STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of January
29, 1997, is made among D.R. HORTON, INC., a Delaware corporation (the
"Purchaser"), and GHASSAN M. SAAB, an individual residing in the State of
Michigan (hereinafter sometimes referred to as "GS"), Ghassan M. Saab in his
capacity as Trustee of the GHASSAN M. SAAB TRUST, a Michigan trust, pursuant to
a trust agreement dated February 16, 1987, as amended (the "Trust"; together
with GS, "Saab"), and BURL T. HORTON, an individual residing in the State of
Georgia (hereinafter sometimes referred to as "BTH") (Saab and BTH being
collectively referred to as the "Sellers").
RECITALS
WHEREAS, the Sellers own, either directly or indirectly, all of the
issued and outstanding shares of capital stock of those entities listed on
Exhibit A hereto under the caption "Corporations" (the "Corporations");
WHEREAS, the Corporations own legal or beneficial interests in those
entities listed on Exhibit A hereto under the caption "Partnerships" (the
"Partnerships"; together with the Corporations, the "Company") in the respective
percentages to be set forth on Schedule 7.40(a) hereto;
WHEREAS, the Company and the Purchaser are engaged in the business of
developing and constructing residential homes and desire to merge their
respective business operations; and
WHEREAS, this Agreement contemplates a transaction in which the
Purchaser will purchase from Sellers, and the Sellers will sell to the
Purchaser, all of the issued and outstanding shares of capital stock of each
Corporation (collectively, the "Shares") in return for the consideration
specified below.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
agreements herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
I. PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale of Shares. On and subject to the terms and
conditions of this Agreement, the Purchaser agrees to purchase from the Sellers,
and the Sellers agree to sell to the Purchaser, all of the Shares, for the
consideration set forth in Article II hereof.
1
II. PURCHASE PRICE
2.1 Purchase Price. Subject to the adjustments hereinafter set
forth, the purchase price for the Shares (the "Purchase Price") shall be the sum
of the following, which shall be paid or delivered at Closing (as defined in
Section 4.1 hereof):
(a) Cash Amount. The Purchaser shall pay to the Sellers
Twenty-Eight Million Five Hundred Thousand and No/100 Dollars
($28,500,000.00) (the "Cash Amount") in the relative proportions set
forth on Exhibit B to be attached hereto in immediately available funds
by bank wire transfer of the amounts set forth on Exhibit B to be
attached hereto to the respective accounts designated in writing for
such purpose by the Sellers to the Purchaser prior to Closing.
(b) Purchaser Shares. Purchaser shall deliver to Sellers, in
the proportions set forth on Exhibit B hereto, certificates issued in
the name of Sellers or in the name of any Person designated by the
Sellers to whom the Sellers could transfer the Purchaser Shares
pursuant to Section 3.2(b) hereof representing duly authorized, validly
issued, fully paid and nonassessable shares of common stock, par value
of $0.01 per share, of Purchaser (the "Common Stock") the number of
shares to be determined by dividing Nine Million Five Hundred Thousand
and No/100 Dollars ($9,500,000) by the average closing price of the
common stock of the Purchaser on the New York Stock Exchange for the
ten (10) trading days immediately prior to the Closing Date, and
rounding such quotient to the nearest number of whole shares; provided,
however, that the stock price used to calculate the number of shares
shall not be less than $9.75 per share or greater than $11.25 per share
(the "Purchaser Shares").
2.2 Tax Reporting and Allocations. At Closing or as soon thereafter as
practicable but no later than the required due date, Sellers (and if
appropriate, the Company) shall timely join in the making of an election
pursuant to Section 338(h)(10) of the Internal Revenue Code of 1986, as amended
(the "Code") (and any similar state law provisions), whereby for federal income
tax and state tax purposes the transaction contemplated in this Agreement will
be treated as a purchase of assets (the "338(h)(10) Election"). The Purchase
Price represents the amount agreed upon by the parties to be the aggregate net
value of the Company Assets (as defined in Article XIII hereof) and shall be
allocated among the Company Assets in accordance with the respective net fair
market values of the Company Assets, which shall be as set forth on Attachment
2.2 to be attached hereto. Pursuant to the Section 338(h)(10) Election and
subject to Sections 338 and 1060 of the Code and the regulations promulgated
thereunder, each of the parties shall report the transaction contemplated in
this Agreement in all federal, foreign, state, local and other tax returns and
reports prepared and filed by or for either of Sellers and Purchaser in
accordance with the basis of allocation described in this Section 2.2. The
Purchaser and the Company shall each separately prepare and file, consistent
with the provisions of this Section 2.2, a Form 8594 with the Internal Revenue
Service pursuant to Section 1060 of the Code.
2.3 Additional Consideration. On or before April 8, 1997, July
8, 1997, October 8, 1997 and January 8, 1998, the Purchaser shall pay to the
2
Sellers one-fourth of the Estimated Increased Tax Amount (as hereinafter
defined) in immediately available funds by wire transfer to an account
designated in writing for this purpose by the Sellers to the Purchaser at least
seven (7) days prior to the date of each such payment by the Purchaser to the
Sellers. The "Estimated Increased Tax Amount" shall be an amount equal to the
additional federal and state taxes payable by the Sellers by reason of agreeing
to the 338(h)(10) Election. The Estimated Increased Tax Amount shall be
determined by the mutual agreement of the Sellers and the Purchaser
simultaneously with the making of the 338(h)(10) Election and shall be based on
the allocation of net fair market value of the Company Assets as shall be set
forth on Attachment 2.2 to be attached hereto, and the formula to be used for
computation of said Increased Tax Amount shall be as set forth on Attachment 2.3
to be attached hereto, said formula to include taxes due on the additional funds
being paid to the Sellers by reason of the 338(h)(10) Election. The Sellers
shall report the Estimated Increased Tax Amount on their federal and state
income tax returns for calendar year 1997 resulting from the 338(h)(10)
Election. If after the Closing it is established in a final non-appealable
determination (or prior to such a determination if agreed to in writing by the
Purchaser) that the Sellers' federal and state taxes resulting from the
338(h)(10) Election have increased over the Estimated Increased Tax Amount for
reasons other than an increase resulting from a change in any underlying tax
rates subsequent to the date hereof, then the Purchaser shall pay to the Seller
who is required to pay the increase the amount thereof within ten (10) days
after receiving written notice thereof from such Seller together with reasonable
supporting documentation. If after the Closing it is established as set forth
above that the Estimated Increased Tax Amount exceeds the actual federal and
state taxes resulting from the 338(h)(10) Election for reasons other than a
change in any underlying tax rates subsequent to the date hereof, then the
Seller making the reduced tax payment shall pay to the Purchaser the amount of
such excess within ten (10) days of such determination.
III. REGISTRATION AND RESALE OF PURCHASER SHARES
3.1 Investment Intent; Sophisticated Investor. Each Seller hereby
represents and warrants that he is acquiring the Purchaser Shares pursuant to
this Agreement for his own account and not with the view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act (as defined in Article XIII hereof), except as
contemplated by Section 3.3 of this Agreement. Each Seller is a sophisticated
investor for purposes of the Securities Act and has such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of an investment in the Purchaser Shares to be delivered
pursuant to Section 2.1 hereof. Each Seller has been provided with copies of the
Purchaser's 1996 Annual Report on Form 10K and Proxy Statement, and the
Purchaser's Quarterly Reports on Form 10Q for the quarters ending December 31,
1995, March 31, 1996, June 30, 1996, and December 31, 1996, and access to the
Purchaser's executive officers has been provided to each Seller. Each Seller
understands that the Purchaser Shares have not been registered under the
Securities Act by reason of their contemplated issuance by the Purchaser in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act pursuant to Section 4(2) thereof, and that the reliance of
the Purchaser upon this exemption is predicated in part upon this representation
and warranty by such Seller. Notwithstanding the foregoing, nothing in this
Section 3.1 shall relieve the Purchaser from any of its representations,
3
warranties or covenants contained in this Agreement or limit or otherwise
invalidate Sellers' rights and remedies set forth herein.
3.2 Resale; Legends. No Seller or other recipient of the Purchaser
Shares shall sell or otherwise transfer any of its Purchaser Shares during the
period commencing on the Closing Date and ending on the second anniversary of
such date unless:
(a) such Purchaser Shares shall have been registered under
the Securities Act,
or
(b) the Purchaser shall have received an opinion of legal
counsel or a copy of a letter from the staff of the Division of
Corporation Finance of the Securities and Exchange Commission (the
"Commission"), in either case satisfactory to the Purchaser, that such
Purchaser Shares may be legally sold or otherwise transferred without
such registration. Notwithstanding the foregoing or any other provision
contained herein,
(i) except as otherwise prohibited by law,
each Seller shall be entitled to:
(A) pledge the Purchaser Shares owned by him
as collateral for loans or other obligations; or
(B)sell or otherwise transfer the Purchaser
Shares owned by him to any family member at any time
for estate or tax planning purposes or to any
employee(s) of the Company as incentive or performance
bonuses in connection with the transactions
contemplated herein (provided that any such pledgee or
transferee shall be bound by, and have all rights with
respect to, the transfer restrictions and registration
rights contained herein, and that as a condition to
such transfer or pledge such transferee or pledgee
shall provide the Purchaser with the representations
and warranties set forth in Section 3.1 hereof or such
other representations and warranties as are reasonably
satisfactory to the Purchaser to form the basis for an
applicable exemption from registration requirements
under the federal and state securities laws); and
(ii) commencing on the second anniversary of the
Closing Date, the Sellers shall be entitled to sell or
otherwise transfer the Purchaser Shares without the
Purchaser's prior approval and regardless of whether such
shares have been registered under the Securities Act, provided
that each Seller covenants and agrees that any such sale or
transfer shall be made in compliance with all applicable state
and federal securities laws. Such restrictions shall be noted
on the certificates for the Purchaser Shares issued pursuant
to Section 2.1 hereof. Appropriate stop transfer orders may be
issued by the Purchaser with respect to the Purchaser Shares
owned by a Seller if such Seller attempts to sell or otherwise
transfer the Purchaser Shares held by him or it in violation
of this Section 3.2.
4
3.3 Purchaser Registration.
(a) If the Purchaser shall determine to register any of its
securities, other than a registration relating solely to employee
benefit plans, or a registration of securities in a Commission Rule 145
transaction, or a registration on any registration form that does not
permit secondary sales, in any case at any time during the period
commencing on the Closing Date and ending on the second anniversary of
the Closing Date, the Purchaser will:
(i) promptly (and no later than seven (7) days prior
to the filing of any such registration statement with the
Commission) give to each Seller written notice thereof (which
shall include, without limitation, a list of the jurisdictions
in which the Purchaser intends to attempt to qualify such
securities under the applicable blue sky or other state
securities laws); and
(ii) include in such registration (and any related
qualification or registration under additional blue sky laws
as reasonably requested by the Sellers), and in any
underwriting involved therein, all of the Purchaser Shares
specified in a written request or requests made by any Seller
within 15 days after receipt of the written notice from the
Purchaser described in clause (i) above, except as set forth
in paragraph (b) of this Section 3.3.
(b) If the registration of which the Purchaser gives notice
under paragraph (a) of this Section 3.3 is for a registered public
offering involving an underwriting, the Purchaser shall so advise the
Sellers as a part of such written notice. In such event the right of
any Seller to registration pursuant to this Section 3.3 shall be
conditioned upon such Seller's participation in such underwriting and
the inclusion of such Seller's Purchaser Shares in the underwriting to
the extent provided herein. Each Seller proposing to distribute his
Purchaser Shares through such underwriting shall request inclusion of
any or all of such Purchaser Shares in such underwriting and shall
(together with the Purchaser and any officers or directors of the
Purchaser requesting distribution of their securities through such
underwriting) enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for underwriting by the
Purchaser. Notwithstanding any other provision of this Section 3.3, the
underwriter may exclude from such registration and underwriting some or
all of the Purchaser Shares which would otherwise be underwritten
pursuant hereto if the underwriter advises the Purchaser in writing
that marketing factors require a limitation on the number of shares to
be underwritten. After the underwriter makes its determination as to
the number of securities held by security holders of the Purchaser to
be included in the underwriting, the Purchaser shall so advise each
Seller requesting registration. If the underwriter limits the number of
securities held by security holders of the Purchaser to be included in
the underwriting, the Purchaser shall so advise each Seller, and the
number of Purchaser Shares and other securities that may be included in
the registration and underwriting shall be allocated among all such
Persons who requested registration in proportion (i.e., on a pari passu
5
basis) as nearly as practicable, to the respective amounts of Purchaser
Shares and other securities that they have requested be included in
such registration. If any Person who has requested inclusion in such
registration as provided above disapproves of the terms of any such
underwriting, he or she may elect to withdraw therefrom by written
notice to the Purchaser and the underwriter. Any Purchaser Shares or
other securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
(c) From the date hereof through the second anniversary of the
Closing Date, the Purchaser shall not grant to any Person, except an
employee or director of the Purchaser or an Affiliate or any trust for
the benefit of a family member of an employee or director, the right to
include any securities of the Purchaser owned by such Person in any
registration of any of the Purchaser's securities (other than a
registration relating solely to employee benefit plans, or a
registration relating solely to a Commission Rule 145 transaction, or a
registration on any registration form that does not permit secondary
sales) or related underwriting if such right would, upon exercise
thereof, not be subordinate to the Sellers' rights to include the
Purchaser Shares in such registration pursuant to Section 3.3(a)
hereof.
3.4 Registration Procedures. In the case of each registration
effected by the Purchaser pursuant to this Article III, the Purchaser will keep
each Seller advised in writing as to the initiation of each registration and as
to the completion thereof. At its expense, the Purchaser will:
(a) Keep such registration effective for a period of one
hundred twenty (120) days or until the Seller or Sellers have completed
the distribution described in the registration statement relating
thereto, whichever first occurs; provided, however, that in the case of
any registration of Purchaser Shares on Form S-3 which are intended to
be offered on a continuous or delayed basis, such 120-day period shall
be extended, if necessary, to keep the registration statement effective
until all such Purchaser Shares are sold, provided that Rule 415, or
any successor rule under the Securities Act, permits an offering on a
continuous or delayed basis, and provided further that applicable rules
under the Securities Act governing the obligation to file a
post-effective amendment permit, in lieu of filing a post-effective
amendment that (y) includes any prospectus required by Section 10(a)(3)
of the Securities Act or (z) reflects facts or events representing a
material or fundamental change in the information set forth in the
registration statement, the incorporation by reference of information
required to be included in (y) and (z) above to be contained in
periodic reports filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") in the
registration statement;
(b) Furnish such number of prospectuses and other documents
incident thereto as any Seller from time to time reasonably requests;
and
(c) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 3.3 hereof, the
6
Purchaser will enter into any underwriting agreement reasonably
necessary to effect the offer and sale of the Purchaser Shares,
provided such underwriting agreement contains customary underwriting
provisions and provided further that, if the underwriter so requests,
the underwriting agreement will contain customary contribution
provisions.
3.5 Expenses. With respect to any registration pursuant to Section 3.3
hereof, the Purchaser shall bear (a) all registration and filing fees, (b) all
fees of the National Association of Securities Dealers, the New York Stock
Exchange or any other similar self-regulatory organizations, (c) brokerage fees
and commissions, (d) underwriting discounts and commissions, (e) printing
expenses, (f) fees and disbursements of counsel and accountants for the
Purchaser, and (g) all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any jurisdictions in which
the securities to be offered are to be registered or qualified. Each Seller
shall be responsible for the fees and disbursements of counsel and accountants
for such Seller and transfer taxes for such Seller and any other expenses
incurred by such Seller not described in the preceding sentence.
3.6 Indemnification.
(a) The Purchaser shall indemnify and hold harmless each
Seller whose Purchaser Shares are included in a registration statement
pursuant to these provisions from and against any and all loss, damage,
liability, cost and expense to which such Seller may become subject
under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading,
except that the Purchaser shall not be liable in any such case to the
extent that any such loss, damage, liability, cost or expense arises
out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in conformity with information
furnished by such Seller.
(b) Each Seller whose Purchaser Shares are included in a
registration pursuant to these provisions shall indemnify and hold
harmless the Purchaser, any other Seller and each Person, if any, who
controls the Purchaser from and against any and all loss, damage,
liability, cost or expense to which the Purchaser, such other Seller,
or any such controlling Person may become subject under the Securities
Act or otherwise, insofar as such losses, damages, liabilities, costs
or expenses are caused by any untrue statement or alleged untrue
statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to
the extent that such untrue statement or alleged untrue statement or
7
omission or alleged omission was so made in reliance upon and in
conformity with information furnished by such Seller for use in the
preparation thereof, except that no Seller shall be liable for any
untrue statement or material omission made herein, in the Sellers'
Schedules (as defined in Section 8.3 hereof) or in connection with any
Document delivered in connection with the Closing except to the extent
provided in Article XI hereof.
(c) Promptly after receipt by an indemnified party pursuant to
the provisions of paragraph (a) or (b) of this Section 3.6 of notice of
the commencement of any action involving the subject matter of the
foregoing indemnity provisions, such indemnified party shall, if a
claim thereof is to be made against the indemnifying party pursuant to
the provisions of said paragraph (a) or (b), promptly notify the
indemnifying party of the commencement thereof; provided, however, that
the failure to so notify the indemnifying party shall not relieve it
from any liability which it may have to any indemnified party otherwise
than hereunder. In case such action is brought against any indemnified
party and such party notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the right to
participate in, and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided,
however, that if the defendants in any action include both an
indemnified party and an indemnifying party and there is a conflict of
interest which would prevent counsel for the indemnifying party from
also representing the indemnified party, the indemnified party or
parties shall have the right to select separate counsel to participate
in the defense of such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party
pursuant to the provisions of said paragraph (a) or (b) for any legal
or other expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed
counsel in accordance with the proviso of the preceding sentence, (ii)
the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of the action, or
(iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party.
