section
1445(b)(2) and the regulations thereunder.
(s) Management
Contract.
Cavan
Management Services, L.L.C. shall have entered into a management contract with
the Purchaser in form and substance reasonably satisfactory to the Purchaser
(the “Management
Contract”),
which
Management Contract shall be consistent with terms set forth in Exhibit
8.1(s),
with
such modifications thereto as shall be mutually agreed to between the parties
(it being understood that the initial budget to be attached to the Management
Contract shall be determined by the Purchaser), Cavan Management Services,
L.L.C. shall be ready, willing and able to perform its duties thereunder as
of
the Closing, and Xxxxx X. Xxxxx shall be involved in the day-to-day operations
of Cavan Management Services, L.L.C. with no current intention to cease such
involvement as of the Closing.
46
(t) Registration
Rights Agreement.
The
Purchaser and the Seller shall have entered into a registration rights
agreement, in substantially the form attached hereto as Exhibit
8.1(t)
(the
“Registration
Rights Agreement”).
(u) Brokerage
Agreement.
Cavan
Realty, Inc. shall have entered into a listing agreement with the Company in
form and substance reasonably satisfactory to the Purchaser, which agreement
shall be consistent with the terms set forth in Exhibit
8.1(u),
with
such modifications thereto as shall be mutually agreed to between the parties,
and be ready, willing and able to perform its duties thereunder as of the
Closing.
(v) Affiliate
Notes.
Each
promissory note evidencing Indebtedness of the Company or any Subsidiary for
borrowed money owed to Cavan Investment Capital, LLC, The Cavan Opportunity
Fund, LLC, Cavan Realty, Inc., Cavan Management Services, L.L.C. or the Seller,
which note is set forth on Schedule
3.9
or
permitted to be entered into with the prior written consent of the Purchaser,
shall be restated into a single note for each such payee representing the
aggregate amount of such indebtedness owed to such payee as of Closing, each
such note to be substantially in the form attached hereto as Exhibit
8.1(v).
(w) Insurance.
The
Purchaser shall have arranged for insurance policies reasonably acceptable
to it
to be effective following the Closing that replace the policies set forth on
Schedule
3.24.
(x) Termination
of Contracts.
All
Contracts between the Company or any Subsidiary and Cavan or any Affiliate
of
Cavan shall have been terminated, except for the Contracts referred to in
Sections 8(s), (u) and (v) and those Contracts specifically identified as not
so
terminating on Schedule
3.9,
and
Cavan or such Affiliate, as the case may be, shall have fully released the
Company and the Subsidiaries.
(y) Tax
Clearance Certificates.
The
Seller shall have delivered to the Purchaser a clearance certificate or similar
documents from the Arizona Department of Revenue with respect to the filing
of
Tax Returns, if any, for Taxes imposed by the State of Arizona on the Company
and the Subsidiaries for periods prior to the Closing, which certificate or
other document shall be in the form customarily issued by the Arizona Department
of Revenue.
(z) Actions
and Proceedings.
Prior to
the Closing, all actions, proceedings, instruments and documents required to
carry out the Transactions or incident hereto and all other legal matters
required for the Transactions shall have been reasonably satisfactory to counsel
for the Purchaser.
8.2. Conditions
to Obligations of the Company and the Seller.
Unless
waived in writing by the Seller, the obligation of the Company and the Seller
to
consummate the Transactions is expressly subject to the satisfaction at or
prior
to the Closing of the following conditions:
(a) Representations
and Warranties True.
The
representations and warranties contained in Article 4 shall be true and accurate
in all material respects on and (except to the extent such representations
and
warranties speak as of an earlier date, with respect to which such
representations and warranties shall be true and correct in all material
respects as of such earlier date) as of the date of the Closing with the same
effect as though made on and as of such date.
47
(b) Covenants
Performed.
The
Purchaser shall have performed and complied in all material respects with the
covenants, agreements and conditions required to be performed or complied with
by it under this Agreement on or prior to the date of the Closing.
(c) Compliance
Certificate.
The
Seller shall have received a certificate of an authorized officer of the
Purchaser certifying as to the matters set forth in Sections 8.2(a) and (b)
above.
(d) No
Injunction.
No
Governmental or Regulatory Authority or third party shall have commenced or
threatened to commence any action that would prohibit, restrain or invalidate
the Transactions.
(e) Escrow
Agreement.
The
Seller, the Purchaser and the Escrow Agent shall have entered into the Escrow
Agreement.
(f) Registration
Rights Agreement.
The
Seller and the Company shall have entered into the Registration Rights
Agreement.
(g) Opinion
of Counsel to the Purchaser.
The
Seller shall have received an opinion of Xxxxxx, Xxxx & Xxxxxxx LLP, counsel
to the Purchaser, dated as of the date of the Closing, in substantially the
form
attached hereto as Exhibit
8.2(g).
(h) Purchase
Price.
The
Purchaser shall have paid the Closing Consideration in accordance with the
provisions of Section 1.2 hereof.
(i) Purchaser
Stockholder Approval.
The
Purchaser Stockholder Approval shall have been obtained.
(j) Management
Contract.
The
Purchaser shall have entered into the Management Contract with Cavan Management
Services, L.L.C, which Management Contract shall be consistent with the terms
set forth in Exhibit
8.1(s),
with
such modifications thereto as shall be mutually agreed to between the parties
(it being understood that the initial budget to be attached to the Management
Contract shall be determined by the Purchaser).
(k) Brokerage
Agreement.
The
Company shall have entered into a listing agreement with Cavan Realty, Inc.,
which agreement shall be consistent with the terms set forth in Exhibit
8.1(u),
with
such modifications thereto as shall be mutually agreed to between the
parties.
(l) Actions
and Proceedings.
Prior to
the Closing, all actions, proceedings, instruments and documents required to
carry out the Transactions contemplated hereby or incident hereto and all other
legal matters required for such Transactions shall have been reasonably
satisfactory to counsel for the Seller.
48
(m) Certificates;
Documents.
The
Seller shall have received copies of each of the following for the Purchaser
certified to its satisfaction by an officer of the Purchaser; (i)
the
Purchaser’s amended and restated certificate of incorporation certified by the
Secretary of State of Delaware as of a recent date; (ii)
a
certificate of the Secretary of State of Delaware as of a recent date as to
the
legal existence and good standing of the Purchaser; (iii)
the
Purchaser’s by-laws; and (iv)
resolutions adopted by the Board of Directors and the stockholders of the
Purchaser authorizing the execution, delivery and performance of this Agreement
and the other agreements, documents and instruments contemplated hereby and
the
consummation of the Transactions.
ARTICLE
9
TERMINATION
9.1. Termination.
This
Agreement and the Transactions may be terminated at any time prior to the
Closing:
(a) by
mutual
written consent of the Purchaser and the Company;
(b) by
the
Purchaser, if the Company or the Seller shall have breached or failed to perform
in any material respect any of their respective obligations, covenants or
agreements under this Agreement, or if any of the representations and warranties
of the Seller and/or the Company set forth in this Agreement shall not be true
and correct in any respect that would cause the failure of the condition set
forth in Section 8.1(a), and such breach, failure or misrepresentation is not
cured to the Purchaser’s reasonable satisfaction within 30 days after the
Purchaser gives the Company or the Seller written notice identifying such
breach, failure or misrepresentation;
(c) by
the
Company, if the Purchaser shall have breached or failed to perform in any
material respect any of its obligations, covenants or agreements under this
Agreement, or any of the representations and warranties of the Purchaser set
forth in this Agreement shall not be true and correct in any respect that would
cause the failure of the condition set forth in Section 8.2(a), and such breach,
failure or misrepresentation is not cured to the Company’s reasonable
satisfaction within 30 days after the Company gives the Purchaser written notice
identifying such breach, failure or misrepresentation;
(d) by
the
Purchaser, if the conditions set forth in Section 8.1 become incapable of
satisfaction;
(e) by
the
Company, if the conditions set forth in Section 8.2 become incapable of
satisfaction;
(f) by
the
Purchaser or the Company if the stockholders of the Purchaser fail to receive
the Purchaser Stockholder Approval at the Purchaser Stockholder Meeting;
or
(g) by
the
Purchaser or the Seller, if the Closing shall not have occurred on or before
May
16, 2007 or such other date, if any, as the Purchaser and the Seller may agree
in writing;
49
except
that this Agreement may not be terminated under this Section by or on behalf
of
any party that is in breach of any representation or warranty or in violation
of
any covenant or agreement contained herein. For this purpose, any breach of
this
Agreement by the Company or the Seller shall be considered a breach of the
Agreement by the Company and the Seller.
9.2. Effect
of Termination.
(a) If
this
Agreement is terminated (i)
under
Section 9.1(a) herein or (ii)
under
Sections 9.1(d), (e), (f) or (g) herein at a time when no party is in breach
of
a representation or warranty or in violation of a covenant or agreement
contained herein, all further obligations of the Company and the Seller to
the
Purchaser, and of the Purchaser to the Company and the Seller, will terminate
without further liability of any party hereto.
(b) If
this
Agreement is terminated under Section 9.1(b), (c), (d), (e), (f) or (g) herein
at a time when one or more parties is in willful breach of a representation
or
warranty or in willful violation of a covenant or agreement contained in this
Agreement, the liabilities and obligations of the parties not in breach or
violation of this Agreement shall terminate, and the party or parties which
are
in willful breach or willful violation of this Agreement shall remain liable
for
such breaches and violations, and nothing shall be deemed to restrict the
remedies available against such party or parties.
(c) The
obligations of the Purchaser under Section 6.2 shall survive the termination
of
this Agreement for two years and the provisions of this Article 8 and Article
11
shall survive the termination of this Agreement.
ARTICLE
10
SURVIVAL;
INDEMNIFICATION
10.1. Survival.
The
representations, warranties, covenants and agreements contained herein and
in
the other agreements, instruments, certificates and documents contemplated
hereby shall survive the Closing and any investigation or finding made by or
on
behalf of the Purchaser, the Seller or the Company. No action for a breach
of
the representations and warranties or covenants or agreements required to be
performed prior to or at the Closing contained in this Agreement shall be
brought more than one year following the Closing Date, except for (a)
claims
arising out of the representations and warranties contained in Article 2 or
Sections 3.1, 3.4(a), 3.5, 3.6, 3.10(a) (last sentence only), 3.14, 3.19, 3.25,
4.1, 4.2, 4.3, 4.6 and 4.9 which shall survive indefinitely after the Closing,
(b)
claims
arising out of the representations and warranties contained in Section 3.28,
which shall survive until thirty (30) days after the expiration of the statute
of limitations period (including all extensions thereof) applicable to the
underlying subject matter being represented, and (c)
claims
of which the Seller has been notified in writing by the Purchaser (which writing
shall refer specifically to this Article 10), or claims of which the Purchaser
has been notified in writing (which writing shall refer specifically to this
Article 10) by the Seller, within such one year period. The representations
and
warranties contained in Article 2 and Sections 3.1, 3.4(a), 3.5 3.6, 3.10(a)
(last sentence only), 3.14, 3.19, 3.25, 3.28, 4.1, 4.2, 4.3, 4.6 and 4.9 are
sometimes collectively referred to herein as the “Specified
Representations.”
50
10.2. Indemnification
Limits.
If the
Closing occurs, the Purchaser Indemnified Parties (as hereinafter defined)
shall
not be entitled to recover any Losses (as hereinafter defined) for breaches
of
the representations and warranties of the Seller and/or the Company contained
herein (a)
unless
and until the Purchaser Indemnified Parties’ aggregate claims therefor exceed
$250,000, at which time the Purchaser Indemnified Parties shall be entitled
to
recover Losses for all claims in excess of such amount (except that claims
for
breach of any representation or warranty that is subject to Material Adverse
Effect or other materiality qualifier shall not be subject to the terms of
this
clause (a) and, subject to all other applicable limitations in this Article
10,
the Purchaser shall be allowed to recover for all Losses related thereto),
or
(b)
absent
fraud or willful misconduct, for an aggregate amount in excess of $8,500,000;
provided
that
claims for breach of any of the Specified Representations by the Seller or
the
Company shall not be subject to the foregoing limits (but shall instead be
subject to and not exceed the total consideration paid to the Seller) and shall
not be included in the determination of whether the limit in clause (b) has
been
reached. Notwithstanding the limitations on indemnification set forth in Section
10.1 and this Section 10.2, such limitations shall not apply to any claim
against the Seller for breach of any representation or warranty that to the
knowledge of the Seller or the Company was inaccurate at Closing and which
breach was not previously disclosed to the Purchaser in writing prior to the
Closing. For all purposes of this Article 10, when determining the amount of
the
Losses, any Material Adverse Effect or other materiality qualifier in any such
representation or warranty will be disregarded. No Indemnifier shall have any
indemnification obligation for (x)
punitive damages, except, in all cases, all such damages that are payable by
the
Purchaser or any of its Affiliates in connection with a third-party claim or
(y)
any
indirect damages that are not reasonably foreseeable or (z)
any
damages resulting from positions taken by the Purchaser, the Company or any
Subsidiary on any Tax Returns filed by them for any post-closing tax period,
even if such positions are the same or similar to positions taken on Tax Returns
filed by Seller, the Company or any Subsidiary for any Pre-Closing Taxable
Period. Notwithstanding anything to the contrary herein, the Purchaser
Indemnified Parties shall not be entitled to recover any Losses for breaches
of
the representations and warranties of the Seller and/or the Company to the
extent based on facts and circumstances that constitute New Matters explicitly
reflected in the Updated Disclosure Schedules, if any, unless and until the
Purchaser Indemnified Parties’ aggregate claims therefor exceed $250,000, at
which time the Purchaser Indemnified Parties shall be entitled to recover Losses
for all claims in excess of such amount subject to the other terms of this
Article 10. For clarity, delivery of the Updated Disclosure Schedules shall
have
no effect other than as provided in the immediately preceding
sentence.
10.3. Indemnification
by the Seller.
If the
Closing occurs, then subject to applicable limitations set forth in this
Agreement, including, without limitation, the provisions and limitations in
this
Article 10, the Seller shall indemnify and hold the Purchaser and its Affiliates
(the “Purchaser
Indemnified Parties”)
harmless from and against all claims, liabilities, obligations, costs, damages,
losses and expenses (including reasonable attorneys’ fees and costs of
investigation) of any nature (collectively, “Losses”)
arising out of, resulting from or relating to (a)
any
breach or violation, or the inaccuracy, of any of the representations or
warranties of the Seller and/or the Company set forth in this Agreement
(including the schedules) or in any certificate or document delivered pursuant
to this Agreement, (b)
any
breach or violation of the covenants or agreements of the Company set forth
in
this Agreement required to be performed prior to or at the Closing,
(c)
any
breach or violation of covenants or agreements of the Seller contained herein,
including without limitation those set forth in Article 7, (d)
the
failure of any portion of the Seller’s Expenses or Transaction Liabilities to be
paid at Closing, (e)
any
Lien on any property or assets of the Company or any Subsidiary after the
Closing as a result of matters existing or relating to any period prior to
the
Closing (other than Liens approved by the prior written consent of the Purchaser
or Liens arising as a result of the Company’s failure after the Closing to make
payments first due after Closing required under any Material Contracts listed
on
Schedule
3.9
or
entered into in accordance with this Agreement), or (f)
any
litigation, suit, proceeding, arbitration, audit by the Service or other taxing
authority or investigation with respect to the affairs of the Company or any
Subsidiary prior to the Closing, including without limitation any matter
described on Schedule
3.19(b)
and
Schedule
3.20.
51
10.4. Indemnification
by the Purchaser.
If the
Closing occurs, then subject to applicable limitations set forth in this
Agreement, including, without limitation, the provisions and limitations in
this
Article 10, the Purchaser shall indemnify and hold the Seller and its Affiliates
harmless from and against all Losses arising out of, resulting from or relating
to (a)
any
breach or violation, or the inaccuracy, of any of the representations or
warranties of the Purchaser set forth in this Agreement or in any certificate
or
document delivered pursuant to this Agreement, (b)
any
breach or violation of the covenants or agreements of the Purchaser set forth
in
this Agreement required to be performed prior to or at the Closing, or
(c)
any
breach or violations of covenant or agreements of the Purchaser contained
herein. The Seller shall not be entitled to recover any Losses for breach of
the
representations and warranties of the Purchaser contained herein (i)
unless
and until the Seller’s aggregate claims therefor exceed $250,000, at which time
the Seller shall be entitled to recover Losses for all claims in excess of
such
amount, or (ii)
absent
fraud or willful misconduct, for an aggregate amount in excess of $8,500,000;
provided,
that
claims for breach of any of the Specified Representations made by the Purchaser
shall not be subject to the foregoing limits and shall not be included in the
determination of whether the limit in clause (ii) has been reached.
10.5. Procedures
for Indemnification of Third Party Claims.
(a) A
party
or parties entitled to indemnification hereunder with respect to a third party
claim (the “Indemnified
Party”)
will
give the party or parties required to provide such indemnification (the
“Indemnifier”)
prompt
written notice of any legal proceeding, claim or demand instituted by any third
party (in each case, a “Claim”)
in
respect of which the Indemnified Party is entitled to indemnification
hereunder.
(b) If
the
Indemnifier provides written notice to the Indemnified Party stating that the
Indemnifier is responsible for the entire Claim within 10 days after the
Indemnifier’s receipt of written notice from the Indemnified Party of such
Claim, the Indemnifier shall have the right, at the Indemnifier’s expense, to
defend against, negotiate, settle or otherwise deal with such Claim and to
have
the Indemnified Party represented by counsel, reasonably satisfactory to the
Indemnified Party, selected by the Indemnifier, if the ad
damnum
is less
than or equal to the amount of Losses for which the Indemnifier is liable under
this Article 10; provided
that the
Indemnifier may not assume control of the defense of a suit or proceeding
involving criminal liability or in which equitable relief is sought against
the
Indemnified Party; provided further,
that
the Indemnified Party may participate in any proceeding with counsel of its
choice and at its expense; provided further,
that
the Purchaser, at any time when it believes in good faith that any Claim is
having or could reasonably be expected to have a Material Adverse Effect, may
assume the defense and settlement of such Claim in good faith, with counsel
of
its choice, and be fully indemnified for the amount of Losses incurred in such
defense or settlement to the extent provided in this Article 10; and
provided further,
that
the Indemnifier may not enter into a settlement of any Claim without the written
consent of the Indemnified Party unless such settlement provides the Indemnified
Party with a full release from such Claim and requires no more than a monetary
payment for which the Indemnified Party is fully indemnified. Without limiting
any other remedy the Purchaser may have at law or in equity, the Purchaser
shall
be entitled to enforce this Section 10.5 pursuant to the terms of the Escrow
Agreement. For clarity, notwithstanding anything to the contrary in this Article
10, the procedures set forth in Article 7 shall govern the matters covered
by
Article 7 to the extent the provisions of this Article 10 are inconsistent
with
those of Article 7.
52
(c) The
parties will cooperate fully with each other in connection with the defense
of
any Claim.
