1
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
BY AND AMONG
AMERICAN HOMESTAR CORPORATION,
HEARTLAND HOMES, INC.,
XXXXX X. XXXXXXX, III
AND
XXXXXXX X. XXXXXXX
JULY 25, 1996
2
TABLE OF CONTENTS
ARTICLE I.
DEFINITIONS . . . . . . . . . . . . . . 1
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . 1
ARTICLE II.
PURCHASE AND SALE . . . . . . . . . . . . 4
Section 2.01. Purchase and Sale of Stock . . . . . . . . . . . . 4
Section 2.02. Purchase Price . . . . . . . . . . . . . . . . . . 4
Section 2.03. Purchase Price Adjustment . . . . . . . . . . . . 4
Section 2.04. Section 338(h)(10) Election . . . . . . . . . . . 5
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE CORPORATION AND SHAREHOLDERS . . . . . . . . 6
Section 3.01. Ownership of the Stock . . . . . . . . . . . . . . 6
Section 3.02. Organization and Good Standing; Qualification . . 7
Section 3.03. Capitalization . . . . . . . . . . . . . . . . . . 7
Section 3.04. Corporate Records . . . . . . . . . . . . . . . . 7
Section 3.05. Authorization and Validity . . . . . . . . . . . . 7
Section 3.06. Subsidiaries . . . . . . . . . . . . . . . . . . . 8
Section 3.07. No Violation . . . . . . . . . . . . . . . . . . . 8
Section 3.08. Consents . . . . . . . . . . . . . . . . . . . . . 8
Section 3.09. Financial Statements . . . . . . . . . . . . . . . 8
Section 3.10. Liabilities and Obligations . . . . . . . . . . . 9
Section 3.11. Employee Matters . . . . . . . . . . . . . . . . . 9
Section 3.12. Employee Benefit Plans . . . . . . . . . . . . . . 10
Section 3.13. Absence of Certain Changes . . . . . . . . . . . . 12
Section 3.14. Title; Leased Assets . . . . . . . . . . . . . . . 13
Section 3.15. Commitments . . . . . . . . . . . . . . . . . . . 14
Section 3.16. Insurance . . . . . . . . . . . . . . . . . . . . 16
Section 3.17. Proprietary Rights . . . . . . . . . . . . . . . . 16
Section 3.18. Taxes . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.19. Compliance with Laws . . . . . . . . . . . . . . . 17
Section 3.20. Finder's Fee . . . . . . . . . . . . . . . . . . . 18
Section 3.21. Litigation . . . . . . . . . . . . . . . . . . . . 18
Section 3.22. Accuracy of Information Furnished . . . . . . . . 18
Section 3.23. Condition of Fixed Assets . . . . . . . . . . . . 18
Section 3.24. Inventory . . . . . . . . . . . . . . . . . . . . 18
Section 3.25. Books of Account . . . . . . . . . . . . . . . . . 18
Section 3.26. Backlog . . . . . . . . . . . . . . . . . . . . . 18
-i-
3
Section 3.27. Distributions and Repurchases . . . . . . . . . . 19
Section 3.28. Customers and Suppliers . . . . . . . . . . . . . 19
Section 3.29. Product Warranties . . . . . . . . . . . . . . . . 19
Section 3.30. Ownership Interests of Interested Persons . . . . 19
Section 3.31. Investments in Competitors . . . . . . . . . . . . 19
Section 3.32. Environmental Matters . . . . . . . . . . . . . . 19
Section 3.33. Certain Payments . . . . . . . . . . . . . . . . . 20
Section 3.34. Government Inquiries . . . . . . . . . . . . . . . 20
Section 3.35. Dealer Incentives . . . . . . . . . . . . . . . . 20
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . 20
Section 4.01. Organization and Good Standing . . . . . . . . . . 20
Section 4.02. Authorization and Validity . . . . . . . . . . . . 21
Section 4.03. No Violation . . . . . . . . . . . . . . . . . . . 21
Section 4.04. Finder's Fee . . . . . . . . . . . . . . . . . . . 21
Section 4.05. Commission Reports . . . . . . . . . . . . . . . . 21
Section 4.06. Financial Statements . . . . . . . . . . . . . . . 21
Section 4.07. Absence of Certain Changes . . . . . . . . . . . . 22
ARTICLE V.
THE SHAREHOLDERS' COVENANTS . . . . . . . . . . 22
Section 5.01. Consummation of Agreement . . . . . . . . . . . . 22
Section 5.02. June Balance Sheet . . . . . . . . . . . . . . . . 22
Section 5.03. Business Operations . . . . . . . . . . . . . . . 22
Section 5.04. Access . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.05. Environmental Audits . . . . . . . . . . . . . . . 23
Section 5.06. Material Change . . . . . . . . . . . . . . . . . 23
Section 5.07. Approvals of Third Parties . . . . . . . . . . . . 23
Section 5.08. Employee Matters . . . . . . . . . . . . . . . . . 23
Section 5.09. Employee Benefit Plans . . . . . . . . . . . . . . 23
Section 5.10. Contracts . . . . . . . . . . . . . . . . . . . . 24
Section 5.11. Changes in Inventory . . . . . . . . . . . . . . . 24
Section 5.12. Capital Assets; Payments of Liabilities . . . . . 24
Section 5.13. Mortgages, Liens and Guaranties . . . . . . . . . 24
Section 5.14. No Negotiation with Others . . . . . . . . . . . . 24
Section 5.15. Backlog . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VI.
PURCHASER'S COVENANTS . . . . . . . . . . . 24
-ii-
4
ARTICLE VII.
PURCHASER'S CONDITIONS PRECEDENT . . . . . . . . 25
Section 7.01. Representations and Warranties . . . . . . . . . . 25
Section 7.02. Covenants and Conditions . . . . . . . . . . . . . 25
Section 7.03. Proceedings . . . . . . . . . . . . . . . . . . . 25
Section 7.04. No Material Adverse Change . . . . . . . . . . . . 25
Section 7.05. Due Diligence Review . . . . . . . . . . . . . . . 25
Section 7.06. Employment Agreements . . . . . . . . . . . . . . 25
Section 7.07. June Balance Sheet and Closing Assets . . . . . . 25
Section 7.08. Approvals . . . . . . . . . . . . . . . . . . . . 25
Section 7.09. Simultaneous Closings . . . . . . . . . . . . . . 26
Section 7.10. Elimination of Plan . . . . . . . . . . . . . . . 26
Section 7.11. Closing Deliveries . . . . . . . . . . . . . . . . 26
ARTICLE VIII.
THE CORPORATION'S AND SHAREHOLDERS' CONDITIONS PRECEDENT . . 26
Section 8.01. Representations and Warranties . . . . . . . . . . 26
Section 8.02. Covenants and Conditions . . . . . . . . . . . . . 26
Section 8.03. Proceedings . . . . . . . . . . . . . . . . . . . 26
Section 8.04. Closing . . . . . . . . . . . . . . . . . . . . . 26
Section 8.05. Closing Deliveries . . . . . . . . . . . . . . . . 26
ARTICLE IX.
CLOSING DELIVERIES . . . . . . . . . . . . 26
Section 9.01. Deliveries of the Corporation and Shareholders . . 26
Section 9.02. Deliveries of Purchaser . . . . . . . . . . . . . 28
ARTICLE X.
NONCOMPETITION . . . . . . . . . . . . . 29
Section 10.01. Prohibited Activities . . . . . . . . . . . . . . 29
Section 10.02. Damages . . . . . . . . . . . . . . . . . . . . . 30
Section 10.03. Reasonable Restraint . . . . . . . . . . . . . . 30
Section 10.04. Severability; Reformation . . . . . . . . . . . . 30
Section 10.05. Term . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE XI.
REMEDIES
SECTION 11.01. INDEMNIFICATION BY SHAREHOLDERS . . . . . . . . . 30
Section 11.02. Indemnification by Purchaser . . . . . . . . . . 31
Section 11.03. Conditions of Indemnification . . . . . . . . . . 31
Section 11.04. Limitations of Indemnification . . . . . . . . . 33
Section 11.05. Several Liability . . . . . . . . . . . . . . . . 33
-iii-
5
Section 11.06. Waiver . . . . . . . . . . . . . . . . . . . . . 33
Section 11.07. Remedies Not Exclusive . . . . . . . . . . . . . 33
Section 11.08. Offset . . . . . . . . . . . . . . . . . . . . . 33
Section 11.09. Costs, Expenses and Legal Fees . . . . . . . . . 34
Section 11.10 Specific Performance . . . . . . . . . . . . . . . 34
Section 11.11. Tax Effect of Indemnification . . . . . . . . . . 34
ARTICLE XII.
TERMINATION . . . . . . . . . . . . . . 34
Section 12.01. Termination . . . . . . . . . . . . . . . . . . . 34
ARTICLE XIII.
MISCELLANEOUS . . . . . . . . . . . . . 35
Section 13.01. Amendment . . . . . . . . . . . . . . . . . . . . 35
Section 13.02. Assignment . . . . . . . . . . . . . . . . . . . 35
Section 13.03. Parties In Interest; No Third Party
Beneficiaries . . . . . . . . . . . . . . . . . 36
Section 13.04. Entire Agreement . . . . . . . . . . . . . . . . 36
Section 13.05. Severability . . . . . . . . . . . . . . . . . . 36
Section 13.06. Survival of Representations, Warranties
and Covenants . . . . . . . . . . . . . . . . . 36
Section 13.07. Governing Law . . . . . . . . . . . . . . . . . . 36
Section 13.08. Captions . . . . . . . . . . . . . . . . . . . . 37
Section 13.09. Gender and Number . . . . . . . . . . . . . . . . 37
Section 13.10. Reference to Agreement . . . . . . . . . . . . . 37
Section 13.11. Confidentiality; Publicity and Disclosures . . . 37
Section 13.12. Notice . . . . . . . . . . . . . . . . . . . . . 37
Section 13.13. Further Instruments of Transfer . . . . . . . . . 37
Section 13.14. Counterparts . . . . . . . . . . . . . . . . . . 38
-iv-
6
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement"), dated as of July 25,
1996, is by and among Heartland Homes, Inc., a North Carolina corporation (the
"Corporation"), Xxxxx X. Xxxxxxx, III and Xxxxxxx X. Xxxxxxx ("Xxxxxxx"), the
holders of all of the outstanding capital stock of the Corporation
(collectively, the "Shareholders"), and American Homestar Corporation, a Texas
corporation ("Purchaser").
W I T N E S S E T H :
WHEREAS, Shareholders hold all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock"), and desire to sell, and
Purchaser desires to purchase, the Stock;
WHEREAS, Associated Retailers Group, Inc., a Texas corporation ("ARG"),
Xxxxxxx and Manu-Fac Homes, Inc., a North Carolina corporation ("Manu-Fac"),
have entered into on the date hereof an Asset Purchase Agreement (the "Asset
Purchase Agreement"), pursuant to which ARG shall acquire certain assets of
Manu-Fac; and
WHEREAS, the transactions contemplated hereby are contingent upon the
consummation of the transactions contemplated by the Asset Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
(a) "best knowledge", "have no knowledge of", or "do not know of" and
similar phrases shall mean (i) in the case of a natural person, the particular
fact was known, or not known, as the context requires, to such person after
diligent investigation and inquiry by such person and (ii) in the case of an
entity, the particular fact was known, or not known, as the context requires,
to any senior management level employee of such entity after diligent
investigation and inquiry by such persons.
(b) "Cash Compensation" shall have the meaning set forth in Section
3.11(a).
(c) "Cash Consideration" shall have the meaning set forth in Section
2.02.
-1-
7
(d) "Closing" shall mean the closing of the transactions contemplated
by this Agreement, which shall occur at 10:00 a.m., local time, on the Closing
Date in the offices of Xxxxxxx & Xxxxxx, Suite 6000, 000 Xxxx Xxxxxx, Xxxxxx,
Xxxxx 00000, or at such other time and place as shall be mutually agreed in
writing by the parties hereto. The Closing shall be effective as of the
Closing Date for all purposes.
(e) "Closing Date" shall mean the date as soon as practicable after
the date hereof; provided that the date may not be later than August 30, 1996,
unless such date is extended by mutual agreement of all of the parties hereto,
and shall be the same date as the closing date of the Asset Purchase Agreement.
(f) "Code" shall mean the Internal Revenue Code of 1986.
(g) "Commission" shall mean the Securities and Exchange Commission.
(h) "Commission Reports" shall have the meaning set forth in Section
4.05.
(i) "Commitments" shall have the meaning set forth in Section
3.15(a).
(j) "Compensation Plans" shall have the meaning set forth in Section
3.11(b).
(k) "Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including
information derived from reports, investigations, research, work in progress,
codes, software, marketing and sales programs, financial projections, cost
summaries, pricing formula, contract analyses, financial information,
projections, maps, confidential filings with any state or federal agency, and
all other concepts, know-how, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
(l) "Controlled Group" shall have the meaning set forth in Section
3.12(d).
(m) "Damages" shall have the meaning set forth in Section 11.01.
(n) "December Balance Sheet" shall mean the balance sheet of the
Corporation as at December 31, 1995 which is included in the Financial
Statements.