3.7 Transfer of Registration Rights. Subject to any restrictions
contained in the Securities Act, the Sellers shall be entitled to transfer or
assign the registration rights and the rights to participate in any underwriting
granted to the Sellers pursuant to this Agreement to any transferee or assignee
of any Purchaser Shares as permitted by Section 3.2(b)(i)(B) hereof and to
Sellers' respective successors, heirs and personal representatives.
3.8 Definition of Purchaser Shares. For purposes of this Article III,
"Purchaser Shares" also shall be deemed to include any shares of the Purchaser's
Common Stock received from the Purchaser with respect to or in replacement of
the Purchaser Shares issued at Closing and other securities received in respect
thereof by reason of any stock split, stock dividend or recapitalization.
8
IV. CLOSING
4.1 Closing. The closing of the transactions contemplated hereby (the
"Closing") shall occur on March 31, 1997, or on such earlier date after the
satisfaction of the conditions set forth in Article V as the Purchaser may
designate in writing to Sellers at least five (5) Business Days prior to the
designated date, or at such other date as the Purchaser and the Sellers shall
agree, at the offices of Glass, McCullough, Sherrill & Harrold, LLP, 1409
Peachtree Street, N.E., Atlanta, Georgia, or at such other place as the
Purchaser and the Sellers shall agree. All proceedings to take place at the
Closing shall take place simultaneously, and delivery of the documents and
instruments to be delivered at the Closing shall not occur until the completion
of such proceedings.
4.2 Closing Date. The term "Closing Date" shall mean the day and
time of the consummation of the transactions contemplated hereby.
4.3 Deliveries at the Closing. At Closing, the Purchaser and the
Sellers shall deliver the various closing items (all executed by appropriate
Persons) as follows:
(a) Seller Deliveries. The Sellers shall deliver to the
Purchaser (i) the Documents (as defined in Article XIII hereof) called
for in Section 5.1 and other provisions of this Agreement to which the
Sellers or the Company is a party, and (ii) the certificates
representing the Shares; and
(b) Purchaser Deliveries. The Purchaser shall deliver to the
Sellers (i) the Documents called for in Section 5.2 and other
provisions of this Agreement to which the Purchaser is a party, (ii)
the Cash Amount, (iii) certificates representing the Purchaser Shares,
and (iv) cash in the amounts set forth on Attachment 4.3(b) to be
attached hereto reflecting the purchase prices for the assets of each
Partnership.
4.4 Further Assurances. At any time and from time to time until the
second anniversary of the Closing Date, upon the request of the Purchaser and
without any cost or expense thereto, each Seller shall execute and deliver such
instruments of assignment and conveyance and other documents as the Purchaser
may reasonably request to transfer to and vest in the Purchaser, and to put the
Purchaser in possession of, any Shares, free and clear of any Liens (other than
encumbrances and restrictions, if any, to be set forth in Schedule 7-A.2 hereto
as approved by the Purchaser pursuant to Section 8.3(c) hereof), or otherwise to
carry out the intent and purposes of this Agreement. At any time and from time
to time until the second anniversary of the Closing Date, upon the request of
either Seller and without any cost or expense thereto, Purchaser shall execute
and deliver such instruments of assignment and conveyance and other documents as
either Seller may reasonably request to transfer to and vest in the Sellers, and
to put the Sellers in possession of, any of the Purchaser Shares or otherwise to
carry out the intent and purposes of this Agreement.
9
V. CONDITIONS TO THE CLOSING
5.1 Conditions to the Purchaser's Obligation to Close. The
obligations of the Purchaser to consummate the Closing transactions contemplated
hereby are subject to the satisfaction of the following precedent or concurrent
conditions (collectively, the "Purchaser Conditions"), each of which the
Purchaser may waive:
(a) Representations and Warranties. The representations and
warranties of the Sellers contained in each Document shall be true and
correct in all material respects on and as of the date first made and
on and as of the Closing Date as though made on and as of the Closing
Date.
(b) Performance of Covenants. The Sellers shall have
performed all agreements, covenants, and obligations herein that they
are required to perform on or prior to the Closing Date.
(c) Closing Certificate. The Sellers shall have delivered
to the Purchaser a certificate, signed by each of them, confirming the
satisfaction of the conditions set forth in Sections 5.1(a) and (b)
hereof.
(d) Secretary's Certificates. The Sellers shall have caused
to be delivered to the Purchaser a certificate of the Secretary of
each Corporation, in a form acceptable to the Purchaser, which shall
include:
(i) Charter. A copy of the charter documents of such
Corporation certified by the Secretary of State of its state
of incorporation not more than 15 Business Days before the
Closing Date;
(ii) Bylaws. A copy of the bylaws of such Corporation;
(iii) Good Standing Certificate. A certificate of
existence, authorization or good standing, as may be issued by
the Secretary of State of its state of incorporation, dated no
earlier than January 15, 1997, stating that such Corporation
is in existence, is in good standing, or is authorized to
transact business under the laws of such State, as
appropriate;
(iv) Tax Clearance Letter. A tax clearance letter from
the Department of Revenue of each state in which such
Corporation does business, dated no earlier than January 15,
1997, stating that such Corporation has paid all franchise and
other Taxes owed to such state;
(v) Resolutions. A copy of the resolutions that the
board of directors and shareholder(s) of such Corporation
adopted approving its execution, delivery, and performance of
each Document to which it is a party; and
10
(vi) Incumbency Certificate. An incumbency certificate
setting forth the names, offices, and signatures of the
officers of such Corporation.
(e) Consents. The Sellers or the Company shall have received
and delivered to the Purchaser all approvals, consents, notices, and
waivers (the "Consents") required as a result of the transfer of the
Shares to the Purchaser, in form and substance satisfactory to the
Purchaser, and shall have given all notices required to be given to any
Persons prior to the consummation of the transactions contemplated
hereby.
(f) Permits. To the extent necessary or appropriate by reason
of the change in control of the Company pursuant to this Agreement, the
Purchaser shall have received, on terms and conditions satisfactory to
the Purchaser, all approvals, authorizations, certificates, consents,
franchises, licenses, permits, rights, variances, waivers, and
agreements with governmental authorities (collectively, the "Permits")
which are material to the conduct of the businesses of the Company
being acquired pursuant hereto.
(g) No Prohibition. No action, suit, or proceeding shall be
pending before any court or quasi-judicial or administrative agency of
any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (i) prevent consummation of any of the
transactions contemplated by this Agreement or (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect).
(h) No Material Change. The Company shall not have
undergone any Material Change (as defined in Article XIII hereof)
since the date hereof.
(i) Instruments. The Company and the respective Sellers,
as described below, shall have executed, or caused to be executed, and
delivered to the Purchaser the following documents:
(i) Share Certificates. Sellers shall have executed
and delivered share certificates representing the Shares,
endorsed in blank or accompanied by duly executed assignment
documents;
(ii) The Employment Agreement. BTH shall have executed
and delivered the Employment Agreement in the form hereafter
agreed between BTH and the Purchaser (the "BTH Employment
Agreement");
(iii) Title Documents. The Sellers shall have executed
and delivered such affidavits, indemnities, confirmations and
other documents necessary, in the reasonable judgment of the
Purchaser, to permit the issuance of the Title Policies
contemplated by Section 8.6 hereof;
11
(iv) Estoppels, Etc. The Purchaser shall have received
such estoppels and other confirmations with respect to
material matters as the Purchaser may reasonably request from
third parties, a list of which shall be set forth on
Attachment 5.1(i) to be attached hereto; and
(v) Partnership Assets. Each Partnership shall
deliver to Purchaser a limited warranty deed, bill of sale and
such other instruments necessary to convey insurable fee
simple title to its real estate assets and all of its right,
title and interest in all of its other assets (subject to
Permitted Liens and such other security interests and
permitted exceptions as are approved by the Purchaser) to the
Purchaser or its designee. In connection therewith, the
Sellers hereby represent and warrant to the Purchaser that, as
of the date thereof, each such conveyance will be duly
authorized in accordance with Applicable Law and the relevant
partnership agreement and that such conveyance will constitute
a valid, legal and binding obligation of the relevant
partnership, enforceable against it in accordance with the
terms of the relevant conveyancing document.
(j) Title Policies. The Sellers shall have caused the Title
Policies to be delivered to the Purchaser.
(k) Surveys. The Sellers shall have caused the Surveys
described in Section 8.7 hereof (to the extent not delivered prior to the
Closing Date) to be delivered to the Purchaser.
(l) Environmental Matters. The Purchaser shall have received
the Environmental Reports contemplated by Section 8.8 hereof.
(m) Employees. The Purchaser shall have entered into
employment arrangements on terms mutually acceptable with such key
employees of the Company as the parties hereto shall agree.
(n) Legal Opinion. The outside legal counsel for the Sellers
shall have delivered to the Purchaser a legal opinion in the form as shall
be agreed between the parties.
(o) The Partnerships. The Sellers shall have obtained the
written consent of all of the owners of the limited partnership interests
of each Partnership to the sale of all of the assets of such Partnership by
its general partner on behalf of the Partnership. Moreover, the Sellers
shall have agreed in writing that they shall indemnify and hold Purchaser
and the Company harmless from any and all liability of whatever kind or
nature to the limited partners of each Partnership including but not
limited to any liability resulting from the sale of the Partnership assets
as herein provided, any liability for securities law violations, or any
liability as to the operation of the Partnership. Such indemnification
shall not be subject to the Indemnification Threshold (as defined in
12
Section 11.8 hereof) or the Indemnification Cap (as defined in Section 11.8
hereof) but shall be subject to the indemnification procedures set forth in
Section 11.3 hereof.
(p) Hart-Scott-Rodino Act Approvals. All applicable waiting
periods (and any extensions thereof) under the Hart-Scott-Rodino Act (as
defined in Article XIII hereof) shall have expired or otherwise been
terminated.
(q) Resignations. Purchaser shall have received the
resignation, effective as of the Closing Date, of each director of each
Corporation.
(r) Certificates Required by Code. Each of the Sellers shall
have provided to Purchaser the appropriate certificate dated as of the
Closing Date that is required pursuant to Sections 897 and 1445 of the
Code.
(s) Approval of Sellers' Schedules. The Purchaser shall have
approved all of the Sellers' Schedules as provided in Section 8.3 hereof.
(t) Trust Legal Opinion. The Trust shall have delivered to
the Purchaser a legal opinion and such other documentation as Purchaser may
reasonably request as to the authority of the Trust to enter into the
Documents and make the transfers contemplated herein.
(u) Other. The Sellers shall have delivered to the Purchaser
such other certificates, documents, and instruments as the Purchaser may
reasonably request to effect the transactions contemplated hereby.
5.2 Conditions to the Sellers' Obligation to Close. The
obligations of the Sellers to consummate the Closing transactions contemplated
hereby are subject to the satisfaction of the following precedent or concurrent
conditions (collectively, the "Seller Conditions"), each of which the Sellers
may waive:
(a) Representations and Warranties. The representations
and warranties of the Purchaser contained in each Document shall be true
and correct in all material respects on and as of the date hereof and on
and as of the Closing Date as though made on and as of the Closing Date.
(b) Performance of Covenants. The Purchaser shall have
performed all agreements, covenants, and obligations herein that it is
required to perform on or prior to the Closing Date.
(c) Closing Certificate. The Purchaser shall have delivered
to the Sellers a certificate confirming the satisfaction of the conditions
set forth in Sections 5.2(a) and (b) hereof.
13
(d) Secretary's Certificate. The Purchaser shall have
delivered to the Sellers a certificate of the Secretary of Purchaser, in a
form acceptable to the Sellers, which shall include:
(i) Charter. A copy of the Purchaser's certificate of
incorporation certified by the Delaware Secretary of State not
more than 15 Business Days before the Closing Date;
(ii) Bylaws. A copy of the Purchaser's bylaws;
(iii) Good Standing Certificate. A long-form good
standing certificate from the Delaware Secretary of State,
dated no earlier than February 1, 1997, stating that the
Purchaser is in existence and good standing under the laws of
the State of Delaware and describing each document comprising
the Purchaser's certificate of incorporation;
(iv) Resolutions. A copy of the resolutions that the
Purchaser's board of directors adopted approving the
Purchaser's execution, delivery, and performance of each
Document to which it is a party; and
(v) Incumbency Certificate. An incumbency certificate
setting forth the names, offices, and signatures of all of the
Purchaser's officers who have executed any instrument,
certificate or Document delivered at the Closing.
(e) No Prohibition. No action, suit, or proceeding shall be
pending before any court or quasi-judicial or administrative agency of
any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (i) prevent consummation of any of the
transactions contemplated by this Agreement or (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect).
(f) Instruments. Purchaser shall have executed and delivered
to BTH the BTH Employment Agreement.
(g) Guaranties. Except for those guaranties, letters of
credit and surety bonds identified on Attachment 5.2(g)(i) to be
attached hereto (the "Remaining Guaranties"), the Sellers shall have
been released from all personal guaranties of any liability of the
Company, and all letters of credit and surety bonds identified on
Attachment 5.2(g)(ii) to be attached hereto issued in connection
therewith shall have been terminated.
(h) Legal Opinion. The legal counsel for the Purchaser shall
have delivered to the Sellers a legal opinion in the form as shall be
agreed between the parties.
14
(i) Disclosure Documents. The Purchaser shall have delivered
to the Sellers copies of the Purchaser's 1996 Annual Report on Form
10-K and Proxy Statement, the Purchaser's Quarterly Reports on Form
10-Q for the quarters ending December 31, 1995, March 31, 1996, June
30, 1996, and December 31, 1996, and any other document or report filed
with the Commission and/or mailed to the Purchaser's shareholders since
the date on which the Purchaser filed its 1996 Form 10-K report with
the Commission (collectively, the "Disclosure Documents").
(j) Hart-Scott-Rodino Act Approvals. All applicable waiting
periods (and any extensions thereof) under the Hart-Scott-Rodino Act
shall have expired or otherwise been terminated.
(k) Purchase Price for Partnership Assets. The Purchaser shall
have paid to each Partnership the purchase price for the assets of such
Partnership as set forth on Attachment 4.3(b) to be attached hereto.
(l) Approval of Sellers' Schedules. The Purchaser shall have
approved all the Sellers' Schedules delivered to the Purchaser
hereunder.
(m) Other Matters. The Purchaser shall have delivered to the
Sellers such other certificates, documents, and instruments as the
Sellers may reasonably request to effect the transactions contemplated
hereby.
VI. REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE PURCHASER
The Purchaser represents, warrants and covenants to the Sellers as
follows:
6.1 Organization. The Purchaser is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
6.2 Power and Authority. The Purchaser possesses the requisite power
and authority to execute and deliver each Document to which it is a party, to
perform its obligations thereunder, and to consummate the transactions
contemplated thereby, without obtaining any approval, authorization, consent, or
waiver or giving any notice other than the approval of its board of directors
(or the executive committee thereof), which it has obtained.
6.3 Execution, Delivery, and Enforceability of the Documents. The
Purchaser has duly authorized, executed, and delivered this Agreement, which
constitutes a valid, legal, and binding obligation of the Purchaser, enforceable
against it in accordance with its terms. With respect to each other Document to
which it is a party, the Purchaser will have duly authorized such Document, and
at the Closing the Purchaser will duly execute and deliver such Document, which
will constitute a valid, legal, and binding obligation of the Purchaser,
enforceable against it in accordance with its terms.
15
6.4 Conflicts. The Purchaser's execution, delivery, and performance of
the Documents to which it is a party will not conflict with, constitute a breach
or violation of, result in a Lien against, or give rise to any default or right
of acceleration, cancellation, or termination with respect to any agreement,
Applicable Law (as defined in Article XIII hereof), arrangement, authorization,
commitment, contract, decree, deed of trust, franchise, judgment, lease,
license, mortgage, order, permit, or other document or obligation to which the
Purchaser is a party or by which any assets of the Purchaser are bound (or give
rise to an event that with notice, lapse of time, or both, would result in such
a conflict, breach, violation, Lien, default, or right), including the
certificate of incorporation and bylaws of the Purchaser.
6.5 No Broker. The Purchaser has no obligation or liability to any
broker, finder, or other Person for any broker or similar services with respect
to the transactions contemplated hereby.
6.6 Investment. The Purchaser (a) understands that the Shares have not
been, and will not be, registered under the Securities Act or under any state
securities or blue sky laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving a public offering,
(b) understands that the reliance of the Sellers and the Company upon the
foregoing exemptions is predicated in part upon the Purchaser's representations
and warranties set forth in this Section 6.6, (c) is acquiring the Shares solely
for its own account and for investment purposes, and not with a view to or for
resale in connection with the distribution thereof, (d) is a sophisticated
investor for the purposes of the Securities Act and has such knowledge and
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in the Shares, (e) has had the opportunity
to obtain such information concerning the Company as it desired in order to
evaluate the risks of purchasing and owning the Shares, and (f) is able to bear
the economic risk and lack of liquidity inherent in owning and holding the
Shares. Notwithstanding the foregoing, this Section 6.6 shall in no way relieve
the Sellers or the Company from any of their representations, warranties, and
covenants contained in this Agreement or invalidate the Purchaser's rights and
remedies set out in this Agreement.
6.7 Capitalization. The entire authorized capital stock of Purchaser
consists of (a) 30,000,000 shares of preferred stock, $0.10 par value, of which
no shares are issued and outstanding and no shares are held in treasury, and (b)
100,000,000 shares of Common Stock, $0.01 par value, of which 32,415,729 shares
are issued and outstanding and no shares are held in treasury as of December 31,
1996. All of the issued and outstanding shares of Common Stock are duly
authorized, validly issued, fully paid and nonassessable. Except as set forth on
Attachment 6.7 to be attached hereto or as previously disclosed to the Sellers,
there are no outstanding subscriptions, options, rights, warrants, convertible
securities or other agreements or commitments obligating the Purchaser to issue
or to transfer from its treasury any shares of capital stock of any class.