10.6. Right
of Set-Off. If
the
Seller has not satisfied in cash any indemnification obligation owed by the
Seller hereunder, the Purchaser or any of its Affiliates may, at their
discretion, satisfy the unpaid portion of such obligation by, to the extent
permitted by law, setting-off against any amounts due and owing from the
Purchaser or any of its Affiliates to any of the Seller; provided
that the
Purchaser has first used commercially reasonable efforts to recover such amount
from the Escrow Fund, if available; and provided further
that the
Purchaser shall not be entitled to set-off pursuant to this Section 10.6 against
any amounts due pursuant to the Management Contract. Any amounts that the Seller
wishes to set-off pursuant to this Section 10.6 will, to the extent that the
Purchaser would otherwise then be required to pay such amount to the Seller,
be
placed into an escrow account to be held by a Person that is not an Affiliate
of
any party hereto and will remain therein until (a)
the
escrow agent shall receive written instructions from the Purchaser and the
Seller (or their respective successors or assigns) as to the disbursement of
some or all of the escrowed amount or (b)
such
escrow agent shall be otherwise ordered by a court of competent
jurisdiction.
10.7. Adjustment
to Purchase Price.
All
indemnification payments paid pursuant to this Article shall, to the maximum
extent permitted by law, be treated as an adjustment to the purchase
price.
10.8. Exclusive
Remedy.
The
parties agree that, in the absence of fraud or willful misconduct,
indemnification under Article 7 and this Article 10 shall be their exclusive
remedy after the Closing for Losses in connection with the Transactions. The
foregoing shall not affect the ability of a party to seek specific performance,
an injunction or another equitable remedy specifically contemplated by this
Agreement.
ARTICLE
11
MISCELLANEOUS
11.1. Notices.
All
notices, demands or other communications hereunder shall be in writing and
shall
be deemed to have been duly given if delivered in person, by e-mail or fax,
by
United States mail, certified or registered with return receipt requested,
or by
a nationally recognized overnight courier service, or otherwise actually
delivered:
53
(a) if
to the
Seller or, prior to the Closing, the Company, to:
c/o
Cavan
Management Services, L.L.C.
00000
Xxxxx Xxxx Xxxx
Xxxxx
000
Xxxxxxxxxx,
Xxxxxxx 00000
Attention:
Xxxxxx Xxxx
Facsimile:
(000) 000-0000
E-mail:
xxxxx@xxxxx.xxx
with
a
copy (which shall not constitute notice) to:
Xxxxxxxxx
Xxxxx, P.C.
0000
X.
Xxxxxxx Xxxxxx
Xxxxx
0000
Xxxxxxx,
Xxxxxxx 00000-0000
Attention:
Xxxxx Xxxxx
Facsimile:
(000) 000-0000
E-mail:
xxxxxx@xxxxx.xxx
(b) if
to the
Purchaser or, after the Closing, the Company, to:
00
Xxxxxx
Xxxxxx
Xxxxx
000
Xxx
Xxxxxx, Xxxxxxxxxxx 00000
Attention:
Xxxxxx X. Xxxxxxxxxx
Facsimile:
203.966.9478
E-mail:
xxxxxxxxxxx@xxxxxxxxxxxxxxxxx.xxx
with
a
copy (which shall not constitute notice) to:
Xxxxxx,
Hall & Xxxxxxx LLP
Xxx
Xxxxxxxxxxxxx Xxxxx
Xxxxxx,
Xxxxxxxxxxxxx 00000
Attention:
Xxxxxxx X. Xxxxxx, Xx.
Facsimile:
617.248.4000
E-mail:
xxxxxxx@xxxxxx.xxx
or
at
such other address as may have been furnished by such person in writing to
the
other parties. Any such notice, demand or communication shall be deemed given
on
the date given, if delivered in person, e-mailed or faxed or otherwise actually
delivered, on the date received, if given by registered or certified mail,
return receipt requested or given by overnight delivery service, or three days
after the date mailed, if otherwise given by first class mail, postage
prepaid.
54
11.2. Severability
and Governing Law; Forum.
This
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision hereof shall be prohibited or invalid
under any such law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating or nullifying the remainder
of
such provision or any other provisions of this Agreement. If any one or more
of
the provisions contained in this Agreement shall for any reason be held to
be
excessively broad as to duration, geographical scope, activity or subject,
such
provisions shall be construed by limiting and reducing it so as to be
enforceable to the maximum extent permitted by applicable law. This Agreement
shall be governed by and construed in accordance with the internal laws of
the
State of Delaware, without regard to its conflicts of laws principles. Any
proceeding arising out of or relating to this Agreement may be brought in the
courts of the State of Delaware, or, if it has or can acquire jurisdiction,
in
the United States District Court for the District of Delaware. This provision
may be filed with any court as written evidence of the knowing and voluntary
irrevocable agreement between the parties to waive any objections to
jurisdiction, to venue or to convenience of forum.
11.3. Amendments,
Waivers.
This
Agreement may be amended or modified only with the written consent of the
Purchaser, the Company and the Seller. No waiver of any term or provision hereof
shall be effective unless in writing signed by the party waiving such term
or
provision. No failure to exercise or delay in exercising any right, power or
remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or remedy hereunder preclude any other
or
further exercise thereof or the exercise of any other right, power or remedy.
The rights provided hereunder are cumulative and not exclusive of any rights,
powers or remedies provided by law.
11.4. Expenses.
All
legal and other costs and expenses incurred in connection with this Agreement
and the Transactions shall be paid by the party incurring such costs and
expenses, provided,
however,
that if
the Closing occurs the Seller shall be responsible for the Seller’s Expenses and
the Transaction Liabilities.
11.5. Successors
and Assigns.
This
Agreement, and all provisions hereof, shall be binding upon and inure to the
benefit of the respective successors and assigns of the parties hereto, provided
that this Agreement may not be assigned by any party without the prior written
consent of the other parties hereto except that (a)
the
indemnification and other rights hereunder of a party may be assigned to any
bank or other financial institution which is or becomes a lender to the
Purchaser or the Company or any of their respective successors and assigns
and
(b)
this
Agreement may be assigned by the Purchaser to any of its Affiliates or to any
Person acquiring a material portion of the assets, business or securities of
the
Company or Purchaser, whether by merger, consolidation, sale of assets or
securities or otherwise.
11.6. Entire
Agreement.
This
Agreement, the attached exhibits and schedules, and the other agreements,
documents and instruments contemplated hereby contain the entire understanding
of the parties, and there are no further or other agreements or understandings,
written or oral, in effect between the parties relating to the subject matter
hereof unless expressly referred to herein. Except for the representations
and
warranties contained in this Agreement, no party hereto makes any other
representation or warranty (either express or implied).
55
11.7. Counterparts.
This
Agreement may be executed in one or more counterparts, and with counterpart
facsimile signature pages, each of which shall be an original, but all of which
when taken together shall constitute one and the same Agreement.
11.8. Headings.
The
headings of Articles and Sections herein are inserted for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
11.9. Further
Assurances. Following
the Closing, the parties hereto will execute and deliver such documents and
take
such other actions as may be reasonably necessary in order to fully consummate
the Transactions.
11.10.
Third
Party Beneficiaries. Nothing
in the Agreement shall be construed to confer any right, benefit or remedy
upon
any Person that is not a party hereto or a permitted assignee of a party hereto,
except as otherwise expressly set forth in this Agreement.
11.11.
No
Strict Construction.
The
parties hereto have participated jointly in the negotiation and drafting of
this
Agreement and the other agreements and documents contemplated herein. In the
event an ambiguity or question of intent or interpretation arises under any
provision of this Agreement or any other agreement or documents contemplated
herein, this Agreement and such other agreements or documents shall be construed
as if drafted jointly by the parties thereto, and no presumption or burden
of
proof shall arise favoring or disfavoring any party by virtue of authoring
any
of the provisions of this Agreement or any other agreements or documents
contemplated herein.
11.12.
Publicity.
Except
for the press release to be issued by the Purchaser upon execution of this
Agreement and pending the Closing, no party shall issue a press release or
make
any other public announcement concerning the Transactions without the prior
written consent of the Purchaser and the Company; provided,
however,
that a
party may, without the prior consent of the other party, issue such a press
release or make such public disclosure as may upon the advice of counsel be
required by law if it has used reasonable efforts to consult first with the
other party; and provided further
that
nothing contained herein shall restrict the ability of the Purchaser to make
such disclosures as may be required under applicable securities laws, rules
and
regulations and the rules and regulations of the American Stock Exchange;
provided
that the
Purchaser shall use commercially reasonable efforts, to the extent practicable,
to provide in advance a copy of the disclosure to the Seller and give the Seller
a reasonable opportunity to comment thereon. This Section 11.12 shall not limit
the Seller’s right or ability, substantially concurrently with the Purchaser’s
press release, to provide written or oral communications (other than through
a
press release) to the Seller’s members regarding the terms of the Transactions
or to provide written or oral communications to Persons who have purchased
lots,
Fractional Interests or Golf Memberships from the Company regarding Cavan’s
continuing role in the management of the Company Property. The Purchaser and
the
Seller shall cooperate in good faith to determine the timing, manner and content
of communications under the immediately preceding sentence.
11.13.
Schedules
and Exhibits.
All
schedules and exhibits to this Agreement are an integral part of this Agreement
and are incorporated herein by reference in this Agreement for all purposes
of
this Agreement. All Schedules delivered with this Agreement shall be arranged
to
correspond with the numbered and lettered Sections and Subsections contained
in
this Agreement, and the disclosures in such Schedules shall qualify only the
corresponding Sections and Subsections contained in this Agreement, unless
otherwise expressly provided herein. The schedules shall be arranged in sections
and subsections corresponding to the numbered and lettered sections and
subsections contained in this Agreement. The disclosures in any section or
subsection of the schedules shall qualify only the corresponding section or
subsection of this Agreement and such other sections or subsections to the
extent expressly cross-referenced or otherwise expressly stated
therein.
56
11.14.
Waiver
of Jury Trial. EACH
PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER
THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY
HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS OR THEREBY.
11.15.
Limitations
With Respect to Cavan.
The
designation of Xxxxx X. Xxxxx and Cavan Management Services, L.L.C. as parties
to this Agreement solely for the purposes of Sections 5.3(b) and 5.5 through
5.11 shall not impose any obligation or liability on Cavan under any other
provision of this Agreement or any other agreements, documents and instruments
contemplated hereby, except to the extent that any such other agreement,
document or instrument (including, without limitation, the Management Contract)
shall specifically provide.
ARTICLE
12
DEFINITIONS
The
following terms, as used in this Agreement, have the meanings given to them
where` indicated below:
Term |
Section or Place
Where Defined
|
|
Agreement
|
Preamble
|
|
Affiliate
|
Section
3.25
|
|
AMEX
|
Section
6.4
|
|
Association(s)
|
Section
3.2
|
|
Balance
Sheet
|
Section
3.7(a)
|
|
Balance
Sheet Date
|
Section
3.7(a)
|
|
Benefit
Plans
|
Section
3.22(a)
|
|
Business
|
Section
3.2(a)
|
|
Cash
Consideration
|
Section
1.2
|
|
Cavan
|
Preamble
|
|
Cavan
Guarantees
|
Section
6.9
|
|
Claim
|
Section
10.5(a)
|
|
Closing
|
Section
1.3
|
|
Closing
Consideration
|
Section
1.2(a)
|
|
Closing
Date
|
Section
1.3
|
57
Code
|
Section
3.19(b)
|
|
Company
|
Preamble
and Section 5.7
|
|
Company
Business
|
Section
3.1
|
|
Company
Property
|
Section
3.10(a)
|
|
Company
Intellectual Property
|
Section
3.12(a)
|
|
Contest
|
Section
7.5
|
|
Contract
|
Section
1.2(a)
|
|
Convertible
Notes
|
Section
1.2(a)
|
|
Covered
Business
|
Section
5.7
|
|
Development
Properties
|
Section
3.10(o)
|
|
Dwelling
Units
|
Section
3.10(a)
|
|
Environmental
Laws
|
Section
3.23
|
|
Environmental
Permits
|
Section
3.23
|
|
ERISA
|
Section
3.22(a)
|
|
Escrow
Agent
|
Section
1.2
|
|
Escrow
Agreement
|
Section
8.1(k)
|
|
Escrow
Amount
|
Section
1.2(a)
|
|
Escrow
Cash
|
Section
1.2(a)
|
|
Escrow
Fund
|
Section
1.5
|
|
Escrow
Note
|
Section
1.2
|
|
Fairness
Opinion
|
Section
6.3
|
|
Financial
Statements
|
Section
3.7(b)
|
|
First
Tranche Notes
|
Section
1.2(a)
|
|
Fractional
Interests
|
Section
3.10(a)
|
|
GAAP
|
Section
3.7(b)
|
|
Golf
Memberships
|
Section
1.2(a)
|
|
Governmental
or Regulatory Authority
|
Section
1.2(a)
|
|
Hazardous
Substance
|
Section
3.23
|
|
Indebtedness
|
Section
1.2(a)
|
|
Indemnified
Party
|
Section
10.5(a)
|
|
Indemnifier
|
Section
10.5(a)
|
|
Intellectual
Property
|
Section
3.12(a)
|
|
IP
Licenses
|
Section
3.12(b)
|
|
IPO
Prospectus
|
Section
5.13
|
|
Key
Employees
|
Section
1.2(a)
|
|
Leased
Property
|
Section
3.10(e)
|
|
Legal
Requirements
|
Section
1.2(a)
|
|
Liens
|
Section
1.2(a)
|
|
Losses
|
Section
10.3
|
|
Management
Contract
|
Section
8.1(s)
|
|
Material
Adverse Effect
|
Section
1.2(a)
|
58
Material
Contracts
|
Section
3.9
|
New
Matters
|
Section
5.12(b)
|
Non-competition
Period
|
Section
5.7(c)
|
Old
Matters
|
Section
5.12(b)
|
Ordinary
Course of Business
|
Section
1.2(a)
|
Organizational
Documents
|
Section
2.3(b)
|
Outstanding
Indebtedness
|
Section
3.7(c)
|
Permitted
Indebtedness
|
Section
5.1(b)(iii)
|
Person
|
Section
3.2
|
Pre-Closing
Taxable Periods
|
Section
7.2
|
Projects
|
Section
3.10(o)
|
Proxy
Statement
|
Section
3.14
|
Purchaser
|
Preamble
|
Purchaser
Common Stock
|
Section
1.2(a)
|
Purchaser
Financial Statements
|
Section
4.5(b)
|
Purchaser
Indemnified Parties
|
Section
10.3
|
Purchaser
Reports
|
Section
4.5(a)
|
Purchaser
Stockholder Approval
|
Section
4.2
|
Purchaser
Stockholder Meeting
|
Section
3.14
|
Real
Estate Leases
|
Section
3.10(a)
|
Real
Property
|
Section
3.10(e)
|
Registration
Rights Agreement
|
Section
8.1(t)
|
Repaid
Indebtedness
|
Section
1.2
|
Required
Consents
|
Section
3.4
|
Rule
145 Affiliates
|
Section
5.14
|
SEC
|
Section
2.5(d)
|
Securities
|
Introduction
|
Securities
Act
|
Section
2.5(a)
|
Seller
|
Preamble
|
Seller
Notes
|
Section
1.2(a)
|
Seller’s
Expenses
|
Section
1.2(a)
|
Service
|
Section
3.22(b)
|
Sold
Inventory
|
Section
3.10(a)
|
Specified
Representations
|
Section
10.1
|
Stub
Period Statements
|
Section
3.7(b)
|
Subsidiary
or Subsidiaries
|
Section
3.2
|
Subsidiary
Business
|
Section
3.2
|
Tax
or Taxes
|
Section
3.19(a)(i)
|
Tax
Returns
|
Section
3.19(a)(i)
|
Title
Commitment
|
Section
3.10(a)
|
Title
Policies
|
Section
3.10(a)
|
Transactions
|
Introduction
|
Transaction
Liabilities
|
Section
1.2(a)
|
Trust
Account
|
Section
5.13
|
Updated
Disclosure Schedules
|
Section
5.12(b)
|
Utilities
|
Section
3.10(e)
|
59
IN
WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement
as a sealed instrument as of the date first above written.
By:
/s/
Xxxxxxx X. Stratton___________________
Name:
Xxxxxxx X. Xxxxxxxx
Title:
Chairman, Chief Executive Officer and Secretary
SEDONA
DEVELOPMENT PARTNERS, LLC
By:
Seven
Canyons Investors, L.L.C., Manager
By:
Cavan
Management Services, L.L.C., Manager
By:
/s/
Xxxxx
X. Xxxxx
Name:
Xxxxx X. Xxxxx
SEVEN
CANYONS INVESTORS, LLC
By:
Cavan
Management Services, L.L.C., Manager
By:
/s/
Xxxxx
X. Xxxxx
Name:
Xxxxx X. Xxxxx
Title:
Chairman
Solely
for purposes of Sections 5.3(b) and 5.5 through 5.11:
CAVAN
MANAGEMENT SERVICES, L.L.C.
By:
/s/
Xxxxx
X. Xxxxx
Name:
Xxxxx X. Xxxxx
Title:
Chairman
/s/
Xxxxx X. Cavan__________________________
Xxxxx
X.
Xxxxx
[Signature
Page to Securities Purchase Agreement]
60
Exhibit
1.2(a)(ii)
THIS
NOTE AND THE OBLIGATIONS OF MAKER HEREUNDER SHALL BE SUBORDINATE AND JUNIOR
IN
RIGHT OF PAYMENT TO ALL SENIOR INDEBTEDNESS (AS DEFINED HEREIN) ON THE
TERMS AND
CONDITIONS SET FORTH HEREIN.
THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE
“SECURITIES
ACT”),
OR ANY STATE SECURITIES LAW. NO SALE, TRANSFER, PLEDGE, ASSIGNMENT OR OTHER
DISPOSITION OF THIS NOTE SHALL BE VALID OR EFFECTIVE UNLESS
(A)
SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE
SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS
OR
(B)
PAYEE SHALL DELIVER TO MAKER AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
REASONABLY ACCEPTABLE TO MAKER THAT SUCH TRANSFER IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS. IN CONNECTION WITH ANY TRANSFER PURSUANT TO CLAUSE (B), MAKER SHALL
HAVE
THE RIGHT TO REQUIRE THE DELIVERY OF CUSTOMARY CERTIFICATIONS, REPRESENTATION
LETTERS AND/OR SUCH OTHER INFORMATION SATISFACTORY TO MAKER TO ENSURE COMPLIANCE
WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
SUBORDINATED
PROMISSORY NOTE
Boston,
Massachusetts
[__________]
[__], 2007
For
value
received, Cold Spring Capital Inc., a Delaware corporation (“Maker”),
hereby promises to pay to Seven Canyons Investors, L.L.C. (the “Payee”)
or
registered assigns at c/o Cavan Management Services, LLC, 00000 Xxxxx Xxxx
Xxxx,
Xxxxx 000, Xxxxxxxxxx, Xxxxxxx 00000, or such address as Payee shall provide
Maker, the principal sum of Five Million and No/100 Dollars ($5,000,000),
with
interest as provided in this Note. This Note is executed by Maker and delivered
to Payee in accordance with the terms of a Securities Purchase Agreement
by and
among Maker, Payee, Sedona Development Partners, LLC, Xxxxx X. Xxxxx and
Cavan
Management Services, L.L.C. dated November [__], 2006 (the “Agreement”).