(o) "December Net Worth" shall mean the sum of the assets of the
Corporation as shown on the December Balance Sheet less the sum of the
liabilities of the Corporation as shown on the December Balance Sheet.
(p) "Employee Benefit Plan" shall have the meaning set forth in
Section 3.12(a).
(q) "Employee Policies and Procedures" shall have the meaning set
forth in Section 3.11(d).
(r) "Employment Agreements" shall have the meaning set forth in
Section 3.11(c).
-2-
8
(s) "Environmental Laws" shall have the meaning set forth in Section
3.32.
(t) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(u) "Financial Statements" shall have the meaning set forth in
Section 3.09.
(v) "Form" shall have the meaning set forth in Section 2.02.
(w) "GAAP" shall mean generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board and Securities and
Exchange Commission or in such other statements by such other entity or other
practices and procedures as may be approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date
of determination.
(x) "Xxxxxxx Employment Agreement" shall have the meaning set forth
in Section 9.01(k).
(y) "Joint Election" shall have the meaning set forth in Section
2.04.
(z) "June Balance Sheet" shall mean the balance sheet of the
Corporation at June 28, 1996 which is prepared and delivered in accordance with
Section 5.02 and approved by Purchaser in accordance with Section 7.07.
(aa) "June Net Worth" shall mean the sum of the assets of the
Corporation as shown on the June Balance Sheet less the sum of the liabilities
of the Corporation as shown on the June Balance Sheet. The accounting methods
and practices employed in computing the December Balance Sheet shall be
utilized in computing the June Balance Sheet. In order to compute the June Net
Worth and the EBIT during the EBIT Period, the reserve for warranty and service
expense shall be deemed a constant equal to the amount reflected on the
December Balance Sheet. Furthermore, in computing the June Net Worth there
shall not be deducted any fines or penalties relating or pertaining to the OSHA
Citation (as defined in Section 2.03(b)(ii) below), or any costs, expenses or
liabilities relating or pertaining to the lawsuit described in Schedule 3.21,
Item A.
(bb) "Notes" shall have the meaning set forth in Section 2.02.
(cc) "ordinary course of business" means the usual and customary way
in which the Corporation has conducted its business in the past.
(dd) "Personal Property" shall have the meaning set forth in Section
3.14(b).
(ee) "Proprietary Rights" shall have the meaning set forth in Section
3.17(a).
(ff) "Purchase Agreement" shall have the meaning set forth in Section
9.01(l).
(gg) "Purchase Price" shall have the meaning set forth in Section
2.02.
-3-
9
(hh) "Purchaser Group" shall have the meaning set forth in Section
10.01.
(ii) "Real Property" shall have the meaning set forth in Section
3.14(a).
ARTICLE II.
PURCHASE AND SALE
SECTION 2.01. PURCHASE AND SALE OF STOCK. Subject to and upon the
terms and conditions contained herein, at the Closing, Shareholders shall sell,
transfer, assign, convey and deliver to Purchaser, free and clear of all
adverse claims, security interests, liens, claims and encumbrances and
Purchaser shall purchase, accept and acquire from Shareholders, the Stock.
SECTION 2.02. PURCHASE PRICE. Subject to adjustment pursuant to
Section 2.03, the total purchase price for the Stock (the "Purchase Price")
shall be the aggregate of the following: (a) $5,300,000 in cash ("Cash
Consideration"); and (b) promissory notes of Purchaser issued to each
Shareholder in the form attached hereto as Exhibit A (the "Notes") in the
aggregate original principal amount of $1,500,000;.
SECTION 2.03. PURCHASE PRICE ADJUSTMENT.
(a) Net Worth. In the event that the June Net Worth is less than or
greater than the December Net Worth, the Cash Consideration shall be reduced or
increased on a dollar-for-dollar basis at the Closing by an amount equal to
such difference. The purchase price adjustment pursuant to this Section, if
any, shall be made on the later of (a) the Closing or (b) the date on which the
June Balance Sheet is agreed to by Purchaser and attached hereto as Schedule
5.02. In the event the adjustment is made after Closing, Shareholders or
Purchaser, as the case may be, agree to promptly pay the amount of such
adjustment to the party entitled thereto.
(b) EBIT Adjustment.
(i) If the earnings before interest and taxes ("EBIT") for the
twelve month period beginning on January 1, 1996 and ending on December 31,
1996 (the "EBIT Period") derived from the operation of the Corporation's
business (the "Business") by the Corporation through the Closing and thereafter
by Purchaser in accordance with Section 2.03(b)(ii) hereof is less than
$1,365,000 (the "EBIT Target Amount"), then up to $800,000 of the principal
amount of the Notes shall be offset and reduced by $100,000 for each whole
$25,000 sum that the actual EBIT during the EBIT Period is below the EBIT
Target Amount. EBIT shall, except for such modifications as are specifically
set forth in Section 2.03(b)(ii) of this Agreement, be determined in accordance
with the accounting principles, procedures and methods utilized by the
Corporation in computing its income for the 1995 calendar year. If Purchaser
and Shareholders cannot agree on the appropriate adjustment by April 1, 1997,
then such issue shall be submitted to binding arbitration in Atlanta,
-4-
10
Georgia, pursuant to the Commercial Rules of the American Arbitration
Association, the decision of which arbitrators shall be final and binding on
Purchaser and the Shareholders.
(ii) Purchaser shall at all times after the Closing and through
the end of the EBIT Period operate the Business in a commercially reasonable
manner. Following the Closing and through the end of the EBIT Period (i)
Purchaser shall own and operate the business formally conducted by the
Corporation in substantially the same manner as it was operated by the
Corporation prior to the Closing; (ii) subject to the foregoing and provided
that Purchaser shall not undertake any fundamental changes having a negative
impact on EBIT during the EBIT Period, if Purchaser makes material changes in
operating the Business in the ordinary course of business, then Purchaser and
the Shareholders shall agree on the methodology for allocating the financial
impact of such changes; (iii) Xxxxx X. Xxxxxxx, III and those other key
employees of the Corporation as shall be identified by Xxxxx X. Xxxxxxx, III
shall be allowed to devote an amount of time to the Business as was
historically devoted to the Business prior to the Closing; (iv) pursuant to the
terms and conditions of the Employment Agreement attached hereto as Exhibit C,
Xxxxx X. Xxxxxxx, III shall serve as the Chief Operating Officer of the
Business; (v) charges in the nature of "corporate overhead", "corporate expense
allocation" or inter-company charges or other expenses which would not have
been incurred by the Corporation (or in excess of amounts which would have been
incurred) had the sale and change of control of the Corporation not occurred,
shall not be included in computing EBIT; (vi) depreciation and amortization and
inventory valuation shall be computed as if the sale had not occurred; (vii)
Purchaser shall use all reasonable commercial efforts to (a) assist the
Business in reducing its cost of materials and supplies through bulk purchases;
(b) assist the Business in reducing the cost of insurance coverage; and (c)
supply the business with adequate working capital; and (viii) a non-recurring
accounting fee of $85,000 (paid or payable to the accountants of the Company as
a fee for assisting in the procurement of a jobs tax credit) and any fines or
penalties imposed as a consequence of the OSHA citation issued on May 31, 1996
shall not be deducted in computing EBIT (the "OSHA Citation").
SECTION 2.04. SECTION 338(h)(10) ELECTION. Shareholders agree that
Purchaser may require Shareholders to join Purchaser in making an election
under Section 338(h)(10) of the Code and similar state statutes with respect to
the purchase of the Stock (a "Joint Election"). If Purchaser requires that a
Joint Election be made, Shareholders and Purchaser shall, within 30 days after
the Closing Date exchange completed and executed copies of Form 8023-A and all
required schedules thereto (the "Form"), and Shareholders and Purchaser agree
to take all other action and file all other necessary reports to elect validly
pursuant to Section 338(h)(10) of the Code to treat the transaction as a sale
of assets as opposed to a sale of stock. Purchaser and Shareholders shall each
file a copy of the Form in a timely manner and shall provide assurance to the
other party that it has done so. Purchaser and Shareholders agree to use their
best efforts to agree upon the allocation of the Purchase Price in accordance
with Section 338 of the Code and the regulations thereunder, and any comparable
provisions of state or local law, as appropriate, for purposes of the Joint
Election and all other federal income and applicable state income tax purposes;
provided that if Shareholders and Purchaser cannot so agree within 30 days
after the Closing Date, each shall be free to determine its own allocation and
neither shall be bound by any partial or preceding agreement. If Purchaser and
Shareholders are able to agree on the allocation of the Purchase Price, they
shall each file all tax returns in accordance with such allocation and shall
take no position in any tax return, tax proceeding or tax audit which is
inconsistent therewith. If any modifications or amendments of the
-5-
11
Form are required after the date of its execution and exchange, Purchaser and
Shareholders shall use their best efforts to promptly agree upon such and make
any necessary amended filings. Nothing in this Section shall be construed as
requiring that either Shareholders or Purchaser hire appraisers or otherwise
incur out-of-pocket expenses in order to reach agreement as to any of the
allocations described above.
Within thirty (30) days after the Closing, Purchaser shall allocate the
Purchase Price as it shall so determine, and provide such allocation to the
Shareholders, and the Shareholders shall utilize such allocation in the
preparation of their tax returns. The Shareholders are aware that the Joint
Election will result in a portion of the Purchase Price being treated as
ordinary income as opposed to capital gains. The Shareholders have agreed to
assume the additional tax liability attributable to depreciation recapture;
however, the Shareholders have not agreed to assume any additional tax
liability attributable to the conversion of any other items from capital gains
to ordinary income. Accordingly, in the event that the Purchase Price is
allocated by Purchaser or reallocated by the Internal Revenue Service in a
manner which results in the treatment of items (other than depreciation
recapture) as ordinary income to the Shareholders as opposed to the capital
gains treatment which the Shareholders would have had in the absence of the
Joint Election, Purchaser agrees to indemnify and hold harmless Shareholders
from and against the additional tax liability so incurred by them (the "Tax
Imdemnity"). The Tax Indemnity shall be payable by Purchaser to Shareholders
on or before April 15 of the year in which such tax is payable (or should have
been paid) by the Shareholders. The obligation of the Purchaser to pay the Tax
Indemnity shall include interest thereon at the rate of 8% per annum on
payments which are not paid as and when due. In the event that Purchaser and
Shareholders are unable to agree upon the appropriate amount of the Tax
Indemnity, then such issue shall be submitted to binding arbitration in
Atlanta, Georgia, pursuant to the commercial rules of the American Arbitration
Association, the decision of which arbitrators shall be final and binding on
Purchaser and Shareholders.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE CORPORATION AND SHAREHOLDERS
The Shareholders jointly and severally represent and warrant that the
following are true and correct as of the date hereof and will be true and
correct through the Closing as if made at such time:
SECTION 3.01. OWNERSHIP OF THE STOCK. Shareholders own, beneficially
and of record, good and valid title to the Stock, which constitutes all of the
issued and outstanding capital stock of the Corporation, free and clear of all
security interests, liens, adverse claims, encumbrances, equities, proxies,
options or shareholders' agreements. At the Closing, Shareholders will convey
to Purchaser good and valid title to all of the issued and outstanding capital
stock of the Corporation, free and clear of any security interests, liens,
adverse claims, encumbrances, equities, proxies, options, shareholders'
agreements or restrictions.
-6-
12
SECTION 3.02. ORGANIZATION AND GOOD STANDING; QUALIFICATION. The
Corporation is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, with all requisite
corporate power and authority to carry on the business in which it is engaged,
to own the properties it owns, to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The Corporation is duly
qualified and licensed to do business and is in good standing in all
jurisdictions where the nature of its business makes such qualification
necessary, which jurisdictions are listed in Schedule 3.02, except where the
failure to be qualified or licensed would not have a material adverse effect on
the business of the Corporation. The Corporation does not have any assets,
employees or offices in any state other than the states listed in Schedule
3.02.
SECTION 3.03. CAPITALIZATION. The authorized and issued capital stock
of the Corporation and the ownership interests of the Shareholders is set forth
on Schedule 3.03. No shares of the capital stock of the Corporation are held
in the treasury of the Corporation. All of the issued and outstanding shares
of capital stock of the Corporation are duly authorized, validly issued, fully
paid and nonassessable. There exist no options, warrants, subscriptions or
other rights to purchase, or securities convertible into or exchangeable for,
the capital stock of the Corporation. Neither Shareholders nor the Corporation
are parties to or bound by, nor do they have any knowledge of, any agreement,
instrument, arrangement, contract, obligation, commitment or understanding of
any character, whether written or oral, express or implied, relating to the
sale, assignment, encumbrance, conveyance, transfer or delivery of any capital
stock of the Corporation. No shares of capital stock of the Corporation have
been issued or disposed of in violation of the preemptive rights of any of the
Corporation's shareholders. All accrued dividends on the capital stock of the
Corporation, whether or not declared, have been paid in full.