6.8 Shares. The Purchaser Shares are duly authorized and when issued
in accordance with the provisions of this Agreement will be validly issued,
16
fully paid and nonassessable, with no personal liability attaching to the
ownership thereof. The Purchaser Shares have not been and will not be issued in
violation of the preemptive rights of any Person.
6.9 Adverse Change. Since December 31, 1996, the Purchaser and its
subsidiaries have not suffered a material adverse change in their financial
condition or results of operations, or in their assets, properties, business or
operations, and since such date to the Knowledge of the Purchaser there has been
no occurrence, circumstance or combination thereof, whether arising theretofore
or thereafter, which might reasonably be expected to result in any such material
adverse change.
6.10 Litigation. Except as previously disclosed to the Sellers, to the
Knowledge of the Purchaser: (a) there are no material actions, suits,
investigations or proceedings pending, threatened against or affecting the
Purchaser, any of its subsidiaries, the business of any of them or the
execution, performance or delivery of any Document that would, if decided
adversely, have a material adverse effect on the Purchaser; (b) there are no
acts, conditions, circumstances, events or incidences which would provide a
basis for any such material action, suit or proceeding; (c) there are no
material actions, suits or proceedings pending or threatened against the
Purchaser or any of its subsidiaries by any stockholder of the Purchaser or
involving any claim under the Securities Act or the Exchange Act; and (d) there
is no material judgment or settlement agreement that the Purchaser or any of its
subsidiaries have entered into or by which any of them are bound with respect to
any administrative or judicial proceedings, which judgment or settlement has not
been fully performed as of the date hereof.
6.11 Permits, Authorizations, Etc. To the Purchaser's Knowledge, the
Purchaser and its subsidiaries have all approvals, authorizations, consents,
licenses, orders and other permits of all governmental agencies and authorities,
whether federal, state, local or foreign (the "Purchaser Permits"), which are
necessary for the lawful conduct of its business, except for those Purchaser
Permits the absence of which would not materially adversely affect the business
of the Purchaser.
6.12 Compliance with Applicable Law. To the Knowledge of the Purchaser,
the Purchaser and each of its subsidiaries is, in the conduct of their
respective businesses, in compliance with all Applicable Laws except for such
noncompliance which would not, if enforced, have a material adverse effect on
the Purchaser. Moreover, no action, decree, injunction, order, proceeding, or
writ by or before any governmental entity is existing, pending or, to the
Knowledge of the Purchaser, threatened that would prohibit the Purchaser from
consummating the transactions contemplated hereby.
6.13 Reports and Information. The Purchaser has duly filed all reports
required to be filed by it with the Commission under the Exchange Act. The
Purchaser's SEC periodic reports, proxy statement and registration statements as
of the date filed with the Commission furnished to Sellers in connection with
this Agreement do not contain any untrue statement of material fact and do not
omit to state any material fact necessary in order to make the statements herein
or therein, in light of the circumstances under which they were made, not
misleading.
17
6.14 Absence of Unethical Business Practices. To the Purchaser's
Knowledge, neither the Purchaser nor any Affiliate thereof has directly or
indirectly given or agreed to give any gift or similar benefit to any supplier,
government employee, or other Person who was or is in a possible position to
help or hinder the Purchaser, which gift or benefit (a) would subject the
Purchaser or any of its subsidiaries to any damages or material penalties in any
civil or criminal proceeding, or (b) would have had a material adverse effect on
the business of the Purchaser if not given or continued.
6.15 Registration Rights. Except as to be set forth on Attachment 6.15
hereto, and except as to employees or directors of the Purchaser or any trust
for the benefit of a family member of an employee or director, the Purchaser is
not a party to or bound by any agreement or arrangement which permits or grants
any Person the right to participate in the registration of any of the
Purchaser's securities or any related underwriting, other than a registration
relating solely to employee benefit plans, or a registration in a Commission
Rule 145 transaction, or a registration on any registration form that does not
permit secondary sales.
VII-A. INDIVIDUAL REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE SELLERS
Each Seller, individually and on his own behalf, hereby makes the
following representations, warranties and covenants to the Purchaser, each of
which shall be qualified to the extent and in the manner set forth in Section
8.3 hereof, it being understood that for purposes of this Article VII-A, the
Trust and GS shall have joint and several liability for the breach of any of the
following representations and warranties applicable to either one of them:
7-A.1. Legal Capacity. Such Seller possesses the legal capacity to
execute and deliver each Document to which he is a party, to perform his
obligations thereunder, and to consummate the transactions contemplated thereby.
7-A.2 Execution, Delivery, and Enforceability of the Documents. Such
Seller has duly executed and delivered this Agreement, which constitutes a
valid, legal and binding obligation of such Seller, enforceable against him in
accordance with its terms. With respect to each other Document to which such
Seller is a party, such Seller will duly execute and deliver such Document which
will constitute a valid and legally binding obligation of such Seller,
enforceable against him in accordance with its terms. Each Seller is the sole
record and beneficial owner of his Shares, has full legal right to sell, assign
and transfer the Shares to the Purchaser and, upon delivery of the certificates
representing the Shares to the Purchaser pursuant to the terms of this
Agreement, to transfer to the Purchaser good and indefeasible title to the
Shares free and clear of any Liens.
7-A.3 Conflicts. The execution, delivery, and performance by such
Seller of the Documents to which such Seller is a party will not conflict with,
constitute a breach or violation of, result in a Lien against, or give rise to
any default or right of acceleration, cancellation, or termination with respect
to any agreement, Applicable Law, arrangement, authorization, commitment,
contract, decree, deed of trust, franchise, judgment, lease, license, mortgage,
18
order, permit, or other document or obligation to which such Seller is a party
or by which any assets of such Seller are bound (or give rise to an event that
with notice, lapse of time, or both, would result in such a conflict, breach,
violation, Lien, default, or right).
VII. JOINT AND SEVERAL REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE SELLERS
The Sellers, jointly and severally, make the following representations,
warranties and covenants to the Purchaser, each of which shall be qualified to
the extent and in the manner set forth in Section 8.3 hereof:
7.1 Organization of the Company; Capitalization. Each Corporation is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation as set forth on Exhibit A hereto. Except as
set forth on Exhibit A hereto, no Corporation is required to qualify to transact
business as a foreign corporation in any jurisdiction. Except as to be set forth
on Schedule 7.1 hereto and except for the Partnerships listed on Exhibit A
hereto, no Corporation owns any beneficial or record interest in any
corporation, joint venture, partnership, or other Person. Except as to be set
forth on Schedule 7.1 hereto, no Seller owns any beneficial or record interest
in any corporation, joint venture, partnership (other than the Partnerships that
are being acquired as part of this Agreement), or other Person created under the
laws of, or qualified to do business in, or required to qualify to do business
in, the states of Georgia, North Carolina or South Carolina. Schedule 7.1 hereto
shall set forth the capitalization of each of the Corporations, including its
authorized, issued, outstanding, and treasury shares. All of the issued and
outstanding Shares have been duly authorized, are validly issued, fully paid,
and nonassessable, have not been issued in violation of the preemptive rights of
any Person, and are held beneficially and of record by the Sellers free and
clear of all Liens, and are not subject to any agreements or understandings
among any Person with respect to the voting or transfer thereof, except as to be
set forth in Schedule 7.1 hereto, all of which shall be released on or before
the Closing Date. There are no outstanding subscriptions, options, convertible
securities, warrants or calls of any kind issued or granted by, or binding upon,
the Sellers or any of the Corporations to purchase or otherwise acquire any
security or equity interest in any of the Corporations. There are no outstanding
subscriptions, options, rights, warrants, convertible securities or other
agreements or commitments obligating the Corporations to issue or to transfer
from their respective treasuries any shares of capital stock of any class.
7.2 Power and Authority. Each Corporation has all the requisite
corporate power and authority to own and lease the property and assets such
corporation currently owns and leases and to carry on its business and
activities as currently conducted.
7.3 Conflicts. Other than the documents and obligations to which the
Consents to be described on Schedule 7.12 hereto relate, the execution,
delivery, and performance of the Documents to which each Seller or the Company
is a party will not conflict with, constitute a breach or violation of, result
in a Lien against, or give rise to any default or right of acceleration,
cancellation, or termination with respect to any agreement, Applicable Law,
arrangement, authorization, commitment, contract, decree, deed of trust,
franchise, judgment, lease, license, mortgage, order, permit, or other document
19
or obligation to which the Company is a party or by which any assets of the
Company are bound (or give rise to an event that with notice, lapse of time, or
both, would result in such a conflict, breach, violation, Lien, default, or
right), including the articles of incorporation and bylaws of each Corporation
and the partnership agreement of each Partnership.
7.4 No Broker. Except as to be set forth on Schedule 7.4 hereto,
neither the Sellers nor the Company has any obligation or liability to any
broker, finder, or other Person for any broker or similar services with respect
to the transactions contemplated hereby. Any obligations or liabilities to be
set forth on Schedule 7.4 are the sole responsibility of the Sellers and, after
payment at the Closing by the Sellers, will not give rise to any Lien against
the Shares or any Company Assets.
7.5 Financial Statements.
(a) The Sellers will cause the Company to deliver to the
Purchaser copies of the following financial statements as part of
Schedule 7.5 to be attached hereto (collectively, the "Financial
Statements"): (i) the unaudited balance sheet of the Company as of
September 30, 1996, and the related unaudited statements of income,
equities, and cash flows for the twelve months ending September 30,
1996 (the "September Financial Statements"), (ii) the unaudited balance
sheet of the Company as of December 31, 1996, and the related
statements of income for the three month period ending December 31,
1996 (the "Interim Financial Statements"), and (iii) the audited
balance sheet of the Company as of December 31, 1996 (the "1996 Balance
Sheet"), and the related statements of income, equities and cash flows
for the year ended December 31, 1996, including the related notes
thereto (collectively with the 1996 Balance Sheet, the "1996 Financial
Statements").
(b) The Financial Statements (including the related notes
thereto) have been or will be prepared from the books and records of
the Company using generally accepted accounting principles applied on a
basis consistent with such principles that the Company has previously
used, with the exception of the consolidation of the Company.
(c) To the Knowledge of the Sellers, the September Financial
Statements and the Interim Financial Statements present fairly in all
material respects the financial position of the Company as of the dates
indicated and the results of operations of the Company for the
respective periods then ended.
(d) The 1996 Financial Statements present fairly the financial
position of the Company as of the date indicated and the results of the
operations for the period then ended.
(e) Except as to be set forth on Schedule 7.5(e), the Company
has no material liabilities other than (i) the liabilities reflected in
the 1996 Balance Sheet, (ii) liabilities incurred since the date
thereof in the ordinary course of business consistent with past
20
practices and this Agreement, or (iii) reserves for liabilities
incurred since the 1996 Balance Sheet.
(f) The 1996 Balance Sheet also provides reserves and
disclosures with respect to all liabilities, including without
limitation contingent liabilities, of the Company required to be
provided by generally accepted accounting principles.
(g) Except as to be set forth on Schedule 7.5(g), since the
date of the 1996 Balance Sheet the Company has not: (i) declared, set
aside, or paid any dividend or distribution with respect to its capital
stock or Partnership interests (whether in cash or in kind) other than
to a Company entity or redeemed, purchased, or otherwise acquired any
of its capital stock or Partnership interests; (ii) made any material
capital expenditure (or series of related capital expenditures) outside
the ordinary course of business; (iii) granted any material increase in
the bonus, salaries of other compensation of any of its directors,
officers, managers, and employees outside the ordinary course of
business or made any other change in the employment terms for any of
its directors, officers and employees outside the ordinary course of
business; (iv) delayed or postponed the payment of any material
accounts payable or other liabilities in a manner inconsistent with the
ordinary course of business, the effect of which would have a material
adverse effect on the business of the Company; or (v) experienced any
material damage, destruction or loss (whether or not covered by
insurance) to its property, the effect of which would have a material
adverse effect on the business of the Company.
7.6 Internal Accounting Controls. To the Sellers' Knowledge, the
Company (a) keeps books, records, and accounts that accurately, fairly, and in
reasonable detail reflect its assets and transactions, and (b) maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are accurately and promptly recorded to permit
the preparation of the Company's Financial Statements, (ii) transactions are
executed in accordance with management's general or specific authorization,
(iii) access to its assets is permitted only in accordance with management's
general or specific authorization, and (iv) comparisons are made between its
fixed asset registers and its existing assets at reasonable intervals and the
Company takes appropriate action with respect to any differences between them.
7.7 Adequacy of Company Assets. To the Sellers' Knowledge, the Company
Assets include all assets and properties of every kind and description, real,
personal or mixed, tangible or intangible, the use of which is materially
necessary to enable the Purchaser to conduct the business of the Company as
conducted prior to the date hereof. To the Sellers' Knowledge, the tangible
assets of the Company including without limitation its buildings and equipment
are structurally sound, are in good operating condition, and are adequate for
the uses to which they are being put. To the Sellers' Knowledge, none of such
tangible assets is in need of maintenance and repair except for ordinary,
routine maintenance and repairs that are not material in nature or cost.
7.8 Absence of Undisclosed Liabilities. Except as disclosed in the 1996
Financial Statements or as to be set forth on Schedule 7.8 hereto, to Sellers'
21
Knowledge, the Company Assets and the business of the Company are not subject to
any Claims or obligations of any nature, absolute or contingent, or any facts
that could give rise to any Claims or obligations, which (a) are of a type which
would be required to be accrued for or otherwise reflected in financial
statements prepared in accordance with generally accepted accounting principles,
or (b) could materially adversely affect the assets, business, cash flows,
financial condition, or operations of the Company, except for liabilities or
obligations that have arisen since December 31, 1996, in the ordinary course of
business consistent with past practices and this Agreement (none of which is
materially adverse to the assets, business, cash flows, financial condition, or
operations of the Company).
7.9 Absence of Unethical Business Practices. To the Sellers' Knowledge,
neither the Sellers nor any Affiliate thereof has directly or indirectly given
or agreed to give any gift or similar benefit to any supplier, government
employee, or other Person who was or is in a possible position to help or hinder
the Company, which gift or benefit (a) would subject a Seller or the Company to
any damages or material penalties in any civil or criminal proceeding, or (b)
would have had a material adverse effect on the Company Assets or the business
of the Company if not given or continued.
7.10 Absence of Certain Changes. Since December 31, 1996, the Company
has not undergone any Material Change. Moreover, since such date the Company has
(a) used commercially reasonable efforts to preserve its business and goodwill,
including the goodwill of its customers, employees, subcontractors, suppliers
and other Persons having business relations with it, and (b) maintained the
tangible Company Assets in at least as good an order and condition as existed on
such date, reasonable wear and tear and ordinary turnover of obsolete equipment
and tools excepted.
7.11 Compliance with Applicable Laws. Except as to be set forth on
Schedule 7.11 hereto, to Sellers' Knowledge, the Company and the Partnerships
have complied, in all material respects, with all Applicable Laws in the conduct
of its business. To the Sellers' Knowledge, no action, suit, proceeding,
hearing, investigation, complaint to the Sellers, claim, demand, or notice has
been filed or commenced against the Company alleging a failure to so comply,
which has not been dismissed or resolved prior to the date hereof. Moreover, no
action, decree, injunction, order, proceeding, or writ by or before any
governmental entity is existing, pending or, to the Knowledge of the Sellers,
threatened that would prohibit the Sellers from consummating the transactions
contemplated hereby.
7.12 Consents. All material Consents will be described on Schedule
7.12 to be attached hereto.
7.13 Permits. To the Sellers' Knowledge, the Company possesses all
Permits necessary for the lawful conduct of its business, the absence of which
would materially adversely affect the Company Assets or the businesses of the
Company. Schedule 7.13 to be attached hereto shall identify the types of Permits
used by the Company. To the Sellers' Knowledge, all Permits are in full force
and effect, no material violations have occurred with respect thereto, and the
22
Sellers and the Company know of no basis for any revocation, withdrawal or
material limitation thereof or any denial of any extension or renewal with
respect thereto. Each Permit shall remain in full force and effect
notwithstanding the transfer of the Shares to Purchaser.
7.14 Developed Real Property and Investment Real Property. The Sellers
will list on Schedule 7.14 all real property in which the Company owns an
interest (except for the Land Contract Property, Option Real Property, and
Leased Real Property (as such terms are defined in Section 7.16 and 7.17
hereof)) under the headings "Developed Real Property," "Investment Real
Property," and "Undeveloped Real Property," as appropriate. Schedule 7.14 will
set forth the legal description of each parcel of developed real property in
which the Company owns an interest as of the date hereof either under the
heading "Developed Real Property" (the "Developed Real Property") or "Investment
Real Property" (the "Investment Real Property"), or such other description
legally sufficient to identify the subject property. The Developed Real Property
and Investment Real Property has all necessary access to and from public
highways, streets, and roads and no pending or, to the Knowledge of the Sellers,
threatened proceeding or other fact or condition exists that could limit or
result in the termination of such access. The Developed Real Property and
Investment Real Property is or can be connected to and, where applicable,
serviced by electric, gas, sewage or septic, telephone, and public or private
water facilities, and, where so connected, to the Knowledge of the Sellers, such
facilities are in compliance, in all material respects, with all Applicable Laws
and all installation and connection charges with respect thereto have been paid
in full. To the Knowledge of Sellers, the Developed Real Property and Investment
Real Property is Substantially Complete (as defined in Article XIII hereof),
except as to be set forth on Schedule 7.14 hereto. With respect to any developed
real property acquired by the Company after the date hereof, such Developed Real
Property will satisfy all of the representations and warranties set forth herein
concerning the Developed Real Property as of the Closing Date.