1. Principal
and Interest; Maturity.
This
Note shall bear interest on the unpaid principal amount hereof at the rate
of
eight percent (8%) per annum; provided
that,
following an Event of Default (as defined below), this Note shall bear
interest
at the default rate of twelve percent (12%) per annum. Interest on the
Note
shall be computed on the basis of a 365 or 366-day year, as applicable,
and the
actual number of days elapsed, and all accrued but unpaid interest shall
be
payable semi-annually beginning on [_____]
and on
each [______] and [______] thereafter. Subject to prior prepayment in accordance
with the terms hereof, and Section 5(a) hereof and the subordination provisions
herein, Maker shall pay the principal balance of this Note, without set-off,
deduction or counterclaim, together in each case with all accrued and unpaid
interest thereon, on [________] [__], 2010. All payments of principal and
interest on this Note shall be made by Maker in lawful money of the United
States of America in immediately available funds not later than 11:00 a.m.,
Phoenix, Arizona time, on the date such payment is due or, if such date
is not a
business day, then on the next succeeding business day, by wire transfer
to the
bank account designated by Payee in writing to Maker at least three business
days prior to such payment date.
61
2. Prepayment.
Maker
shall have the right and privilege of prepaying all or any part of the
principal
of this Note at any time without notice, premium or penalty. All payments
on
this Note shall be applied first, to any outstanding charges hereunder,
and then
to accrued interest, and then to principal.
3. Subordination.
Payee
understands and agrees that all amounts payable under this Note, whether
for
principal, interest or expenses, and the enforcement of Payee's rights
in
respect thereof, shall be subordinate and junior to all Senior Indebtedness
(as
defined below). If any default occurs in the payment of the principal of
or
premium or interest on any Senior Indebtedness (whether as a result of
the
acceleration thereof by the holder of any Senior Indebtedness or otherwise)
(a
“Payment
Default”),
then
during the continuance of such default and until such payment has been
made or
such default has been cured or waived in writing by the holder of the Senior
Indebtedness, no payment of principal or interest or other amount on this
Note
shall be made by Maker or accepted by Payee and Payee shall not demand
or
exercise remedies to enforce or collect such amounts (but may accelerate
this
Note as provided in clauses (b) through (d) of Section 4 of this Note).
In
addition, no payment of principal or interest or other amount on this Note
shall
be made by Maker or accepted by Payee and Payee shall not demand or exercise
remedies to enforce or collect such amount if the following three conditions
shall exist: (i)
any
default other than a Payment Default occurs on any Senior Indebtedness,
(ii)
Payee
has received written notice (“Default
Notice”)
of
such default from Maker or the holder of such Senior Indebtedness and
(iii)
such
default shall not have been cured by Maker or waived in writing by the
holder of
the Senior Indebtedness and less than 180 days shall have elapsed after
the date
of receipt by Payee of the Default Notice; provided,
however,
that
nothing in this sentence shall affect the ability of Payee to accelerate
this
Note as provided in clauses (b) through (d) of Section 4 of this Note.
The term
“Senior
Indebtedness”
shall
mean money borrowed (including without limitation all principal, interest
(whether or not allowed in a proceeding), fees and all other amounts owing
in
connection therewith) from, or otherwise represented by notes payable to,
a bank
or other financial institution or institution in the business of lending
money
which is secured in whole or in part by any assets or property of Maker
and/or
any of its direct or indirect subsidiaries. Any payments received by Payee
in
violation of the foregoing provisions shall be deemed to be held in trust
by
Payee for the benefit of the applicable payee of the Senior Indebtedness.
Payee
agrees, at the request of any payee of Senior Indebtedness, to execute
such
additional documents and instruments which any payee of Senior Indebtedness
may
reasonably request to carry out the foregoing and other customary subordination
provisions. Except as set forth in Section 5(a) hereof, nothing contained
in
this Section 3 or elsewhere in this Note is intended to or shall impair
as
between Maker, its creditors other than the holders of Senior Indebtedness,
and
Payee, the obligation of Maker, which is unconditional and absolute, to
pay to
Payee the principal of and interest on this Note as and when the same shall
become due and payable in accordance with its terms, or is intended to
or shall
affect the relative rights of Payee and the creditors of Maker other than
the
holders of Senior Indebtedness, nor shall anything herein prevent Payee
from
exercising all remedies otherwise permitted by applicable law upon the
occurrence of an Event of Default under this Note, subject to the rights,
if
any, under this Section 3 of the holders of Senior Indebtedness in respect
of
cash or other property of Maker received upon the exercise of any such
remedy.
Payee shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness. In the event that Maker fails to make a payment on account
of
principal of or interest on or other amounts due in respect of this Note
by
reason of any provision of this Section 3, such failure shall constitute
an
Event of Default hereunder, and the fact that such failure resulted from
the
application of this Section 3 shall not be construed as preventing the
occurrence of, or mitigating, such Event of Default.
62
4. Events
of Default.
In each
case of the happening of any of the following events (each of which is
herein
sometimes called an “Event
of Default”):
(a) default
in the payment of any amount due under this Note for more than seven (7)
days
after the date when the same shall become due and payable;
(b) acceleration
of the payment of any principal, interest or applicable premium, if any,
due,
prior to the stated maturity or payment date thereof, pursuant to any bond,
debenture, note or other evidence of indebtedness or under one or more
mortgages, indentures or instruments under which there may be issued, or
by
which there may be secured or evidenced, any indebtedness of Maker or any
subsidiary of Maker, whether such indebtedness now exists or shall hereafter
be
created, in an aggregate amount which exceeds $5,000,000;
(c) Maker
(i)
is
unable or admits in writing its inability to pay its monetary obligations
as
they become due, (ii)
makes a
general assignment for the benefit of creditors, or (iii)
applies
for, consents to, or acquiesces in, the appointment of a trustee, receiver,
or
other custodian for itself or its property or any part thereof, or in the
absence of such application, consent, or acquiescence a trustee, receiver,
or
other custodian is appointed for Maker or its property or any part thereof,
and
such appointment is not discharged within ninety days; or
(d) Commencement
of any case under the Bankruptcy Code, Title 11 of the United State Code,
or
commencement of any other bankruptcy arrangement, reorganization, receivership,
custodianship, or similar proceeding under any federal, state, or foreign
law by
or against Maker and with respect to any such case or proceeding that is
involuntary, such case or proceeding is not dismissed within ninety days
of the
filing thereof;
then,
subject to Section 3 hereof, in every such Event of Default and at any
time
thereafter during the continuance of such Event of Default, this Note shall,
at
the option of Payee, immediately become due and payable, both as to principal,
interest and any other amounts due hereunder without presentment, demand
or
protest, all of which are hereby expressly waived, anything contained herein
or
other evidence of such indebtedness to the contrary notwithstanding. Subject
to
Section 3 hereof, in case any one or more Events of Default shall occur
and be
continuing, Payee may proceed to protect and enforce its rights by an action
at
law, suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained in this Note or for an injunction
against
a violation of any of the terms hereof or thereof or in and of the exercise
of
any power granted hereby or thereby or by law. No right conferred upon
Payee
shall be exclusive of any other right referred to herein or now or hereafter
available at law, in equity, by statute or otherwise. In the event that
Payee
shall exercise or endeavor to exercise any remedies hereunder, Maker shall
pay
on demand all reasonable costs and expenses incurred in connection therewith
or
in connection with any reorganization, bankruptcy, insolvency, readjustment
of
debt, dissolution or liquidation of Maker, including, without limitation,
reasonable attorneys’ fees and disbursements, and Payee may take judgment for
all such amounts in addition to all other sums due hereunder.
63
5. Miscellaneous.
(a) Pursuant
to the provisions of Article 10 of the Agreement, Payee has agreed to indemnify
Maker and its Affiliates (as defined in the Agreement) for certain Losses
(as
defined in the Agreement). Maker shall have the right (without prior notice
and
when permitted by law) to set-off or recoup all amounts due from Payee
to Maker
as indemnification for Losses by a dollar for dollar reduction in the principal
amount of this Note and any interest hereunder subject to and in accordance
with
the provisions of Section 10.6 of the Agreement. For clarity, if Maker
determines to make a claim for indemnification pursuant to Article 10 of
the
Agreement and elects to set off obligations owed under this Note in accordance
with Article 10, Maker shall delay making any payment otherwise owed hereunder;
provided,
however,
that if
Maker’s good faith estimate of the maximum Losses (the “Estimated
Amount”)
is
less than the outstanding principal amount of this Note, then, for purposes
of
determining any payment owed under this Note prior to such time as the
claim is
resolved, (i)
the
outstanding principal balance of this Note shall be reduced by the Estimated
Amount and (ii)
interest payments shall be computed based on the outstanding principal
balance
reduced as provided in clause (i). When a final determination is made as
to the
indemnity claim, (A)
the
outstanding principal balance will be appropriately reduced (to the extent
the
claim is successful), (B)
any
interest in respect of outstanding principal shall be recomputed and, to
the
extent owed, paid based on the principal as adjusted and (C)
to the
extent that, after giving effect to any set off or reduction of this Note
provided for herein, Maker shall be obligated to make any payment hereunder
that
would otherwise have been due on an earlier date, Maker shall make such
payment
within 10 days after the date on which the amount of the reduction is finally
determined; provided
that in
no event shall Maker be required to pay any default interest, late fee
or charge
or the like or be considered in default so long as such payment is made
in such
10-day period. For purposes of calculating Payee’s indemnification obligations
(and any applicable caps and limitations set forth in the Agreement), only
the
amount of principal that is set off or reduced hereunder shall be included
(that
is, foregone interest shall not be considered payments made).
(b) The
failure of Payee to exercise any of its rights hereunder or the waiver
of such
rights in any particular instance shall not be deemed a waiver of Payee’s right
to accelerate upon a future default by Maker. No delay in the exercise
thereof
shall be deemed a waiver of such option, nor shall any notice of intention
to
exercise such option be necessary.
(c) Except
as
otherwise provided herein, Maker and all sureties, endorsers and guarantors
of
this Note waive demand, presentment for payment, notice of nonpayment,
protest,
notice of protest, and all other notice, filing of suit and diligence in
collecting this Note or enforcing any of the security henceforth, and agree
to
any substitution, exchange or release of any of such security or the release
of
any property primarily or secondarily liable hereon and further agree that
it
will not be necessary for any holder hereof, in order to enforce payment
by them
of this Note to first institute suit or exhaust their remedies against
any Maker
or others liable hereafter, or to enforce their rights against any security
hereafter and consent to any extension or postponement of time of payment
of
this Note or any other indulgence with respect hereto, without notice thereof
to
any of them.
64
(d) This
Note
will be construed and interpreted in accordance with the laws of the State
of
Delaware.
(e) Maker
agrees to pay on demand all reasonable expenses or other costs, including
reasonable attorneys’ fees and expert witness fees, incurred by Payee in
connection with the enforcement or collection against Maker of any provision
of
this Note, including in any state or federal bankruptcy or reorganization
proceeding.
[Signature
page follows.]
65
IN
WITNESS WHEREOF, Maker has executed this Note as in instrument under seal
as of
the date first above written.
COLD SPRING CAPITAL INC. | ||
|
|
|
By: | ||
Name: |
||
Title: |
ACCEPTED
AND ACKNOWLEDGED
AS
OF THE
DATE FIRST WRITTEN ABOVE;
BY
SIGNING BELOW, THE UNDERSIGNED
PAYEE
ACKNOWLEDGES AND CONSENTS
ON
BEHALF
OF ITSELF AND ANY SUBSEQUENT
ASSIGNEES
OR HOLDERS OF THIS NOTE TO THE
SUBORDINATED
NATURE OF THE OBLIGATIONS
OWED
UNDER THIS NOTE AND APPLICABLE
RESTRICTIONS
ON TRANSFER IN ACCORDANCE
WITH
THE
PROVISIONS HEREOF:
SEVEN CANYONS INVESTORS, L.L.C. | |||
By: Cavan Management Services, L.L.C. | |||
By: | |||
Name: |
|||
Title:
|
66
Exhibit
1.2(a)(iii)
THIS
NOTE AND THE OBLIGATIONS OF MAKER HEREUNDER SHALL BE SUBORDINATE AND JUNIOR
IN
RIGHT OF PAYMENT TO ALL SENIOR INDEBTEDNESS (AS DEFINED HEREIN) ON THE
TERMS AND
CONDITIONS SET FORTH HEREIN.
NEITHER
THIS NOTE NOR ANY OF THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES
ACT”),
OR ANY STATE SECURITIES LAW. NO SALE, TRANSFER, PLEDGE, ASSIGNMENT OR OTHER
DISPOSITION OF THIS NOTE OR OF THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF
SHALL BE VALID OR EFFECTIVE UNLESS (A)
SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE
SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS
OR
(B)
PAYEE SHALL DELIVER TO MAKER AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
REASONABLY ACCEPTABLE TO MAKER THAT SUCH TRANSFER IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS. IN CONNECTION WITH ANY TRANSFER PURSUANT TO CLAUSE (B), MAKER SHALL
HAVE
THE RIGHT TO REQUIRE THE DELIVERY OF CUSTOMARY CERTIFICATIONS, REPRESENTATION
LETTERS AND/OR SUCH OTHER INFORMATION SATISFACTORY TO MAKER TO ENSURE COMPLIANCE
WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
SUBORDINATED
CONVERTIBLE PROMISSORY NOTE
Convertible
to Common Stock of Maker
Boston,
Massachusetts
[____________]
[__], 2007
For
value
received, Cold Spring Capital Inc., a Delaware corporation (“Maker”),
hereby promises to pay to Seven Canyons Investors, L.L.C. (the “Payee”)
or
registered assigns at c/o Cavan Management Services, LLC, 00000 Xxxxx Xxxx
Xxxx,
Xxxxx 000, Xxxxxxxxxx, Xxxxxxx 00000, or such address as Payee shall provide
Maker, the principal sum of Forty-Five Million and No/100 Dollars ($45,000,000),
with interest as provided in this Note. This Note is executed by Maker
and
delivered to Payee in accordance with the terms of a Securities Purchase
Agreement by and among Maker, Payee, Sedona Development Partners, LLC,
Xxxxx X.
Xxxxx and Cavan Management Services, L.L.C. dated November 3, 2006 (the
“Agreement”).
1. Principal
and Interest; Maturity.
This
Note shall bear interest on the unpaid principal amount hereof at the rate
of
eight percent (8%) per annum; provided
that,
following an Event of Default (as defined below), this Note shall bear
interest
at the default rate of twelve percent (12%) per annum. Interest on the
Note
shall be computed on the basis of a 365 or 366-day year, as applicable,
and the
actual number of days elapsed, and all accrued but unpaid interest shall
be
payable in cash on [___________], 2008 and semi-annually thereafter on
each
[______] and [______]. Subject to prior conversion or prepayment, in each
case
in accordance with the terms hereof, and subject to the terms and provisions
of
the Escrow Agreement (as defined in the Agreement) and Section 6(a) hereof
and
the subordination provisions herein, Maker shall pay the principal balance
of
this Note, without set-off, deduction or counterclaim, together in each
case
with all accrued and unpaid interest thereon, on [________] [__], 2011.
All
payments of principal and interest on this Note shall be made by Maker
in lawful
money of the United States of America in immediately available funds not
later
than 11:00 a.m., Phoenix, Arizona time, on the date such payment is due
or, if
such date is not a business day, then on the next succeeding business day,
by
wire transfer to the bank account designated by Payee in writing to Maker
at
least three business days prior to such payment date.
67
2. Prepayment.
Maker
shall have the right and privilege of prepaying all or any part of the
principal
of this Note at any time without notice, premium or penalty. All payments
on
this Note shall be applied first, to any outstanding charges hereunder,
and then
to accrued interest, and then to principal.
3. Conversion.
All of
outstanding principal amount of this Note shall be converted into shares
of the
common stock of Maker (the “Common
Stock”),
on
the basis of one share of such stock for each $6.4285714 (the “Conversion
Price”)
in
principal amount of this Note (i)
at
Payee’s option at any time during the 30-day period commencing on the first
anniversary of the Closing Date (as defined in the Agreement), but not
thereafter, or (ii)
automatically if at any time after the first anniversary of the Closing
Date (as
defined in the Agreement) the average daily closing price of a share of
the
Common Stock on the American Stock Exchange (or such other securities exchange
as the Common Stock may from time to time be listed) during the preceding
20
trading days equals or exceeds the Conversion Price. Maker shall have no
obligation to pay any interest on this Note accrued but unpaid at the time
of
conversion, and the requirement to pay such interest shall be deemed waived.
Conversion pursuant to clause (i) above shall be effected by the surrender
of
this Note at the principal office of Maker (or such other office or agency
of
Maker in the continental United States as Maker may designate by notice
in
writing to Payee) at any time during such 30-day period during usual business
hours, together with notice in writing that Payee wishes to convert all
of the
principal amount outstanding of this Note, which notice shall also include
instructions for delivery of the Common Stock to Payee. Conversion pursuant
to
clause (i) above shall be deemed to have been effected as of the close
of
business on the date on which this Note shall have been surrendered and
such
notice shall have been received, and conversion pursuant to clause (ii)
above
shall be deemed to have occurred upon the close of business on the last
day in
the 20-day trading period described in such clause (ii) above, and at such
time
(in either case, the “Conversion
Date”)
the
rights of Payee with respect to the principal amount of this Note converted
shall cease and Payee shall be deemed to have become the holder of record
of the
shares of Common Stock issuable upon conversion. As promptly as reasonably
practicable after the Conversion Date, Maker shall deliver, or cause to
be
delivered, to Payee certificates representing the number of shares of Common
Stock issuable by reason of such conversion registered in the name of Payee;
provided,
however,
in the
case of conversion pursuant to clause (ii) above, Maker shall not be obligated
to deliver such certificates until Payee has surrendered this Note at the
principal office of Maker (or such other office or agency of Maker in the
continental United States as Maker may designate by notice in writing to
Payee).
The Conversion Price will be appropriately and equitably adjusted for any
stock
split, stock dividend, combination, reclassification or similar event with
respect to the Common Stock.
68
4. Subordination.
Payee
understands and agrees that all amounts payable under this Note, whether
for
principal, interest or expenses, and the enforcement of Payee's rights
in
respect thereof, shall be subordinate and junior to all Senior Indebtedness
(as
defined below). If any default occurs in the payment of the principal of
or
premium or interest on any Senior Indebtedness (whether as a result of
the
acceleration thereof by the holder of any Senior Indebtedness or otherwise)
(a
“Payment
Default”),
then
during the continuance of such default and until such payment has been
made or
such default has been cured or waived in writing by the holder of the Senior
Indebtedness, no payment of principal or interest or other amount on this
Note
shall be made by Maker or accepted by Payee and Payee shall not demand
or
exercise remedies to enforce or collect such amounts (but may accelerate
this
Note as provided in clauses (b) through (d) of Section 5 of this Note).