SECTION 3.04. CORPORATE RECORDS. The copies of the Articles of
Incorporation and all amendments thereto and the Bylaws of the Corporation that
have been delivered to Purchaser are true, correct and complete copies thereof,
as in effect on the date hereof. The minute books of the Corporation, copies
of which have been delivered to Purchaser, contain accurate minutes of all
meetings of, and accurate consents to all actions taken without meetings by,
the Board of Directors (and any committees thereof) and the shareholders of the
Corporation since the formation of the Corporation.
SECTION 3.05. AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by the Corporation of this Agreement and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by the Corporation. This
Agreement and each other agreement contemplated hereby to which it is a party
have been or will be as of the Closing Date duly executed and delivered by the
Corporation and constitute or will constitute legal, valid and binding
obligations of the Corporation, enforceable against the Corporation in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies. This Agreement and each other
agreement contemplated hereby to which either Shareholder is a party have been
or will be as of the Closing Date duly executed and delivered by such
Shareholder and constitute and will constitute legal, valid and binding
obligations of such Shareholder, enforceable in accordance with their
respective terms, except as may be limited by applicable bankruptcy, insolvency
or similar laws affecting creditors' rights generally or the availability of
equitable remedies. Except as reflected on Schedule 3.07 hereof, the sale of
the
-7-
13
Stock by Shareholders to Purchaser will not impair the ability or authority of
the Corporation to carry on its business as now conducted in any respect.
SECTION 3.06. SUBSIDIARIES. The Corporation does not own, directly or
indirectly, any of the capital stock of any other corporation or any equity,
profit sharing, participation or other interest in any corporation,
partnership, joint venture or other entity.
SECTION 3.07. NO VIOLATION. Except as set forth on Schedule 3.07
hereof, neither the execution, delivery or performance of this Agreement or the
other agreements contemplated hereby nor the consummation of the transactions
contemplated hereby or thereby will (a) conflict with, or result in a violation
or breach of the terms, conditions or provisions of, or constitute a default
under, the Articles of Incorporation or Bylaws of the Corporation or any
agreement, indenture or other instrument under which the Corporation is bound
or to which the Stock or any of the assets of the Corporation are subject, or
result in the creation or imposition of any security interest, lien, charge or
encumbrance upon the Stock or any of the assets of the Corporation, or (b)
violate or conflict with any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency or
body having jurisdiction over the Corporation, the Stock or the assets of the
Corporation. The Corporation has complied with all laws, regulations and
licensing requirements and has filed with the proper authorities all necessary
statements and reports, except for such noncompliance which will not,
individually or in the aggregate, have a material adverse effect on the
Corporation or Purchaser.
SECTION 3.08. CONSENTS. Except as set forth in Schedule 3.08, no
consent, authorization, approval, permit or license of, or filing with, any
governmental or public body or authority, any lender or lessor or any other
person or entity is required to authorize, or is required in connection with,
the execution, delivery and performance of this Agreement or the agreements
contemplated hereby on the part of the Corporation or Shareholders.
SECTION 3.09. FINANCIAL STATEMENTS. The Corporation has furnished to
Purchaser the audited balance sheet and related audited statements of income,
retained earnings and cash flows for each of the twelve-months ended December
31 for the 1993, 1994 and 1995 calendar years, including the notes thereto, as
well as unaudited balance sheets and related unaudited statements of income,
retained earnings and cash flows for the five-month period ended May 31, 1996,
and will furnish the June Balance Sheet in accordance with Section 5.02
(collectively, the "Financial Statements"). The Financial Statements are in
accordance with the books and records of the Corporation, fairly present the
financial condition and results of operations of the Corporation as of the
dates and for the periods indicated and have been prepared in conformity with
GAAP applied on a consistent basis with prior periods subject, in the case of
the unaudited statements for the five month period ending on May 31, 1996, to
normal year end adjustments of the type described in Schedule 3.09 hereof and
with the exceptions that the reserves and accruals stated therein have been
calculated as set forth on Schedule 3.09 hereof and that the Financial
Statements do not reflect any liability relating to the OSHA Citation or the
lawsuit referenced in Schedule 3.21, Item A. All accounts receivables shown in
the May Balance Sheet have arisen from bona fide transactions in the ordinary
course of business and are valid and enforceable claims subject to no presently
asserted rights of set-off or counterclaim, except for warranty claims for
which reserves have been maintained as herein set forth.
-8-
14
SECTION 3.10. LIABILITIES AND OBLIGATIONS. Except as set forth in
Schedule 3.10, the Financial Statements reflect all liabilities of the
Corporation accrued, contingent or otherwise (known or unknown and asserted or
unasserted), arising out of transactions effected or events occurring on or
prior to the respective dates thereof. The reserves shown in the Financial
Statements have been calculated in the manner set forth in Schedule 3.10 hereof
on a basis consistent with past practice. Except as set forth in the Financial
Statements, Schedule 3.10 or liabilities incurred since the June Balance Sheet
through the Closing Date which are of the same type and not materially greater
than the amounts set forth in the May 31, 1996 balance sheet of the
Corporation, the Corporation is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity,
and neither the Corporation nor Shareholders know of any basis for the
assertion of any other claims or liabilities of any nature or in any amount.
SECTION 3.11. EMPLOYEE MATTERS.
(a) CASH COMPENSATION. Schedule 3.11(a) contains a complete and
accurate list of the names, titles and cash compensation, including without
limitation wages, salaries, bonuses (discretionary and formula) and other cash
compensation (the "Cash Compensation") of all executive management of the
Corporation, regardless of compensation levels, and all other salaried
employees of the Corporation. In addition, Schedule 3.11(a) contains a
complete and accurate description of (i) all increases in Cash Compensation of
such employees during the current and the 1995 calendar year of the Corporation
and (ii) any promised increases in Cash Compensation of such employees that
have not yet been effected.
(b) COMPENSATION PLANS. Schedule 3.11(b) contains a complete and
accurate list of all compensation plans, arrangements or practices (the
"Compensation Plans") sponsored by the Corporation or to which the Corporation
contributes on behalf of its employees, other than Employee Benefit Plans
listed in Schedule 3.12(a). The Compensation Plans include without limitation
plans, arrangements or practices that provide for severance pay, deferred
compensation, incentive, bonus or performance awards, and stock ownership or
stock options. The Corporation has provided Purchaser a copy of each written
Compensation Plan and a written description of each unwritten Compensation
Plan. Each of the Compensation Plans can be terminated or amended at will
prospectively by the Corporation.
(c) EMPLOYMENT AGREEMENTS. No employees of the Company have written
employment agreements and all employees are terminable "at will" without any
obligation to the Company, except as provided in Schedule 3.11(d). For
purposes of this Agreement, "Employment Agreements" include without limitation
employee leasing agreements, employee services agreements and noncompetition
agreements.
(d) EMPLOYEE POLICIES AND PROCEDURES. Schedule 3.11(d) contains a
complete and accurate list of all employee manuals, policies, procedures and
work-related rules (the "Employee Policies and Procedures") that apply to
employees of the Corporation. The Corporation has provided Purchaser a copy of
all written Employee Policies and Procedures and a written description of all
-9-
15
unwritten Employee Policies and Procedures. Each of the Employee Policies and
Procedures can be amended or terminated at will prospectively by the
Corporation except to the extent that such Employee Policies and Procedures are
required by law.
(e) UNWRITTEN AMENDMENTS. Except as set forth in Schedule 3.11(e),
no unwritten amendments have been made, whether by oral communication, pattern
of conduct or otherwise, with respect to any Compensation Plans, Employment
Agreements or Employee Policies and Procedures.
(f) LABOR COMPLIANCE. Except as set forth in Schedule 3.11(f), the
Corporation (i) has been and is in compliance with all laws, rules,
regulations and ordinances respecting employment and employment practices,
terms and conditions of employment and wages and hours, and (ii) is not liable
for any arrears of wages or penalties for failure to comply with any of the
foregoing. The Corporation has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. There are no (i) unfair
labor practice charges or complaints or racial, color, religious, sex, national
origin, age or handicap discrimination charges or complaints pending or
threatened against the Corporation before any federal, state or local court,
board, department, commission or agency nor, to the knowledge of the
Corporation and the Shareholders, does any basis therefor exist or (ii)
existing or threatened labor strikes, disputes, grievances, controversies or
other labor troubles affecting the Corporation nor, to the knowledge of the
Corporation and the Shareholders, does any basis therefor exist.
(g) UNIONS. The Corporation has never been a party to any agreement
with any union, labor organization or collective bargaining unit. No employees
of the Corporation are represented by any union, labor organization or
collective bargaining unit. To the best knowledge of the Corporation and the
Shareholders, the employees of the Corporation have no intention to and have
not threatened to organize or join a union, labor organization or collective
bargaining unit.
(h) ALIENS. To the best knowledge of the Shareholders, all employees
of the Corporation are citizens of, or are authorized to be employed in, the
United States.
SECTION 3.12. EMPLOYEE BENEFIT PLANS.
(a) IDENTIFICATION. Schedule 3.12(a) contains a complete and
accurate list of all employee benefit plans (the "Employee Benefit Plans")
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) sponsored by the Corporation or to which the
Corporation contributes on behalf of its employees and all Employee Benefit
Plans previously sponsored or contributed to on behalf of its employees within
the three years preceding the date hereof. The Corporation has provided
Purchaser with copies of all plan documents, determination letters, pending
determination letter applications, trust instruments, insurance contracts,
administrative services contracts, annual reports, actuarial valuations,
summary plan descriptions, summaries of material modifications, administrative
forms and other documents that constitute a part of or are incident to the
administration of the Employee Benefit Plans. In addition, the Corporation has
provided Purchaser a written description of all existing practices engaged in
by the Corporation that constitute Employee Benefit Plans. Except as otherwise
set forth or as provided
-10-
16
by law, each of the Employee Benefit Plans can be terminated or amended at will
by the Corporation. No unwritten amendment exists with respect to any Employee
Benefit Plan.
(b) ADMINISTRATION. Each Employee Benefit Plan has been administered
and maintained in compliance with all laws, rules and regulations. No Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency.
No prohibited transactions (within the meaning of Section 4975 of the Code)
have occurred with respect to any Employee Benefit Plan. No threatened or
pending claims, suits or other proceedings exist with respect to any Employee
Benefit Plan other than normal benefit claims filed by participants or
beneficiaries.
(c) QUALIFICATION. The Corporation has received a favorable
determination letter or ruling from the Internal Revenue Service for each
Employee Benefit Plan intended to be qualified within the meaning of Section
401(a) of the Code and/or tax-exempt within the meaning of Section 501(a) of
the Code. No proceedings exist or have been threatened that could result in
the revocation of any such favorable determination letter or ruling.
(d) FUNDING STATUS. No accumulated funding deficiency (within the
meaning of Section 412 of the Code), whether waived or unwaived, exists with
respect to any Employee Benefit Plan or any plan sponsored by any member of a
controlled group (within the meaning of Section 412(n)(6)(B) of the Code) in
which the Corporation is a member (a "Controlled Group"). With respect to each
Employee Benefit Plan subject to Title IV of ERISA, the assets of each such
plan are at least equal in value to the present value of accrued benefits
determined on an ongoing basis as of the date hereof. With respect to each
Employee Benefit Plan described in Section 501(c)(9) of the Code, the assets of
each such plan are at least equal in value to the present value of accrued
benefits as of the date hereof. Schedule 3.12(d) contains a complete and
accurate statement of all actuarial assumptions applied to determine the
present value of accrued benefits under all Employee Benefit Plans subject to
actuarial assumptions. Neither the Corporation nor any member of a Controlled
Group has any liability to pay excise taxes with respect to any Employee
Benefit Plan under applicable provisions of the Code or ERISA.
(e) MULTIEMPLOYER PLANS. Neither the Corporation nor any member of
a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA.
(f) PBGC; RETIREES. No facts or circumstances exist that would
result in the imposition of liability against Purchaser by the Pension Benefit
Guaranty Corporation as a result of any act or omission by the Corporation or
any member of a Controlled Group. No reportable event (within the meaning of
Section 4043 of ERISA) for which the notice requirement has not been waived has
occurred with respect to any Employee Benefit Plan subject to the requirements
of Title IV of ERISA. Except as required by law, the Corporation has no
obligation or commitment to provide medical, dental or life insurance benefits
to or on behalf of any of its employees who may retire or any of its former
employees who have retired from employment with the Corporation.
(g) MEDICAL AND DENTAL CARE CLAIMS. Schedule 3.12(g) contains a
complete and accurate list of all claims made (without identifying specific
individuals) under any medical or dental care plan
-11-
17
or commitment offered by the Corporation to its employees involving
hospitalization, medical or dental care claims that have exceeded $10,000 per
year for an individual during the Corporation's current fiscal year or any of
the three fiscal years preceding the date hereof.