7.15 Undeveloped Real Property. Schedule 7.15 will set forth the legal
description of each parcel of undeveloped real property that the Company
owns as of the date hereof, or such other description legally sufficient to
identify the subject property (the "Undeveloped Real Property"). To the
Knowledge of Sellers, except as shall be set forth on Schedule 7.15 hereto,
there is no fact or condition that could preclude (a) the Undeveloped Real
Property from having access to and from public highways, streets, and roads
either because the Undeveloped Real Property abuts public highways, streets or
roads and there are no restrictions or other facts or conditions which would
prevent each parcel of the Undeveloped Real Property from having adequate access
to such public highways, streets or roads, or because there are easements in
place which benefit each parcel of the Undeveloped Real Property and which are
adequate to provide such access, or (b) the Undeveloped Real Property from being
connected to and, where applicable, serviced by electric, gas, sewage or septic,
telephone, and public or private water facilities. To the Knowledge of the
Sellers, except as shall be set forth on Schedule 7.15 hereto, the Company has
or will be able to secure, through commercially reasonable efforts, all
easements and public dedications necessary to connect the utilities referenced
in Section 7.15(b) above from their current locations to the boundary of each
parcel of Undeveloped Real Property currently exist. With respect to any
undeveloped real property acquired by the Company after the date hereof and
before the date to be set forth in Schedule 7.15 hereto, such undeveloped real
23
property will satisfy all of the representations and warranties set forth herein
concerning the Undeveloped Real Property as of the Closing Date. Sellers have
delivered budgets to Purchaser which set forth Sellers' reasonable estimate of
the cost to complete the development of each parcel of Undeveloped Real Property
necessary to render it Substantially Complete and the actual cost thereof will
not, to Sellers' Knowledge, materially increase above such budgets.
7.16 Real Property Leases. Schedule 7.16 to be attached hereto shall
describe each agreement, arrangement, contract, commitment, lease or usufruct
(the "Real Property Leases") pursuant to which the Company is the lessor or the
lessee (or has an equivalent interest in the case of usufructs or other
arrangements which may not be leases under Applicable Law) with respect to any
real property (the "Leased Real Property") as of the date hereof. As to each
Real Property Lease, to the Sellers' Knowledge (a) the Sellers have neither
delivered nor received notice that any breach or event of default exists, and
(b) no condition or event has occurred that with the giving of notice, the lapse
of time, or both would constitute a breach or event of default by the Company or
any other Person.
7.17 Land Contracts.
(a) Schedule 7.17(a) shall list all written and oral
agreements, arrangements, contracts, and commitments to which the
Company is a party or entered into on behalf thereof pursuant to which
the Company (i) is obligated to purchase any developed or undeveloped
real property (the "Land Contract Property") as of the date hereof or
(ii) possesses an option to acquire any developed or undeveloped real
property (the "Option Real Property") as of the date hereof. Schedule
7.17(a) shall also set forth the legal description of each parcel of
Land Contract Property and Option Real Property, or such other
description legally sufficient to identify the subject property.
(b) To the Knowledge of the Sellers, each such parcel
of developed real property included in the Land Contract Property when
and if purchased will satisfy all of the representations and warranties
set forth herein concerning the Developed Real Property. To the
Knowledge of the Sellers, each such parcel of undeveloped real property
included in the Land Contract Property when and if purchased will
satisfy all of the representations and warranties set forth herein
concerning the Undeveloped Real Property. Moreover, any developed or
undeveloped real property that the Company becomes obligated to
purchase after the date hereof will satisfy all of the representations
and warranties set forth herein for the Developed Real Property or the
Undeveloped Real Property, respectively, as of the Closing Date. In
addition, Schedule 7.17(b) will set forth all letters of intent and
similar proposals relating to the purchase of real property by the
Company submitted, received or entered into by the Company since
December 31, 1996, which have not by the terms thereof expired or have
not been terminated, and which currently are under consideration by the
Company.
7.18 Real Property Generally.
(a) Good and Marketable Title. The Company has good and
marketable title in fee simple to its Developed Real Property,
24
Undeveloped Real Property, Investment Real Property and, to the
Knowledge of the Sellers, Land Contract Property (collectively, the
"Real Property"), subject to the Permitted Liens referred to in Section
7.26 hereof, except that the Company will not acquire such title to its
Land Contract Property until the acquisition thereof. The Real Property
and the Option Real Property constitute all the real property which the
Company owns or has a right to acquire or in which it otherwise has an
interest, except for the Leased Real Property and any easements, rights
of way, covenants, servitudes, licenses or other interests, whether
arising by contract, statute, regulation, common law, equity or
otherwise which are appurtenant to any Real Property, Leased Real
Property or Option Property.
(b) No Breach or Default. Except as to be set forth in
Schedule 7.18(b), with respect to any agreements, arrangements,
contracts, covenants, conditions, deeds, deeds of trust, rights-of-way,
easements, mortgages, restrictions, surveys, title insurance policies,
and other documents granting to the Company title to or an interest in
or otherwise affecting the Real Property which is material to the
operation of the business of the Company, the Sellers have not given
nor have they received any notice that a breach or an event of default
exists, and no condition or event has occurred that with the giving of
notice, the lapse of time, or both would constitute a breach or event
of default, by the Company or, to the Knowledge of the Sellers, any
other Person, except for such breach or event of default of any
unenforceable provision or which would not have a material adverse
impact on the Company or on the applicable parcel of Real Property or
its development or the construction, marketing, or sale of dwellings
situated thereon or the insurability or marketability of the title
thereto.
(c) No Condemnation. No condemnation, eminent domain, or
similar proceeding exists, is pending or, to the Knowledge of the
Sellers, is threatened with respect to, or that could affect, any Real
Property or Leased Real Property which would, if successful, have a
material adverse impact on the Company or on the applicable parcel of
Real Property or its development or the construction, marketing, or
sale of dwellings situated thereon or the insurability or marketability
of the title thereto.
(d) Compliance with Laws. To the Sellers' Knowledge, the
buildings and improvements on the Developed Real Property, the
Investment Real Property, and the Leased Real Property and the
subdivision and improvements of the Undeveloped Real Property do not
violate, in any material respect, (i) any Applicable Law, including any
building, set-back, or zoning law, ordinance, regulation, or statute,
or other governmental restriction in the nature thereof, or (ii) any
enforceable restrictive covenant affecting any such property.
(e) Parties in Possession. To the Sellers' Knowledge, there
are no parties in possession of any portion of the Real Property as
lessees, tenants at sufferance, or trespassers.
(f) Site Obligations. Except as to be set forth on Schedule
7.18(f), to the Knowledge of the Sellers, no Real Property is subject
25
to any condition or obligation to any governmental entity or other
Person requiring the owner or any transferee thereof to donate land
(except for incidental rights of way), money or other property or to
make off-site public improvements.
(g) Assessments. No developer-related charges or assessments
by any public authority or any other Person for public improvements or
otherwise made against the Developed Real Property and the Investment
Real Property or any lots included therein are unpaid (other than those
set forth on the 1996 Balance Sheet or incurred since the date thereof
in the ordinary course of the Company's business consistent with past
practices), including without limitation those for construction of
sewer lines, water lines, storm drainage systems, electric lines,
natural gas lines, streets (including perimeter streets), roads and
curbs, excluding homeowner association dues and per lot impact fees.
(h) Subdivision Standards. Except as to be set forth on
Schedule 7.18(h), to the Knowledge of the Sellers, the Developed Real
Property and the Investment Real Property and all lots included therein
conform to the appropriate governmental authority's subdivision
standards, and there is no material impediment to subdivision approval
for the Undeveloped Real Property, such approval to allow development
of the Undeveloped Real Property for construction and sale of single
family homes at the density and materially in the manner in which the
Company currently anticipates building thereon.
(i) Moratoria. To the Sellers' Knowledge, there is no
moratorium applicable to any of the Developed Real Property or
Undeveloped Real Property, to the extent the Company plans further
development thereof, on (i) the issuance of building permits for the
construction of houses, or certificates of occupancy therefor, or (ii)
the purchase of sewer or water taps, to the extent the Company plans or
is required to rely on public water or sewer facilities.
(j) Construction Conditions. Except as to be set forth on
Schedule 7.18(j), to the Sellers' Knowledge, each of the lots included
in the Developed Real Property is stable and otherwise suitable for the
construction of a residential structure by customary means and without
extraordinary site preparation measures.
(k) Environmental Matters and Wetlands. Except as to be set
forth on Schedule 7.18(k), to the Knowledge of Sellers, none of the
Real Property on which the Company intends to construct residential
dwellings is located within a "critical," "preservation,"
"conservation" or similar type of area which will materially affect the
Company's present development plans therefor. To the Knowledge of the
Sellers, no portion of the Real Property which the Company has
developed or intends to develop for residential lots and dwellings is
situated within a "noise cone" such that the Federal Housing
Administration will not approve mortgages due to the noise level
classification of such real property. Schedule 7.18(k) shall list any
Real Property which to the Knowledge of the Sellers cannot be developed
in accordance with its official development plan and preliminary plot
without materially increasing development costs above those
contemplated by the Company or materially delaying construction. To the
26
Knowledge of the Sellers, no wetlands exist which will restrict
development of any of the Real Property as contemplated by the Company
nor render the cost of its development of any Real Property materially
in excess of the Company's budget therefor.
(l) Certain Prior Uses. Except as to be set forth on Schedule
7.18(l), to the Knowledge of the Sellers, none of the Real Property has
a gravesite that will materially impede the development of residential
homes and no permanent structures have been constructed on a fill or
borrow area in a manner that materially adversely affects the Company's
intended use thereof or that does not comply with any Applicable Law in
any material respect.
(m) Claims. Except as to be set forth on Schedule 7.18(m), no
Legal Proceeding (as defined in Section 7.27 hereof) is pending or, to
the Knowledge of the Sellers, threatened against the Company with
respect to any of the Real Property which, if decided adversely, would
result in a material adverse affect on the Company's intended use of
such property; to the Knowledge of the Sellers, all of the Developed
Real Property and the lots included therein and the Investment Real
Property are in compliance, in all material respects, with all
applicable zoning and subdivision ordinances; and, to the Knowledge of
the Sellers, none of the development-site preparation and construction
work performed on the Real Property has materially concentrated or
diverted surface water or percolating water improperly onto or from the
Real Property in a manner that materially adversely affects the
Company's present or intended use thereof or the value of the Real
Property.
(n) Third Party Rights. Except as to be set forth on Schedule
7.18(n), the Company has not granted to any Person any material
contract or other right to the use of any portion of the Real Property
or to the furnishing or use of any facility or amenity on or relating
to the Real Property, other than sales contracts and Permitted Liens.
(o) Zoning. Except as to be set forth on Schedule 7.18(o),
all of the Real Property is zoned to permit single-family home
construction and occupancy thereon.
(p) No Foreign Sellers. No Seller is a "foreign person"
within the meaning of Sections 1445 and 7701 of the Code.
7.19 Environmental Matters.
(a) No Violation of Environmental Laws. Except as to be set
forth on Schedule 7.19(a), the Company has not, in any material
respect, ever violated or been in non-compliance with any Environmental
Law (as defined in Article XIII hereof).
(b) No Liability. Except as to be described on Schedule
7.19(b) hereto and as to events occurring prior to the Company's (or
its prior Affiliates') acquisition of an asset, to the Sellers'
Knowledge, (i) the Company is not subject to any liability (absolute,
contingent, or otherwise) in connection with any release or threatened
27
release of any Material of Environmental Concern (as defined in Article
XIII hereof); (ii) no Company Asset is subject to any Lien in
connection with any release or threatened release of any Material of
Environmental Concern into the environment; and (iii) neither the
Company nor any Company Asset is subject to any reclamation or
remediation requirements under any Environmental Law.
(c) Not Named as a Potentially Responsible Party. The Company
has never been named as a potentially responsible party in accordance
with CERCLA (as defined in Section 13.9 hereof) or in accordance with
any corresponding state laws.
(d) No Materials of Environmental Concern Incorporated into
Any Acquired Assets. Except as to be described on Schedule 7.19(d), to
the Knowledge of the Sellers, no Materials of Environmental Concern
were incorporated into any of the Company Assets, any property that is
the subject of any Company Contract (as defined in Section 7.20
hereof), or any Previously Owned Property (as defined in Article XIII
hereof), prior to the acquisition of any of the foregoing assets by the
Company or its Affiliates. Except as to be set forth on Schedule
7.19(d), no Materials of Environmental Concern have been incorporated
into any of the Company Assets, any property that is the subject of any
Company Contract, or any Previously Owned Property, following the
acquisition and prior to the disposition of any of the foregoing assets
by the Company.
(e) No Materials of Environmental Concern on the Real
Property. Except as to be described on Schedule 7.19(e), neither (i)
the Company, nor (ii) following the acquisition and prior to the
disposition thereof by the Company or its Affiliates, any other Person,
nor, (iii) to the Knowledge of the Sellers, any other Person at any
time before the acquisition thereof by the Company, has engaged in or
permitted any activity upon the Real Property, the Leased Real
Property, or Previously Owned Property (collectively, the "Warranted
Real Property") which activity involved the discharge, disposal,
dumping, generation, handling, manufacture, refining, release,
treatment, storage, or use of any Materials of Environmental Concern
on, under, in, or about, or transported any Materials of Environmental
Concern to or from, Warranted Real Property. Except as to be set forth
on Schedule 7.19(e), to the Knowledge of the Sellers, no Materials of
Environmental Concern were constructed, deposited, produced, stored or
otherwise located on, under, or in, the Warranted Real Property prior
to the acquisition thereof by the Company. Except as to be described on
Schedule 7.19(e), to Sellers' Knowledge, no Materials of Environmental
Concern have been constructed, deposited, produced, stored or otherwise
first located on, under, in or about the Warranted Real Property
following the acquisition and prior to the disposition thereof by the
Company or any of its Affiliates. Except as to be described on Schedule
7.19(e), to the Knowledge of the Sellers, prior to the Company's (or
any of its Affiliates') acquisition thereof: (i) no Materials of
Environmental Concern have migrated from the Warranted Real Property
upon or beneath any other properties; and (ii) no Materials of
Environmental Concern have migrated or threatened to migrate from any
other properties upon, about, or beneath the Warranted Real Property.
Except as to be described on Schedule 7.19(e): (i) no Materials of
Environmental Concern have migrated from the Warranted Real Property,
28
upon or beneath any other properties, and (ii) no Materials of
Environmental Concern have migrated or threatened to migrate from any
other properties, upon, about, or beneath the Warranted Real Property,
in either case following the acquisition and prior to the disposition
thereof by the Company or its Affiliates.
(f) No Storage Tanks. Except as to be described on Schedule
7.19(f), to the Knowledge of the Sellers, no underground storage, dump,
or treatment tank, gas or oil well or other underground improvement
subject to potential remediation under the Environmental Laws is
located on the Warranted Real Property on the date hereof. Except for
any fuel tanks used in the development thereof or construction thereon,
no underground storage, dump, or treatment tank, gas or oil well or
other underground improvement subject to potential remediation under
the Environmental Laws, has been first located on the Warranted Real
Property following the acquisition and prior to the disposition thereof
by the Company.
(g) No Notices. To the Knowledge of the Sellers, with respect
to the Warranted Real Property, neither the Company nor any officer,
employee or Affiliate thereof or any prior occupant, owner, tenant, or
user of the Warranted Real Property or any other person has received
any notice or other communication concerning (i) any violation or
alleged or probable violation of any Environmental Laws, or (ii) any
alleged liability for environmental damages in connection therewith. No
citation, claim, directive, investigation, lawsuit, proceeding, or
summons is existing, pending or, to the Knowledge of the Sellers,
threatened against the Company or otherwise involving the Warranted
Real Property, in either case relating to Materials of Environmental
Concern involving the Warranted Real Property, or relating to any
alleged violation of any Environmental Laws by the Company or the
suspected presence of any Materials of Environmental Concern involving
the Warranted Real Property. Except as to be set forth on Schedule
7.19(g), following the acquisition and prior to the disposition of the
Warranted Real Property by the Company or any of its Affiliates, no
event has occurred and to the Sellers' Knowledge no circumstance has
existed, which event or circumstance would provide a basis for the
institution or filing of any citation, claim, directive, investigation,
lawsuit, proceeding, or summons as described above. Moreover, to
Sellers' Knowledge, no decree, injunction, judgment, or writ relating
to any of the foregoing is outstanding.
(h) Permitted Use. Notwithstanding anything to the contrary in
subsections (d) and (e) of this Section 7.19, the storage or use of
Materials of Environmental Concern on the Warranted Real Property or
the assets referenced in subsection (d) shall not be a breach of the
representations and warranties in subsections (d) and (e) of this
Section 7.19 to the extent that such materials are of a type and are
used and stored only in a quantity normally used or stored in
connection with the construction, development, occupancy or operation
of residential developments, houses and related common facilities (such
29
as fuel, paving materials, paint, cleaning fluids and supplies normally
used in the construction, development, occupancy or operation of
residential developments, houses, and related common facilities), and
such materials are being and have been held, stored and used in
material compliance with all Applicable Laws, regulations, ordinances
and requirements.