In
addition, no payment of principal or interest or other amount on this Note
shall
be made by Maker or accepted by Payee and Payee shall not demand or exercise
remedies to enforce or collect such amount if the following three conditions
shall exist: (i)
any
default other than a Payment Default occurs on any Senior Indebtedness,
(ii)
Payee
has received written notice (“Default
Notice”)
of
such default from Maker or the holder of such Senior Indebtedness and
(iii)
such
default shall not have been cured by Maker or waived in writing by the
holder of
the Senior Indebtedness and less than 180 days shall have elapsed after
the date
of receipt by Payee of the Default Notice; provided,
however,
that
nothing in this sentence shall affect the ability of Payee to accelerate
this
Note as provided in clauses (b) through (d) of Section 5 of this Note).
The term
“Senior
Indebtedness”
shall
mean money borrowed (including without limitation all principal, interest
(whether or not allowed in a proceeding), fees and all other amounts owing
in
connection therewith) from, or otherwise represented by notes payable to,
a bank
or other financial institution or institution in the business of lending
money
which is secured in whole or in part by any assets or property of Maker
and/or
any of its direct or indirect subsidiaries. Any payments received by Payee
in
violation of the foregoing provisions shall be deemed to be held in trust
by
Payee for the benefit of the applicable payee of the Senior Indebtedness.
Payee
agrees, at the request of any payee of Senior Indebtedness, to execute
such
additional documents and instruments which any payee of Senior Indebtedness
may
reasonably request to carry out the foregoing and other customary subordination
provisions. Except as set forth in the Escrow Agreement (as defined in
the
Agreement) and Section 6(a) hereof, nothing contained in this Section 4
or
elsewhere in this Note is intended to or shall impair as between Maker,
its
creditors other than the holders of Senior Indebtedness, and Payee, the
obligation of Maker, which is unconditional and absolute, to pay to Payee
the
principal of and interest on this Note as and when the same shall become
due and
payable in accordance with its terms, or is intended to or shall affect
the
relative rights of Payee and the creditors of Maker other than the holders
of
Senior Indebtedness, nor shall anything herein prevent Payee from exercising
all
remedies otherwise permitted by applicable law upon the occurrence of an
Event
of Default under this Note, subject to the rights, if any, under this Section
4
of the holders of Senior Indebtedness in respect of cash or other property
of
Maker received upon the exercise of any such remedy. Payee shall not be
deemed
to owe any fiduciary duty to the holders of Senior Indebtedness. In the
event
that Maker fails to make a payment on account of principal of or interest
on or
other amounts due in respect of this Note by reason of any provision of
this
Section 4, such failure shall constitute an Event of Default hereunder,
and the
fact that such failure resulted from the application of this Section 4
shall not
be construed as preventing the occurrence of, or mitigating, such Event
of
Default.
5. Events
of Default.
In each
case of the happening of any of the following events (each of which is
herein
sometimes called an “Event
of Default”):
(a) default
in the payment of any amount due under this Note for more than seven (7)
days
after the date when the same shall become due and payable;
69
(b) acceleration
of the payment of any principal, interest or applicable premium, if any,
due,
prior to the stated maturity or payment date thereof, pursuant to any bond,
debenture, note or other evidence of indebtedness or under one or more
mortgages, indentures or instruments under which there may be issued, or
by
which there may be secured or evidenced, any indebtedness of Maker or any
subsidiary of Maker, whether such indebtedness now exists or shall hereafter
be
created, in an aggregate amount which exceeds $5,000,000;
(c) Maker
(i)
is
unable or admits in writing its inability to pay its monetary obligations
as
they become due, (ii)
makes a
general assignment for the benefit of creditors, or (iii)
applies
for, consents to, or acquiesces in, the appointment of a trustee, receiver,
or
other custodian for itself or its property or any part thereof, or in the
absence of such application, consent, or acquiescence a trustee, receiver,
or
other custodian is appointed for Maker or its property or any part thereof,
and
such appointment is not discharged within ninety days; or
(d) Commencement
of any case under the Bankruptcy Code, Title 11 of the United State Code,
or
commencement of any other bankruptcy arrangement, reorganization, receivership,
custodianship, or similar proceeding under any federal, state, or foreign
law by
or against Maker and with respect to any such case or proceeding that is
involuntary, such case or proceeding is not dismissed within ninety days
of the
filing thereof;
then,
subject to Section 4 hereof, in every such Event of Default and at any
time
thereafter during the continuance of such Event of Default, this Note shall,
at
the option of Payee, immediately become due and payable, both as to principal,
interest and any other amounts due hereunder without presentment, demand
or
protest, all of which are hereby expressly waived, anything contained herein
or
other evidence of such indebtedness to the contrary notwithstanding. Subject
to
Section 4 hereof, in case any one or more Events of Default shall occur
and be
continuing, Payee may proceed to protect and enforce its rights by an action
at
law, suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained in this Note or for an injunction
against
a violation of any of the terms hereof or thereof or in and of the exercise
of
any power granted hereby or thereby or by law. No right conferred upon
Payee
shall be exclusive of any other right referred to herein or now or hereafter
available at law, in equity, by statute or otherwise. In the event that
Payee
shall exercise or endeavor to exercise any remedies hereunder, Maker shall
pay
on demand all reasonable costs and expenses incurred in connection therewith
or
in connection with any reorganization, bankruptcy, insolvency, readjustment
of
debt, dissolution or liquidation of Maker, including, without limitation,
reasonable attorneys’ fees and disbursements, and Payee may take judgment for
all such amounts in addition to all other sums due hereunder.
70
6. Miscellaneous.
(a) Pursuant
to the provisions of Article 10 of the Agreement, Payee has agreed to indemnify
Maker and its Affiliates (as defined in the Agreement) for certain Losses
(as
defined in the Agreement). Maker shall have the right (without prior notice
and
when permitted by law) to set-off or recoup all amounts due from Payee
to Maker
as indemnification for Losses by a dollar for dollar reduction in the principal
amount of this Note and any interest hereunder subject to and in accordance
with
the provisions of Section 10.6 of the Agreement. For clarity, it is agreed
that
no payment of interest shall be made on this Note so long as this Note
shall be
held in the Escrow Fund. If Maker, at a time when this Note is not held
in the
Escrow Fund, determines to make a claim for indemnification pursuant to
Article
10 of the Agreement and elects to set off obligations owed under this Note
in
accordance with Article 10, Maker shall delay making any payment otherwise
owed
hereunder; provided,
however,
that if
Maker’s good faith estimate of the maximum Losses (the “Estimated
Amount”)
is
less than the outstanding principal amount of this Note, then, for purposes
of
determining any payment owed under this Note prior to such time as the
claim is
resolved, (i)
the
outstanding principal balance of this Note shall be reduced by the Estimated
Amount and (ii)
interest payments shall be computed based on the outstanding principal
balance
reduced as provided in clause (i). When a final determination is made as
to the
indemnity claim, (A)
the
outstanding principal balance will be appropriately reduced (to the extent
the
claim is successful), (B)
any
interest in respect of outstanding principal shall be recomputed and, to
the
extent owed, paid based on the principal as adjusted and (C)
to the
extent that, after giving effect to any set off or reduction of this Note
provided for herein, Maker shall be obligated to make any payment hereunder
that
would otherwise have been due on an earlier date, Maker shall make such
payment
within 10 days after the date on which the amount of the reduction is finally
determined; provided
that in
no event shall Maker be required to pay any default interest, late fee
or charge
or the like or be considered in default so long as such payment is made
in such
10-day period. For purposes of calculating Payee’s indemnification obligations
(and any applicable caps and limitations set forth in the Agreement), only
the
amount of principal that is set off or reduced hereunder shall be included
(that
is, foregone interest shall not be considered payments made). In addition,
if
this Note is converted into Common Stock when not held in the Escrow Fund
and
Maker has made a claim for indemnification pursuant to Article 10 and sought
to
set off against this Note, Maker shall deliver to Payee a stock certificate
representing the number of shares of Common Stock equal to the shares of
Common
Stock to be issued pursuant to Section 3 hereof less a number of shares
of
Common Stock equal to the Estimated Amount divided by the Conversion Price;
provided
that if,
when a final determination is made as to the indemnity claim, the actual
Losses
are less than the Estimated Amount, Maker shall deliver to Payee a stock
certificate representing the number of shares of Common Stock equal to
(y)
the
difference between the actual Losses and the Estimated Amount divided by
(z)
the
Conversion Price; and the remainder of such shares shall be deemed forfeited
by
Payee and cancelled.
(b) The
failure of Payee to exercise any of its rights hereunder or the waiver
of such
rights in any particular instance shall not be deemed a waiver of Payee’s right
to accelerate upon a future default by Maker. No delay in the exercise
thereof
shall be deemed a waiver of such option, nor shall any notice of intention
to
exercise such option be necessary.
(c) Except
as
otherwise provided herein, Maker and all sureties, endorsers and guarantors
of
this Note waive demand, presentment for payment, notice of nonpayment,
protest,
notice of protest, and all other notice, filing of suit and diligence in
collecting this Note or enforcing any of the security henceforth, and agree
to
any substitution, exchange or release of any of such security or the release
of
any property primarily or secondarily liable hereon and further agree that
it
will not be necessary for any holder hereof, in order to enforce payment
by them
of this Note to first institute suit or exhaust their remedies against
any Maker
or others liable hereafter, or to enforce their rights against any security
hereafter and consent to any extension or postponement of time of payment
of
this Note or any other indulgence with respect hereto, without notice thereof
to
any of them.
71
(d) This
Note
will be construed and interpreted in accordance with the laws of the State
of
Delaware.
(e) Maker
agrees to pay on demand all reasonable expenses or other costs, including
reasonable attorneys’ fees and expert witness fees, incurred by Payee in
connection with the enforcement or collection against Maker of any provision
of
this Note, including in any state or federal bankruptcy or reorganization
proceeding.
[Signature
page follows.]
72
THIS
NOTE
AND THE SHARES OF COMMON STOCK ACQUIRABLE ON CONVERSION HEREOF HAVE NOT
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD,
OFFERED FOR SALE, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF SUCH
REGISTRATION OR AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION SHALL
BE
SATISFACTORY TO MAKER, THAT SUCH REGISTRATION IS NOT REQUIRED.
COLD SPRING CAPITAL INC. | ||
|
|
|
By: | ||
Name: |
||
Title: |
ACCEPTED
AND ACKNOWLEDGED
AS
OF THE
DATE FIRST WRITTEN ABOVE;
BY
SIGNING BELOW, THE UNDERSIGNED
PAYEE
ACKNOWLEDGES AND CONSENTS
ON
BEHALF
OF ITSELF AND ANY SUBSEQUENT
ASSIGNEES
OR HOLDERS OF THIS NOTE TO THE
SUBORDINATED
NATURE OF THE OBLIGATIONS
OWED
UNDER THIS NOTE AND APPLICABLE
RESTRICTIONS
ON TRANSFER IN ACCORDANCE HEREWITH:
SEVEN CANYONS INVESTORS, L.L.C. | |||
By: Cavan Management Services, L.L.C. | |||
Manager
|
|||
By: | |||
Name: |
|||
Title:
|
[SIGNATURE
PAGE TO CONVERTIBLE NOTE]
73
Exhibit
8.1(k)
ESCROW
AGREEMENT
This
Escrow Agreement is entered into as of [__________] [__], 2007 (the
“Escrow
Agreement”),
by
and among Seven Canyons Investors, LLC, an Arizona limited liability
company
(the “Seller”),
Cold
Spring Capital Inc., a Delaware corporation (the “Purchaser”),
and
Mellon Trust of New England, N.A., a national banking association,
as escrow
agent (the “Escrow
Agent”).
The
Seller and the Purchaser are referred to herein collectively as the
“Escrow
Parties.”
Introduction
The
Purchaser, Sedona Development Partners, LLC, an Arizona limited liability
company (the “Company”),
the
Seller, Xxxxx X. Xxxxx and Cavan Management Services, L.L.C. have entered
into a
Securities Purchase Agreement dated as of November 3, 2006 (the “Purchase
Agreement”),
pursuant to which the Purchaser will purchase the Securities from the
Seller.
Pursuant to Section 1.5 of the Purchase Agreement, the Purchaser shall
deliver
the Escrow Amount (as hereinafter defined) to the Escrow Agent as security
for
the indemnification obligations of the Seller under Article 10 of the
Purchase
Agreement. The Seller and the Purchaser desire to appoint the Escrow
Agent as
the escrow agent for the Escrow Amount, and the parties hereto wish
to specify
their respective rights and obligations with respect to the Escrow
Account (as
defined below) established under this Escrow Agreement.
Capitalized
terms used but not defined herein shall have the respective meanings
ascribed to
them in the Purchase Agreement.
NOW,
THEREFORE, for good and valuable consideration, the receipt and sufficiency
of
which are hereby acknowledged, the parties agree as follows:
1. Appointment
of Escrow Agent.
Mellon
Trust of New England, N.A. is hereby appointed as Escrow Agent under
this Escrow
Agreement and the Escrow Agent hereby accepts such appointment.
2. Deposit
of Escrow Amount.
On the
date hereof, the Purchaser shall deliver the Escrow Amount to the Escrow
Agent
in accordance with Section 1.5 of the Purchase Agreement and the terms
and
conditions hereof. The Escrow Amount shall be held hereunder by the
Escrow Agent
(the “Escrow
Account”)
as
security for the indemnification obligations of the Seller under Article
10 of
the Purchase Agreement, as more specifically set forth therein. As
used herein,
the term “Escrow
Amount”
means
the $1,000,000 of cash (the “Escrow
Cash”)
and
$7,500,000 in principal amount of Convertible Notes (the “Escrow
Note”)
initially placed in the Escrow Account hereunder, together with all
interest,
dividends and other income earned and accrued with respect thereto,
and any
shares of Common Stock issued upon conversion of the Escrow Note (“Escrow
Shares”),
less
amounts distributed from the Escrow Account from time to time in accordance
herewith. The Escrow Note and the stock certificate representing any
Escrow
Shares will registered in the name of the Escrow Agent as nominee for
the
Seller. In the event that some or all of the Escrow Note or any Escrow
Shares
are to be released to the Seller pursuant hereto, the Purchaser shall
cause such
Escrow Note or the Escrow Shares, as the case may be, to be registered
in the
name of the Seller.
74
The
Escrow Agent shall deposit any cash included in the Escrow Account
in one or
more interest-bearing deposit accounts at Mellon Trust of New England,
N.A. in
accordance with such written instructions and directions as may from
time to
time be provided to the Escrow Agent by the Purchaser until the such
cash is
released pursuant to the terms and conditions of this Escrow Agreement;
provided
that,
notwithstanding any such written instructions or directions, the Escrow
Agent
shall not deposit any such cash in any accounts or instruments that
have a
maturity of more than 30 days.
In the
event that the Escrow Agent does not receive such written instructions,
the
Escrow Agent shall deposit any cash included in the Escrow Account
in money
market accounts at Mellon Trust of New England, N.A., in each case
having
maturity dates that permit payments to be made from the Escrow Amount
in
accordance with the terms hereof. Deposits shall in all instances be
subject to
the Escrow Agent’s standard funds availability policy. The Escrow Agent shall
not be responsible for any loss due to interest rate fluctuation or
early
withdrawal penalty. The Purchaser and the Seller understand that deposits
of the
cash are not necessarily insured by the United States Government or
any agency
or instrumentality thereof, or of any state or municipality, and that
such
deposits do not necessarily earn a fixed rate of return. In no instance
shall
the Escrow Agent have any obligation to provide investment advice of
any kind.
The Escrow Agent shall not be liable or responsible for any loss resulting
from
any deposits made pursuant to this Section 2,
other
than as a result of the bad faith, gross negligence or willful misconduct
of the
Escrow Agent.
3. Disposition
of Escrow Amount.
(a) If,
at
any time on or prior to one year following the date of this Escrow
Agreement
(the “Escrow
Termination Date”),
the
Purchaser believes that it is entitled to indemnification from the
Seller
pursuant to Article 10 of the Purchase Agreement, the Purchaser shall
deliver to
the Escrow Agent and the Seller, prior to the Escrow Termination Date,
a written
notice (a “Claim
Notice”)
specifying in reasonable detail the facts constituting the basis for
such
indemnification claim (a “Claim”)
and
the amount sought therefor, or an estimate thereof, by the Purchaser
from the
Escrow Amount (a “Claimed
Amount”).
From
the date that a Claim Notice is received by the Escrow Agent (notice
of such
date shall be given by the Escrow Agent to the Seller), the Seller
shall have 15
days (the “Notice
Period”)
to
deliver to the Escrow Agent, with copies to the Purchaser, contrary
instructions
disputing the Claim Notice and specifying in reasonable detail why
the Purchaser
is not entitled to the Claimed Amount (a “Dispute
Notice”).
If
the Escrow Agent does not receive a Dispute Notice prior to 5:00 p.m.
(Eastern
Time) of the last day of the Notice Period, the Escrow Agent shall
promptly
release the Claimed Amount to the Purchaser according to the disbursement
instructions in the Claim Notice. If the Escrow Agent receives a Dispute
Notice
prior to 5:00 p.m. (Eastern Time) of the last day of the Notice Period, the
Escrow Agent shall make payment to the Purchaser only with respect
to the amount
not disputed by the Dispute Notice and shall continue to hold in the
Escrow
Account the disputed portion of Claimed Amount described in the Dispute
Notice
until (x)
it
shall receive Joint Written Instructions (as defined below) as to the
disposition of such sum or (y)
it
shall be otherwise ordered by a court of competent jurisdiction (a
“Court
Order”).
Amounts to be released to the Purchaser under this Section 3(a) shall
be
released first from the cash in the Escrow Account and then, to the
extent there
remains no cash in the Escrow Account, from the Escrow Note or the
Escrow
Shares. If less than all of the Escrow Note is to be released hereunder,
then
the Purchaser shall, as a condition to such release, deliver to the
Escrow Agent
a new Escrow Note in the principal amount that is to remain in the
Escrow
Account after such partial release. If less than all of the Escrow
Shares are to
be released hereunder, then the Purchaser shall, as a condition to
such release,
deliver or cause to be delivered to the Escrow Agent a new stock certificate
representing the Escrow Shares that are to remain in the Escrow Account
after
such partial release.
75
(b) If
the
Purchaser believes that a Claim constitutes, or may upon final resolution
constitute, a basis for a Claimed Amount hereunder, then the Purchaser
may
submit a Claim Notice even though such Claim may be uncertain or unresolved
or
the exact amount of any Claimed Amount may be unknown at the time of
such Claim
Notice. The Purchaser may estimate the maximum amount of exposure with
respect
to any Claim and such estimated amount shall constitute a Claimed Amount
for
purposes of this Section 3.
(c) Notwithstanding
anything to the contrary in this Escrow Agreement, if the Escrow Agent
receives
written instructions from both of the Escrow Parties, or their respective
successors or assigns, substantially in the form of Exhibit
A,
as to
the disbursement of some or all of the Escrow Amount (the “Joint
Written Instructions”),
the
Escrow Agent shall disburse the Escrow Amount pursuant to such Joint
Written
Instructions.