SECTION 3.13. ABSENCE OF CERTAIN CHANGES. Except as set forth in
Schedule 3.13 and/or as reflected in the Financial Statements since December
31, 1995, the Corporation has not
(a) suffered any material adverse change, whether or not caused by
any deliberate act or omission of the Corporation or any Shareholder, in its
condition (financial or otherwise), operations, assets, liabilities, business
or prospects;
(b) contracted for the purchase of capital assets having a cost in
excess of $50,000 (individually or in the aggregate) or paid capital
expenditures in excess of $50,000 (individually or in the aggregate);
(c) incurred any indebtedness for borrowed money or issued or sold
any debt securities;
(d) incurred or discharged any liabilities or obligations except in
the ordinary course of business;
(e) paid any material amount on any indebtedness prior to the due
date, forgiven or cancelled any material debts or claims or released or waived
any material rights or claims;
(f) mortgaged, pledged or subjected to any security interest, lien,
lease or other charge or encumbrance any of its properties or assets;
(g) suffered any damage or destruction to or loss of any assets
(whether or not covered by insurance) that has materially and adversely
affected, or could materially and adversely affect, its business;
(h) acquired or disposed of any assets except in the ordinary course
of business;
(i) written up or written down the carrying value of any of its
assets;
(j) changed the costing system or depreciation methods of accounting
for its assets;
(k) waived any material rights or forgiven any material claims;
(l) lost or terminated any salaried employee, or any material
customer or supplier;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business;
-12-
18
(o) made any payments to or loaned any money to any person or entity
referred to in Section 3.30;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights;
(r) entered into any agreement with any person or group, or modified
or amended in any material respect the terms of any such existing agreement
except in the ordinary course of business;
(s) entered into, adopted or amended any Employee Benefit Plan; or
(t) entered into any other commitment or transaction or experienced
any other event that is material to this Agreement or to any of the other
agreements and documents executed or to be executed pursuant to this Agreement
or to the transactions contemplated hereby or thereby, or that has materially
and adversely affected, or could materially and adversely affect, the condition
(financial or otherwise), operations, assets, liabilities, business or
prospects of the Corporation.
SECTION 3.14. TITLE; LEASED ASSETS.
(a) REAL PROPERTY. A description of all interests in real property
owned by the Corporation (collectively, the "Real Property") is set forth in
Schedule 3.14(a). Except as set forth in Schedule 3.14(a), the Corporation has
good, valid and marketable title to all the Real Property. The Real Property
and the leased real property referred to in Section 3.14(c) constitute the only
real property used in the conduct of the business of the Corporation. Schedule
3.14(a) contains a description of all indebtedness secured by the Real Property
and all mortgages, deeds of trust and other liens on the Real Property.
(b) PERSONAL PROPERTY. Except as set forth in Schedule 3.14(b), the
Corporation has good, valid and marketable title to all tangible and intangible
personal property owned by it (collectively, the "Personal Property"). The
Personal Property and the leased personal property referred to in Section
3.14(c) constitute the only personal property used in the conduct of the
business of the Corporation.
(c) LEASES. A list and brief description of all leases of real and
personal property to which the Corporation is a party, either as lessor or
lessee, are set forth in Schedule 3.14(c). All such leases are valid and
enforceable in accordance with their respective terms except as may be limited
by applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally or the availability of equitable remedies.
(d) RIGHT TO USE ASSETS. Except for those assets acquired since May
31, 1996, which are listed in Schedule 3.14(d), all tangible and intangible
assets used in the conduct of the business of the
-13-
19
Corporation are reflected in the Financial Statements in a manner that is in
conformity with GAAP applied on a consistent basis with prior periods. The
Corporation owns, leases or otherwise possesses a right to use all assets used
in the conduct of the business of the Corporation which will not be impaired by
the consummation of the transactions contemplated hereby except as set forth in
Schedule 3.14(d) hereof.
SECTION 3.15. COMMITMENTS.
(a) COMMITMENTS; DEFAULTS. Except as set forth in Schedule 3.15, the
Corporation has not entered into, nor are the Stock, the assets or the business
of the Corporation bound by, whether or not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement;
(iii) guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iv) employment, consulting or compensation agreement or
arrangement, including the election or retention in office of any
director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent
to another;
(vii) deed or other document evidencing an interest in or
contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
public relations or advertising agencies, accountants or attorneys;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee;
(x) agreement between the Corporation and any
affiliate of the Corporation;
(xi) agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is
an affiliate of the Corporation;
(xii) any agreement for the acquisition of services,
supplies, equipment or other personal property and involving more than
$10,000 in the aggregate;
(xiii) powers of attorney;
-14-
20
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that involves
either an unperformed commitment in excess of $10,000 or that terminates
more than 30 days after the date hereof;
(xvi) agreement relating to any material matter or
transaction in which an interest is held by any person or entity
referred to in Section 3.30;
(xvii) agreement providing for the purchase from a supplier
of all or substantially all of the requirements of the Corporation of a
particular product or service; or
(xviii) any other agreement or commitment not made in the
ordinary course of business or that is material to the business or
financial condition of the Corporation.
All of the foregoing (whether identified on Schedule 3.15 or not) are
hereinafter collectively referred to as the "Commitments." True, correct and
complete copies of the written Commitments, and true, correct and complete
written descriptions of the oral Commitments, have heretofore been delivered or
made available to Purchaser. To the best of the Corporation's and
Shareholders' knowledge, there are no existing defaults, events of default or
events, occurrences, acts or omissions that, with the giving of notice or lapse
of time or both, would constitute defaults by the Corporation, and no penalties
have been incurred nor are amendments pending, with respect to the Commitments,
except as described in Schedule 3.15. To the best of the Corporation's and
Shareholders' knowledge, the Commitments are in full force and effect and are
valid and enforceable obligations of the parties thereto in accordance with
their respective terms, and no defenses, off-sets or counterclaims have been
asserted or, to the best knowledge of the Corporation and Shareholders, may be
made by any party thereto, nor has the Corporation waived any rights
thereunder, except as described in Schedule 3.15. The Corporation has not
received notice of any default with respect to any Commitment.
(b) NO CANCELLATION OR TERMINATION OF COMMITMENT. Except as
contemplated hereby, neither the Corporation nor any Shareholder has received
notice of any plan or intention of any other party to any Commitment to
exercise any right to cancel or terminate any Commitment or agreement, and
neither the Corporation nor any Shareholder knows of any fact that would
justify the exercise of such a right. Neither the Corporation nor any
Shareholder currently contemplates, or has reason to believe any other person
or entity currently contemplates, any amendment or change to any Commitment.
Except as listed in Schedule 3.15, none of the customers or suppliers of the
Corporation has refused, or communicated that it will or may refuse, to
purchase or supply goods or services, as the case may be, or has communicated
that it will or may substantially reduce the amounts of goods or services that
it is willing to purchase from, or sell to, the Corporation.
SECTION 3.16. INSURANCE. A list and brief description of all insurance
policies of the Corporation are set forth in Schedule 3.16. All of such
policies are valid and enforceable policies, issued by insurers of recognized
responsibility in amounts and against such risks and losses as is customary in
-15-
21
the industry of the insured. Such insurance shall be outstanding and duly in
force without interruption up to and including the Closing Date. True,
complete and correct copies of all such policies have been provided to
Purchaser on or prior to the date hereof.
SECTION 3.17. PROPRIETARY RIGHTS.
(a) OWNERSHIP. The Corporation owns all patents, trade-marks,
service marks, copyrights, technology, know-how, trade secrets, DAPIA manuals
and plan approvals, the "Heartland Homes" brand name and all other brand names
used in the Corporation's business, customer lists and other proprietary
information (collectively, the "Proprietary Rights"), if any, necessary to
conduct its business, or possesses adequate licenses or other rights, if any,
therefor, without conflict with the rights of others. Set forth in Schedule
3.17 is a true and correct description of the Proprietary Rights.
(b) CONFLICTING RIGHTS OF THIRD PARTIES. To the best of the
Corporation's and Shareholders' knowledge, the Corporation has the sole and
exclusive right to use the Proprietary Rights without infringing or violating
the rights of any third parties. Use of the Proprietary Rights does not
require the consent of any other person and the Proprietary Rights are freely
transferable. No claim has been asserted by any person to the ownership of or
right to use any Proprietary Right or challenging or questioning the validity
or effectiveness of any license or agreement constituting a part of any
Proprietary Right, and neither the Corporation nor any Shareholder knows of any
valid basis for any such claim. Each of the Proprietary Rights is valid and
subsisting, has not been cancelled, abandoned or otherwise terminated and, if
applicable, has been duly issued or filed.
(c) CLAIMS OF OTHER PERSONS. The Corporation and Shareholders have
no knowledge of any claim that, or inquiry as to whether, any product, activity
or operation of the Corporation infringes upon or involves, or has resulted in
the infringement of, any proprietary right of any other person, corporation or
other entity; and no proceedings have been instituted, are pending or are
threatened that challenge the rights of the Corporation with respect thereto.
The Corporation has not given and is not bound by any agreement of
indemnification for any Proprietary Right as to any property manufactured, used
or sold by it.
SECTION 3.18. TAXES.
(a) TAXES AND TAX RETURNS. The Corporation has duly and timely filed
with the appropriate governmental agencies all income, excise, corporate,
franchise, property, sales, use, payroll, withholding and other tax returns
(including information returns) and reports required to be filed by the United
States or any state or any political subdivision thereof or any foreign
jurisdiction. All such tax returns or reports are complete and accurate and
properly reflect the taxes of the Corporation for the periods covered thereby.
The Corporation has paid or accrued all taxes, penalties and interest which
have become due with respect to any returns that it has filed and any
assessments of which it is aware. The Corporation is not delinquent in the
payment of any tax, assessment or governmental charge. No tax deficiency or
delinquency has been asserted against the Corporation. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Corporation that could be asserted by any
taxing authority. There is no taxing authority audit of the Corporation
pending, or to the knowledge
-16-
22
of the Corporation or Shareholders threatened, and the results of any completed
audits are properly reflected in the Financial Statements. The Corporation has
not violated any federal state, local or foreign tax law. The Corporation has
not granted an extension to any taxing authority of the limitation period
during which any tax liability may be assessed or collected. All monies
required to be withheld by the Corporation and paid to governmental agencies
for all income, social security, unemployment insurance, sales excise, use and
other taxes have been (i) collected or withheld and either paid to the
respective governmental agencies or set aside in accounts for such purpose or
(ii) properly reflected in the Financial Statements of the Corporation. The
liabilities (including deferred taxes) shown in the Financial Statements as of
the June Financial Statement and to be accrued on the books and records of the
Corporation through the Closing Date for taxes, interest and penalties are and
will be adequate accruals and have been and will be accrued in a manner
consistent with the practices utilized for accruing tax liabilities in the tax
year ended December 31, 1995 and take into account net operating losses,
investment credits and other carryovers for periods ended prior to the Closing
Date.
(b) TAX RELATED MATTERS. Since its incorporation, the Corporation
has made a valid election to be treated as an S corporation under Subchapter S
of the Code. The Corporation is an S corporation under Subchapter S of the
Code, and neither the Corporation nor either Shareholder has taken or failed to
take any action that would result in the disqualification of the Corporation to
be treated as an S corporation under Subchapter S of the Code. Shareholders
are not foreign persons, as such term is referred to in Section 1445(b)(2) of
the Code. The Corporation is not, and in prior years has not been, a member of
an affiliated group, as such term is defined in Section 1504 of the Code,
filing a consolidated return. None of the assets of the Corporation constitute
property that Purchaser, or any affiliate of Purchaser, will be required to
treat as being owned by another person pursuant to the "Safe Harbor Lease"
provisions of Section 168(f)(8) of the Code prior to repeal by the Tax Equity
and Fiscal Responsibility Act of 1982. None of the assets of the Corporation
are or will be subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Code. The Corporation has not at any time
consented, and Shareholders will not permit the Corporation to elect, to have
the provisions of Section 341(f)(2) of the Code apply to it. The Corporation
has not voluntarily or involuntarily changed a method of accounting resulting
in the Corporation's inclusion of amounts in income pursuant to adjustments
under Section 481 of the Code. The Shareholders have paid all income and
capital gains taxes passed through to them under Section 1361 of the Code with
respect to the Corporation.
SECTION 3.19. COMPLIANCE WITH LAWS. Except as set forth in Schedule
3.19, the Corporation has complied with all laws, regulations and licensing
requirements and has filed with the proper authorities all necessary statements
and reports. There are no existing violations by the Corporation or
Shareholders of any federal, state or local law or regulation that could affect
the property or business of the Corporation. The Corporation possesses all
necessary licenses, franchises, permits and governmental authorizations to
conduct its business as now conducted, all of which are listed in Schedule
3.19.
SECTION 3.20. FINDER'S FEE. Neither the Corporation nor any
Shareholder has incurred any obligation for any finder's, broker's or agent's
fee in connection with the transactions contemplated hereby.
-17-
23
SECTION 3.21. LITIGATION. Except as described in Schedule 3.21, there
are no legal actions or administrative proceedings or investigations
instituted, or to the best knowledge of the Shareholders threatened, against or
affecting, or that could affect, the Corporation, any of the Stock, or the
business of the Corporation. Neither of the Corporation nor Shareholders are
(a) subject to any continuing court or administrative order, writ, injunction
or decree applicable specifically to the Corporation or to its business,
assets, operations or employees or (b) in default with respect to any such
order, writ, injunction or decree. Neither of the Shareholders know of any
basis for any such action, proceeding or investigation. All surety bonds
necessary for the Corporation to do business have been posted, and no claims
against such bonds have been made. Except as set forth in Schedule 3.21, no
collateral is posted on such bonds.