7.20 Company Contracts. Under the appropriate subheading described
below, Schedule 7.20 to be attached hereto shall set forth as of the date hereof
all written agreements, arrangements, contracts, commitments, options, and
leases to which the Company is a party (the 'Company Contracts'):
(a) Home Contracts. Schedule 7.20(a) shall list all contracts
pursuant to which the Company is obligated to construct or sell a
residence or other building;
(b) Development Agreements and Material Real Property
Agreements. Schedule 7.20(b) shall list all contracts to which the
Company is a party whereby the Company is obligated to improve or
develop real property, or to convey a material interest in real
property;
(c) Subcontractor Contracts. Schedule 7.20(c) shall list all
contracts pursuant to which any Person (other than as an employee of
the Company in his or her capacity as an employee) provides material
services to the Company in connection with the construction of homes or
the development of real property and which is not terminable by the
Company without further liability on not more than 30 days' notice;
(d) Supplier Contracts. Schedule 7.20(d) shall list all
contracts pursuant to which any Person provides a material quantity of
supplies to the Company in connection with the construction of homes or
the development of real property and which is not terminable by the
Company without further liability on not more than 30 days' notice;
(e) Personal Property Leases. Schedule 7.20(e) shall list all
contracts pursuant to which the Company is the lessor or the lessee of
any personal property, or holds or operates any equipment, machinery,
vehicle, or other tangible personal property owned by a third party and
used in connection with the Company's business which is not terminable
by the Company without further liability on not more than 30 days'
notice (the "Personal Property Leases");
(f) Data Processing Contracts. Schedule 7.20(f) shall list all
contracts pursuant to which any Person provides computer or data
processing services to the Company in connection with its accounting
and financial records or otherwise and which is not terminable by the
Company without further liability on not more than 30 days' notice; and
(g) Other Contracts. Schedule 7.20(g) shall list the following
contracts other than as previously described in this Section 7.20 or in
Sections 7.16 or 7.17 hereof, pursuant to which the Company is a party
or by which the assets of the Company are bound, including, without
limitation, any confidentiality, consulting, employment, non-compete,
and secrecy agreements and contracts described in Sections 7.20(g)(i)
through 7.20(g)(ix) below, and except for agreements in the ordinary
30
course of business, contracts with home sales real estate agents and
brokers and referral fee arrangements:
(i) in Schedule 7.20(g)(i), to the Knowledge of the
Sellers, any unexpired agreements which obligate the Company
to keep information confidential;
(ii) in Schedule 7.20(g)(ii), to the Knowledge of
the Sellers, any unexpired agreements which: (A) restrict the
Company from competing in a particular home building area or
market, or (B) except for agreements with past or present
employees, benefit the Company by restricting a Person from
competing in a particular area or market;
(iii) in Schedule 7.20(g)(iii), any indentures,
loan or credit agreements, guarantees, letters of credit, or
other agreements or instruments relating to the borrowing or
lending of money or the extension of credit (except for
agreements which contain terms requiring payment within
forty-five (45) days or less of the rendering of services or
delivery of goods), together with any documents granting any
Lien or other security therefor;
(iv) in Schedule 7.20(g)(iv), to the Knowledge of the
Sellers, any exclusive marketing, sales agency, or brokerage
agreements which are not terminable by the Company without
further liability on not more than 30 days' notice;
(v) in Schedule 7.20(g)(v), to the Knowledge of the
Sellers, all advisory, marketing, management and other service
agreements which are not terminable by the Company without
further liability on not more than 30 days' notice;
(vi) in Schedule 7.20(g)(vi), all unexpired
performance, completion, surety, or other bonds or performance
guarantees;
(vii) in Schedule 7.20(g)(vii), all unexpired
indemnity agreements;
(viii) in Schedule 7.20(g)(viii), all agreements
between the Company and Sellers; and
(ix) in Schedule 7.20(g)(ix), to the Knowledge of the
Sellers, all contracts, not specified or included above,
whether or not made in the ordinary course of business, that
involve an aggregate payment in excess of $100,000.
31
7.21 Company Contracts Generally.
(a) Valid and Binding. To Sellers' Knowledge, each Company
Contract is valid and binding. Except as to be set forth on Schedule
7.21(a), to the Sellers' Knowledge, no material Company Contract has
been amended in any material way and, to the Knowledge of the Sellers,
no party thereto has assigned any of its rights or delegated any of its
duties thereunder in contravention thereof. The Company has made copies
of its Company Contracts available for inspection by the Purchaser.
(b) No Breach or Default. Except as to be set forth on
Schedule 7.21(b), no breach or default exists under any Company
Contract and no event has occurred with respect thereto that with the
lapse of time or action or inaction by the Company or any other party
thereto would result in a breach thereof or a default thereunder.
(c) Enforceable by the Purchaser. To the Knowledge of the
Sellers, upon the Purchaser's acquisition of the Company pursuant to
this Agreement, all rights of the Company with respect to the Company
Contracts will remain materially in force in accordance with the
Company Contracts' terms, the transfer of control of the Company to the
Purchaser notwithstanding.
(d) No Liens. To Sellers' Knowledge, the Company's right,
title, and interest in, to and under each Company Contract are free and
clear of any Lien, other than a Permitted Lien, or a Lien which will be
satisfied at the Closing.
(e) No Amounts Owed. As of the Closing, the Company will not
then owe any amount (whether absolute, contingent, or otherwise) with
respect to any Company Contract, other than amounts reflected in the
1996 Balance Sheet, or, to the Knowledge of the Sellers, amounts
incurred since the date thereof in the ordinary course of business
consistent with past practices and this Agreement, which amounts will
have been properly recorded in the accounts payable ledger of the
Company.
(f) No Burdensome Contracts. To the Sellers' Knowledge, no
Company Contract (i) requires the Company to make purchases or pay for
services materially in excess of the requirements of its business as
conducted and planned by the Sellers, or (ii) guarantees any obligation
of another Person or provides any type of indemnification not in the
ordinary course of business other than those guaranties and indemnities
that will be satisfied at the Closing. Moreover, except as to be set
forth on Schedule 7.21(f) hereto or Schedule 7.34 to be attached
hereto, to Sellers' Knowledge, no Company Contract or any other
agreement, arrangement, commitment, contract, document, or instrument
restricts the ability of BTH and the Company to compete whatsoever,
other than this Agreement or the BTH Employment Agreement.
(g) Leases. Except as to be set forth on Schedule 7.21(g), the
Company has paid all rental and other payments due under each Personal
Property Lease and Real Property Lease (collectively, the "Leases")
32
under which the Company is the lessee in accordance with its terms.
With respect to each such Lease, the Company is in peaceable possession
of the buildings, equipment, machinery, real property, vehicles, or
other tangible property covered thereby. Moreover, to Sellers'
Knowledge, no material indulgence, postponement, or waiver of any of
the Company's obligations under any such Lease has been granted by the
lessor. To Sellers' Knowledge, the Company possesses the right and
power to occupy or possess, as the case may be, all of the buildings,
equipment, machinery, real property, vehicles, and other tangible
property covered by such Leases as agreed therein.
7.22 Inventory. To the Knowledge of the Sellers, subject to the
Permitted Liens, the Company has good title to all of its inventory reflected on
the 1996 Balance Sheet and all inventory that it has purchased or created since
the date thereof, other than such inventory disposed in the ordinary course of
business consistent with past practices. Since the date of the Letter of Intent
between the parties hereto dated November 8, 1996, the Company has disposed of
and acquired all inventory only in the ordinary course of business consistent
with past practices. Nothing in this Section 7.22 shall override the Sellers'
representations and warranties as to the title to real and personal property as
set forth elsewhere in this Agreement.
7.23 Accounts Receivable. Except as to be set forth on
Schedule 7.23, the accounts and notes receivable reflected on the 1996 Balance
Sheet and all accounts and notes receivable of the Company arising since the
date thereof, other than accounts and notes receivable collected since then in
the ordinary course of business consistent with past practices and this
Agreement (a) arose from bona fide sales transactions by the Company in the
ordinary course of business consistent with past practices, (b) represent (or
represented) bona fide indebtedness of the respective debtors, (c) are (or were)
collectible in full in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth in the 1996 Balance Sheet or
reserves accrued since the date thereof, and (d) are not subject to any claim of
defense or offset which has been asserted, or, to the Knowledge of Sellers,
threatened, subject to reserves or other liabilities reflected in the 1996
Balance Sheet or accrued since the date thereof.
7.24 Personal Property. Subject to Permitted Liens, the Company has
good title to all of the tangible personal property reflected on the 1996
Balance Sheet and all tangible personal property that it has acquired since the
date thereof, other than such tangible personal property disposed of since then
in the ordinary course of business consistent with past practices.
7.25 Vehicles. Schedule 7.25 shall describe each automobile, trailer,
truck, or other vehicle that the Company owns, which descriptions will include
vehicle identification numbers.
7.26 Permitted Liens. The Company's title to its Company Assets is free
and clear of all Liens, other than the following: (a) Liens expressly permitted
with respect to particular categories of Company Assets elsewhere in this
Agreement, (b) Liens to be listed on Schedule 7.26(b) hereto, (c) Liens for
taxes not yet due and payable, (d) Liens for goods or services supplied by other
Persons to the Company to the extent such Persons have not been paid in full
therefor and the Company is not in default of payment or is in good faith
contesting any such payment (and provided that all contests involving amounts in
excess of $20,000 shall be set forth on Schedule 7.26(d) hereto), (e) such
33
imperfections of title, pledges, liens and encumbrances, if any, as do not
materially detract from the value or interfere with the present or intended use
of the properties of the Company or otherwise materially impair the Company's
business operations, and which do not secure obligations for borrowed money,
judgments, indemnities, guaranties, bonds, surety arrangements, reimbursement
obligations (including without limitation in connection with letters of credit)
or the deferred portion of the purchase price of acquired property and (f) such
other Liens as may be described in the commitments for title insurance delivered
pursuant to Section 8.6 hereof (the items set forth in Sections 7.26(a)-(e) are
herein referred to collectively as the "Permitted Liens"). Moreover, except for
Permitted Liens, to the Sellers' Knowledge, no Liens exist with respect to any
Land Contract Property or any other property that the Company is obligated to
acquire pursuant to a Company Contract.
7.27 Litigation and Claims. Except as to be described on Schedule
7.27:
(a) To the Knowledge of the Sellers, no action, suit,
investigation, or proceeding that affects the Company, any Company
Asset, or any Seller (a "Legal Proceeding") is pending;
(b) to the Knowledge of the Sellers, no Legal Proceeding
has been threatened against or affecting any Seller, any Company Asset,
the business of the Company, or the execution, delivery or performance
of any Document;
(c) to the Knowledge of the Sellers, there are no acts,
conditions, circumstances, events, or incidents which are likely to
result in a material Legal Proceeding;
(d) to the Knowledge of the Sellers, there are no Legal
Proceedings, which if adversely determined, would result in a Material
Change; and
(e) there are no material judgments or settlements that
the Company has entered into or by which the Company is bound with
respect to any administrative or judicial proceeding which judgment or
settlement has not been fully performed as of the date hereof.
7.28 Insurance. Except for title insurance policies covering the Real
Property, all insurance policies in effect on the date hereof that provide any
type of insurance coverage for the Company, including without limitation
insurance coverage with respect to business casualties, business travel, errors
and omissions, worker's compensation, extended coverage, fire, and general
business liabilities shall be described on Schedule 7.28 (collectively, the
"Insurance Policies"), together with the premiums currently payable thereon and
a description of the coverage limits and periods of coverage with respect
thereto. To Sellers' Knowledge, no material inaccuracy exists in any application
with respect to the Insurance Policies and no material disagreement or dispute
exists between any of the insurers and the Company or any Affiliate thereof.
Moreover, neither the Company nor any Affiliate thereof has received any notice
from any insurance carrier of any intention to discontinue any Insurance Policy
34
or any insurance coverage afforded thereby other than changes in policy forms,
coverage, conditions, exclusions or limitations which are either of general
application to renewals with the relevant insurers or are not material to the
operation of the Company's business. No premiums payable under the Insurance
Policies are currently past due, and the Company has otherwise complied fully
with the material terms and conditions of said policies or has cured any
material noncompliance with such policies. The Insurance Policies, all of which
are in full force and effect, provide such insurance coverage against the risks
associated with the Company and the business of the Company as the Sellers and
the Company believe prudent.
7.29 Customers. Except as to be set forth on Schedule 7.29, during
the last five (5) years, neither the Company nor any Affiliate thereof has been
involved in any material controversy with any group of similarly situated
purchasers of residences or lots from the Company or any Affiliate thereof.
7.30 Subcontractors. Neither the Company nor any Affiliate thereof
is involved in any material controversy with any subcontractor of the Company.
Schedule 7.30 to be attached hereto shall list all Persons performing
construction services on behalf of the Company (other than employees of the
Company acting in their capacity as employees of the Company) to whom the
Company paid more than $200,000 during the year ended December 31, 1996.
7.31 Suppliers. Neither the Company nor any Affiliate thereof is
involved in any material controversy with any of the suppliers of building
materials used in the business of the Company. Schedule 7.31 to be attached
hereto shall list all suppliers from whom the Company purchased more than
$200,000 during the year ended December 31, 1996.
7.32 Warranty Obligations.
(a) Except as to be set forth on Schedule 7.32(a), the
Company, to the Knowledge of the Sellers, does not have any warranty
claims that are not covered by Homebuyers Warranty Corporation,
National Home Insurance Company or warranties from subcontractors that
will exceed the amounts reserved therefor on the 1996 Balance Sheet or
any amounts properly accrued on the books and records of the Company
since the date of the 1996 Balance Sheet.
(b) Except as to be set forth on Schedule 7.32(b), to Sellers'
Knowledge, no product manufactured, sold, leased or delivered by the
Company (except pursuant to Applicable Law) is subject to any material
guaranty, warranty, or other indemnity beyond the applicable standard
terms and conditions of sale or lease.
(c) Schedule 7.32(c) will include copies of the standard
terms and conditions of sale or lease of the Company containing
applicable guaranty, warranty, and indemnity provisions.
(d) Except as to be set forth on Schedule 7.32(d), to the
Knowledge of the Sellers, no events have occurred or facts exist that
35
could result in a significant increase in any future expense related to
the guaranty, warranty, and indemnity obligations of the Company to be
described on Schedules 7.32(a)-(c) from that historically experienced
by the Company.
(e) To the Knowledge of the Sellers, except as set forth on
Schedule 7.32(e), the Company does not have any material liability
(and, to the Knowledge of the Sellers, there is no basis for any
present or future action suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against the Company or the Sellers
giving rise to any material liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or
use of any product sold, leased or delivered by the Company.
7.33 Taxes.
(a) Tax Returns. Except as to be set forth on Schedule
7.33(a), the Company has duly filed when due, including any extensions,
all Tax reports and returns required to be filed for any period prior
to the Closing Date in connection with its assets, business, and
employees, and has timely paid and discharged all Tax obligations shown
thereon. Such Tax reports and returns are accurate and complete, and
correctly compute the Tax obligation to which each such report or
return pertains, and neither Sellers nor the Company expects any
authority to assess any additional Tax for any period for which said
Tax reports and returns have been filed.
(b) No Notices. Except as to be set forth on Schedule 7.33(b),
the Company has not received any notice of any proposed or outstanding
Tax deficiency against or allocable to it, and the Company has not
executed any extension agreement or waiver of any statute of
limitations with respect to the assessment or collection of any Tax.
(c) No Audits. Neither the Internal Revenue Service nor any
other authority has contacted the Company concerning an audit or
examination of Tax reports and returns of the Company; and except as to
be set forth on Schedule 7.33(c), no such audit or examination has
occurred during the five years immediately preceding the date hereof.
(d) No Taxes Collected or Withheld. The Company is not
required to collect or withhold any income, sales, use, or other Taxes,
other than employment related Taxes withheld in respect of Persons
reported as employees on Tax returns of the Company in the ordinary
course of business, and the Company is not required to withhold
employment related Taxes in respect of those persons it has treated as
independent contractors for Tax purposes. The Company has timely paid
over to each applicable taxing authority all Taxes withheld or required
to be withheld.
(e) No Transfer Taxes. Except as to be set forth on
Schedule 7.33(e), the transfer of the Shares to the Purchaser pursuant
hereto will not impose or create any withholding or transfer Tax
obligation under the laws of the States of Georgia or Michigan, except
for Tax obligations that remain the sole liability of the Sellers.
36
(f) No Tax Liens. No Tax Liens exist with respect to any
Company Asset or any property that is the subject of a Company
Contract, except for Liens for Taxes.
(g) Additional Jurisdictions. To Sellers' Knowledge, no
claim is being made by an authority in a jurisdiction where the Company
does not file a return that it is or may be subject to taxation by that
jurisdiction.
(h) Copies of Returns, Etc. The Sellers have caused the
Company to deliver to the Purchaser correct and complete copies of all
federal income tax returns, examination reports and statements of
deficiencies assessed against or agreed to by the Company during the
period commencing six (6) years prior to the date hereof.
(i) Miscellaneous. Except as set forth on Exhibit A attached
hereto, at the time of their formation, the Corporations and their
respective shareholders made valid elections under Subchapter "S" of
the Code which elections remain valid as of the date of this Agreement
and shall continue to be valid through the Closing Date when the
election shall terminate solely by reason of the transfer of the Shares
to Purchaser. The Company has not filed a consent under Section 341(f)
of the Code. The Company has not been a United States real property
holding corporation within Section 897(c)(2) of the Code. The Company
is not subject to any obligations under Section 280(G) of the Code. The
Partnerships have always been treated as partnerships for tax purposes.
7.34 Intellectual Property. Schedule 7.34 will set forth a list of
all the material Intellectual Property (as defined in Article XIII hereof) owned
or used by the Company.