(d) Promptly
following the Escrow Termination Date, but in any event not later than
three
business days after the Escrow Termination Date, the Escrow Agent shall
release
to the Seller an amount equal to the Escrow Amount as of the Escrow
Termination
Date less any Claimed Amounts required to be retained as of the Escrow
Termination Date pursuant to Section 3(a) above. Any portion of the
Escrow
Amount that is held by the Escrow Agent beyond the Escrow Termination
Date
pursuant to the prior sentence shall be released by the Escrow Agent
to the
Seller or to the Purchaser, as the case may be, at such time as a Joint
Written
Instruction or a Court Order is delivered to the Escrow Agent.
(e) This
Escrow Agreement and all of the obligations of the Escrow Agent hereunder
shall
terminate upon the release of the entirety of the Escrow Amount by
the Escrow
Agent pursuant to this Section 3.
(f) For
purposes of compensating the Purchaser for its Losses (as defined in
the
Purchase Agreement) pursuant to this Agreement, each Escrow Share,
if any, shall
be valued at $6.4285714 (the “Purchaser
Stock Price”),
and
the Escrow Note and the Escrow Cash shall be valued at their respective
face
values. If some or all of the value to be distributed to the Purchaser
(or to
the Seller upon termination of the escrow) consists of Escrow Shares
but such
value is not evenly divisible by the Purchaser Stock Price, the number
of Escrow
Shares to be distributed will be rounded down to the next highest number
of
shares. In lieu of the fractional interest not distributed, the Purchaser
shall
furnish to the Escrow Agent, and the Escrow Agent in turn will distribute
to the
Seller or the Purchaser, as applicable, cash equal to such fractional
interest
times the Purchaser Stock Price. The Escrow Agent shall have no duty
or
obligation with respect to the preceding sentence unless and until
it has
received sufficient cash from the Purchaser with respect to its duties
and
obligations pursuant to the preceding sentence. The Purchaser shall
be deemed to
have purchased the fractional interest with respect to which it has
furnished
funds to the Escrow Agent. In all events, the Purchaser shall so purchase
only a
whole number of shares. The Purchaser Stock Price shall be appropriately,
equitably adjusted for any stock splits, stock dividends, combinations
or the
like, and any securities received by the Escrow Agent upon a stock
split, stock
dividend, combination or the like shall be added to the Escrow Account
and
become a part thereof.
76
4. Payments
from Escrow Amount.
All
payments of cash from the Escrow Account shall be made by wire transfer
of
immediately available funds to the party receiving the
distribution.
Any
wire
transfers shall be made subject to, and in accordance with, the Escrow
Agent’s
normal electronic funds transfer procedures
in
effect from time to time. The Escrow Agent shall be entitled to rely
upon all
bank and account information provided to the Escrow Agent by any of
the Escrow
Parties. The Escrow Agent shall have no duty to verify or otherwise
confirm any
written wire transfer instructions but it may do so in its discretion
on any
occasion without incurring any liability to any of the Escrow Parties
for
failing to do so on any other occasion. The Escrow Agent shall process
all wire
transfers based on bank identification and account numbers rather than
the names
of the intended recipient of the funds, even if such numbers pertain
to a
recipient other than the recipient identified in the payment instructions.
The
Escrow Agent shall have no duty to detect any such inconsistencies
and shall
resolve any such inconsistencies by using the account number.
5. Rights,
Responsibilities and Liability of Escrow Agent.
(a) This
Escrow Agreement sets forth, exclusively, the duties of the Escrow
Agent and no
additional duties or obligations shall be inferred herefrom or implied
hereby.
The Escrow Agent’s duties shall be determined only with reference to this Escrow
Agreement and applicable laws. The Escrow Agent is not charged with
knowledge of
or any duties or responsibilities under any agreement or understanding
to which
the agency created hereby relates, including, without limitation, the
Purchase
Agreement.
(b) Except
in
cases of the Escrow Agent’s bad faith, willful misconduct or gross negligence,
the Escrow Agent shall be fully protected (i)
in
acting in reliance upon any certificate, statement, request, notice,
advice,
instruction, direction, other agreement or instrument or signature
reasonably
and in good faith believed by the Escrow Agent to be genuine, or (ii)
in
assuming that any person purporting to give the Escrow Agent any of
the
foregoing in accordance with the provisions hereof, or in connection
with either
this Escrow Agreement or the Escrow Agent’s duties hereunder, has been duly
authorized to do so. The Escrow Agent shall not be liable for any mistake
of
fact or law or any error of judgment, or for any act or omission, except
as a
result of its bad
faith, willful
misconduct or gross negligence. The Escrow Agent shall not be responsible
for
any loss incurred upon any investment made under circumstances not
constituting bad
faith,
willful
misconduct or gross negligence.
In
connection with any payments that the Escrow Agent is instructed to
make by wire
transfer, the Escrow Agent shall not be liable for the acts or omissions
of
(i)
any
Escrow Party or other person providing such instructions, including
without
limitation errors as to the amount, bank information or bank account
number; or
(ii)
any
other person or entity, including without limitation any Federal Reserve
Bank,
any transmission or communications facility, any funds transfer system,
any
receiver or receiving depository financial institution, and no such
person or
entity shall be deemed to be an agent of the Escrow Agent.
77
Without
limiting the generality of the foregoing, it is hereby agreed that
in no event
will the Escrow Agent be liable for any lost profits or other indirect,
special,
incidental or consequential damages which the parties may incur or
experience by
reason of having entered into or relied on this Escrow Agreement or
arising out
of or in connection with the Escrow Agent’s services, even if the Escrow Agent
was advised or otherwise made aware of the possibility of such damages.
In no
event shall the Escrow Agent be liable for acts of God, breakdowns
or
malfunctions of machines or computers, interruptions or malfunctions
of
communications or power supplies, labor difficulties, actions of public
authorities, acts of war, or any other similar cause or catastrophe
beyond the
Escrow Agent’s reasonable control.
(c) The
Escrow Agent may consult with, and obtain advice from, legal counsel
in the
event of any dispute or question as to the construction of any of the
provisions
hereof or its duties hereunder, and it shall incur no liability and
shall be
fully protected in acting in good faith in accordance with the advice
of such
counsel.
(d) The
Escrow Agent shall not be bound by any modification of this Escrow
Agreement
unless it shall have specifically consented thereto in writing.
(e) Except
as
provided in Section 5(i)
hereof,
the
Escrow Agent shall hold the Escrow Amount and provide the other services
described in this Escrow Agreement free of charge. Except as provided
in Section
5(i) hereof, neither the Seller nor the Company shall have any obligation
whatsoever to reimburse the Escrow Agent, from the Escrow Amount or
otherwise,
for any costs, fees or expenses including, without limitation, fees
and expenses
of counsel, which the Escrow Agent may incur in connection with the
discharge of
its duties hereunder or the exercise of or enforcement by the parties
of their
respective rights hereunder.
(f) The
Escrow Agent may resign by giving notice in writing to the Escrow Parties
of
such resignation, specifying a date when such resignation shall take
effect
(which shall in no event be earlier than 15
business
days after the giving of such notice). Thereafter, the Escrow Agent
shall have
no further obligation hereunder except to hold the Escrow Amount and
the
interest thereon as depository. Promptly upon receipt of such notice,
the Escrow
Parties shall agree in writing upon a successor escrow agent who shall
be
mutually acceptable to them; provided
that, if
the Escrow Parties are unable to agree upon a successor escrow agent
within ten
business days of receipt of such notice, the Seller and/or the Purchaser
may
petition any court of competent jurisdiction for the appointment of
such
successor escrow agent or other appropriate relief and any such resulting
appointment shall be binding upon the parties hereto. Any such successor
escrow
agent shall deliver to the Escrow Parties and to the Escrow Agent a
written
instrument accepting such appointment hereunder, and thereupon it shall
succeed
to all the rights and duties of the Escrow Agent hereunder, and shall
be
entitled to receive the Escrow Amount and the interest thereon to hold
in escrow
pursuant to the terms and conditions hereof. The Escrow Agent shall
deliver all
of the Escrow Amount and the interest thereon to the successor escrow
agent
approved hereunder.
78
The
Escrow Parties acting together shall have the right to terminate the
appointment
of the Escrow Agent, specifying the date upon which such termination
shall take
effect. Thereafter, the Escrow Agent shall have no further obligation
to the
Escrow Parties except to hold the Escrow Account as depository and
not
otherwise. The Escrow Parties agree that they will jointly appoint
a banking
corporation, trust company or attorney as successor escrow agent. The
Escrow
Agent shall refrain from taking any action until it shall receive joint
written
instructions from all of the Escrow Parties designating the successor
escrow
agent. The Escrow Agent shall deliver all of the Escrow Account to
such
successor escrow agent in accordance with such instructions and upon
receipt of
the Escrow Account, the successor escrow agent shall be bound by all
of the
provisions of this Escrow Agreement.
(g) In
the
event of any dispute between the Seller and the Purchaser, or between
the Escrow
Agent and any one or more of the other parties hereto, with regard
to the Escrow
Agent or its duties, or any other matter concerning the disposition
of the
Escrow Amount, or in the event that the Escrow Agent, in good faith,
is in doubt
as to what action it should take hereunder, it may, without liability
to any
person, refrain from taking any action other than to keep safely the
Escrow
Amount and the interest thereon until the Escrow Agent shall receive
a joint
written instruction from the Escrow Parties.
(h) The
Escrow Parties authorize the Escrow Agent, if the Escrow Agent is threatened
with litigation or is sued in connection with this Escrow Agreement,
or, at the
Escrow Agent’s option, in the event of a dispute or any good faith uncertainty
in connection with this Escrow Agreement, to interplead all interested
parties
in any court of competent jurisdiction and to deposit the Escrow Amount
with the
clerk of that court. In the event of any dispute hereunder, the Escrow
Agent
shall be entitled to petition a court of competent jurisdiction and
shall
perform any acts ordered by such court.
(i) The
Seller and the Purchaser, hereby jointly and severally agree to indemnify
the
Escrow Agent for, and to hold it harmless against, any and all claims,
suits,
actions, proceedings, investigations, judgments, deficiencies, damages,
settlements, liabilities and expenses (including reasonable legal fees
and
expenses of an attorney chosen by the Escrow Agent) as and when incurred,
arising out of or based upon any act, omission, alleged act or alleged
omission
by the Escrow Agent or any other cause in any case in connection with
the
acceptance of, or performance or non-performance by the Escrow Agent
of any of
the Escrow Agent’s duties under this Escrow Agreement, except as a result of the
Escrow Agent’s bad faith, willful misconduct or gross negligence. As among the
Escrow Parties, it is agreed that any such indemnification obligation
shall be
shared fifty percent (50%) by the Seller and fifty percent (50%) by
the
Purchaser. In no event shall any obligation to indemnify the Escrow
Agent under
this Section 5(i) be satisfied or partially satisfied by the Escrow
Agent
setting off or claiming against, or retaining or attaching any of,
the Escrow
Amount or by non-performance by the Escrow Agent of any of its duties
hereunder;
provided
that the
parties agree that the Escrow Agent shall be entitled to withhold any
distribution otherwise required to be made from the Escrow Account
if any
amounts owed to the Escrow Agent hereunder remain unpaid on the date
such
distribution would otherwise be made.
79
(j) Notwithstanding
anything herein to the contrary, the provisions of Sections 5(b) and
5(i) hereof
shall survive any resignation or removal of the Escrow Agent, and any
termination of this Escrow Agreement.
6. Customer
Identification and Tax Withholding and Reporting. To
help
the government fight the funding of terrorism and money laundering
activities,
federal law requires all financial institutions to obtain, verify and
record
information that identifies each individual or entity that opens an
account.
Therefore, the Escrow Agent must obtain the name, address, taxpayer
or other
government identification number, and other information, such as date
of birth
for individuals, for each individual and business entity that is a
party to this
Escrow Agreement. For individuals signing this Escrow Agreement on
their own
behalf or on behalf of another, the Escrow Agent requires a copy of
a driver’s
license, passport or other form of photo identification. For business
and other
entities that are parties to this Escrow Agreement, the Escrow Agent
will
require such documents as it deems necessary to confirm the legal existence
of
the entity.
At
the
time of or prior to execution of this Escrow Agreement, any Escrow
Party
providing a tax identification number for tax reporting purposes shall
provide
to the Escrow Agent a completed IRS Form W-9 (for United States Persons)
or IRS
Form W-8 (for non-United States persons), or any successor forms with
respect to
any interest or gains earned on the Escrow Amount, and every individual
executing this Escrow Agreement on behalf of an Escrow Party shall
provide to
the Escrow Agent a copy of a driver’s license, passport or other form of photo
identification acceptable to the Escrow Agent. The Escrow Parties agree
to
provide to the Escrow Agent such organizational documents and documents
establishing the authority of any individual acting in a representative
capacity
as the Escrow Agent may require in order to comply with its established
practices, procedures and policies.
The
Escrow Agent is authorized and directed to report all interest and
other income
earned on the Escrow
Amount
in
accordance with the Form W-9 information provided to the Escrow Agent
by the
Seller. The Escrow Parties understand that, in the event Seller’s tax
identification number is not certified to the Escrow Agent, the Internal
Revenue
Code of 1986, as amended from time to time, may require withholding
of a portion
of any interest or other income earned on the Escrow Account.
It
is
understood that the Escrow Agent shall be responsible for income reporting
only
with respect to income earned or investment of funds which are a part
of the
Escrow Amount, and is not responsible for any other reporting.
7. Accounting.
On a
monthly basis, the Escrow Agent shall render a written statement setting
forth
the balance of the Escrow Account, all interest earned and all distributions
made, which statements shall be delivered to the following
addresses:
Address
1: Cavan
Management Services, L.L.C.
00000
Xxxxx Xxxx Xxxx
Xxxxx
000
Xxxxxxxxxx,
Xxxxxxx 00000
Attention:
Xxxxxx Xxxx
Facsimile:
480.627.7010
E-mail:
xxxxx@xxxxx.xxx
Address
2: Cold
Spring Capital Inc.
00
Xxxxxx
Xxxxxx, Xxxxx 000
Xxx
Xxxxxx, Xxxxxxxxxxx 00000
Attention:
Xxxxxx X. Xxxxxxxxxx
Facsimile:
203.966.9478
E-mail:
xxxxxxxxxxx@xxxxxxxxxxxxxxxxx.xxx
80
8. Notices.
All
notices, demands and communications under this Escrow Agreement shall
be in
writing and shall be deemed to have been duly given and received (a)
if
delivered personally, (b)
three
business days after being mailed, certified mail, return receipt requested,
(c)
one
business day after being sent by nationally recognized overnight delivery
service, or (d)
if sent
via facsimile, email or similar electronic transmission during normal
business
hours, as evidenced by mechanical confirmation of such facsimile, email
or other
similar electronic transmission:
(i)
If
to the
Seller, to:
Cavan
Management Services, L.L.C.
00000
Xxxxx Xxxx Xxxx
Xxxxx
000
Xxxxxxxxxx,
Xxxxxxx 00000
Attention:
Xxxxxx Xxxx
Facsimile:
480.627.7010
E-mail:
xxxxx@xxxxx.xxx
with
a
copy (which shall not constitute notice) to:
Xxxxxxxxx
Xxxxx, P.C.
0000
X.
Xxxxxxx Xxxxxx
Xxxxx
0000
Xxxxxxx,
Xxxxxxx 00000-0000
Attention:
Xxxxx Xxxxx
Facsimile:
602.916.5509
E-mail:
xxxxxx@xxxxx.xxx
(ii) If
to the
Purchaser, to:
Cold
Spring Capital Inc.
00
Xxxxxx
Xxxxxx, Xxxxx 000
Xxx
Xxxxxx, Xxxxxxxxxxx 00000
Attention:
Xxxxxx X. Xxxxxxxxxx
Facsimile:
203.966.9478
E-mail:
xxxxxxxxxxx@xxxxxxxxxxxxxxxxx.xxx
81
with
a
copy (which shall not constitute notice) to:
Xxxxxx,
Xxxx & Xxxxxxx LLP
Xxx
Xxxxxxxxxxxxx Xxxxx
Xxxxxx,
Xxxxxxxxxxxxx 00000
Attn:
Xxxxxxx X. Xxxxxx, Xx.
Facsimile:
617.248.4000
Email:
xxxxxxx@xxxxxx.xxx
(iii)
If
to the
Escrow Agent, to:
Mellon
Trust of New England, N.A.
Xxx
Xxxxxx Xxxxx
Xxxxxx,
Xxxxxxxxxxxxx 00000
Attn:
Xxxxx X. Xxxxxxxx or Xxxx Xxxxxx
Facsimile:
000-000-0000
Email:
xxxxxxxx.xx@xxxxxx.xxx
or
xxxxxxx@xxxxxx.xxx
Any
party
(and any other person designated to receive notice) may change its
address for
notice by delivery to all other parties of notice to such effect in
the manner
set forth herein.
9. General.
(a) Termination.
This
Escrow Agreement and all the obligations of the Escrow Agent hereunder
shall
terminate upon the earliest to occur of (i)
the
release of the entirety of the Escrow Amount by the Escrow Agent or
(ii)
the
deposit of the entirety of the Escrow Amount by the Escrow Agent in
accordance
with Section 5(h) hereof.
(b) Survival.
Notwithstanding anything in the Escrow Agreement to the contrary, the
provisions
of Section 5 shall survive any resignation or removal of the Escrow
Agent and
any termination of this Escrow Agreement.
(c) Entire
Agreement.
This
Escrow Agreement constitutes the entire agreement with respect to the
subject
matter hereof, and supersedes all other prior agreements and undertakings,
both
written and oral, among the parties, or any of them, with respect to
the subject
matter hereof and thereof.
(d) Modifications;
Waiver.
This
Escrow Agreement may be amended, modified or waived only by written
agreement of
(i)
the
Seller, (ii)
the
Purchaser and (iii)
the
Escrow Agent. No course of conduct shall constitute a waiver of any
terms or
conditions of this Escrow Agreement, unless such waiver is specified
in writing,
and then only to the extent so specified. A waiver of any of the terms
and
conditions of this Escrow Agreement on one occasion shall not constitute
a
waiver of the other terms of this Escrow Agreement, or of such terms
and
conditions on any other occasion.
82
(e) Further
Assurances. If
at any
time the Escrow Agent shall determine or be advised that any further
agreements,
assurances or other documents are reasonably necessary or desirable
to carry out
the provisions of this Escrow Agreement and the transactions contemplated
by
this Escrow Agreement, the Escrow Parties shall execute and deliver
any and all
such agreements or other documents, and do all things reasonably necessary
or
appropriate to carry out fully the provisions of this Escrow
Agreement.
(f) No
Third Party Beneficiaries; Assignment.
This
Escrow Agreement is not intended to confer upon any person other than
the
parties hereto any rights or remedies hereunder. This Escrow Agreement
shall
inure to the benefit of and be binding upon the successors, heirs,
personal
representatives, and permitted assigns of the parties. This Escrow
Agreement is
freely assignable by the Escrow Parties; provided,
however,
that no
assignment by such party, or it successors or assigns, shall be effective
unless
prior written notice of such assignment is given to the other parties,
including, without limitation, the Escrow Agent. This Escrow Agreement
may not
be assigned by the Escrow Agent, except that upon prior written notice
to the
Escrow Parties, the Escrow Agent may assign this Escrow Agreement to
an
affiliated or successor trust company or other qualified bank
entity.