SECTION 3.22. ACCURACY OF INFORMATION FURNISHED. All information
furnished to Purchaser by the Corporation or any Shareholder hereby or in
connection with the transactions contemplated hereby is, in all material
respects, true, correct and complete in all respects. Such information states
all facts required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements are made,
true, correct and complete.
SECTION 3.23. CONDITION OF FIXED ASSETS. All of the plants, structures
and equipment owned by the Corporation are in adequate condition and repair for
their intended use in the ordinary course of business and conform in all
material respects with all applicable ordinances, regulations and other laws
and there are no known latent defects therein.
SECTION 3.24. INVENTORY. All of the inventory of the Corporation
reflected in the Financial Statements or acquired since May 31, 1996, is in
good, current, standard and merchantable condition and is not obsolete or
defective. The Corporation has presently, and at the Closing Date will have,
the types and quantities of inventories appropriate, taken as a whole, to
conduct its business consistently with past practices.
SECTION 3.25. BOOKS OF ACCOUNT. Except as reflected on Schedule 3.25,
the books of account of the Corporation have been kept accurately in the
ordinary course of business, the transactions entered therein represent bona
fide transactions and the revenues, expenses, assets and liabilities of the
Corporation have been properly recorded in such books.
SECTION 3.26. BACKLOG. Schedule 3.26 sets forth the backlog of the
business of the Corporation as of May 31, 1996 and has been accurately derived
from the internal records of backlog of unfilled firm orders for products
manufactured or sold by the Corporation as of the date hereof.
SECTION 3.27. DISTRIBUTIONS AND REPURCHASES. Except as set forth in
Schedule 3.27, since December 31, 1995, no distribution, payment or dividend of
any kind has been declared or paid by the Corporation on any of its capital
stock. Since December 31, 1995, no repurchase of any of the capital stock of
the Corporation has been approved or effected by the Corporation.
SECTION 3.28. CUSTOMERS AND SUPPLIERS. Set forth in Schedule 3.28 is
(a) a complete and accurate list of the fifteen largest customers of the
Corporation in terms of sales for each of the last three fiscal years and the
current fiscal year to date, showing, with respect to each, the name, city,
-18-
24
state and unit and dollar sales records relating to such customer; (b) a
complete and accurate list of the fifteen largest suppliers of the Corporation
in terms of dollar volume of transactions for each of the last three fiscal
years and the current fiscal year to date, showing, with respect to each, the
name, city, state and aggregate dollar volume of purchases from such supplier;
and (c) a complete and accurate list of the standard prices and any applicable
discounts by customer name for the Corporation.
SECTION 3.29. PRODUCT WARRANTIES. Except as set forth in Schedule
3.29, there is no claim against the Corporation on account of product
warranties or with respect to the manufacture, sale or rental of defective
products. The Shareholders have previously disclosed to Purchaser that the
product warranty and service reserve is an arbitrary number only and that the
actual liability is in excess of the reserves reflected in the Financial
Statements. Schedule 3.29 sets forth a description of (a) all current claims
and claims made within the previous three years on account of product
warranties; (b) the average cost incurred on account of product warranty claims
per product; and (c) the methodology and statistics used to establish the
warranty reserves contained in the Financial Statements.
SECTION 3.30. OWNERSHIP INTERESTS OF INTERESTED PERSONS. Except as set
forth in Schedule 3.30, no officer, supervisory employee, director or
shareholder of the Corporation, or their respective spouses or children, owns
directly or indirectly, on an individual or joint basis, any material interest
in, or serves as an officer or director of, any customer or supplier of the
Corporation, or any organization that has a material contract or arrangement
with the Corporation.
SECTION 3.31. INVESTMENTS IN COMPETITORS. Except as set forth in
Schedule 3.31 hereof, no Shareholder owns directly or indirectly any interests
or has any investment in any corporation, business or other person that is a
competitor of the Corporation.
SECTION 3.32. ENVIRONMENTAL MATTERS. Except as set forth in Schedule
3.32, the Corporation is not currently in violation of, or subject to any
existing, pending or threatened investigation or inquiry by any governmental
authority or to any remedial obligations under, any laws or regulations
pertaining to health or the environment (hereinafter sometimes collectively
called "Environmental Laws"), and this representation and warranty would
continue to be true and correct following disclosure to the applicable
governmental authorities of all relevant facts, conditions and circumstances,
if any, pertaining to the assets and operations of the Corporation.
To the best knowledge of the Shareholders, the assets of the Corporation
have never been used in a manner that would be in violation of any of the
Environmental Laws. Except as set forth in Schedule 3.32, the Corporation has
not obtained and is not required to obtain, and the Corporation has no
knowledge of any reason Purchaser will be required to obtain, any permits,
licenses or similar authorizations to construct, occupy, operate or use any
buildings, improvements, fixtures and equipment owned or leased by the
Corporation by reason of any Environmental Laws. To the best knowledge of the
Shareholders, none of the assets owned or leased by the Corporation are on any
federal or state "Superfund" list or subject to any environmentally related
liens.
SECTION 3.33. CERTAIN PAYMENTS. Neither the Corporation nor
Shareholders nor any director, officer or employee of the Corporation has paid
or caused to be paid, directly or indirectly, in
-19-
25
connection with the business of the Corporation: (a) to any government or
agency thereof or any agent of any supplier or customer any bribe, kick-back or
other similar payment; or (b) any contribution to any political party or
candidate (other than from personal funds of directors, officers or employees
not reimbursed by their respective employers or as otherwise permitted by
applicable law).
SECTION 3.34. GOVERNMENT INQUIRIES. Except as set forth in Schedule
3.34 hereof, since December 31, 1993, there have been no inspection reports,
questionnaires, inquiries, demands or requests for information received by the
Corporation or Shareholders from, or any material statement, report or other
document filed by the Corporation with, the federal government or any federal
administrative agency (including but not limited to, the Commission, the
Department of Housing and Urban Development, the Justice Department, the
Internal Revenue Service, the Department of Labor, the Occupational Safety and
Health Administration, the Federal Trade Commission, the National Labor
Relations Board and the Interstate Commerce Commission), any state securities
administrator or any local or state taxing authority, with respect to an
alleged violation of, non-compliance with, any law, rule or regulation,
including without limitation, under Subpart I of the National Manufacturing
Housing Code of the Department of Housing and Urban Development.
SECTION 3.35. DEALER INCENTIVES. The June Balance Sheet includes all
accruals which will be paid as dealer incentives based on the projected
annualized volumes of such dealers (i.e., existing volumes have been annualized
in the manner hereafter set forth in order to project what volumes will be
obtained, and the accruals reflect such annualized volumes). Accruals are
calculated by taking each dealer's actual purchases for the six month period
ending June 28, 1996, dividing by six and multiplying by 12 (or such higher
rate or percentage, if applicable, as has been specifically agreed to by the
Corporation and a dealer). Based on such annualized volume, the appropriate
percentage amount is applied.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants that the following are true and
correct as of the date hereof and will be true and correct through the Closing
as if made at such time:
SECTION 4.01. ORGANIZATION AND GOOD STANDING. Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation, with all requisite corporate power and
authority to carry on the business in which it is engaged, to own the
properties it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
SECTION 4.02. AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by Purchaser of this Agreement, the Notes and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by Purchaser. This Agreement and
each other agreement contemplated hereby have been or will be as
-20-
26
of the Closing Date duly executed and delivered by Purchaser and constitute or
will constitute legal, valid and binding obligations of Purchaser, enforceable
against Purchaser in accordance with their respective terms, except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
SECTION 4.03. NO VIOLATION. Neither the execution, delivery or
performance of this Agreement or the other agreements contemplated hereby nor
the consummation of the transactions contemplated hereby or thereby will (a)
conflict with, or result in a violation or breach of the terms, conditions and
provisions of, or constitute a default under, the Amended and Restated Articles
of Incorporation or Amended and Restated Bylaws of Purchaser or any agreement,
indenture or other instrument under which Purchaser is bound or (b) violate or
conflict with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body having
jurisdiction over Purchaser or the properties or assets of Purchaser.
SECTION 4.04. FINDER'S FEE. Except for obligations to Xxxxxxxx Xxxxxx
Refsnes, Inc. for which Purchaser shall be fully responsible, Purchaser has not
incurred any obligation for any finder's, broker's or agent's fee in connection
with the transactions contemplated hereby.
SECTION 4.05. COMMISSION REPORTS. Since May 31, 1995, Purchaser has
filed all forms, documents and reports with the Commission required to be filed
by it pursuant to federal securities laws and the Commission rules and
regulations thereunder (the "Commission Reports"), all of which complied in all
material respects with all applicable requirements of the Securities Act and
the Exchange Act. To the knowledge of Purchaser, the Commission Reports do not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein to make the statements contained therein not
misleading.
SECTION 4.06. FINANCIAL STATEMENTS. The consolidated balance sheets
and the related statements of income, shareholders' equity and cash flow
(including the related notes thereto) of Purchaser and its consolidated
subsidiaries included in the Commission Reports complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the Commission with respect thereto, have been
prepared in accordance with GAAP applied on a basis consistent with prior
periods (except as otherwise noted therein) and present fairly the consolidated
financial position of Purchaser and its consolidated subsidiaries as of their
respective dates, and the results of their operations and their cash flow for
the periods presented therein.
SECTION 4.07. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the
Commission Reports, since May 30, 1995, the business of Purchaser and its
subsidiaries has been carried on in the ordinary course and there has not been
any adverse change in their business, financial condition, results of
operations, assets or liabilities which could reasonably be expected to have a
material adverse effect on Purchaser and its consolidated subsidiaries, taken
as a whole.
-21-
27
ARTICLE V.
THE SHAREHOLDERS' COVENANTS
The Shareholders agree that between the date hereof and the Closing:
SECTION 5.01. CONSUMMATION OF AGREEMENT. The Corporation and
Shareholders shall use their best efforts to cause the consummation of the
transactions contemplated hereby in accordance with their terms and conditions.
SECTION 5.02. JUNE BALANCE SHEET. As soon as practicable after July
12, 1996, but in no event later than August 15, 1996, the Corporation and
Shareholders shall prepare and deliver to Purchaser the June Balance Sheet,
which balance sheet shall, except as set forth on Schedule 5.02 hereof (a) be
compiled in accordance with GAAP applied on a basis consistent with the
December Balance Sheet and providing detailed backup schedules mutually
agreeable to the parties hereto, (b) be in form and substance reasonably
acceptable to Purchaser (including, without limitation, provisions for reserves
consistent with the Corporation's past practices) and (c) include detailed
schedules of the assets, liabilities and composition of the reserves of the
Corporation and the dollar amount thereof. The June Balance Sheet shall be
delivered at the Closing, subject to Purchaser's review and satisfaction
therewith, as provided in Section 7.07 below.
SECTION 5.03. BUSINESS OPERATIONS. The Corporation shall operate its
business in the ordinary course and will not introduce any new method of
management or operation of a material nature. The Shareholders shall, and
shall cause the Corporation to, use their best efforts to preserve the business
of the Corporation intact, to retain the present customers and suppliers so
that they will be available to Purchaser after the Closing. The Shareholders
shall not take any action that could materially adversely affect the condition
(financial or otherwise), operations, assets, liabilities, business or
prospects of the Corporation without the prior written consent of Purchaser or
take or fail to take any action that would cause or permit the representations
made in Article III to be inaccurate on the Closing Date or preclude the
Shareholders from making such representations and warranties as of the Closing
Date. Except as contemplated herein, the Corporation will not (a) declare, pay
or make any dividends or distributions on its capital stock; (b) enter into any
material agreement (oral or written) with its directors, officers or salaried
employees; (c) increase the compensation of its directors, officers or salaried
employees; (d) make capital expenditures (or enter into commitments to make
capital expenditures) in excess of $50,000 (either individually or in the
aggregate); (e) issue any capital stock or capital stock equivalents (including
options and warrants) to purchase capital stock of the Corporation; (f) incur
indebtedness or other liabilities other than in the ordinary course of business
and consistent with past practice; or (g) redeem any capital stock of the
Corporation.
SECTION 5.04. ACCESS. The Corporation and Shareholders shall permit
Purchaser and its authorized representatives full access to, and make available
for inspection, all of the assets and business of the Corporation, including
its employees, customers and suppliers, and permit Purchaser and its authorized
representatives to inspect and make copies of all documents, records and
information with respect to the affairs of the Corporation as Purchaser and its
representatives may request, all
-22-
28
for the sole purpose of permitting Purchaser to become familiar with the
business and assets and liabilities of the Corporation.
SECTION 5.05. ENVIRONMENTAL AUDITS. The Corporation and Shareholders
shall cooperate with and provide reasonable assistance to Purchaser in
obtaining any environmental studies or audits with respect to the property
owned and leased by the Corporation as requested by Purchaser. Except for any
Phase I environmental studies, all environmental studies or audits with respect
to the property owned and leased by the Corporation shall be at Purchaser's
expense.