(a) Except as to be set forth on Schedule 7.34(a), to the
Sellers' Knowledge, the Company owns (free and clear of all Liens,
other than Permitted Liens) or has the right to use all material
Intellectual Property as presently used without any obligation to make
any license, royalty, or other payment with respect thereto (including
any license, royalty, or other payment resulting from any infringement
of any third party rights) except for payments which have already been
made or properly accrued in the Company's books and records or have
been properly budgeted in the Company's plans. To the Sellers'
Knowledge, each item of Intellectual Property owned or used by the
Company immediately prior to the Closing will be owned or available for
use by the Company on identical terms and conditions immediately
subsequent to the Closing hereunder.
(b) Except as to be set forth on Schedule 7.34(b), to the
Sellers' Knowledge, (i) the Company has not interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of any third parties, and (ii) none of the
Sellers and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company has
ever received any charge, complaint, claim, demand, or notice alleging
any such interference, infringement, misappropriation, or violation
(including any claim that the Company must license or refrain from
using any Intellectual Property rights of any third party). Schedule
7.34(b) to be attached hereto will list all Persons who, to the
37
Knowledge of Sellers, are using any of the Torrey Names (as defined in
Section 7.34(c) below) in commerce. To the Knowledge of the Sellers, no
third party has infringed upon or misappropriated any Intellectual
Property rights of the Company in any material respect.
(c) Except as to be set forth on Schedule 7.34(c), to the
Sellers' Knowledge, the Company has the right to use the names "The
Torrey Group of Companies", "Torrey Homes", "Torrey Realty Services",
Torrey Development", "Green Thumb", "Aspen Agency", "Preferred
Management Systems", "Provincial Realty", and "Mallard Group", and the
trade name (or service mark) "Torrey" (the "Torrey Names") and, except
as to be set forth on Schedule 7.34(c), to the Sellers' Knowledge, no
other entity has the right to use the Torrey Names as presently used by
the Company, either in the identical form or in such near resemblance
as to be likely, when applied to the goods or services of such entity,
to cause confusion, or to cause mistake, or to deceive.
(d) To the Sellers' Knowledge, the Company owns or has the
right or nonexclusive license to use, as currently used by the Company,
all housing plans, blueprints, elevation drawings, diagrams, and
building plats (collectively, the "Building Plans") currently being
used by the Company in the construction of homes, except as to be set
forth on Schedule 7.34(d). Schedule 7.34(d) shall list all license fees
paid to any Person by the Company for the right to use any of the
Building Plans.
(e) The parties agree and acknowledge that the parties,
subject to the rights of third parties to be set forth on Schedules
7.34(a)-(d), intend for the Purchaser upon the Closing and thereafter,
to have the sole and exclusive rights to use the Torrey Names and all
other marks and names which include the term "Torrey", and any and all
variations thereof, whether or not incorporating any design features or
the like and whether or not registered. Accordingly, the Sellers' agree
that, upon Closing, the Sellers shall not thereafter adopt or use
(alone or with others) any trade name, Trademark (as defined in Article
XIII hereof), service mark, logo or device or the like which is or may
be confusingly similar to any or all of the Torrey Names. Each Seller
agrees and acknowledges that the Seller intends to relinquish all
rights to use the term " Torrey" (whether alone or with other terms,
design features, or the like or not) as a trade name, Trademark or
service mark or the like in the real estate business, but this shall
not preclude Saab from using the name "Torrey" in connection with his
street address or from using the name " SGT."
7.35 Employees.
(a) The Company has provided the Purchaser with a materially
accurate list of the names of all current employees (including those on
leave of absence or layoff status) of the Company, their job title,
employment date, accrued vacation, service credits for employee benefit
plans to be set forth on Schedule 7.36 to be attached hereto, and their
current aggregate annual cash compensation, showing the components
thereof, and changes thereto since December 31, 1996, and other
38
material benefits, including severance benefits payable upon
termination.
(b) Except as to be set forth on Schedule 7.35(b), the Company
has no outstanding loan from or to any Seller or any Affiliate, agent,
director, employee, or officer thereof.
(c) Except as to be set forth on Schedule 7.35(c), to the
Knowledge of the Sellers, no material representations, warranties or
promises have been made to or agreements have been reached with any
employee at variance with the provisions of the employee manual with
respect to their employment, compensation, or benefits with respect to
employment by the Company except in accordance with the Company's
ordinary course of business and as permitted by this Agreement.
(d) To the Knowledge of the Sellers, no executive, key
employee, or significant group of employees has given the Company
notice of its intent to terminate its employment with the Company
during the next 12 months. Schedule 7.35(d) shall set forth a list of
all of the following (to the extent not otherwise set forth on any
Schedule to this Agreement), true and complete copies of which, to the
extent in writing, together with such other related documents as the
Purchaser has reasonably requested, have been made available to the
Purchaser:
(i) each management or employment contract or contract
for personal services between the Company or any Affiliate and
any officer or director of the Company, and to the Sellers'
Knowledge, any consultant or employee;
(ii) each other plan, contract, or arrangement
providing for bonuses, pensions, deferred compensation,
retirement plan payments, profit sharing, incentive pay,
hospitalization or medical expense, insurance for any officer,
consultant, director, annuitant or employee of the Company or
members of their respective families (other than those to be
described on Schedule 7.36), whether or not issued;
(iii) each policy regarding severance, vacations and
sick time, and each personnel manual; and
(iv) any other currently effective agreement relating
to material terms of employment, compensation or benefits of
the Company's employees to which the Company is a party or
which covers any employee of the Company.
7.36 Employee Benefit Plans and Related Matters.
(a) Employee Benefit Plans, Collective Bargaining and
Employment Agreements, and Similar Arrangements.
39
(i) Schedule 7.36(a)(i) to be attached hereto shall
list all employee benefit plans and collective bargaining,
labor and employment agreements or other similar arrangements
to which the Company and any ERISA Affiliate (as hereinafter
defined) of the Company is or ever has been a party or by
which it is or ever has been bound, legally or otherwise,
including, without limitation, (A) any profit-sharing,
deferred compensation, bonus, stock option, stock purchase,
pension, retainer, consulting, retirement, severance, welfare
or incentive plan, agreement or arrangement, (B) any plan,
agreement or arrangement providing for "fringe benefits" or
perquisites to employees, officers, directors or agents,
including but not limited to benefits relating to Company
automobiles, clubs, vacation, child care, parenting,
sabbatical, sick leave, medical, dental, hospitalization, life
insurance and other types of insurance, (C) any employment
agreement or (D) any other "employee benefit plan" within the
meaning of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
(ii) The Sellers have delivered to Purchaser copies,
complete in all material respects, of all documents and
summary plan descriptions with respect to such plans,
agreements and arrangements, or summary descriptions of any
such plans, agreements or arrangements not otherwise in
writing.
(iii) To the Knowledge of the Sellers, there are no
negotiations, demands or proposals that are pending or have
been made and are currently effective which concern matters
now covered, or that would be covered, by plans, agreements or
arrangements of the type describe in this Section.
(iv) The Company is in material compliance with the
applicable provisions of ERISA (as amended through the date of
this Agreement), the regulations and published authorities
thereunder, and all other Applicable Laws with respect to all
such employee benefit plans, agreements and arrangements. To
Sellers' Knowledge, the Company has materially performed all
of its obligations under all such plans, agreements and
arrangements including, but not limited to, the full payment
of all amounts required to be made as contributions thereto or
otherwise, and as to periods ending on or before the date of
this Agreement for which contributions are not yet required to
be made, the Company has accrued on its books the amount of
such payments in accordance with its past practice and custom.
There are no actions, suits or claims (other than routine
claims for benefits) pending or, to the Knowledge of the
Sellers, threatened against such plans or their assets, or
arising out of such plans, agreements or arrangements, and, to
the Knowledge of Sellers, no facts exist which should give
rise to any such actions, suits or claims.
(v) Each of the plans, agreements or arrangements
described in this Section can be terminated by the Company
within a period of thirty (30) days, without payment of any
additional compensation or amount.
40
(vi) With respect to each such plan which is an
"employee benefit plan" (within the meaning of Section 3(3) of
ERISA) or a "Plan" (within the meaning of Section 4975(e) (1)
of the Code), the Company has not participated in, nor do the
Sellers have Knowledge of, any transaction prohibited by
Section 406 of ERISA and no "prohibited transaction" (within
the meaning of Section 4975(c) of the Code).
(vii) The Sellers have delivered to Purchaser for
each such plan copies of the following documents to the extent
applicable: (i) the Form 5500 filed in each of the most recent
three plan years, including but not limited to all schedules
thereto and financial statements with attached opinions of
independent accountants, (ii) the most recent determination
letter from the Internal Revenue Service, (iii) the
consolidated statement of assets and liabilities of such plan
as of its most recent valuation date, and (iv) the statement
of changes in fund balance and in financial position or the
statement of changes in net assets available for benefits
under such plan for the most recently ended plan year. To the
Knowledge of the Sellers, the financial statements so
delivered fairly present the financial condition and the
results of operations of each of such plans as of such dates,
in accordance with generally accepted accounting principles.
(b) Qualified Plans.
(i) Schedule 7.36(b)(i) to be attached hereto will
contain a designation of all "employee pension benefit plans"
of the Company (within the meaning of Section 3(2) of ERISA)
which are also stock bonus, pension or profit-sharing plans
within the meaning of Section 401(a) of the Code.
(ii) Each such plan has been duly authorized by the
appropriate board of directors or similar authorized person of
the Corporations and the Partnerships. Each such plan is
qualified in form and operation under Section 401(a) of the
Code and each trust under each such plan is exempt from tax
under Section 501(a) of the Code. No event has occurred that
will or should give rise to disqualification or loss of
tax-exempt status of any such plan or trust under such
sections of the Code. No event has occurred that will or
should subject any such plans to tax under Section 511 of the
Code.
(iii) With respect to each plan subject to Section
412 of the Code maintained for employees of the Company or any
of its ERISA Affiliates, no amounts are currently due in
connection with the minimum funding standard of Section 412 of
the Code (whether or not waived in accordance with Section
412(d) of the Code) or Section 412(m) of the Code. "ERISA
Affiliate", as applied to any Person, means (i) any
corporation or any trade or business (whether or not
incorporated) which is a member of a group of trades or
business under common control within the meaning of Section
414(c) of the Code of which that Person is a member, and (ii)
any member of an affiliated service group within the meaning
41
of Section 414(m) and (o) of the Code of which that Person or
any corporation or any trade or business described in clause
(i) above is a member.
(c) Title IV Plans. No plan which will be listed in any
of Sellers' Schedules referenced in this Section 7.36 is a plan subject
to Title IV of ERISA.
(d) Multiemployer Plans. No plan to be listed in
Schedule 7.36 is a "multiemployer plan" (within the meaning of Section
3(37) of ERISA). The Company has not contributed to or had an
obligation to contribute to any multiemployer plan. No ERISA Affiliate
has withdrawn from any such multiemployer plan in a complete or partial
withdrawal under Subtitle E of Title IV of ERISA with respect to which
there is any outstanding liability as of the date hereof, or received
notice from any such multiemployer plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends
to terminate or has terminated under Section 4041A or 4042 or ERISA.
(e) Welfare Benefit Plans.
(i) All group health plans (as defined in Code
Section 5000(b)(1)) of the Company and any ERISA Affiliate
have been operated in material compliance with the group
health plan continuation coverage requirements of Section
4980B of the Code to the extent such requirements are
applicable as well as applicable requirements of Title XXII of
the Public Health Service Act and of the Social Security Act.
Except to the extent required under Section 4980B of the Code,
the Company does not provide health or welfare benefits
(through the purchase of insurance or otherwise) for any
retired or former employees.
(ii) For each plan, fund, or arrangement of the
Company which is an employee welfare benefit plan (within the
meaning of ERISA Section 3(1)) (a "Welfare Plan"), or as a
fringe benefit program ("Fringe Benefit Plan"), the following
is true:
(A) each such Welfare Plan intended to meet the
requirements for tax-favored treatment under
Subchapter B of Chapter 1 of the Code meets
such requirements (including, but not limited
to Code Sections 79, 101, 104, 105, 106, and
125) in all material respects;
(B) each such Fringe Benefit Plan intended to
meet the applicable requirements for
tax-favored treatment under Subchapter B of
Chapter 1 of the Code meets such requirements
(including, but not limited to Code Sections
132) in all material respects;
(C) no plan described in Section 7.36(a)(i) is or
at any time was funded through a "welfare
benefit fund" (as defined in Section 419(e)
of the Code);
42
(D) there is no disqualified benefit (as such
term is defined in Code Section 4976(b))
which would subject the Company or the
Purchaser to a Tax under Code Section
4976(a); and
(E) each such Welfare Plan (including any such
plan covering former employees of the
Company) may be amended or terminated by the
Company or the Purchaser on or at any time
after the Closing Date.
(f) Fines and Penalties. There has been no act or
omission by the Company or any ERISA Affiliate that has given rise to
or should give rise to any material fine, penalty, tax, or related
charge under Section 502(c), (i) or (1), Section 4071 of ERISA or
Chapter 43 of the Code.
(g) Certain Payments. The execution and performance of
this Agreement will not result in payments (or transfers of property)
which constitute "excess parachute payments" within the meaning of
Section 280G of the Code.
7.37 Labor Relations; Compliance.
(a) Except as to be set forth on Schedule 7.37(a), the
Company is not now nor has it ever been a party to any collective
bargaining or other labor contract.
(b) Except as to be set forth on Schedule 7.37(b), there has
not been, there is not presently pending or existing, and to the
Knowledge of Sellers there is not threatened (i) any strike, slowdown,
picketing or employee grievance process, (ii) any proceeding against or
affecting the Company which would result in an Employee Liability (as
defined in Article XIII hereof), including without limitation any
charge or complaint filed by an employee or union with the National
Labor Relations Board, the Equal Employment Opportunity Commission, or
any comparable governmental body, organizational activity, or other
labor or employment dispute against or affecting the Company or its
premises, or (iii) any application for certification of a collective
bargaining agent.
(c) Except as to be set forth on Schedule 7.37(c), to the
Sellers' Knowledge, no event has occurred or circumstance exists that
could provide the basis for any employee work stoppage or other labor
dispute.
(d) Except as to be set forth on Schedule 7.37(d), to the
Sellers' Knowledge, the Company has complied in all respects with
Applicable Law relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar taxes,
occupational safety and health, and plant closing.
43
(e) Except as to be set forth on Schedule 7.37(e), the
Company is not liable for the payment of any material compensation,
damages, taxes, fines, penalties, or other amounts, however designated,
for failure to comply with Applicable Law or as a result of an Employee
Liability.
7.38 Books and Records. Except as to be set forth on Schedule 7.38
hereto, the books of account, minute books, stock record books, and other
records of the Company have been made available to Purchaser, are complete in
all material respects, and, to the Sellers' Knowledge, have been maintained in
accordance with reasonably sound business practices. The minute books of the
Company contain records of meetings held of, and corporate action taken by, the
stockholders, the Boards of Directors, and committees of the Boards of Directors
of the Company. At the Closing, all of those books and records will be in the
possession or under the control of the Company.
7.39 Homeowner Associations.
(a) Schedule 7.39 shall set forth a list of all homeowner
associations (the "Homeowner Associations") in which the Company has or
has had declarant rights.
(b) Except as to be set forth on Schedule 7.39, to
Sellers' Knowledge, (i) all restrictive covenants and other documents
used by the Company in connection with the creation and operation of
the Homeowner Associations (A) in which the Company previously had
declarant rights complied in all material respects with Applicable Laws
at the time the same were promulgated, and (B) in which the Company
currently has declarant rights currently comply in all material
respects with Applicable Laws, and (ii) all material disclosures and
deliveries of information and documents required by Applicable Laws as
to such Homeowner Associations and their creation and operation have
been materially complied with.
(c) To Sellers' Knowledge, Schedule 7.39 shall set forth
all amounts owing between the Homeowners Associations and the Company.
(d) To the Sellers' Knowledge, no other Claims exist by a
Homeowner Association against the Company or any Affiliate of Company,
and to the Knowledge of Sellers, each Homeowner Association has been
operated, so long as the Company has participated therein, in
accordance with Applicable Laws.
7.40 Partnerships.
(a) Schedule 7.40(a) to be attached hereto shall set
forth the Partnerships, together with a breakdown of ownership
interests therein.
(b) Except as stated in the agreements governing the
operation of each of the Partnerships (the "Partnership Agreements"),
there are no options or other rights to acquire any interest in a
Partnership. Subject to the terms and conditions set forth in the
44
Partnership Agreements, the Company owns its partnership interests free
and clear of any Lien or Claim.
(c) The Company has prepared on behalf of the Partnerships
the financial statements to be set forth in Schedule 7.40(c) (the
"Partnership Financial Statements") from the books and records of the
Partnerships using generally accepted accounting principles applied on
a basis consistent with such principles as the Partnerships have
previously used.
(d) Except as to be set forth on Schedule 7.40(d), the
Partnership Financial Statements present fairly in all material
respects the financial position, results of operations, and cash flows
of the Partnerships as of the dates and for the periods covered
thereby.
(e) Except as to be set forth on Schedule 7.40(e) and on
the Partnership Financial Statements, the Partnerships have no
liabilities other than liabilities incurred since the date of the
Partnership Financial Statements in the ordinary course of business
consistent with past practices.
(f) Except as to be set forth on Schedule 7.40(f), since
the date of the Partnership Financial Statements, the Partnerships have
not made any distribution with respect to the partnership or other
ownership interests (whether in cash or in kind) or redeemed,
purchased, or otherwise acquired any of its partnership or other
ownership interests.
(g) The Partnerships have no employees for Tax or other
purposes.
VIII. COVENANTS
8.1 Access to the Business. From the date hereof through the
Closing Date, the Sellers shall, and shall cause the Company to, permit the
Purchaser and its employees, advisors and other representatives reasonable
access to the Company Assets and the business of the Company, including the
books and records of the Company. During this period the Sellers shall cause the
officers, employees, and advisors of the Company to furnish promptly to the
Purchaser such financial and operating information as the Purchaser may request,
including copies of any requested documents.