(g) Section
Headings.
The
section headings contained in this Escrow Agreement are inserted for
purposes of
convenience of reference only and shall not affect the meaning or interpretation
of this Escrow Agreement.
(h) Governing
Law.
This
Escrow Agreement shall be governed by and construed in accordance with
the laws
of The Commonwealth of Massachusetts, without regard to principles
of conflicts
of law.
(i) Counterparts
and Electronic Execution. This
Escrow Agreement may be executed in two or more counterparts, each
of which
shall be deemed an original and all of which together shall constitute
one and
the same instrument. The exchange of copies of this Escrow Agreement
and of
signature pages by facsimile, email or other similar electronic transmission
shall constitute effective execution and delivery of this Escrow Agreement
as to
the parties and may be used in lieu of the original Escrow Agreement
for all
purposes (and such signatures of the parties transmitted by facsimile,
email or
other similar electronic communication shall be deemed to be their
original
signatures for all purposes).
[The
remainder of this page is intentionally left blank.]
83
IN
WITNESS WHEREOF, the parties have duly executed this Escrow Agreement,
all as of
the date first written above.
THE SELLER | ||
SEVEN CANYONS INVESTORS, LLC | ||
|
|
|
By:
|
Cavan Management Services,
L.L.C., Manager |
|
By: | ||
Name: |
||
Title: |
THE
PURCHASER:
|
||
COLD SPRING CAPITAL INC. | ||
|
|
|
By: | ||
Name: |
||
Title: |
THE ESCROW AGENT: | ||
MELLON TRUST OF NEW ENGLAND, N.A. | ||
|
|
|
By: | ||
Name: |
||
Title: |
[
Signature Page to Escrow Agreement ]
84
EXHIBIT
A
JOINT
WRITTEN INSTRUCTIONS
FOR
RELEASE FROM ESCROW ACCOUNT
Pursuant
to Section 3 of the Escrow Agreement dated as of [_______] [__], 2007,
by and
among Seven Canyons Investors, LLC, an Arizona limited liability company
(the
“Seller”),
Cold
Spring Capital Inc., a Delaware corporation (the “Purchaser”),
and
Mellon Trust of New England, N.A., a national banking association,
as escrow
agent (the “Escrow
Agent”),
the
Seller and the Purchaser hereby instruct the Escrow Agent to release
$[________]
in cash, $[____] in principal amount of Escrow Notes and/or [_____]
shares of
the Purchaser’s Common Stock from the Escrow Amount in accordance with the
following instructions:
Delivery
Instructions:
|
|
Name:
|
_________________________
|
Address
|
_________________________
|
_________________________
|
|
_________________________
|
|
Wire
Instructions:
|
|
Account
Name:
|
_________________________
|
Account
Number:
|
_________________________
|
Bank
Name:
|
_________________________
|
Bank
ABA Number:
|
_________________________
|
Bank
Address:
|
_________________________
|
For
credit to:
|
_________________________
|
Special
Instructions:
|
_________________________
|
_________________________
|
|
Bank
Check:
|
|
Payee
Name:
|
_________________________
|
Mailing
Address:
|
_________________________
|
_________________________
|
|
_________________________
|
[Signature
page follows.]
85
THE SELLER: | |||
SEVEN CANYONS INVESTORS, L.L.C. | |||
By: Cavan Management Services, L.L.C., | |||
Manager
|
|||
By: | |||
(Title)
|
|||
THE PURCHASER: | |||
COLD SPRING CAPITAL INC. | |||
By: | |||
(Title)
|
|||
86
Exhibit
8.1(s)
Sedona
Development Partners Management Agreement
Summary
Term Sheet
1. Parties.
The
parties are Cold Spring Capital Inc. (the “Owner”)
and
Cavan Management Services, L.L.C. (the “Manager”)
and
their legal successors and permitted assigns. The Owner shall delegate
and
assign all of its rights and duties hereunder to Sedona Development
Partners,
and Sedona Development Partners will assume such rights and duties.
The Manager
may not assign the Agreement or delegate any duties without the prior
written
consent of the Owner. The Owner may assign the Agreement to any person
who
acquires title or leasehold title to the Residence Club. The Manager
shall be
Owner’s exclusive manager of the Seven Canyons Resort, including the golf
course, restaurants, shops, fractional ownership units and rental units
(collectively, the “Residence
Club”),
and
shall provide services to homeowners’ associations on behalf of Owner pursuant
to management agreements between Owner and such associations. during
the term of
the Agreement, subject to the direction and control of Owner. The Agreement
would be signed at the closing of the acquisition.
2. Club
Standard; Standard of Care. The
Manager shall manage and operate and maintain the Residence Club as
a first
class private residence club with a goal of maximizing both revenues
and
profits, including sales of units (the “Club
Standard”).
Manager’s
standard of care in managing the Resort and providing services hereunder
shall
be that of a prudent and professional manager acting reasonably and
exercising
sound business judgment.
3. Operation
of Residence Club.
The
Manager shall arrange for or provide all of the personnel, utilities,
and
supplies necessary or appropriate for the operation of the Residence
Club to
the
Club Standard, at Owner’s expense (subject to the terms of this term sheet). The
Residence Club shall
be
open 12 months a year unless otherwise agreed to by the Owner.
4. Term.
The
Agreement will have a term of ten years, subject to early termination
as
provided below. By mutual written agreement of Manager and Owner, the
term may
be extended for up to two additional successive terms of up to five
years
each.
5. Safety;
Laws. Manager
shall maintain and operate the Residence Club and provide services
hereunder in
compliance in all material respects with applicable laws, rules and
regulations,
permits and licenses and under and in accordance with reasonable safety
precautions and programs.
6. Management
Fee; Expenses. Owner
shall pay Manager the following fees during the term of the Agreement
(i) a base
monthly management fee of $25,000 for each month during the term of
the
Agreement (the “Base
Monthly Fee”)
and
(ii) an additional monthly fee equal to 2.5% of Gross Revenues for
the preceding
month (the “Additional
Monthly Fee”).
For
purposes of the Agreement, “Gross Revenues” shall mean the total cash
collections actually received from the Residence Club, including, but
not
limited to, dues, fees and charges paid by Club members and guests,
receipts
from food and beverage services or use of Club facilities, receipts
from the
operation or use of the Residence Club or any equipment associated
therewith
(e.g., golf cart and locker fees), rent or other fees paid with respect
to the
Residence Club’s retail space and casitas; provided,
however,
that
Gross Revenues shall exclude (a) refundable deposits, (b) receipts
arising out
of the sale of memberships in the Club, lots, villas, fractional interests
or
condominiums or the sale of memberships in the golf club or course
or other
memberships, (c) receipt of insurance proceeds, (d) condemnation or
eminent
domain proceeds or items of a similar nature, (e) gratuities paid to
employees
or independent contractors, (f) federal, state, county or municipal
excise,
sale, use, privilege taxes or similar impositions collected from patrons
or
guests or included as part of the sales price of any goods, services
or real
estate or related interests, (g) interest, dividend or other income
of Owner or
its affiliates, (h) any amounts received by Owner in connection with
the
financing of sales or from the sale, pledging or hypothecation of any
mortgages,
receivables or the like, (i) amounts received from sales made by licensees,
lessees or concessionaires operating at the Residence Club (including,
without
limitation, golf and tennis professionals, vending machines operators
and retail
lessees), (j) in the case of service charges, amounts paid to or credited
to
employees or payroll or (k) amounts payable to third parties pursuant
to revenue
sharing agreements or similar arrangements (e.g., the Joxy agreement).
In
addition, Owner shall reimburse Manager for actual out-of-pocket expenses
(including, but not limited to, an allocable share of employee overhead
costs,
based no time and space provided for the benefit of the Residence Club)
incurred
by it in connection with the performance of its duties under the Agreement;
provided
that
Owner shall not be obligated to make any reimbursement to the extent
any item
shall exceed the amount budgeted therefor in the applicable budget
described in
Section 7 below. There will be no fees payable to Manager under or
in connection
with the Agreement other than those expressly provided for in the
Agreement.
87
Owner
shall also be responsible for all costs and expenses (including without
limitation salaries and benefits of personnel working exclusively at
the
Residence Club) of the operation of the Residence Club by Manager that
are
incurred in accordance with the Agreement. Such costs and expenses
will be paid
out of the revenue of the Residence Club and if such revenues are insufficient
to cover such expenses the Manager shall provide written notice to
Owner of
additional funding requirements, together with proper supporting documentation,
and Owner shall provide such additional funds to the extent reasonably
determined by Owner to be reasonably necessary to continue operation
of the
Residence Club to the Club Standard.
Owner
shall not be obligated to pay or reimburse Manager for costs or expenses
incurred outside the scope of Manager’s authority or in violation of the
Agreement.
7. Budgets
and Forecasts.
At
least 120 days prior to the commencement of each year during the term
of the
Agreement (other than the first year) Manager shall prepare and submit
to Owner
for approval operating budgets and revenue and income forecasts and
capital
budgets for the succeeding year, including detailed assumptions. Owner
shall
submit revisions on the proposed budgets and forecasts within 45 days
after
receipt thereof and shall thereafter consider in good faith any further
suggestions of Manager but final budgets and forecasts shall be determined
by
Owner. The operating budget, revenue and income forecast and capital
budget for
the first year of the term shall be attached to the Agreement. Manager
shall
operate within the operating budget and the capital budget and shall
use
commercially reasonable efforts to meet or exceed the revenue and income
forecasts, provided that Manager may deviate from the operating budget,
without
the prior written consent of the Owner to the extent the budget is
a function of
volume or occupancy.
88
If
there
is an emergency situation posing an imminent risk to persons or property,
the
Manager shall be permitted to take action to protect persons and property
and
the reasonable costs thereof shall be paid out of the revenue of the
Residence
Club or reimbursed by the Owner, provided the Manager gives the Owner
notice of
such condition and expenditures as soon as practicable.
8. Books
and Records; Audit.
The
Manager shall maintain, at Owner’s expense as set forth in the applicable budget
or cause to be maintained with Owner’s employees, accurate and complete books,
records and accounts regarding the operation of the Residence Club,
including
without limitation all transactions with the Manager or its affiliates,
in
accordance with GAAP. Such books, records and accounts shall be available
for
inspection, copying, review and audit by the Owner and its agents and
accountants upon reasonable notice. Manager shall make its employees
available
to assist in any such inspection, review or audit.
9. Reports.
The
Manager shall prepare and submit to Owner (electronically if requested
by Owner)
monthly, quarterly and annual financial information and operating reports
of the
Residence Club and such other reports as Owner may request and Manager
will make
its senior managers available to Owner to discuss and expand upon such
reports
and the operations and results of the Residence Club, and will provide
such
additional corporate or financial information as reasonably requested
by Owner
or its accountants.
10. Employees.
The
officers and employees of Manager shall not be employees of Owner.
The Residence
Club personnel shall be employed by Owner but shall be under the supervision
of
Manager, except as otherwise directed by Owner. The salaries and benefits
for
such personnel shall be recommended by Manager to Owner but shall be
finally
determined by Owner. Owner may hire or terminate any employee in Owner’s sole
discretion and Manager shall recommend to Owner persons to be employed
or
terminated.
The
Residence Club manager or an assistant general manager, who shall be
employees
of Owner, shall be on site at the Residence Club at all times. Manager
and its
affiliates shall agree to a non solicitation provision with respect
to Owner’s
employees and other persons providing services at the Residence
Club.
11. Contracts
and Bookings.
Manager
shall have the authority to enter into contracts and advance bookings
for the
operation and supply of the Residence Club, provided that any contract
or
booking not entered into in the ordinary course of business or which
has any of
the following terms shall require the prior written consent of the
Owner:
· |
having
a term or provisions continuing for more than one year or beyond
the
scheduled end of the term of the
Agreement;
|
· |
containing
any non competition, non solicitation or exclusivity provision
or
provisions which would interfere with the ability of the Residence
Club to
close or continue doing business with the other contracting
party after
termination of the Agreement;
|
· |
containing
pricing terms based on revenue or income of the Residence
Club;
|
89
· |
annual
payments in excess of $25,000 per year or $5,000 per
month;
|
· |
representing
an advance booking (i) at a discount from prevailing rates,
or (ii) which
covers a period after the end of the term of the Agreement;
or
|
· |
containing
terms not customary for the private residence club industry
or which are
less favorable in the aggregate than comparable terms offered
to other
private residence clubs owned or managed by the Manager or
its
affiliates.
|
12. Taxes.
Manager
shall pay (or cause to be paid through Adminstaff or another acceptable
third
party) when due all taxes, governmental charges and levies arsing from
the
operation of the Residence Club, including without limitation payroll
taxes with
respect to Residence Club personnel, sales and room taxes, and property
taxes,
provided that such taxes shall be paid out of funds in the Operating
Account
referred to below. Manager shall indemnify Owner against any claims,
fines,
penalties or other costs resulting from Manager’s failure to pay any such taxes,
charges or levies when due, except in the case where there were insufficient
funds in the Operating Account to pay such taxes, charges or other
levies when
due, the Manager has notified the Owner in advance of the funds needed
to make
such payment when due and the Owner fails timely to pay such taxes,
charges or
other levies directly or to provide such amounts to Manager for payment
thereof.
13.
Most
Favored Nation; Affiliate Transactions. The
Owner
and the Residence Club will be afforded “most favored nation” treatment with
respect to all purchases or provision of services or supplies by the
Manager or
any of its affiliates. Manager may combine purchases of services and
supplies
for the Residence Club with purchases for other facilities owned or
managed by
the Manager or its affiliates, provided that the Residence Club shall
purchase
such services and supplies on the best pricing and other terms (adjusted
reasonably for volume and location) on which such services and supplies
are made
available to other properties owned and/or managed by the Manager and
its
affiliates, provided that such pricing and other terms are at least
as favorable
to the Residence Club as could be obtained from an unaffiliated third
party in
an arm’s length transaction and that the services and supplies so provided
are
of a kind, quality and quantity consistent with the Club Standard.
All rebates,
discounts and cost savings shall be passed through to and for the account
of the
Owner.
14. Pro
Rations. In
each
case where the Manager or an affiliate allocates or pro rates amounts
between
the Residence Club and other facilities, the Agreement will specify
the basis on
which such pro rata allocation is to be made or the parties will agree
in
writing on such allocation.
15. Force
Majeure. The
obligations of the parties will be subject to events of force majeure.
If an
event of force majeure causes the Manager to suspend or interrupt services,
the
Manager and its affiliates shall allocate the available resources among
all
facilities it owns or manages on a reasonable basis, without giving
preference
or priority to any facility over the Residence Club.
16. Insurance.
Each
party will maintain the insurance coverage set forth in the
Agreement.
90
17. Intellectual
Property; Names. The
parties will each make symmetrically reciprocal representations, warranties
and
indemnities to each other with respect to software or other intellectual
property provided by such party. Manager shall operate and market the
Residence
Club under such name or names as the Owner shall specify. The Owner
shall have
sole title to such names and the Manager shall not claim or purport
to grant any
right, title or interest in or to such names. Each party will maintain
the other
party’s confidential or proprietary information confidential and Manager
shall
use confidential or proprietary information of Owner only in the performance
of
the Agreement.
18. Title
to Residence Club. Manager
shall have no lien on or interest in the Residence Club or its revenue
or
profits or the Accounts, or any proceeds of insurance or eminent domain
takings,
and shall have only a contract claim against the Owner for amounts
due Manager
under the Agreement. In the event Manager becomes aware of any adverse
claim
against the Residence Club, it shall notify the Owner promptly and
shall
cooperate with the Owner in defending against such adverse claim. Manager
shall
use commercially reasonable efforts to prevent any valid adverse claim
or
interest from existing or arising with respect to the Residence
Club.
19. Bank
Accounts.
All
funds provided by Owner for construction, capital improvements or working
capital and all revenue of the Residence Club shall be held, pending
use thereof
by Manager or Owner in accordance with the Agreement, in interest bearing
accounts, in the name of the Owner, in such banking institutions as
the Owner
shall approve (the “Accounts”).
All
security and other deposits of the Residence Club shall be deposited
by Manager
in and held in a separate Account and such deposits may only be withdrawn
by
Manager if and when permitted or required under the documents under
which such
deposits were made. All revenue of the Residence Club shall be deposited
by
Manager in and held in a separate Account and such funds may only be
withdrawn
by Manager to the extent permitted by the Agreement. The Manager shall
use the
funds on deposit in an operating account (the “Operating
Account”)
to pay
the expenses of the Residence Club incurred by the Manager in accordance
with
the Agreement and to pay the fees due to Manager under the Agreement.
Prior to
the effective date of the Agreement, the Owner shall make an initial
deposit
into the Operating Account in an amount reasonably determined by Owner
to
provide sufficient initial working capital for the Residence Club.
All funds for
construction and capital expenditures shall be deposited by Owner in
a separate
Account, and such funds may only be withdrawn by Manager with the prior
written
consent of Owner to fund construction and capital expenditures agreed
to in
writing by Owner. Reasonable house bank cash funds shall be maintained
at the
Residence Club for various cashiers as appropriate for making change.
All
payments made by cashiers shall be charged to the applicable line item,
rather
than miscellaneous expenses.
20. Licenses.
To the
extent permitted by the applicable licensing authorities, all licenses
and
permits shall be in the name of the Owner, and otherwise in the name
of Manager.
Manager shall, with the cooperation of Owner, arrange for and cause
to be
maintained in full force and effect and in good standing all licenses
and
permits required for the ownership and operation of the Residence
Club.
91
21. Termination.
As
indicated in Section 4 above, the Agreement will have a term of ten
years,
subject to extension as provided in Section 4 and to earlier termination
as
provided in this Section. Each party shall have the right to terminate
the
Agreement in the event of (i) a breach by the other party of a material
obligation under the Agreement and such party does not cure such breach
within
30 days after notice thereof or, if such breach is not reasonably susceptible
to
cure within such 30 day period, if such party shall not have commenced
to cure
such breach within such 30 day period and, having commenced, shall
thereafter
not complete the curing within 60 days after notice, provided that
if a party
commits a material breach of the same or a similar provision of the
Agreement
three or more times in any 90 day period the other party may terminate
immediately upon notice; (ii) the operation of the Residence Club is
terminated
or suspended for any reason beyond the reasonable control of the terminating
party (including damage, destruction or eminent domain taking or suspension
or
revocation of licenses) for a period of more than 90 consecutive days;
(iii)
bankruptcy events of the other party or material default by the other
party
under a material agreement of the other party or acceleration of debt
obligations, and (iv) other customary events of termination. In addition,
the
Owner may terminate the Agreement (x) at its option, upon payment to
Manager of
an amount equal to the Termination Fee or (y) at its option, if, on
or before
the third anniversary of the Agreement, Xxxx Xxxxx ceases for any reason
(including death or disability) to be actively involved in the day-to-day
operations of Manager, upon payment to Manager of an amount equal to
one-half of
the Termination Fee (i.e., $500,000). For purposes of the Agreement,
the
“Termination Fee” shall mean $1,000,000, if such termination occurs before the
third anniversary of the Agreement, and shall decrease by $100,000
on such third
anniversary and by an additional $100,000 on each anniversary thereafter.