SECTION 5.06. MATERIAL CHANGE. The Shareholders shall promptly inform
Purchaser in writing of any material adverse change in the condition (financial
or otherwise), operations, assets, liabilities, business or prospects of the
Corporation. Notwithstanding the disclosure to Purchaser of any such material
adverse change, the Shareholders shall not be relieved of any liability for,
nor shall the providing of such information by the Corporation to Purchaser be
deemed a waiver by Purchaser of, the breach of any representation or warranty
of the Shareholders contained in this Agreement.
SECTION 5.07. APPROVALS OF THIRD PARTIES. The Corporation and
Shareholders shall use their best efforts to secure, as soon as practicable
after the date hereof, all necessary approvals and consents of third parties to
the consummation of the transactions contemplated hereby.
SECTION 5.08. EMPLOYEE MATTERS. The Corporation shall not, without the
prior written approval of Purchaser, except as required by law: (a) adopt,
amend or terminate any Compensation Plan, Employment Agreement or Employee
Policies and Procedures; (b) institute, settle or dismiss any employment
litigation; (c) enter into, modify, amend or terminate any agreement with any
union, labor organization or collective bargaining unit; or (d) take or fail to
take any action with respect to any past or present employee of the Corporation
that could materially adversely affect the business of the Corporation.
SECTION 5.09. EMPLOYEE BENEFIT PLANS. The Corporation shall not,
without the prior written approval of Purchaser, except as required by law: (a)
adopt, amend or terminate any Employee Benefit Plan; (b) take any action that
would deplete the assets of any Employee Benefit Plan, other than payment of
benefits in the ordinary course to participants and beneficiaries; (c) fail to
pay any premium or contribution due or with respect to any Employee Benefit
Plan; (d) fail to file any return or report with respect to any Employee
Benefit Plan; or (e) take or fail to take any action that could adversely
affect any Employee Benefit Plan.
SECTION 5.10. CONTRACTS. Except with Purchaser's prior written
consent, the Corporation shall not waive any right or cancel any contract, debt
or claim or assume or enter into any contract, lease, license, obligation,
indebtedness, commitment, purchase or sale except in the ordinary course of
business.
SECTION 5.11. CHANGES IN INVENTORY. The Corporation shall not alter
the physical contents or character of its raw materials, work-in-process or
finished goods inventory or the mixture of products in its finished goods
inventory so as to affect the nature of its business or result in a material
change in the total dollar valuation thereof.
-23-
29
SECTION 5.12. CAPITAL ASSETS; PAYMENTS OF LIABILITIES. The Corporation
shall not, without the prior written approval of Purchaser (a) acquire or
dispose of any capital asset having an initial cost of $50,000 or more, or (b)
discharge or satisfy any lien or encumbrance or pay or perform any obligation
or liability other than (i) liabilities and obligations reflected in the
Financial Statements or (ii) current liabilities and obligations incurred in
the ordinary course of business since May 31, 1996 and, in either case (i) or
(ii) above, only as required by the express terms of the agreement or other
instrument pursuant to which the liability or obligation was incurred.
SECTION 5.13. MORTGAGES, LIENS AND GUARANTIES. The Corporation shall
not, without the prior written approval of Purchaser, enter into or assume any
mortgage, pledge, conditional sale or other title retention agreement, permit
any security interest, lien, encumbrance or claim of any kind to attach to any
of its assets, whether now owned or hereafter acquired, or guarantee or
otherwise become contingently liable for any obligation of another, except
obligations arising by reason of endorsement for collection and other similar
transactions in the ordinary course of business, or make any capital
contribution or investment in any corporation, business or other person.
SECTION 5.14. NO NEGOTIATION WITH OTHERS. Neither the Corporation nor
any Shareholder shall solicit or participate in negotiations with (and the
Corporation and the Shareholders shall use their best efforts to prevent any
affiliate, shareholder, director, officer, employee or other representative or
agent of the Corporation from negotiating with, soliciting or participating in
negotiations with) any third party with respect to the sale of the business of
the Corporation or any transaction inconsistent with those contemplated hereby.
SECTION 5.15. BACKLOG. The backlog of the Corporation shall only be
increased or decreased in the ordinary course of business.
ARTICLE VI.
PURCHASER'S COVENANTS
Purchaser agrees that between the date hereof and the Closing, Purchaser
shall use its best efforts to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions.
ARTICLE VII.
PURCHASER'S CONDITIONS PRECEDENT
Except as may be waived in writing by Purchaser, the obligations of
Purchaser hereunder are subject to the fulfillment at or prior to the Closing
Date of each of the following conditions:
SECTION 7.01. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Corporation and Shareholders contained herein shall have been
true and correct in all respects when initially made and shall be true and
correct in all respects as of the Closing Date.
-24-
30
SECTION 7.02. COVENANTS AND CONDITIONS. The Corporation and
Shareholders shall have performed and complied with all covenants and
conditions required by this Agreement to be performed and complied with by the
Corporation and Shareholders prior to the Closing Date.
SECTION 7.03. PROCEEDINGS. No action, proceeding or order by any court
or governmental body or agency shall have been threatened, orally or in
writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
SECTION 7.04. NO MATERIAL ADVERSE CHANGE. No material adverse change
in the condition (financial or otherwise), operations, assets, liabilities,
business or prospects of the Corporation shall have occurred since May 31,
1996, whether or not such change shall have been caused by the deliberate act
or omission of the Corporation or any Shareholder.
SECTION 7.05. DUE DILIGENCE REVIEW. Purchaser shall have completed a
due diligence review of the business, operations, prospects and financial
statements of the Corporation, the results of which shall be satisfactory to
Purchaser. Purchaser shall have received such environmental studies, audits,
reports or liability assessments of the Corporation and its owned and leased
properties as Purchaser considers necessary or desirable, which shall be
satisfactory to Purchaser.
SECTION 7.06. EMPLOYMENT AGREEMENTS. All Employment Agreements and
consulting, severance and management agreements and other similar compensation
plans or arrangements of the Corporation shall be satisfactory to Purchaser.
SECTION 7.07. JUNE BALANCE SHEET AND CLOSING ASSETS. The June Balance
Sheet shall have been delivered to Purchaser by the Shareholders and shall be
in form and substance satisfactory to Purchaser (including, without limitation,
based on its due diligence review and financial audit). The assets and
liabilities of the Corporation will not be materially different on the Closing
Date from, and shall be substantially equivalent to, the assets and liabilities
of the Corporation as shown on the June Balance Sheet.
SECTION 7.08. APPROVALS. All authorizations, approvals, consents and
waivers of any governmental authority or third party, each as Purchaser deems
necessary or desirable to consummate the transactions contemplated by this
Agreement, shall have been obtained and shall not be terminated, suspended or
withdrawn as of the Closing Date.
SECTION 7.09. SIMULTANEOUS CLOSINGS. The Closing shall occur
simultaneously with the closing of the transactions contemplated by the Asset
Purchase Agreement.
-25-
31
SECTION 7.10. ELIMINATION OF PLAN. The Incentive Compensation
(Phantom Stock) Plan of the Corporation shall have been terminated in its
entirety, with no cost to the Corporation (unless such cost is reflected as an
expense to the Corporation in the June Balance Sheet).
SECTION 7.11. CLOSING DELIVERIES. Purchaser shall have received all
documents, duly executed in form satisfactory to Purchaser and its counsel,
referred to in Section 9.01.
ARTICLE VIII.
THE CORPORATION'S AND SHAREHOLDERS' CONDITIONS PRECEDENT
Except as may be waived in writing by the Corporation and Shareholders,
the obligations of the Corporation and Shareholders hereunder are subject to
fulfillment at or prior to the Closing Date of each of the following
conditions:
SECTION 8.01. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained herein shall be true and correct in all
respects as of the Closing Date.
SECTION 8.02. COVENANTS AND CONDITIONS. Purchaser shall have performed
and complied in all material respects with all covenants and conditions
required by this Agreement to be performed and complied with by it prior to the
Closing Date.
SECTION 8.03. PROCEEDINGS. No action, proceeding or order by any court
or governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
SECTION 8.04. CLOSING. The Closing shall occur simultaneously with the
closing of the transactions contemplated by the Asset Purchase Agreement.
SECTION 8.05. CLOSING DELIVERIES. The Corporation or Shareholders, as
the case may be, shall have received all documents referred to in Section 9.02.
ARTICLE IX.
CLOSING DELIVERIES
SECTION 9.01. DELIVERIES OF THE CORPORATION AND SHAREHOLDERS. At the
Closing, the Corporation and Shareholders shall deliver to Purchaser the
following, all of which shall be in form and content satisfactory to Purchaser
and its counsel and dated as of the Closing Date unless otherwise specified:
(a) certificates representing all of the Stock, duly endorsed and
in proper form for transfer to Purchaser by delivery under applicable law, or
accompanied by duly executed instruments of transfer in blank;
-26-
32
(b) a copy of resolutions of the Board of Directors of the
Corporation authorizing the execution, delivery and performance of this
Agreement and all related documents and agreements, certified by the Secretary
of the Corporation as being true and correct copies of the originals thereof
subject to no modifications or amendments;
(c) a certificate of the President of the Corporation and of each of
the Shareholders, each dated as of the Closing Date, as to the truth and
correctness of the representations and warranties of the Corporation and
Shareholders contained herein on and as of the Closing Date;
(d) a certificate of the President of the Corporation and of
Shareholders, each dated as of the Closing Date, (i) as to the performance of
and compliance by the Corporation and Shareholders with all covenants contained
herein on and as of the Closing Date and (ii) certifying that all conditions
precedent of the Corporation and Shareholders to the Closing have been
satisfied;
(e) a certificate of the Secretary of the Corporation, dated as of
the Closing Date, certifying as to the incumbency of the directors and officers
of the Corporation and as to the signatures of such directors and officers who
have executed documents delivered at the Closing on behalf of the Corporation;
(f) a certificate, dated within ten days of the Closing Date, of the
Secretary of State of North Carolina establishing that the Corporation is in
existence, has paid all franchise taxes and otherwise is in good standing to
transact business in its state of incorporation;
(g) certificates, dated within ten days of the Closing Date, of the
Secretaries of State of the states in which the Corporation is qualified to do
business, to the effect that the Corporation is qualified to do business and is
in good standing as a foreign corporation in each of such states;
(h) all authorizations, consents, approvals, permits and licenses
referenced in Schedule 3.08;
(i) a nonforeign affidavit, as such affidavit is referred to in
Section 1445(b)(2) of the Code, of each Shareholder signed under penalty of
perjury, to the effect that such Shareholder is a United States Citizen (and
thus not a foreign person) and providing such Shareholder's United States
taxpayer identification number;
(j) a General Release in the form attached hereto as Exhibit B, duly
executed by each Shareholder;
(k) an Employment Agreement in the form attached hereto as Exhibit C
(the "Xxxxxxx Employment Agreement"), duly executed by Xxxxx X. Xxxxxxx, III;
(l) a Manufactured Homes Purchase Agreement in the form attached
hereto as Exhibit D (the "Purchase Agreement"), duly executed by the
Shareholders;
-27-
33
(m) an opinion of Wishart, Norris, Xxxxxxxxx & Xxxxxxx, P.A., counsel
to the Corporation and Shareholders, in form and substance reasonably
acceptable to Purchaser and their counsel; and
(n) such other instrument or instruments of transfer as shall be
necessary or appropriate, as Purchaser or its counsel shall reasonably request,
to vest in Purchaser good and marketable title to the Stock.
SECTION 9.02. DELIVERIES OF PURCHASER. At the Closing, Purchaser shall
deliver the following to the Corporation or the appropriate party, each of
which shall be dated as of the Closing Date unless otherwise specified:
(a) the Cash Consideration in immediately available funds, as reduced
by Section 2.03 if applicable;
(b) the Notes;
(c) a copy of the resolutions of the Board of Directors of Purchaser
authorizing the execution, delivery and performance of this Agreement, the
Notes and all related documents and agreements, each certified by Purchaser's
Secretary as being true and correct copies of the originals thereof subject to
no modifications or amendments;
(d) a certificate of the President of Purchaser, dated as of the
Closing Date, as to the truth and correctness of the representations and
warranties of Purchaser contained herein on and as of the Closing Date;
(e) a certificate of the President of Purchaser, dated as of the
Closing Date, (i) as to the performance of and compliance by Purchaser with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent of Purchaser to the Closing have been satisfied;
(f) a certificate of the Secretary of Purchaser, dated as of the
Closing Date, certifying as to the incumbency of the directors and officers of
Purchaser and as to the signatures of such directors and officers who have
executed documents delivered at the Closing on behalf of Purchaser;
(g) a certificate, dated within ten days of the Closing Date, of the
Secretary of State of Purchaser's state of incorporation, establishing that
Purchaser is in existence, has paid all state taxes and otherwise is in good
standing to transact business in such state;
(h) releases of personal guaranties or liability of Shareholders of
any indebtedness of the Corporation or with respect to any corporate bonds, in
form and substance satisfactory to shareholders;
(i) the Xxxxxxx Employment Agreement, duly executed by Purchaser; and
-28-
34
(j) an opinion of Xxxxxxx & Xxxxxx, L.L.P., counsel to Purchaser in
form and substance reasonably acceptable to the Shareholders and their counsel.