8.2 Operation of the Company Pending the Closing. From the date
hereof through the Closing Date, except as otherwise required hereunder or with
the Purchaser's prior consent, the Sellers shall, and shall cause the Company
to:
(a) Representations and Warranties. Use all commercially
reasonable efforts to operate and maintain the Company Assets and the
business of the Company in such a manner so that the representations
and warranties of the Sellers contained herein shall continue to be
true and correct at the Closing Date as if made on and as of such date;
45
(b) Operate the Business in the Ordinary Course. Operate
the business of the Company in the ordinary course of business
consistent with past practices and this Agreement and in compliance, in
all material respects, with all Applicable Laws;
(c) Maintain Goodwill. Use all commercially reasonable
efforts to preserve intact the business of the Company and the goodwill
of its customers, employees, officers, subcontractors, suppliers, and
any other Persons having business relations with it;
(d) No Material Changes. Not otherwise cause or, to the
extent within their commercially reasonable control, permit to exist
any Material Change with respect to the Company;
(e) Disposition of Assets. Other than pursuant to
the requirements of existing contracts and commitments, refrain from
disposing of, or committing or granting an option to dispose of
(whether by sale, lease or other transfer), any Company Assets, other
than (i) the sale of single family residences in the ordinary course of
business (but not in bulk) consistent with past practices and this
Agreement, and (ii) the sales of other assets involving $50,000 or more
in any one transaction or series of related transactions, except with
the prior written consent of the Purchaser;
(f) Acquisition of Assets. Other than pursuant to
the requirements of existing contracts and commitments, refrain from
acquiring, or committing or obtaining an option to acquire (whether by
purchase, lease, exercise of an option to acquire or acquisition), any
real property or interest therein and from leasing, or committing to
lease, any personal property, except, in the case of real property,
with the prior written consent of the Purchaser and, in the case of
personal property, in the ordinary course of business consistent with
past practice;
(g) Contracts. Refrain from entering into any agreement,
arrangement, contract, commitment or lease that would be required to be
listed on any of Schedules 7.20(a)-(g)(ix), if entered into prior to
the date hereof, except for (i) contracts in the ordinary course of
business which can be terminated on not more than thirty (30) days'
notice and, (ii) contracts for the sale of single family residences,
unless the prior written consent of the Purchaser has been obtained;
(h) Maintain Assets. To the extent commercially
reasonable, maintain in good order and repair the tangible Company
Assets;
(i) Insurance Coverage. Continue in effect all Insurance
Policies or upon experation thereof, appropriate renewals or
substitutions providing the same or similar coverage:
46
(j) Make Payments. Pay when due all liabilities and
obligations (other than those being contested in good faith and
disclosed to the Purchaser) of every kind and nature incurred in, or
arising from, the administration, operation, or maintenance of the
Company Assets or the business of the Company;
(k) Pay Taxes. Timely and accurately file all Tax returns
with respect to the Company Assets and the business of the Company and
timely pay all Taxes owed with respect thereto;
(l) Perform Obligations. Perform in a commercially
reasonable manner all obligations under each Company Contract and each
other agreement, arrangement, commitment, contract, or lease to which
the Company is a party, not commit any material breach thereof and, to
the extent commercially reasonable, not cancel or terminate any of them
prior to the expiration of their original term;
(m) Change Key Employees. Refrain from hiring,
terminating or changing any of the Company's division managers and from
terminating Dwaine Rivers, Linda Sloman, Sam Sparks and Lisa Brutvan,
except with the prior written consent of the Purchaser, which shall not
be unreasonably withheld;
(n) Employee Benefit Plans. Make full and timely payment
of all amounts required under each employee benefit plan to be listed
on Schedule 7.36(a)(i);
(o) Compensation. Refrain from increasing or promising to
increase any compensation or benefits that the Company pays to any
Person, including any formula upon which any compensation or benefits
are based, except with the prior written consent of the Purchaser and
except in the ordinary course of the business of the Company;
(p) Loans to Affiliates. Refrain from changing, forgiving
or making any loan between the Company and any Affiliate thereof;
(q) Distributions. Refrain from declaring, setting aside
or paying any dividend or making any distributions in respect of, or
issuing any of its equity securities or ownership interests (without
the prior written consent of Purchaser), and from repurchasing,
redeeming or otherwise acquiring any securities or making or proposing
to make any other change in its capitalization, provided, however, that
the Partnerships shall have the right to make distributions of earnings
or capital required under the Partnership Agreements in a manner
consistent with past practices;
(r) Acquisitions. Refrain from acquiring or proposing to
other Persons to acquire all or substantially all of the assets of any
other Person, or the stock or equity ownership interests of any other
Person;
47
(s) Organization. Refrain from making any change in the
articles of incorporation, partnership agreement or bylaws or
equivalent governing instruments of any Corporation or Partnership,
except in order to comply with this Agreement; and
(t) Indebtedness. Refrain from creating, incurring,
assuming or guaranteeing any long-term debt or capitalized lease
obligation outside of the Company's ordinary course of business
consistent with past practices and, except as may be required under
existing credit or other financing agreements and except as may be made
in the ordinary course of business consistent with past practices
(including any financing arrangement made in connection with the
construction of single and multi-family dwellings), refrain from
creating, incurring, assuming or guaranteeing any material current
indebtedness.
8.3 Sellers' Schedules.
(a) Delivery of Sellers' Schedules. The Purchaser and the
Sellers acknowledge and agree that the schedules required from the
Sellers pursuant to this Agreement (the "Sellers' Schedules") have not
yet been prepared by the Sellers, or reviewed and approved by the
Purchaser, and as a consequence have not been attached to this
Agreement as of the date hereof. The Sellers agree to use good faith
efforts to provide to the Purchaser for its review the proposed
Sellers' Schedules not later than February 15, 1997.
(b) Requirements of Sellers' Schedules. The Sellers' Schedules
will be numbered and lettered and will correspond to the numbered
Sections of this Agreement. The Sellers shall use good faith efforts to
insure that each item in the Sellers' Schedules that is an exception to
the representations, warranties, and covenants set forth in this
Agreement will reference the particular Section to this Agreement to
which such exception applies. The lack of a reference to a Sellers'
Schedule in any representation, warranty or covenant contained in
Article VII-A or Article VII hereof shall not preclude the Sellers from
preparing and delivering a Schedule (which will become a Sellers'
Schedule subject to the provisions hereof) which references and
provides exceptions thereto as otherwise permitted in this Section 8.3.
The mere listing (or inclusion of a copy) of a document or other item
in the Sellers' Schedules shall not be deemed adequate to disclose an
exception to a representation, warranty, or covenant made herein
(unless the representation, warranty, or covenant has to do with the
existence of the document or other item itself), it being necessary for
the Sellers to give some explanation of the way in which the document
or other item constitutes an exception, unless such exception is
obvious. Notwithstanding the foregoing provision requiring specific
references in the Sellers' Schedules to particular Sections of this
Agreement, the failure of the Sellers to so specifically list or
reference an exception or item shall not give rise to or support a
claim based on misrepresentation or breach of warranty or covenant
where the subject matter of the exception or the item is otherwise
disclosed elsewhere in the Sellers' Schedules and the Purchaser is not
prejudiced by such failure to make such specific accurate reference.
48
(c) Purchasers' Approval of Sellers' Schedules. Upon receipt
of the Sellers' Schedules, the Purchaser shall proceed with
diligence to review the Sellers' Schedules and will notify the Sellers
in writing upon its approval thereof. If the Purchaser has not approved
the Sellers' Schedules on or before the Outside Closing Date (as
defined in Section 12.1 hereof), then the Purchaser may terminate this
Agreement by giving notice in writing to the Sellers on or before the
Outside Closing Date, and upon such termination, the Purchaser shall no
longer be liable to proceed to Closing and shall have no liability as a
result of such termination.
8.4 Update of Information From the date any Schedule required by this
Agreement is accepted or deemed accepted by Purchaser through the Closing Date,
the Sellers shall promptly notify the Purchaser of any event or occurrence or
other information of any kind whatsoever which affects, or may affect, the
continued truthfulness, correctness or completeness of any representation,
warranty, covenant or agreement made in this Agreement or any document,
agreement, instrument, certificate or writing furnished to the Purchaser
pursuant to or in connection with this Agreement. In furtherance thereof, prior
to the Closing, the Sellers shall prepare and deliver to the Purchaser updates
to the Sellers' Schedules, in form satisfactory to the Purchaser. To the extent
that, as a result of circumstances or events which first arise or are discovered
after delivery of the Sellers' Schedules in their entirety either as indicated
by Sellers or because of the passage of the deadline for delivering the Sellers'
Schedules (in either case through no gross negligence or intentional misconduct
of the Sellers), and which are first reported to the Purchaser in any such
notification or other disclosure, any representation, warranty or covenant of
the Sellers ceases to be true or becomes incapable of performance, and, if the
Purchaser elects not to proceed with Closing, then the circumstances or events
so reported shall not form the basis for any indemnity claim by the Purchaser
under Article XI hereof based solely on the breach or nonperformance of such
representation, warranty or covenant caused by such circumstances. If the
Closing occurs, unless the notification or other disclosure is a result of the
gross negligence or intentional misconduct of the Sellers, then such
notification or other disclosure shall be deemed to supplement, modify and
qualify each provision of this Agreement and the Sellers' Schedules to which the
information contained in such notification relates.
8.5 Satisfaction of the Closing Conditions. The Sellers shall use all
commercially reasonable efforts to cause the Purchaser Conditions to be
satisfied, including the receipt of the Consents in form and substance
satisfactory to the Purchaser, as promptly as possible. The Purchaser shall use
all commercially reasonable efforts to cause the Seller Conditions to be
satisfied as promptly as possible.
8.6 Title Policies. As soon as reasonably possible after the execution
of this Agreement, the Sellers shall cause the Company to provide to the
Purchaser commitments for title insurance from a title insurance company
acceptable to the Purchaser (the "Title Company") for each Real Property and
Option Real Property for the Purchaser to review, together with copies of all
documents and exceptions listed thereon. The Sellers and the Company acknowledge
that the Purchaser has the right to object to the Liens (other than Permitted
Liens), exceptions and other matters set forth in such commitments
notwithstanding the representation and warranty of the Sellers and the Company
set forth in Section 7.26 hereof. At the Closing, for each Real Property the
49
Sellers shall cause to be delivered to the Purchaser, the cost or expense of
which is to be shared equally by Sellers and Purchaser, an Owner's Policy of
Title Insurance or endorsements to existing policies with an effective date as
of the Closing Date (each such policy and endorsement may be referred to as a
"Title Policy") naming the Company as the insured, which policy shall only be
subject to (a) ad valorem and real property taxes for the current tax year that
have not yet become due, (b) Permitted Liens, and (c) such other matters as are
acceptable to the Purchaser in the Purchaser's sole discretion. Each Title
Policy shall be issued by the Title Company in an amount to be mutually agreed
upon by the parties hereto and shall contain such further endorsements as the
Purchaser shall request.
8.7 Surveys. As soon as reasonably possible after the execution of this
Agreement and prior to the Closing, the Sellers shall cause to be delivered a
survey on each Real Property, other than Real Property that has been finally
platted, by a registered public surveyor reasonably acceptable to the Purchaser
(the "Surveys"). Except as to be set forth on Schedule 8.7 hereto, each Survey
shall (a) show the location and dimensions of all encroachments, encumbrances,
improvements and uses with respect to such Real Property, including the location
of all alleys, easements, highways, rights-of-way, streets and roads; (b) show
all buildings and set-back lines; (c) recite the appropriate metes and bounds
descriptions of such real property; and (d) recite the exact areas of such real
property. Upon Purchaser's request and at its sole cost and expense, Sellers
shall provide any new surveys on any Real Property.
8.8 Environmental Studies. As soon as reasonably possible after the
execution of this Agreement and prior to the Closing, the Sellers shall make
available to the Purchaser true and complete copies of all reports, studies and
other materials which the Sellers or the Company possess or control which
pertain to the environmental condition of the current and former assets of the
Company. Before the Closing Date, the Purchaser may engage, at its sole cost and
expense, one or more environmental consulting firms (the "Environmental
Consultants") to investigate, analyze, and report on any possible violation of
Environmental Laws or the possible existence, handling, generation, processing,
refining, manufacture, treatment, storage, use, release, discharge, disposal,
dumping or migration (whether legal or illegal, accidental or intentional) of
any Materials of Environmental Concern on, to, from or otherwise relating to any
Real Property, Leased Real Property, any other real property that the Company
acquires or possesses the right to acquire, any Previously Owned Property, and
any other real property in the vicinity of such real property. The Sellers and
the Company shall cooperate with the Environmental Consultants in connection
with their investigation, and shall permit the Environmental Consultants to
perform such tests upon such real property as the Environmental Consultants deem
appropriate. If (a)(i) the Environmental Consultants conclude, in final written
reports delivered to the Purchaser and the Sellers (the "Environmental
Reports"), that potential environmental costs, obligations or liabilities exist
or reclamation or remediation is otherwise required under the applicable
Environmental Laws with respect to any of such real property or the real
50
property in the vicinity thereof, and (ii) the cost of remediation is estimated
by Purchaser in good faith to exceed $50,000, or (b) the Purchaser is not, in
its sole discretion (including without limitation its business judgment as to
the appropriateness or advisability of acquiring the real property involved with
a view to the sale or development thereof to consumers or other developers),
otherwise satisfied with the environmental condition or history of any such real
property or the real property in the vicinity thereof (in either of which cases
such Real Property, Leased Real Property, Previously Owned Property or other
real property shall be deemed a "Real Property With Environmental Concerns"),
then the Purchaser may (but shall not be obligated to) terminate this Agreement
pursuant to Section 12.1(e) hereof, in which case Purchaser shall not disclose
the results of any such studies or the basis for such termination to any third
party, except as may be required by Applicable Law (and, in such event, the
Purchaser shall notify the Sellers of such requirement promptly upon determining
that a notification is required).
8.9 No Public Announcement. Except as may be required by Applicable
Law, the parties hereto shall not issue any press release or make any public
statement concerning this Agreement or the transactions contemplated hereby
without obtaining the prior consent of the other parties hereto to the content
thereof, which consent shall not be unreasonably withheld, except that upon the
execution of this Agreement, the Purchaser shall be entitled, after giving the
Sellers the opportunity to review but not approve the content thereof, to issue
such press releases or make any public statements concerning this Agreement or
the transactions contemplated hereby required or advisable under applicable
securities laws or the rules of any exchange or system on which any securities
of the Purchaser are traded. Upon such announcement, the Sellers shall be
permitted to make similar public statements concerning the transaction.
8.10 No Shopping. Unless and until this Agreement is terminated
pursuant to the terms hereof, neither the Sellers nor any Affiliates thereof
shall directly or indirectly encourage, solicit, initiate, or participate in any
discussions or negotiations with any Person other than the Purchaser and its
representatives concerning any merger, sale of substantially all assets,
business combination, sale of shares of capital stock, or similar transaction
involving the Company, or directly or indirectly disclose any Company
Confidential Information (as defined in Section 9.6 hereof) to any Person other
than the Purchaser and its employees, advisors and other representatives. If any
Seller receives an offer or inquiry with respect to any of the foregoing types
of transactions, such Seller shall promptly inform the Purchaser thereof.
8.11 Antitrust Law Compliance. The Sellers and Purchaser shall prepare
and file, or shall have prepared and filed, with the United States Department of
Justice (the "Justice Department") and the Federal Trade Commission (the "FTC")
the notification and report form with respect to the transactions contemplated
hereby required by the Hart-Scott-Rodino Act and the rules and regulations
thereunder. The Sellers and Purchaser shall also promptly comply with any
reasonable request of the Justice Department or the FTC for any supplemental
information and shall use all reasonable efforts to obtain prompt termination of
the waiting period under the Hart-Scott-Rodino Act. The Sellers and the
Purchaser shall bear equal parts of the cost of preparing the Hart-Scott-Rodino
Act filing requirements.
IX. NON-COMPETITION AND NON-DISCLOSURE COVENANTS
9.1 BTH's Covenant Restricting Home Building Activities. BTH,
individually and on his own behalf, covenants that during the Non-Compete Period
as described in Section 9.4 hereof, he will not directly or indirectly own,
manage, operate, engage in, serve as an advisor or consultant for, control, or
otherwise participate in the construction or sale of residential property in
51
competition with the Company, the Purchaser, or any of its Affiliates, including
without limitation, the construction or sale of single-family or multi-family
residences, the development of real property for use as lots for residential
construction, and any activities ancillary or related to the foregoing
activities (except for the development of real property for, or the construction
of, any residence for any family member of BTH for such family members' personal
use) (collectively, "BTH Home Building Activities"), or be involved as a
partner, guarantor, or other holder of an interest in any Person engaging in any
such activities, within 100 miles of any market in which the Company currently
operates or operates at any time after the Closing Date during his employment
with the Company.