Manager may terminate the Agreement at any time after the third anniversary
of
the Agreement upon 180 days prior written notice to Owner given after
such third
anniversary.
22. Actions
Upon Termination. Upon
termination, the Manager shall surrender the Residence Club in good
working
order and condition and shall assign or arrange for the transfer or
new issue to
Owner or its designee of all licenses and permits relating to the Residence
Club
not already in the name of the Owner. Manager shall also turn over
to Owner all
books, records and accounts relating to the operation of the Residence
Club and
all of its personnel. Manager’s right to withdraw funds from the Accounts shall
terminate upon termination of the Agreement. For a reasonable period
of time
following termination, Manager shall, at the request of the Owner,
assist and
cooperate in the transition of management of the Residence Club to
such person
as may be designated by Manager. Following termination, the Owner will
assume
and perform all contractual obligations arising after termination under
contracts entered into by the Manager on behalf of the Residence Club
in
accordance with the Agreement.
23. Damages;
Set Off Rights. Each
party shall waive all rights to special, consequential, indirect, incidental
or
punitive damages and shall be entitled to collect upon a breach or
termination
direct damages only. Each party shall have set off rights; provided
that
such rights shall be limited in the case of Manager to the management
fee
payable under the Agreement.
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24. Indemnification.
To
the
extent not covered by insurance, each party shall indemnify the other
against
third party claims that are result from (i) the gross negligence or
willful
misconduct of the indemnifying party or its affiliates (it being agreed
that
Manager is not an agent of Owner for purposes of this indemnification
provision), (ii) obligations which are to be paid or satisfied by the
indemnifying party under the Agreement, or (iii) in the case of the
Manager as
the indemnifying party, obligations incurred by the Manager outside
the scope of
its authority or in violation of the Agreement. The procedures relating
to
indemnification, including those with respect to the right to defend
against and
settle such third party claims, shall be substantially similar to those
in the
securities purchase agreement between Owner, Seven Canyons Investors,
L.L.C.,
Manager and others.
25. Jurisdiction
and Governing Law. The
Agreement shall be governed by the internal laws of the State of Arizona.
Each
party consents to the exclusive jurisdiction of the federal and state
courts of
Arizona for resolution of all disputes arising under the Agreement.
26. Termination
of Obligation.
The
Agreement will provide that the obligations of Sedona Development,
LLC to pay
Manager $4,000 for each golf membership and fractional interest initially
sold
by it be terminated and waived.
93
Exhibit
8.1(t)
REGISTRATION
RIGHTS AGREEMENT
This
Agreement (the “Agreement”)
is
made as of [________] [__], 2007, by and among Cold Spring Capital
Inc., a
Delaware corporation (the “Company”),
and
Seven Canyons Investors, LLC, an Arizona limited liability company
(the
“Seller”).
WHEREAS,
pursuant to a Securities Purchase Agreement dated as of November 3,
2006 among
the Company, Sedona Development Partners, LLC, an Arizona limited liability
company, Xxxxx X. Xxxxx, Cavan Management Services, L.L.C., an Arizona
limited
liability company, and the Seller (the “Purchase
Agreement”),
the
Company is issuing to the Seller Convertible Notes (as defined below);
and
WHEREAS,
it is a condition to the closing of the transactions contemplated by
the
Purchase Agreement that the Company and Seller enter into this
Agreement.
NOW,
THEREFORE, in consideration of the mutual promises and obligations
contained
herein, the parties hereto agree as follows:
1. Definitions.
1.1. “Commission”
means
the Securities and Exchange Commission or any other federal agency
at the time
administering the Securities Act or the Exchange Act.
1.2. “Common
Stock”
means
the Common Stock, par value $0.001 per share, of the Company.
1.3. “Convertible
Notes”
means
those certain Subordinated Convertible Promissory Notes issued by the
Company to
the Seller in the aggregate principal amount of $45,000,000 dated [________]
[__], 2007.
1.4. “Exchange
Act”
shall
mean the Securities Exchange Act of 1934 or any successor federal statute,
and
the rules and regulations of the Commission thereunder, and in the
case of any
referenced section of any such statute, rule or regulation, any successor
section thereto, collectively and as from time to time amended and
in
effect.
1.5. “Form
S-3,”
“Form
S-4”
and
“Form
S-8”
mean
respective forms under the Securities Act and any successor registration
forms
to the form in question.
1.6. “Holder”
means
any person party to this Agreement owning the Registrable Securities
or any
assignee thereof in accordance with Section 7 hereof.
1.7. “Majority
Participating Holders”
means,
with respect to any registration of Registrable Securities, the Holder
or
Holders at the relevant time of at least a majority of the Registrable
Securities to be included in the registration statement in
question.
94
1.8. “Pari
Passu Holders”
means
holders of other securities that are entitled to registration rights
that are
pari passu with those of the Holders of Registrable Securities.
1.9. “Register,”
“registered”
and
“registration”
refer
to a registration effected by preparing and filing a registration statement
or
similar document in compliance with the Securities Act, and the automatic
effectiveness or the declaration or ordering of effectiveness of such
registration statement or document.
1.10. “Registrable
Securities”
means
(a) any
Common Stock issued or issuable upon conversion of the Convertible
Notes and
(b) any
Common Stock or other securities issued or issuable with respect to
the
Convertible Notes by way of stock dividend or stock split or in connection
with
a combination of shares, recapitalization, merger, consolidation or
other
reorganization or otherwise, in each case held by any Holder. The
Registrable Securities of any Holder shall cease to be Registrable
Securities
when (i) a
registration statement with respect to the sale of such securities
shall have
become effective under the Securities Act and such securities shall
have been
disposed of in accordance with such registration statement; (ii) such
securities shall have been distributed to the public pursuant to Rule
144;
(iii)
such
securities may be sold by such Holder and all of its affiliates without
registration under the Securities Act pursuant to Rule 144(k) under
the
Securities Act; or (iv)
such
securities may be sold by such Holder and all of its affiliates without
registration under the Securities Act pursuant to Rule 144 under the
Securities
Act and such Holder and all of its affiliates collectively own less
than 1% of
the Company's outstanding Common Stock. For purposes of this Agreement,
the
number of shares of Registrable Securities outstanding at any time
shall be
determined by adding the number of shares of Common Stock or other
securities
outstanding which are, and the maximum number of shares of Common Stock
or other
securities issuable pursuant to the convertible securities which upon
issuance
would be, Registrable Securities.
1.11. “Registration
Expenses”
means
all expenses incident to performance of or compliance with Sections 2, 3
and 4 hereof by the Company, including without limitation all registration
and
filing fees, all listing fees, all fees and expenses of complying with
securities or blue sky laws, all printing and automated document preparation
expenses, all messenger and delivery expenses, the fees and disbursements
of
counsel for the Company and of its independent public accountants,
including the
expenses of any special audits required by or incident to such performance
and
compliance, and the fees and disbursements of one counsel for the Holders
on
whose behalf the Registrable Securities are being registered, but excluding
underwriting discounts and commissions and applicable transfer taxes,
if any,
which shall be borne by the sellers of the Registrable Securities in
all
cases.
1.12. “Rule
144”
means
Rule 144 promulgated under the Securities Act, and any successor rule or
regulation thereto, and in the case of any referenced section of such
rule, any
successor section thereto, collectively and as from time to time amended
and in
effect.
1.13. “Securities
Act”
means
the Securities Act of 1933 or any successor federal statute, and the
rules and
regulations of the Commission thereunder, and in the case of any referenced
section of any such statute, rule or regulation, any successor section
thereto,
collectively and as from time to time amended and in effect.
95
1.14. “Seller”
has
the
meaning assigned to it in the introductory paragraph of this
Agreement.
2. Request
for Registration.
2.1. Registration
on Form S-3.
At any
time when the Company is eligible to file a Registration Statement
on Form S-3,
one or more Holders of at least 75% of the Registrable Securities may
by written
notice to the Company, request that the Company effect the registration
on Form
S-3 of a number of Registrable Shares for which the gross aggregate
offering
price is reasonably expected to be at least $2,500,000. Promptly after
receipt
of such notice, the Company will give written notice of such requested
registration to all other Holders of Registrable Securities. The Company
will
then as provided in Section 4 use commercially reasonable efforts to
effect the
registration under the Securities Act of the Registrable Securities
which the
Company has been requested to register by such Holders, and all other
Registrable Securities which the Company has been requested to register
by other
Holders of Registrable Securities by notice delivered to the Company
within ten
days after the giving of such notice by the Company.
2.2. Postponement.
The
Company may postpone for a period of up to 90 days the filing of any
registration required to be filed pursuant to this Section 2 if the
Board of
Directors of the Company in good faith determines that such postponement
is
necessary in order to avoid premature disclosure of a financing, acquisition,
recapitalization, reorganization or other material transaction, the
disclosure
of which would have a materially detrimental effect on the Company;
provided,
however,
that
the Company may not exercise such right of postponement more than twice
within
any period of 365 days. If the Company elects to postpone the filing
of a
registration statement pursuant to this Section 2.2, two-thirds of
the Holders
of Registrable Securities who requested such registration statement
may withdraw
such request and upon such withdrawal, such request shall be deemed
not to have
been made for any purpose of this Agreement.
2.3. Number
of Requests; Form.
The
Company shall not be required to effect more than three registrations
pursuant
to Section 2.1. A registration requested pursuant to Section 2.1 shall
be
effected by the filing of a registration statement on Form S-3 (or
any other
form which includes substantially the same information as would be
required to
be included in a registration statement on such form as currently constituted).
No registration of Registrable Securities under Section 2.1 shall be
deemed to
be a registration for any purpose of this Section 2.3 which shall not
have
become and remained effective in accordance with the provisions of
this
Agreement.
2.4. Payment
of Expenses.
The
Company hereby agrees to pay all Registration Expenses in connection
with all
registrations effected pursuant to Section 2.1; provided,
however,
that
the Company shall not be required to pay for any expenses of such registration
proceeding if the registration request is withdrawn at any time at
the request
of the Majority Participating Holders, and all participating Holders
shall bear
such expenses, unless the Majority Participating Holders agree to treat
such
withdrawn registration as a registration which was effected pursuant
to Section
2.1, which agreement shall bind all Holders of Registrable Securities.
Notwithstanding the foregoing, if the Holders have learned of a material
adverse
change in the condition, business, or prospects of the Company from
that known
to the Holders at the time the demand for registration was made or
if there
shall have occurred a material adverse change in market conditions
from those
existing as such time in the good faith judgment of the Majority Participating
Holders makes it undesirable to proceed with the proposed offering,
then the
Holders shall not be required to pay any of such expenses, and, in
such case,
the withdrawn registration shall not count as a registration effected
pursuant
to Section 2.1.
96
3. Piggyback
Registration.
If the
Company at any time proposes to register any of its equity securities
under the
Securities Act, for its own account or for the account of any holder
of its
securities other than Registrable Securities, on a form which would
permit
registration of Registrable Securities for sale to the public under
the
Securities Act, the Company will each such time give notice to all
Holders of
Registrable Securities of its intention to do so. Such notice shall
describe
such securities and specify the form, manner and other relevant aspects
of such
proposed registration. Any such Holder may, by written response delivered
to the
Company within ten days after the giving of any such notice by the
Company,
request that all or a specified part of the Registrable Securities
held by such
Holder be included in such registration. The Company thereupon will
use
commercially reasonable efforts as a part of its filing of such form
to cause to
be included in such registration under the Securities Act all Registrable
Securities which the Company has been so requested to register by the
Holders of
Registrable Securities, to the extent required to permit the disposition
(in
accordance with the methods to be used by the Company or other holders
of
securities in such registration) of the Registrable Securities to be
so
registered. The Company shall be under no obligation to complete any
offering of
its securities it proposes to make and shall incur no liability to
any Holder
for its failure to do so. No registration of Registrable Securities
effected
under this Section 3 shall relieve the Company of any of its obligations to
effect a registration of Registrable Securities pursuant to
Section 2.1.
3.1. Excluded
Transactions.
The
Company shall not be obligated to effect any registration of Registrable
Securities under this Section 3 incidental to the registration of any
of its
securities in connection with mergers, acquisitions, exchange offers,
dividend
reinvestment plans or stock option or other employee benefit plans.
3.2. Payment
of Expenses.
The
Company hereby agrees to pay all Registration Expenses in connection
with each
registration of Registrable Securities requested pursuant to this
Section 3.
4. Registration
Procedures.
If and
whenever the Company is required to use commercially reasonable efforts
to
effect the registration of any Registrable Securities under the Securities
Act
as provided in Sections 2 or 3 hereof, the Company, subject to the terms of
Sections 2 and 3, will as expeditiously as reasonably possible:
4.1. Registration
Statement.
Prepare
and (in the case of a registration pursuant to Section 2 hereof, promptly
and in
any event within 30 days after a request for registration is delivered
to the
Company under Section 2.1) file with the Commission a registration
statement
with respect to such Registrable Securities and use commercially reasonable
efforts to cause such registration statement to become effective as
soon as
possible thereafter. Such registration statement shall be for an offering
to be
made on a continuous or delayed basis (a so-called “shelf registration
statement”) if the Company is eligible for the use thereof and the Majority
Participating Holders have requested a shelf registration
statement.
97
4.2. Amendments
and Supplements to Registration Statement.
Prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith
as may be
necessary to keep such registration statement effective and to comply
with the
provisions of the Securities Act with respect to the disposition of
all
Registrable Securities and other securities, if any, covered by such
registration statement until the later of (i) such time as all such
Registrable Securities have been disposed of by the seller or sellers
thereof in
accordance with the intended methods of disposition set forth in such
registration statement (but in no event for a period of more than one
year after
such registration statement becomes effective, which one year period
shall be
extended by the number of days that the sale of Registrable Securities
is
suspended as described in Section 2.2) or (ii) the expiration of the time
when a prospectus relating to such registration is required to be delivered
under the Securities Act.
4.3. Furnishing
of Copies of Registration Statements and Other Documents.
Furnish
to each seller of such Registrable Securities such number of conformed
copies of
such registration statement and of each such amendment and supplement
thereto
(in each case including all exhibits), such number of copies of the
prospectus
included in such registration statement (including each preliminary
prospectus
and any summary prospectus), each in conformity with the requirements
of the
Securities Act, such documents incorporated by reference in such registration
statement or prospectus and such other documents as such seller may
reasonably
request in order to facilitate the disposition of the Registrable Securities
of
such seller covered by such registration statement.
4.4. State
Securities Laws.
Use
commercially reasonable efforts to register or qualify such Registrable
Securities under such securities or “blue sky” laws of such jurisdictions as the
sellers shall reasonably request, and do any and all other acts and
things which
may be necessary or advisable to enable each seller to consummate the
disposition in such jurisdictions of the Registrable Securities of
such seller
covered by such registration statement; provided,
however,
that
the Company shall not be obligated to file any general consent to service
of
process or to qualify as a foreign corporation or subject the Company
to
taxation in any jurisdiction in which it is not so qualified or would
not
otherwise be so subject.
4.5. Opinion
of Counsel.
Use
commercially reasonable efforts to obtain all legal opinions, auditors’ consents
and expert’s cooperation as may reasonably be required.
4.6. Notice
of Prospectus Defects.
Promptly notify each seller of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto
is
required to be delivered under the Securities Act, of the happening
of any event
as a result of which the prospectus included in such registration statement,
as
then in effect, includes an untrue statement of a material fact or
omits to
state any material fact required to be stated therein or necessary
to make the
statements therein not misleading in the light of the circumstances
then
existing, and at the request of any such seller prepare and furnish
to such
seller a reasonable number of copies of a supplement to or an amendment
of such
prospectus as may be necessary so that, as thereafter delivered to
the
purchasers of such Registrable Securities, such prospectus shall not
include an
untrue statement of a material fact or omit to state a material fact
required to
be stated therein or necessary to make the statements therein not misleading
in
the light of the circumstances then existing.
98
4.7. Stop
Orders.
In the
event of the issuance of any stop order suspending the effectiveness
of such
registration statement, or any order suspending or preventing the use
of any
related prospectus or suspending the qualification of any Registrable
Securities
included in such registration statement for sale in any jurisdiction,
the
Company shall use commercially reasonable efforts promptly to obtain
the
withdrawal of such order.
4.8. Exchange
Listing.
Use
commercially reasonable efforts to cause such Registrable Securities
to be
listed on each securities exchange on which any equity security of
the Company
is then listed.
5. Additional
Procedures; Holder Lockups; Cutbacks; Other Agreements.
5.1. Piggyback
Registrations Pursuant to Section 3.
In
connection with the exercise of any registration rights granted to
Holders of
Registrable Securities pursuant to Section 3 hereof, if the registration is
to be effected by means of an underwritten offering of Common Stock
on a firm
commitment basis, the Company may condition participation in such registration
by such Holders upon inclusion of the Registrable Securities being
so registered
in such underwriting. The Holders of Registrable Securities participating
in any
registration pursuant to Section 3 shall be parties to the underwriting
agreement and other agreements and instruments entered into by the
Company and
any other selling stockholders in connection therewith containing,
among other
things, such representations and warranties by the Company and such
participating sellers and such other terms and provisions as are customarily
contained in underwriting agreements with respect to secondary distributions,
including, without limitation, customary indemnity and contribution
provisions.
5.2. Selling
Holder Lockups.
In each
registration pursuant to Section 3 effected on a firm commitment underwritten
offering, each Holder agrees that, as a condition to the inclusion
of any of
such Holder’s Registrable Securities in such offering, if reasonably requested
by the managing underwriter, subject to any early release provisions
that apply
generally to stockholders of the Company, such Holder shall not, for
a period
from 15 days prior to the effective date of the registration statement
until up
to 90 days after such effective date, directly or indirectly sell,
offer to
sell, grant any option for the sale of, or otherwise dispose of any
Common Stock
or securities convertible into Common Stock; provided
that if
(i)
during
the last 17 days of the lock-up period, the Company releases earnings
results or
publicly announces other material news or a material event relating
to the
Company occurs or (ii)
prior
to the expiration of the lock-up period, the Company announces that
it will
release earnings results during the 16-day period beginning on the
last day of
the lock-up period, then, in each case, the lock-up period will be
extended
until the expiration of the 18-day period beginning on the date of
the earnings
results or the public announcement of the material news or the occurrence
of the
material event, as applicable. If reasonably requested by the managing
underwriter, each Holder shall confirm its agreement as to the foregoing
in
writing in such form as shall be reasonably satisfactory to such managing
underwriter.