ARTICLE X.
NONCOMPETITION
SECTION 10.01. PROHIBITED ACTIVITIES. In consideration for Purchaser's
execution and delivery of this Agreement, and other good and valuable
consideration, each Shareholder hereby agrees that, subject to adjustment
pursuant to Section 10.05, for a period of five (5) years following the Closing
Date, neither Shareholder nor any of his affiliates, shall knowingly, directly
or indirectly, for himself or on behalf of any other corporation, person, firm,
partnership, association, or any other entity (whether as an individual, agent,
servant, employee, employer, officer, director, shareholder, investor,
principal, consultant or in any other capacity):
(a) engage or participate in any business which engages in
competition with the business being conducted by Purchaser and its affiliates
(the "Purchaser Group"), except as permitted in (d) below (as used herein, a
business is engaged in competition with the business being conducted by the
Purchaser Group if it is involved in the manufacture, distribution, or sale at
retail of manufactured or modular housing in that territory consisting of the
States of Virginia, West Virginia, Maryland, Delaware, Tennessee, North
Carolina, South Carolina, Georgia, Florida, Arkansas, Louisiana, Alabama,
Texas, Kansas, Kentucky, Oregon, Idaho, Washington, Pennsylvania, Nebraska,
Colorado, Mississippi, Arizona, New Mexico, Nevada, Oklahoma, Missouri, Utah,
Montana and South Dakota, or any other State where the Purchaser Group conducts
business during such five-year period; provided, however, that this provision
shall not prohibit any Shareholder or any of his affiliates from purchasing or
holding an aggregate equity interest of up to 1%, so long as such Shareholder
and his affiliates combined do not purchase or hold an aggregate equity
interest of more than 5%, in any business in competition with the Purchaser
Group; and provided further, however, that Xxxxxxx may retail a park model unit
that is not (i) subject to Housing and Urban Development rules and regulations
and (ii) larger than 385 square feet);
(b) induce or attempt to influence any employee of the Purchaser
Group to terminate his or her employment, or to hire any person who is an
employee of the Purchaser Group, or was an employee of the Purchaser Group
during such five-year period, whether or not so induced or influenced, except
that any such employee may be hired with Purchaser's prior written consent;
(c) assist or finance any person or entity which competes with the
Purchaser Group, except as permitted in (d) below; or
(d) engage or participate in any manufactured housing subdivision
project, except as set forth in Schedule 10.01 hereto, or in that certain
Manufactured Housing Purchase Agreement of even date herewith, by and among
Purchaser, the Shareholders and the Corporation.
SECTION 10.02. DAMAGES. Because of the difficulty of measuring
economic losses to the Purchaser as a result of the breach of the foregoing
covenant, and because of the immediate and irreparable
-29-
35
damage that would be caused to Purchaser for which it would have no other
adequate remedy, the Shareholders agree that, in the event of a breach by them
of the foregoing covenant, the covenant may be enforced by Purchaser or the
Corporation by injunctions and restraining orders.
SECTION 10.03. REASONABLE RESTRAINT. It is agreed by the parties that
the foregoing covenants in this Article X impose a reasonable restraint on
Shareholders in light of the activities and business of the Corporation on the
date of the execution of this Agreement and the future plans of the Corporation
and Purchaser. Shareholders hereby agree that this covenant is a material and
substantial part of this transaction.
SECTION 10.04. SEVERABILITY; REFORMATION. The covenants in this
Article X are severable and separate, and the unenforceability of any specific
covenant shall not affect the provisions of any other covenant. Moreover, in
the event any court of competent jurisdiction shall determine that the scope,
time or territorial restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced to the fullest
extent which the court deems reasonable, and the Agreement shall thereby be
reformed.
SECTION 10.05. TERM. It is specifically agreed that the period of five
(5) years stated above, shall be computed by excluding from such computation
any time during which Shareholders are in violation of any provision of this
Article X. The covenants contained in this Article X shall have no effect if
the transactions contemplated by this Agreement are not consummated, but
otherwise shall not be affected by any breach of any other provision hereof by
any party hereto. Notwithstanding anything contained herein to the contrary,
the provisions of Section 10.01 shall terminate and be of no force in effect
with respect to a Shareholder in the event that an Event of Default (as such
term is defined in the Note) exists under the Note payable to such Shareholder
and such Event of Default has not been cured within the applicable cure period.
ARTICLE XI.
REMEDIES
SECTION 11.01. INDEMNIFICATION BY SHAREHOLDERS. Subject to the terms
and conditions of this Article, each of the Shareholders, severally and not
jointly, agrees to indemnify, defend and hold Purchaser and its directors,
officers, agents, attorneys and affiliates harmless from and against all
losses, claims, causes of action, obligations, demands, assessments, penalties,
liabilities, costs, damages, attorneys' fees and expenses (collectively,
"Damages"), asserted against or incurred by such indemnitees by reason of or
resulting from: (a) a breach of any representation, warranty or covenant of
Shareholders contained herein, in any exhibit, schedule, certificate or
financial statement delivered hereunder, or in any agreement executed in
connection with the transactions contemplated hereby; (b) any studies, audits,
investigation, testing, clean-up or remediation work on, or permits required
for, the properties owned or leased by the Corporation which is necessary or
advisable under or pursuant to Environmental Laws (including, without
limitation, any of the foregoing which may arise out of the matters set forth
in the studies, audits or reports provided or obtained pursuant to Section 5.05
("Environmental Matters") but excluding fees and expenses to be borne by
Purchaser for certain Phase I environmental studies as provided in Section
11.09; (c) any liabilities, contingent or otherwise (known or unknown and
asserted or unasserted) arising out of
-30-
36
the Corporation's conduct of its business prior to Closing and the liabilities
of the Corporation created prior to Closing or arising out of transactions
effected or events occurring on or prior to the Closing Date (including,
without limitation, litigation matters which arose from events or circumstances
occurring on or prior to the Closing Date), except (i) as set forth on the June
Balance Sheet or liabilities incurred since the June Balance Sheet through the
Closing Date of the same type and not materially greater (a liability shall be
deemed "not materially greater" to the extent of a corresponding increase in a
current asset as a result of the incurrence of such liability) than the amount
set forth in the May 31, 1996, balance sheet of the Corporation; (ii) as
disclosed herein (unless such liability is specifically a subject of
indemnification hereunder (including, without limitation (f) below)); and (iii)
if such liability is specifically the subject of a representation or warranty
set forth in Article III for which a "knowledge" or "materiality" qualifier has
been provided for (but, in the case of a "knowledge" qualifier, only to the
extent not known and, in the case of a "materiality" qualifier, only if it is
not material); and (d) the lawsuits and other matters described on Schedule
3.21 (to the extent such Damages are in excess of reserves relating to such
litigation, if any, shown on the June Balance Sheet); (e) all income, excise,
corporate, franchise, property, sales, use, payroll, withholding and other
taxes ("Taxes") of the Corporation related to taxable periods or portions
thereof ending on or before the Closing (except for Taxes which Purchaser has
agreed to be responsible for as provided in Section 2.04 above or any failure
of Purchaser to make the Joint Election to the extent that such failure has a
negative tax impact on the Shareholders); (f) any claims, liabilities, costs,
expenses or losses resulting from and arising out of the matters described in
Schedule 11.01 attached hereto, but only to the extent such claims,
liabilities, costs, expenses or losses exceed, for any item listed in such
Schedule, the dollar amount specified in such Schedule for such item (e.g., in
the the case of Item 3, to the extent they exceed $10,000); it being agreed and
understood that for the three items listed in Schedule 11.01, Purchaser's sole
right to be indemnified for such items under this Section 11.01 shall be
limited to its rights under this subpart (f); and (g) any claims, liabilities,
costs, expenses or losses resulting from the existence of a "substantial class
of homes defect" which requires remediation (including, without limitation,
remediation under Subpart I of The National Manufactured Housing Code of the
Department of Housing and Urban Development).
SECTION 11.02. INDEMNIFICATION BY PURCHASER. Subject to the terms and
conditions of this Article, Purchaser hereby agrees to indemnify, defend and
hold Shareholders harmless from and against all Damages asserted against or
incurred by Shareholders or either of them by reason of or resulting from a
breach of any representation, warranty or covenant of Purchaser contained
herein or in any exhibit, schedule or certificate delivered hereunder, or in
any agreement executed in connection with the transactions contemplated hereby,
as well as from any Damages arising out of or resulting from the operation of
the Corporation's business after the Closing, unless such Damages are
attributable to the pre-Closing period or are the subject of Purchaser's
indemnification under Section 11.01 above.
SECTION 11.03. CONDITIONS OF INDEMNIFICATION. The respective
obligations and liabilities of the Corporation and Shareholders and Purchaser
(the "indemnifying party") to the other (the party to be indemnified") under
Sections 11.01 and 11.02 with respect to laims resulting from the assertion of
liability by third parties shall be ubject to the following terms and
conditions:
-31-
37
(a) Within 20 days (or such earlier time as might be required to
avoid prejudicing the indemnifying party's position) after receipt of notice of
commencement of any action evidenced by service of process or other legal
pleading, the party to be indemnified shall give the indemnifying party written
notice thereof together with a copy of such claim, process or other legal
pleading, and the indemnifying party shall have the right to undertake the
defense thereof by representatives of its own choosing and at its own expense;
provided that the party to be indemnified may participate in the defense with
counsel of its own choice, the fees and expenses of which counsel shall be paid
by the party to be indemnified unless (i) the indemnifying party has agreed to
pay such fees and expenses, (ii) the indemnifying party has failed to assume
the defense of such action or (iii) the named parties to any such action
(including any impleaded parties) include both the indemnifying party and the
party to be indemnified and the party to be indemnified has been advised by
counsel that there may be one or more legal defenses available to it that are
different from or additional to those available to the indemnifying party (in
which case, if the party to be indemnified informs the indemnifying party in
writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such action on behalf of the party to be indemnified, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for the party to be indemnified, which
firm shall be designated in writing by the party to be indemnified). Except as
set forth in Section 13.06, the failure to promptly deliver a notice of an
indemnity claim hereunder shall not relieve the indemnifying party of its
obligations to the indemnified party with respect to such claim except to the
extent that the resulting delay is materially prejudicial to the defense of
such claim.
(b) In the event that the indemnifying party, by the 30th day after
receipt of notice of any such claim (or, if earlier, by the 10th day preceding
the day on which an answer or other pleading must be served in order to prevent
judgment by default in favor of the person asserting such claim), does not
elect to defend against such claim, the party to be indemnified will (upon
further notice to the indemnifying party) have the right to undertake the
defense, compromise or settlement of such claim on behalf of and for the
account and risk of the indemnifying party and at the indemnifying party's
expense, subject to the right of the indemnifying party to assume the defense
of such claims at any time prior to settlement, compromise or final
determination thereof.
(c) Notwithstanding the foregoing, the indemnifying party shall not
settle any claim without the consent of the party to be indemnified unless such
settlement involves only the payment of money and the claimant provides to the
party to be indemnified a release from all liability in respect of such claim.
If the settlement of the claim involves more than the payment of money, the
indemnifying party shall not settle the claim without the prior consent of the
party to be indemnified. The party to be indemnified and the indemnifying
party will each cooperate with all reasonable requests of the other.
SECTION 11.04. LIMITATIONS OF INDEMNIFICATION. Notwithstanding
anything in this Agreement to the contrary, the Shareholders' liability for
Damages as provided in Section 11.01 hereof shall be limited to the Purchase
Price, as adjusted pursuant to Section 2.03 hereof. On and after the first
anniversary date of the Closing and except with respect to Damages relating to
Environmental Matters, Taxes,
-32-
38
and the representations and warranties set forth in Sections 3.01, 3.03, 3.05,
3.18 and 3.32 hereof, the Shareholders' liability for Damages as provided in
Section 11.01 hereof shall be limited to an aggregate amount equal to the
principal balance of the Notes outstanding from time to time; provided,
however, that such reduced liability maximum shall not apply if prior to such
date, the Shareholders have been notified of a claim for indemnity hereunder
which potentially exceeds such reduced liability maximum, and such shall not
have been finally resolved or disposed of as of such date. Further, the
Shareholders shall not be liable for any Damages to Purchaser hereunder until
the aggregate amount of all such Damages exceeds Seventy-Five Thousand Dollars
($75,000.00) ($37,500 each), it being understood and agreed by the Shareholders
that when the amount of such damages exceeds $75,000.00 in the aggregate
($37,500) each, indemnification may be sought against the Shareholders in full
for all such damages from the first dollar thereof; provided, however, that
this sentence shall not apply to the items listed in Schedule 11.01.