5.3. Cutbacks.
If the
managing underwriter advises the Company that the number of shares
to be
included in a registration pursuant to Section 3 should be limited
due to market
conditions or otherwise,
99
(a) |
if
the registration was initiated by the Company, (i)
all shares of securities held by stockholders of the Company
other than
Holders of Registrable Securities and Pari Passu Holders shall
first be
excluded, (ii)
next, if additional shares must be excluded from such registration,
Holders of Registrable Securities and Pari Passu Holders shall
share pro
rata in the number of shares of Registrable Securities to be
excluded from
such registration pursuant to this clause, such sharing to
be based on the
respective numbers of Registrable Securities owned by such
holders, and
(iii)
if additional shares must be excluded from such registration,
shares to be
issued by the Company shall be excluded;
and
|
(b) |
if
the registration was initiated by stockholders of the Company
other than
Holders of Registrable Securities pursuant to registration
rights granted
to such holders in compliance with Section 8, (i)
shares to be issued by the Company shall first be excluded,
(ii)
next, if additional shares must be excluded from such registration,
Holders of Registrable Securities shall share pro rata in the
number of
shares of Registrable Securities to be excluded from such registration
pursuant to this clause (ii), such sharing to be based on the
respective
numbers of Registrable Securities owned by such holders, and
(iii)
finally, if additional shares must be excluded from such registration,
shares to be registered by stockholders of the Company other
than Holders
of Registrable Securities shall be excluded pro rata based
on the number
of shares to be determined or as agreed by such other stockholders
among
themselves.
|
5.4. Other
Agreements.
5.4.1. Participation
by Selling Holders.
The
Company may require each seller of Registrable Securities as to which
any
registration is being effected to furnish the Company such information
regarding
such seller and the distribution of such securities as the Company
may from time
to time reasonably request in writing and which shall be required by
the
Securities Act (or similar state laws) or by the Commission in connection
therewith.
5.4.2. Discontinue
Selling.
Each
seller of Registrable Securities agrees that, upon written notice of
the
happening of any event as a result of which the Prospectus included
in any
registration statement contains an untrue statement of a material fact
or omits
any material fact necessary to make the statements therein not misleading,
or
upon the issuance of a stop order suspending the effectiveness of any
registration statement, such seller will use commercially reasonable
efforts to
forthwith discontinue disposition of Registrable Securities until such
seller is
advised in writing by the Company that the use of the prospectus may
be resumed
and if applicable is furnished with a supplemented or amended prospectus
as
contemplated by Section 4.6 hereof. If the Company shall give any notice
to
suspend the disposition of Registrable Securities pursuant to a prospectus,
the
Company shall extend the period of time during which the Company is
required to
maintain the registration statement effective pursuant to this Agreement
by the
number of days during the period from and including the date of the
giving of
such notice to and including the date such seller either is advised
by the
Company that the use of the prospectus may be resumed or if applicable
receives
the copies of the supplemented or amended prospectus contemplated by
Section
4.6.
100
6. Indemnification
and Contribution.
6.1. Indemnities
of the Company.
In the
event of any registration of any Registrable Securities under the Securities
Act
pursuant to Section 2 or 3 hereof, and in connection with any registration
statement or any other disclosure document produced by or on behalf
of the
Company or any of its subsidiaries including, without limitation, reports
required by and other documents filed under the Exchange Act, and other
documents pursuant to which any debt or equity securities of the Company
or any
of its subsidiaries are sold (whether or not for the account of the
Company),
the Company will, and hereby does, indemnify and hold harmless each
seller of
Registrable Securities, their respective direct and indirect partners,
members,
stockholders, directors, advisory board members, officers, representatives
on
the Board of Directors of the Company, and each other Person, if any,
who
controls or is alleged to control any such seller within the meaning
of
Section 15 of the Securities Act or Section 20 of the Exchange Act (each
such Person being referred to herein as a "Covered
Person"),
against any losses, claims, damages or liabilities (or actions or proceedings
in
respect thereof), joint or several, to which such Covered Person may
be or
become subject under the Securities Act, the Exchange Act, any other
securities
or other law of any jurisdiction, common law or otherwise, insofar
as such
losses, claims, damages or liabilities (or actions or proceedings in
respect
thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained
or
incorporated by reference in any registration statement under the Securities
Act, any preliminary prospectus or final prospectus included therein,
or any
related summary prospectus, or any amendment or supplement thereto,
or any
document incorporated by reference therein, or any other such disclosure
document (including without limitation reports and other documents
filed under
the Exchange Act and any document incorporated by reference therein)
or other
document or report, or (ii) any
omission or alleged omission to state therein a material fact required
to be
stated therein or necessary to make the statements therein not misleading,
or
(iii) any violation or alleged violation of any federal, state, foreign
or
common law rule or regulation applicable to the Company or any of its
subsidiaries and relating to action or inaction in connection with
any such
registration, disclosure document or other document or report, and
will
reimburse such Covered Person for any legal or any other expenses incurred
by it
in connection with investigating or defending any such loss, claim,
damage,
liability, action or proceeding; provided,
however,
that
the Company shall not be liable to any Covered Person in any such case
for any
such loss, claim, damage, liability, action or proceeding to the extent
that it
arises out of or is based upon an untrue statement or alleged untrue
statement
or omission or alleged omission made in such registration statement,
any such
preliminary prospectus, final prospectus, summary prospectus, amendment
or
supplement, incorporated document or other such disclosure document
or other
document or report, in reliance upon and in conformity with written
information
furnished to the Company or any of its subsidiaries by or on behalf
of such
Covered Person expressly for inclusion therein. The indemnities of
the Company
contained in this Section 6.1 shall remain in full force and effect
regardless of any investigation made by or on behalf of such Covered
Person and
shall survive any transfer of Registrable Securities.
101
6.2. Indemnities
to the Company.
In the
event of any registration of Registrable Securities pursuant to Section
2 or 3,
each selling Holder will, and hereby does, indemnify and hold harmless
the
Company, each director of the Company, each officer of the Company
who shall
sign such registration statement and each other Person (other than
such seller),
if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, with respect to any
statement
in or omission from such registration statement, any preliminary prospectus,
final prospectus or summary prospectus included therein, or any amendment
or
supplement thereto, or any document incorporated by reference therein,
or any
other such disclosure document (including without limitation reports
and other
documents filed under the Exchange Act and any document incorporated
by
reference therein) or other document or report, if such statement or
omission
was made in reliance upon and in conformity with written information
furnished
to the Company by or on behalf of such seller expressly for inclusion
therein.
Such indemnity contained in this Section 6.2 shall remain in full force
and
effect regardless of any investigation made by or on behalf of the
Company or
any such director, officer or controlling Person and shall survive
any transfer
of Registrable Securities.
6.3. Indemnification
Procedures.
Promptly after receipt by an indemnified party of notice of the commencement
of
any action or proceeding involving a claim of the type referred to
in the
foregoing provisions of this Section 6, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party,
give
written notice to each such indemnifying party of the commencement
of such
action; provided,
however,
that
the failure of any indemnified party to give notice to such indemnifying
party
as provided herein shall not relieve such indemnifying party of its
obligations
under the foregoing provisions of this Section 6, except and solely to the
extent that such indemnifying party is actually prejudiced by such
failure to
give notice. In case any such action is brought against an indemnified
party,
each indemnifying party will be entitled to participate in and to assume
the
defense thereof, jointly with any other indemnifying party similarly
notified,
to the extent that it may wish, with counsel reasonably satisfactory
to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to such an indemnifying party), and after notice
from an
indemnifying party to such indemnified party of its election so to
assume the
defense thereof, such indemnifying party will not be liable to such
indemnified
party for any legal or other expenses subsequently incurred by the
latter in
connection with the defense thereof; provided,
however,
that
(i) if
there is a material conflict between the positions of such indemnifying
party
and the indemnified party in conducting the defense of such action
or that there
may be defenses available to such indemnified party different from
or in
addition to those available to such indemnifying party, then counsel
for the
indemnified party shall conduct the defense to the extent in good faith
determined by such counsel to be necessary to protect the interests
of the
indemnified party and such indemnifying party shall employ separate
counsel for
its own defense, (ii) in
any event, the indemnified party shall be entitled to have counsel
chosen by
such indemnified party participate in, but not conduct, the defense
and
(iii) the
indemnifying party shall bear the legal expenses incurred in connection
with the
conduct of, and the participation in, the defense as referred to in
clauses (i) and (ii) above. If, within a reasonable time after receipt of
the notice, such indemnifying party shall not have elected to assume
the defense
of the action, such indemnifying party shall be responsible for any
legal or
other expenses incurred by such indemnified party in connection with
the defense
of the action, suit, investigation, inquiry or proceeding. No indemnifying
party
will consent to entry of any judgment or enter into any settlement
which does
not include as an unconditional term thereof the giving by the claimant
or
plaintiff to such indemnified party of a release from all liability
in respect
to such claim or litigation.
102
6.4. Contribution.
If the
indemnification provided for in Sections 6.1 or 6.2 hereof is unavailable
to a party that would have been an indemnified party under any such
Section in
respect of any losses, claims, damages or liabilities (or actions or
proceedings
in respect thereof) referred to therein, then each party that would
have been an
indemnifying party thereunder shall, in lieu of indemnifying such indemnified
party, contribute to the amount paid or payable by such indemnified
party as a
result of such losses, claims, damages or liabilities (or actions or
proceedings
in respect thereof) in such proportion as is appropriate to reflect
the relative
fault of such indemnifying party on the one hand and such indemnified
party on
the other in connection with the statements or omissions which resulted
in such
losses, claims, damages or liabilities (or actions or proceedings in
respect
thereof). The relative fault shall be determined by reference to, among
other
things, whether the untrue or alleged untrue statement of a material
fact or the
omission or alleged omission to state a material fact relates to information
supplied by such indemnifying party or such indemnified party and the
parties'
relative intent, knowledge, access to information and opportunity to
correct or
prevent such statement or omission. The parties agree that it would
not be just
and equitable if contribution pursuant to this Section 6.4 were determined
by pro rata allocation or by any other method of allocation which does
not take
account of the equitable considerations referred to in the preceding
sentence.
The amount paid or payable by a contributing party as a result of the
losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof)
referred to above in this Section 6.4 shall include any legal or other
expenses reasonably incurred by such indemnified party in connection
with
investigating or defending any such action or claim. No party guilty
of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the
Securities Act) shall be entitled to contribution from any party who
was not
guilty of such fraudulent misrepresentation.
6.5. Limitation
on Liability of Holders of Registrable Securities.
The
liability of each Holder in respect of any indemnification or contribution
obligation of such Holder arising under this Section 6 shall not in any
event exceed an amount equal to the net proceeds to such Holder (after
deduction
of all underwriters' discounts and commissions) from the disposition
of the
Registrable Securities disposed of by such Holder pursuant to such
registration
less any other damages paid by such Holder with respect to claims relating
to
such registration.
7. Assignment
of Registration Rights.
The
rights to cause the Company to register Registrable Securities pursuant
to
Sections 2 and 3 may not be assigned by any Holder to a transferee;
provided,
however,
that a
Holder may assign such rights to the members, partners or shareholders
of the
Holder in connection with the distribution of Registrable Securities
to such
members, partners or shareholders in proportion to their respective
ownership
interests in the Holder. Any transferee to whom rights under this Agreement are
transferred shall (i)
as a
condition to such transfer, deliver to the Company a written instrument
by which
such transferee agrees to be bound by the obligations imposed upon
Holders under
this Agreement to the same extent as if such transferee were a Holder
under this
Agreement and (ii)
be
deemed to be a Holder hereunder to the same extent as the transferring
Holder.
8. Limitation
on Subsequent Registration Rights.
The
Company shall not, without the prior written consent of the Holders
of a
majority of the Registrable Securities, enter into any agreement with
any holder
or prospective holder of any securities of the Company that would allow
such
holder or prospective holder to include securities of the Company in
any
registration statement, unless under the terms of such agreement such
holder or
prospective holder may include such securities in a registration statement
only
on terms pari passu or subordinate to the terms on which Holders of
Registrable
Securities may include shares in such registration.
103
9. Future
Changes in Registration Requirements.
In the
event that the registration requirements under the Securities Act are
amended or
eliminated to accommodate a “Company registration” or similar approach, this
Agreement shall be deemed amended to the extent necessary to reflect
such
changes and the intent of the parties hereto with respect to the benefits
and
obligations of the parties, and in such connection, the Company shall
use
reasonable efforts to provide Holders of Registrable Securities equivalent
benefits to those provided under this Agreement.
10. Notices.
All
notices, requests, consents and other communica-tions required or permitted
hereunder shall be in writing and shall be hand delivered or mailed
postage
prepaid by registered or certified mail or by facsimile transmission
to the
Company at:
Cold
Spring Capital, Inc.
00
Xxxxxx
Xxxxxx, Xxxxx 000
Xxx
Xxxxxx, XX 00000
Attention:
Xxxxxx X. Xxxxxxxxxx
Facsimile:
(000) 000-0000
with
a
copy to:
Xxxxxx,
Hall & Xxxxxxx, LLP
Xxx
Xxxxxxxxxxxxx Xxxxx
Xxxxxx,
XX 00000
Attention:
Xxxxxxx X. Xxxxxx, Xx.
Facsimile:
(000) 000-0000
104
to
the
Seller at:
c/o
Cavan
Management Services, LLC
00000
Xxxxx Xxxx Xxxx, Xxxxx 000
Xxxxxxxxxx,
XX 00000
Attention:
Xxxxxx Xxxx
Facsimile
No.: (000)
000-0000
with
a
copy to:
Xxxxxxxxx
Xxxxx, P.C.
0000
X.
Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx,
XX 00000-0000
Attention:
Xxxxx Xxxxx, Esq.
Facsimile
No.: (000) 000-0000
or
such
other address as may be furnished in writing to the other parties hereto.
Any
such
notice, request, consent and other commu-nication shall for all purposes
of this
Agreement shall be deemed given on the date given, if delivered in
person,
e-mailed or faxed or otherwise actually delivered, on the date received,
if
given by registered or certified mail, return receipt requested or
given by
overnight delivery service, or three days after the date mailed, if
otherwise
given by first class mail, postage prepaid.
11. Entire
Agreement.
This
Agreement constitutes the entire understanding of the parties with
respect to
the subject matter hereof and supersedes any and all prior communications
or
agreements, whether written or oral, with respect to such subject matter.
12. Amendments,
Waivers and Consents.
An
amendment to any provision in this Agreement may be made, and the observance
thereof may be waived, if the Company (a) shall
obtain consent thereto in writing from the Holders of a majority of
the
Registrable Securities (the “Required
Holders”)
and
(b) shall
deliver copies of such consent to any Holders who did not execute the
same;
provided,
however,
that,
without a Holder's consent, any such amendment or waiver shall not
treat such
Holder differently from any other Holder.
13. Binding
Effect; Assignment.
This
Agreement shall be binding upon and inure to the benefit of the personal
representatives, successors and assigns of the respective parties hereto.
Notwithstanding the foregoing sentence, the Company shall not have
the right to
assign its obligations hereunder or any interest herein without obtaining
the
prior written consent of the Required Holders, provided in accordance
with
Section 12.
14. General.
The
headings contained in this Agreement are for reference purposes only
and shall
not in any way affect the meaning or interpretation of this Agreement.
This
Agreement shall be governed by and construed in accordance with the
laws of the
State of Delaware.
15. Severability.
If any
provision of this Agreement shall be found by any court of competent
jurisdiction to be invalid or unenforceable, the parties hereby waive
such
provision to the extent that it is found to be invalid or unenforceable.
Such
provision shall, to the maximum extent allowable by law, be modified
by such
court so that it becomes enforceable, and, as modified, shall be enforced
as any
other provision hereof, all the other provisions hereof continuing
in full force
and effect.
105
16. Counterparts.
This
Agreement may be executed in counterparts, all of which together shall
constitute one and the same instrument.
17. Construction.
The
parties hereto have participated jointly in the negotiation and drafting
of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by
the parties
hereto, and no presumption or burden of proof shall arise favoring
or
disfavoring any party by virtue of the authorship of any of the provisions
of
this Agreement. Any reference to any federal, state, local, or foreign
statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including"
shall
mean including without limitation. The parties hereto intend that each
representation, warranty, and covenant contained herein shall have
independent
significance.
18. WAIVER
OF JURY TRIAL.
TO
THE
EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, THE
SELLER AND
THE COMPANY HEREBY WAIVE, AND COVENANT THAT NEITHER THE COMPANY NOR
THE SELLER
WILL ASSERT, ANY RIGHT TO TRIAL BY JURY ON ANY ISSUE IN ANY PROCEEDING,
WHETHER
AS PLAINTIFF, DEFENDANT OR OTHERWISE, IN RESPECT OF ANY ISSUE, CLAIM,
DEMAND,
ACTION OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT
OR THE
SUBJECT MATTER HEREOF OR IN ANY WAY CONNECTED WITH, RELATED OR INCIDENTAL
TO THE
DEALINGS OF THE SELLER AND THE COMPANY HEREUNDER, IN EACH CASE WHETHER
NOW
EXISTING OR HEREAFTER ARISING AND WHETHER IN TORT OR CONTRACT OR OTHERWISE.
The
Company acknowledges that it has been informed by the Seller that the
provisions
of this Section 18 constitute a material inducement upon which the
Seller is
relying and will rely in entering into this Agreement. The Seller or
the Company
may file an original counterpart or a copy of this Section 18 with
any court as
written evidence of the consent of the Seller and the Company to the
waiver of
its right to trial by jury.
19. Jurisdiction.
Any
suit,
action or proceeding seeking to enforce any provision of, or based
on any matter
arising out of or in connection with, this Agreement or the transactions
contemplated hereby shall be brought in any federal or state court
located in
the State of Delaware, and each of the parties hereby consents to the
jurisdiction of such courts (and of the appropriate appellate courts
therefrom)
in any such suit, action or proceeding and irrevocably waives, to the
fullest
extent permitted by law, any objection which it may now or hereafter
have to the
laying of the venue of any such suit, action or proceeding in any such
court or
that any such suit, action or proceed-ing which is brought in any such
court has
been brought in an inconvenient forum. Process in any such suit, action
or
proceeding may be served on any party anywhere in the world, whether
within or
without the jurisdiction of any such court. Without limiting the foregoing,
each
party agrees that service of process on such party as provided in Section
10
shall be deemed effective service of process on such party.
106
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remainder of this page has been intentionally left blank.]
107
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date
and year first above written.
THE
COMPANY
COLD SPRING CAPITAL INC.
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||
|
|
|
By: | ||
Name:
Title:
|
||
THE
SELLER
SEVEN
CANYONS INVESTORS, LLC
|
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By: |
Cavan Management Services, L.L.C.,
Manager
|
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By:
|
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Name:
Title:
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108
Exhibit
8.1(u)
Sedona
Development Partners—Brokerage Agreement
Summary
Term Sheet
1.
Parties.
The
parties are Sedona Development Partners, LLC (“Seller”)
and
Cavan Realty, Inc. (“Cavan”).
Cavan
will represent that it is a licensed Arizona real estate broker.
2. Exclusive
Right to Sell.
During
the term of the Agreement, Cavan shall be the exclusive broker for the
sale of
fractional interests in villas, lots and golf memberships at the Seven
Canyons
Resort.
3. Payments.
In
connection with each sale in which Cavan has acted as broker, Seller
will pay to
Cavan a commission equal to (i) 9% for sales of fractional interest,
(ii) 9% for
sales of lots and (iii) 10% golf membership sales. Cavan shall be responsible
for all co-brokerage commission, sales staff fees and commissions and
the
like.
4. Form
of Purchase Contract.
Cavan
will use the form of contract for the sale of fractional interests from
time to
time provided by Seller.
5.
Term.
The
brokerage agreement shall be for a period of three years; provided,
however,
that
Seller may terminate the agreement, upon 90 days prior written notice,
at any
time after the one year anniversary.
109