SECTION 11.05. SEVERAL LIABILITY. Notwithstanding anything to the
contrary contained herein, the indemnification obligation of the Shareholders
under this Article XI shall be several and not joint. No Shareholder shall be
individually obligated to indemnify Purchaser for any Damages incurred or
suffered by Purchaser in excess of one-half of such Damages for which Purchaser
is entitled to indemnification. The Purchaser shall be entitled to bring suit
against the Shareholders jointly for any Damages indemnified hereunder, but
shall be estopped and prohibited from obtaining judgment against or enforcing
judgment against either Shareholder for an amount greater than one-half the
total amount to be indemnified.
SECTION 11.06. WAIVER. No waiver by any party of any default or breach
by another party of any representation, warranty, covenant or condition
contained in this Agreement, any exhibit or any document, instrument or
certificate contemplated hereby shall be deemed to be a waiver of any
subsequent default or breach by such party of the same or any other
representation, warranty, covenant or condition. No act, delay, omission or
course of dealing on the part of any party in exercising any right, power or
remedy under this Agreement or at law or in equity shall operate as a waiver
thereof or otherwise prejudice any of such party's rights, powers and remedies.
All remedies, whether at law or in equity, shall be cumulative and the election
of any one or more shall not constitute a waiver of the right to pursue other
available remedies.
SECTION 11.07. REMEDIES NOT EXCLUSIVE. The remedies provided in this
Article shall not be exclusive of any other rights or remedies available to one
party against the other, either at law or in equity.
SECTION 11.08. OFFSET. Any and all amounts owing or to be paid by any
party hereto to any other party hereto, hereunder or otherwise, shall be
subject to offset and reduction pro tanto by any amounts that may be owing at
any time by such other party to such party in respect of the indemnification
provisions contained herein or any failure or breach of any representation,
warranty or covenant of such other party under or in connection with this
Agreement or any other agreement with such party or any transaction
contemplated hereby or thereby, as reasonably determined by such party. If
such party determines that such offset is appropriate, notice shall be given to
such other party of such determination at least 10 days prior to the due date
of the payment to be reduced. If the conditions upon which the reduction is
based are cured by such other party prior to such due date, as determined by
such party, the amount of such payment shall not be so reduced. With
-33-
39
respect to any payments which are due and owing to Purchaser pursuant to the
provisions of Section 2.03 or Section 11.01, Purchaser agrees to first offset
such amounts against payments to be made by Purchaser under the Notes to the
extent any such payments remain.
SECTION 11.09. COSTS, EXPENSES AND LEGAL FEES. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including accountants' and attorneys' fees and
expenses), except that (a) the costs and expenses for any Phase I environmental
study requested by Purchaser pursuant to Section 5.05 shall be borne one-half
by Purchaser and one-half by Shareholders and (b) each party hereto that is
shown to have breached this Agreement or any other agreement contemplated
hereby agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by any other party in successfully (i) enforcing
any of the terms of this Agreement against such breaching party or (ii) proving
that another party breached any of the terms of this Agreement; provided that,
notwithstanding the foregoing, in the event the transactions contemplated
hereby are consummated, any and all costs and expenses incurred or accrued by
the Corporation in connection with the negotiation and documentation of this
Agreement and the agreements contemplated hereby, the consummation of the
transactions contemplated hereby or otherwise in connection herewith, shall be
paid by, and be the obligations of, the Shareholders.
SECTION 11.10 SPECIFIC PERFORMANCE. Each party hereto acknowledges
that a refusal by such party to consummate the transactions contemplated hereby
will cause irreparable harm to the other parties hereto, for which there may be
no adequate remedy at law and for which the ascertainment of damages would be
difficult. Therefore, the other parties hereto shall be entitled, in addition
to, and without having to prove the inadequacy of, other remedies at law, to
specific performance of this Agreement against the refusing party, as well as
injunctive relief (without being required to post bond or other security).
SECTION 11.11. TAX EFFECT OF INDEMNIFICATION. Notwithstanding any term
or provision of this Agreement to the contrary, any indemnity payments owed by
one party to another party to this Agreement shall be reduced by any tax
benefits to the party claiming indemnity hereunder and increased by any tax
detriments to the party claiming indemnity hereunder.
ARTICLE XII.
TERMINATION
SECTION 12.01. TERMINATION. This Agreement may or shall be terminated:
(a) At any time prior to the Closing Date by mutual agreement of all
parties.
(b) At any time after August 30, 1996 (or such later date if extended
pursuant to Section 1.01(e) above), by any party if the Closing has not
occurred.
(c) At any time prior to the Closing Date by Purchaser if any
representation or warranty of the Shareholders contained in this Agreement or
in any certificate or other document executed
-34-
40
and delivered by the Corporation pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Corporation or
Shareholders fail to comply in any material respect with any covenant contained
herein, and any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within five days.
(d) At any time prior to the Closing Date by the Shareholders if any
representation or warranty of Purchaser contained in this Agreement or in any
certificate or other document executed and delivered by Purchaser pursuant to
this Agreement is or becomes untrue or breached in any material respect or if
Purchaser fails to comply in any material respect with any covenant contained
herein, and any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within five days.
(e) On or after the Closing Date by Purchaser if the conditions
stated in Article VII have not been satisfied or waived by Purchaser by the
Closing Date.
(f) On or after the Closing Date by the Shareholders if the
conditions stated in Article VIII have not been satisfied or waived by the
Shareholders by the Closing Date.
In the event this Agreement is terminated pursuant to subparagraph (b), (c),
(d), (e) or (f) above, Purchaser, the Corporation and Shareholders shall each
be entitled to pursue, exercise and enforce any and all remedies, rights,
powers and privileges available at law or in equity. In the event of a
termination of this Agreement under the provisions of this Article, a party not
then in material breach of this Agreement shall stand fully released and
discharged of any and all obligations under this Agreement.
ARTICLE XIII.
MISCELLANEOUS
SECTION 13.01. AMENDMENT. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the parties
hereto.
SECTION 13.02. ASSIGNMENT. Neither this Agreement nor any right
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto,
except by Purchaser to an affiliate of Purchaser. In the event of an
assignment of this Agreement by Purchaser to one of its affiliates, Purchaser
agrees that it shall guarantee the obligations of such assignee to the
Shareholders hereunder including but not limited to all obligations pursuant to
the Notes and the obligations set forth in Section 2.03(b) above.
SECTION 13.03. PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Neither this
Agreement nor any other agreement contemplated hereby shall be deemed to confer
upon any person not a party hereto or thereto any rights or remedies hereunder
or thereunder.
-35-
41
SECTION 13.04. ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding
the subject matter hereof, and supersede all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
SECTION 13.05. SEVERABILITY. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 13.06. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
The representations, warranties and covenants contained herein shall survive
the Closing and all statements contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Corporation, Shareholders or
Purchaser pursuant to this Agreement shall be deemed to have been
representations and warranties by the Corporation and Shareholders or
Purchaser, as the case may be, and, notwithstanding any provision in this
Agreement to the contrary, shall survive the Closing for a period of two years,
except for (a) representations and warranties with respect to any tax or
tax-related matters or any ERISA matters, which shall survive the Closing until
the running of any applicable statutes of limitation, (b) indemnification
provisions for the violation of any Environmental Law, which shall survive the
Closing and shall continue indefinitely and (c) the non-competition provisions
contained in Article X, which shall survive the Closing for a period of five
years. Notwithstanding the above, if prior to any expiration date the
indemnifying party shall have been notified of a claim for indemnity hereunder
and such claim shall not have been finally resolved or disposed of at such
date, any representation or warranty that is the basis for such claim shall
continue to survive as to such claim and shall remain a basis for indemnity, to
the extent of such claim only, until such claim is finally resolved or disposed
of.
SECTION 13.07. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF TEXAS.
SECTION 13.08. CAPTIONS. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.
SECTION 13.09. GENDER AND NUMBER. When the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter and the number of all words shall include the singular and plural.
-36-
42
SECTION 13.10. REFERENCE TO AGREEMENT. Use of the words "herein",
"hereof", "hereto" and the like in this Agreement shall be construed as
references to this Agreement as a whole and not to any particular Article,
Section or provision of this Agreement, unless otherwise noted.
SECTION 13.11. CONFIDENTIALITY; PUBLICITY AND DISCLOSURES.
(a) All copies of any information delivered to Purchaser pursuant to
this Agreement shall, upon the written request of the Corporation, be promptly
returned to the Corporation in the event this Agreement is terminated, and
Purchaser agrees that it will use any information obtained from such review
which is "Confidential Information" only for purposes of making its decision as
to whether to consummate the transactions contemplated herein and not for any
other purposes. For purposes of this Section 13.11(a), "Confidential
Information" does not include information which: (i) is or becomes generally
available to the public other than as a result of disclosure which is in
violation of this Section; (ii) was known by Purchaser on a nonconfidential
basis prior to the disclosure thereof; or (iii) is acquired by Purchaser from a
third party who has no confidential commitment to the Corporation with respect
to the same.
(b) Each party shall keep this Agreement and its terms confidential,
and shall make no press release or public disclosure, either written or oral,
regarding the transactions contemplated by this Agreement without the prior
knowledge and consent of the other parties hereto; provided that the foregoing
shall not prohibit any disclosure (i) by press release, filing or otherwise
that is required by law (including, without limitation, federal securities
laws), regulation or court or administrative order, (ii) to advisors,
financiers or lenders of any party or to any party's directors, officers,
employees and representatives involved in the transactions contemplated herein
or (iii) by Purchaser in connection with obtaining financing for the
transactions contemplated by this Agreement and conducting an examination of
the operations and assets of the Corporation.
SECTION 13.12. NOTICE. Any notice or demand which is permitted or
required hereunder will be deemed to have been received (except as otherwise
provided herein) (a) upon receipt when personally delivered, (b) or one day
after sent by overnight delivery by a nationally recognized courier or telecopy
providing confirmation or receipt of delivery, or (c) three days after being
sent by certified or registered mail, postage and charges prepaid, return
receipt requested to the addresses listed on Schedule 13.12 attached hereto, or
at any other address designated by any party hereto to all other parties hereto
in writing.
SECTION 13.13. FURTHER INSTRUMENTS OF TRANSFER. Following the Closing,
at the request of Purchaser, Shareholders shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate
to (a) vest in Purchaser good and valid title to the Stock, free and clear of
any adverse claims, security interests, liens, claims and encumbrances and (b)
carry out more effectively the provisions of this Agreement and to establish
and protect the rights created in favor of the parties hereunder or thereunder.
SECTION 13.14. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
-37-
43
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
HEARTLAND HOMES, INC.
By:
-----------------------------
Its:
----------------------------
AMERICAN HOMESTAR CORPORATION
By:
-----------------------------
Its:
----------------------------
--------------------------------
XXXXX X. XXXXXXX, III
--------------------------------
XXXXXXX X. XXXXXXX
-38-
44
INDEX OF SCHEDULES
Schedule 3.02 Foreign Jurisdictions
Schedule 3.03 Capitalization and Shareholders
Schedule 3.08 Consents
Schedule 3.07 Violations
Schedule 3.10 Liabilities and Obligations
Schedule 3.11(a) Cash Compensation
Schedule 3.11(b) Compensation Plans
Schedule 3.11(c) Employment Agreements
Schedule 3.11(d) Employee Policies and Procedures
Schedule 3.11(e) Unwritten Amendments
Schedule 3.11(f) Labor Compliance
Schedule 3.12(a) Employee Benefit Plans
Schedule 3.12(d) Actuarial Assumptions
Schedule 3.12(g) Medical and Dental Care Claims
Schedule 3.13 Absence of Certain Changes
Schedule 3.14(a) Real Property
Schedule 3.14(b) Personal Property
Schedule 3.14(c) Leases
Schedule 3.14(d) Assets Acquired
Schedule 3.15 Commitments
Schedule 3.16 Insurance Policies
Schedule 3.17 Proprietary Rights
45
INDEX OF SCHEDULES
Schedule 3.19 Permits and Licenses
Schedule 3.21 Litigation
Schedule 3.24 Inventory
Schedule 3.25 Books of Accounts
Schedule 3.26 Backlog
Schedule 3.27 Distributions
Schedule 3.28 Customers and Suppliers
Schedule 3.29 Product Warranties
Schedule 3.30 Ownership Interests of Interested Persons
Schedule 3.31 Investments in Competition
Schedule 3.32 Environmental Matters
Schedule 3.34 Government Inquiries
Schedule 5.02 June Balance Sheet
Schedule 11.01 Indemnified Claims
Schedule 13.12 Addresses
46
INDEX OF EXHIBITS
Exhibit A Promissory Note
Exhibit B General Release
Exhibit C Xxxxxxx Employment Agreement
Exhibit D Manufactured Homes Purchase Agreement
47
SCHEDULE 11.01
1. Product warranty and service claims relating to homes sold by the
Corporation on or prior to the Closing Date, to the extent that such
claims exceed $1,074,524.74 (excluding any liability under subpart (g)
of Section 11.01).
2. Any fines or penalities relating or pertaining to the OSHA Citation, to
the extent that such fines or penalties exceed $35,000 in the aggregate.
3. Any costs, expenses or liabilities relating or pertaining to the lawsuit
described in Schedule 3.21, to the extent that such costs, expenses or
liabilities exceed $10,000 in the aggregate.