9.2 Saab's Covenant Restricting Home Building Activities. Saab,
individually and on its own behalf, covenants that during the Non-Compete Period
as described in Section 9.4 hereof, he will not directly or indirectly own,
manage, operate, engage in, serve as an advisor or consultant for, control, or
otherwise participate in the construction or sale of residential property in
competition with the Company, the Purchaser, or any of its Affiliates, including
without limitation, the construction or sale of single-family or multi-family
residences, the development of real property for use as lots for construction of
single-family residences, and any activities ancillary or related to the
foregoing activities (except for the development of real property for, or the
construction of, any residence for any family member of GS for such family
members' personal use) (collectively, "Saab Home Building Activities"), or be
involved as a partner, guarantor or other holder of an interest in any Person
engaging in any such activities within twenty-five (25) miles of any market in
which the Company currently operates. Notwithstanding the foregoing, nothing
contained in this Agreement shall prohibit Saab from engaging in any of the
activities described in the foregoing sentence as they relate to multi-family
residences or real property to be developed therefor (a) for which Saab owns or
controls as of the Closing Date; or (b) after the date hereof if Saab notifies
the Purchaser of any contemplated action of Saab related thereto and the
Purchaser reaches an agreement with Saab, with terms satisfactory to both Saab
and the Purchaser, which allows the Purchaser to participate in such activity,
but if no such agreement is reached, Saab may participate in such activity if
the Purchaser consents to Saab's involvement in such activity, which consent
shall not be unreasonably withheld or delayed.
9.3 Interference with Contracts and Referrals to Competitors. Each
Seller, individually and on his own behalf, covenants (together with such
Seller's covenant in Section 9.1 and 9.2 hereof, the "Covenant Not to Compete")
that during the Non-Compete Period as described in Section 9.4 hereof, such
Seller will not directly or indirectly:
(a) Interfere with Contracts. Either on his own account or for
any other Person, solicit, induce, attempt to induce, interfere with,
or endeavor to cause any Person (including without limitation any
broker, customer, governmental authority, subcontractor, or supplier)
to modify, amend, terminate, or otherwise alter any contract or
arrangement that such Person has with the Company, the Purchaser or any
Affiliate thereof with respect to the businesses of the Company
acquired pursuant hereto.
52
(b) Solicit Employees. Solicit to employ or employ, directly
or indirectly, any employee of the Company, the Purchaser or any
Affiliate thereof while such individual is employed by the Company, the
Purchaser or an Affiliate of the Purchaser.
9.4 Non-Compete Period. The "Non-Compete Period" shall mean the period
beginning on the Closing Date and ending on the third anniversary of the Closing
Date, provided that if during any period any Seller is in breach or violation of
the Covenant Not to Compete, the Non-Compete Period shall be extended by a
period equal to the period of such breach or violation occurring after the date
the Purchaser first gives notice thereof to the breaching party.
9.5 Indirect Competition; Certain Exclusions.
(a) Indirect Competition. For purposes of this Agreement, a
Seller shall be deemed to be in default of its obligations under
Section 9.1 or 9.2 hereof (as applicable) if such Seller directly or
indirectly owns any beneficial interest in any Person who engages in
BTH or Saab Home Building Activities at any location described in
Section 9.1 or 9.2 hereof.
(b) Certain Exclusions. Notwithstanding the provisions of
Section 9.5(a), (i) the ownership of securities of any Person traded on
any national exchange or market representing not more than 1% of the
issued and outstanding amount of such securities, (ii) the ownership of
any shares or other interest in the Purchaser by any Seller, or (iii)
the retainer of BTH pursuant to the BTH Employment Agreement, shall not
constitute a violation of the Covenant Not to Compete.
9.6 No Disclosure of Confidential Information. Each Seller,
individually and on his own behalf, covenants (the "Non-Disclosure Obligation")
that after the date hereof, such Seller will not disclose any confidential or
proprietary information concerning the Company Assets or the business of the
Company or any Affiliate thereof which is not generally known or available to
the public (the "Company Confidential Information") or any confidential or
proprietary information concerning the business of the Purchaser or any
Affiliate thereof which is not generally known to or available to the public
(the "Purchaser Confidential Information") and will not disclose any trade
secrets (as defined under applicable law) of the Company or any Affiliate
thereof or the Purchaser or any Affiliate thereof for so long as such
information constitutes a trade secret under Applicable Law. This Section 9.6,
however, shall not preclude a Seller from:
(a) Advice. Disclosing Company Confidential Information
or Purchaser Confidential Information to his accountants, lawyers,
and other professional advisors, provided that a Seller shall be
deemed to have breached this Section 9.6 if any such accountant,lawyer,
or other professional advisor discloses such information to any other
non-authorized Person;
(b) Public Information. Disclosing information generally
available to the public other than by breach of this Section 9.6;
53
(c) Required by Law. Disclosing information required by
law or court order after promptly notifying the Purchaser of the
requirement to disclose such information and, to the extent legally
practical, permitting the Purchaser a reasonable period to obtain a
protective order to prevent such disclosure;
(d) Tax Returns. Disclosing information required in any
Tax report or return;
or
(e) Termination of Agreement. Disclosing any Company
Confidential Information or trade secret of the Company if this
Agreement is terminated pursuant to Section 12.1 hereof.
9.7 Reasonableness. Each Seller acknowledges that the terms of the
Covenant Not to Compete and the Non-Disclosure Obligation applicable to such
Seller are reasonable in all respects and necessary to permit the Purchaser to
realize the benefits of the acquisition of the Company.
9.8 Judicial Enforcement. Any threatened or actual breach or violation
of the Covenant Not to Compete or the Non-Disclosure Obligation shall entitle
the Purchaser to an injunction restraining any further or continued breach or
violation. Such right to an injunction shall be in addition to and cumulative of
(and not in lieu of) any other remedies to which the Purchaser is entitled
because of such breach or violation. If a court of competent jurisdiction
determines that the Covenant Not to Compete or the Non-Disclosure Obligation are
partially or wholly inoperative, invalid, or unenforceable in a particular case
because of their duration, geographical scope, restricted activity, or any other
parameter, such court may reform such duration, geographical scope, restricted
activity, or other parameter with respect to such case to permit enforcement of
such reformed Covenant Not to Compete or reformed Non-Disclosure Obligation to
the greatest extent allowable.
X. MISCELLANEOUS CLOSING MATTERS
10.1 Life Insurance Policies. Provided the same can be done at no cost
or expense to the Company (or that the relevant Seller assumes and pays the cost
thereof) and provided further that the Company does not have to assume any
liabilities in connection therewith, the Purchaser shall cause the Company to
use all reasonable efforts to transfer to each Seller or his respective
designee(s) those insurance policies on the life of such Seller to be described
on Schedule 10.1 hereto upon payment to the Company by such Seller of the amount
of the cash surrender values, if any, of such respective policies.
10.2 Termination of Employee Benefit Plans. At or prior to the
Closing Date, the Purchaser may, in its sole discretion, elect to either
continue or terminate any of the Company's employee benefit plans (as to be set
forth in Schedule 7.36(a)(i)), programs or policies. To the extent the Purchaser
elects to terminate any of the Company's employee benefit plans (as to be set
forth in Schedule 7.36(a)(i)), programs or policies (a) employees of the Company
continuing active employment shall receive credit for their service prior to the
54
Closing Date with the Company for the purpose of determining eligibility for
participation (but not for benefit accrual purposes) in the employee benefit
plans, programs and policies sponsored by the Purchaser for the benefit of its
employees generally as set forth in the Purchasers' employee handbook, a copy of
which has been made available to the Sellers, and (b) the Purchaser shall cause
the Company employees and their eligible dependents to be eligible for coverage
under its health care plan without interruption of coverage and shall waive all
pre-existing conditions, restrictions and limitations for any medical condition
thereof at or prior to the Closing, except to the extent coverage of such
medical condition would be limited under the group health insurance plan
applicable to the affected employee at or prior to the Closing Date.
XI. INDEMNIFICATION
11.1 Indemnification of the Purchaser.
(a) Individual Breaches and Failures to Perform Individual
Covenants. Subject to Section 14.18 hereof, each Seller shall
indemnify, defend, reimburse, and hold the Purchaser, the Company and
their Affiliates, agents, directors, employees (other than BTH),
officers (other than BTH), and stockholders (other than the Sellers)
harmless from any and all Claims (including, without limitation, those
arising from the indemnified party's negligence) directly or indirectly
related or arising with respect to: (i) any breach of any
representation or warranty set forth in Section 3.1 or Article VII-A
hereof or any covenant or agreement individually made by such Seller on
and for his own behalf in Articles VII-A or IX hereof, and (ii) any
failure duly to perform or observe any term, provision, covenant, or
agreement to be individually performed or observed by such Seller on
and for his own behalf pursuant to Articles VII-A or IX hereof;
(b) Joint and Several Breaches, Failures to Perform Covenants,
and Taxes. Subject to Section 14.18 hereof, except for the individual
indemnities made pursuant to Section 11.1(a) hereof for which each
Seller shall only be individually liable, the Sellers, jointly and
severally, shall indemnify, defend, reimburse, and hold the Purchaser,
the Company and their Affiliates, agents, directors, employees (other
than BTH), officers (other than BTH), and stockholders (other than the
Sellers) harmless from any and all Claims (including, without
limitation, those arising from the indemnified party's negligence)
directly or indirectly related or arising with respect to: (i) any
breach of any representation or warranty (subject to Section 14.18
hereof) or any covenant or agreement made in this Agreement or any
Document delivered at or in connection with the Closing; (ii) any
failure duly to perform or observe any term, provision, covenant, or
agreement to be performed or observed pursuant to this Agreement or any
Document delivered at or in connection with the Closing; (iii) any
federal Tax imposed upon or in respect of the transactions contemplated
hereby together with any Tax imposed by any State (or subdivision
thereof) in which the Company is or has conducted business (other than
the Increased Tax Amount as described in Section 2.3 hereof); and (iv)
any Tax imposed upon the Company for any Tax period ending on or prior
to the Closing Date.
55
11.2 Indemnification of the Sellers. The Purchaser shall indemnify,
defend, reimburse, and hold the Sellers harmless from any and all Claims
(including, without limitation, those arising from the indemnified party's
negligence) directly or indirectly related or arising with respect to:
(a) Breaches. Any breach of any representation or
warranty (subject to Section 14.18 hereof) or any covenant or agreement
of the Purchaser contained in this Agreement or any Document delivered
at or in connection with Closing;
(b) Failure to Perform. Any failure duly to perform or
observe any term, provision, covenant, or agreement to be performed or
observed by the Purchaser pursuant to this Agreement or any Document
delivered at or in connection with Closing; and
(c) Remaining Guaranties. All personal guaranties,
letters of credit and surety bonds referenced in Section 5.2(g) hereof,
except for the Remaining Guaranties.
11.3 Indemnification Procedures. All claims for indemnification
under this Agreement (other than pursuant to the provisions of Section 3.6
hereof) shall be asserted and resolved as follows:
(a) Notification. A party claiming indemnification under this
Agreement (an "Indemnified Party") shall promptly (i) notify the party
from whom indemnification is sought (the "Indemnifying Party") of any
third-party claim or claims asserted against the Indemnified Party ("
Third-Party Claim") which could give rise to a right of indemnification
under this Agreement and (ii) transmit to the Indemnifying Party a
written notice ("Claim Notice") describing in reasonable detail the
nature of the Third-Party Claim, a copy of all papers served with
respect to such claim (if any), and the basis of the Indemnified
Party's request for indemnification under this Agreement. Within thirty
(30) days after receipt of any Claim Notice (the "Election Period"),
the Indemnifying Party shall notify the Indemnified Party (i) whether
the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article XI with respect to such
Third-Party Claim and (ii) whether the Indemnifying Party desires, at
the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third-Party Claim.
(b) Participation of the Indemnifying Party. If the
Indemnifying Party notifies the Indemnified Party within the Election
Period that the Indemnifying Party elects to assume the defense of the
Third-Party Claim, then the Indemnifying Party shall have the right to
defend, at it sole cost and expense, such Third-Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted
diligently by the Indemnifying Party to a final conclusion or settled
at the discretion of the Indemnifying Party in accordance with this
Section 11.3(b). The Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or settlement
thereof, but shall consult in good faith with the Indemnified Party
before entering into any compromise or settlement. The Indemnified
56
Party may participate in, but not control, any defense or settlement of
any Third-Party Claim controlled by the Indemnifying Party pursuant to
this Section 11.3(b), and shall bear its own costs and expenses with
respect to such participation.
(c) Participation of the Indemnified Party. If the
Indemnifying Party fails to notify the Indemnified Party within the
Election Period that the Indemnifying Party elects to defend the
Indemnified Party pursuant to Section 11.3(b) hereof, or if the
Indemnifying Party elects to defend the Indemnified Party pursuant to
Section 11.3(b) hereof but fails to prosecute or settle the Third-Party
Claim diligently and promptly, then the Indemnified Party shall notify
the Indemnifying Party that the Indemnified Party elects to assume the
defense of the Third-Party Claim. The Indemnified Party shall then have
the right to defend, at the sole cost and expense of the Indemnifying
Party, the Third-Party Claim by all appropriate proceedings, which
proceedings shall be promptly and vigorously prosecuted by the
Indemnified Party to a final conclusion or settled. The Indemnified
Party shall have full control of such defense and proceedings;
provided, however, that the Indemnified Party may not enter into,
without the Indemnifying Party's consent, which shall not be
unreasonably withheld, any compromise or settlement of such Third-Party
Claim. Notwithstanding the foregoing, if the Indemnifying Party has
delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article XI and if such dispute is resolved
in favor of the Indemnifying Party by final, nonappealable order of a
court of competent jurisdiction or by settlement, arbitration or other
binding non-judicial procedure, the Indemnifying Party shall not be
required to bear the costs and expenses of the Indemnified Party's
defense pursuant to this Section 11.3 or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the
Indemnified Party shall reimburse the Indemnifying Party in full for
all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled
by the Indemnified Party pursuant to this Section 11.3, and the
Indemnifying Party shall bear its own costs and expenses with respect
to such participation.
(d) Claims Between Parties. If any Indemnified Party should
have a claim against any Indemnifying Party hereunder which does not
involve a Third-Party Claim, the Indemnified Party shall transmit to
the Indemnifying Party a written notice (the "Indemnity Notice")
describing in reasonable detail the nature of the claim, an estimate of
the amount of damages attributable to such claim and the basis of the
Indemnified Party's request for indemnification under this Agreement.
If the Indemnifying Party does not notify the Indemnified Party within
60 days from the Indemnifying Party's receipt of the Indemnity Notice
that the Indemnifying Party disputes such claim, then the claim
specified by the Indemnified Party in the Indemnity Notice shall be
deemed a liability of the Indemnifying Party hereunder. If the
Indemnifying Party has timely disputed such claim, as provided above,
then such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction.
(e) Payments. Payments of all amounts owing by an Indemnifying
Party pursuant to this Article XI relating to a Third-Party Claim shall
57
be made within 30 days after the latest of (i) the settlement of such
Third-Party Claim, (ii) the expiration of the period for appeal of a
final adjudication of such Third-Party Claim or (iii) the expiration of
the period for appeal of a final adjudication of the Indemnifying
Party's liability to the Indemnified Party under this Agreement.
Payments of all amounts owing by an Indemnifying Party pursuant to
Section 11.3(d) hereof shall be made within 30 days after the later of
(i) the expiration of the 60-day Indemnity Notice period or (ii) the
expiration of the period for appeal of a final adjudication of the
Indemnifying Party's liability to the Indemnified Party under this
Agreement.
11.4 [Intentionally Omitted]
11.5 Remedies. The rights and remedies provided in this Agreement and
the other Documents are cumulative and shall be the exclusive remedies of the
parties hereto with respect to claims for monetary damages (whether calculated
at law, in equity or otherwise) related to the matters addressed herein and with
respect to the transactions contemplated hereby and the parties shall have no
other liability for monetary damages (whether calculated at law, in equity or
otherwise) to each other, under any statutory or common law right (including,
without limitation, CERCLA), but nothing herein shall be construed as limiting
the right of a party hereto to equitable relief, other than limiting equitable
monetary damages, for a breach of this Agreement or the Documents delivered in
connection herewith including, without limitation, specific performance of the
terms of such agreements. Any election of one remedy by a party hereto shall not
constitute a waiver of any other available remedy.
As to any claim brought by the Purchaser pursuant to this Agreement,
each Seller hereby agrees that he will not make any claim for indemnification
against any person comprising the Company by reason of the fact that he was a
director, officer, employee, or agent of any such Person prior to the Closing or
was serving at the request of any such Person as a partner, trustee, director,
officer, employee, or agent of another Person prior to the Closing (whether such
claim is for judgments, damages, penalties, fines, costs, amounts paid in
settlement, losses, expenses, or otherwise and whether such claim is pursuant to
any statute, charter document, by law, agreement, or otherwise).
11.6 Insurance. With respect to any events occurring on or before
the Closing Date that are insured under any Insurance Policy, or any other
insurance policy covering any Seller or the Company, the Purchaser shall be
entitled to the benefits thereof. As to any insurance policy maintained by the
Purchaser or the Sellers after Closing, the insured thereunder shall use all
commercially reasonable efforts to obtain from the issuer of each such policy a
waiver of subrogation in favor of the other party hereto.
11.7 Rights of the Sellers against the Company. Nothing herein
shall be deemed to terminate any rights of contribution or indemnification of
the Sellers or either of them against the Company for claims by third parties
against the Sellers which do not form the basis for an indemnity claim by the
Purchaser under this Article XI.
58
11.8 Limitations of Indemnification. The indemnification provided for
in this Article XI shall be subject to the following limitations: (a) the
Sellers shall not be obligated to pay any amounts for indemnification under this
Article XI in excess of the Purchase Price paid by the Purchaser pursuant to
Section 2.1 hereof (the "Indemnification Cap"); (b) an Indemnifying Party shall
not be obligated to pay any amounts for indemnification hereunder relating to a
Claim to the extent of (i) any tax benefit to the Indemnified Party therefrom,
and (ii) any insurance proceeds and any indemnity, contribution or similar
payment paid to the Indemnified Party or any Affiliate from any third party with
respect thereto; (c) neither the Sellers nor the Purchaser shall be entitled to
make any claim for indemnification hereunder against the other until the
cumulative sum of indemnifiable claims it has is equal to or greater than
$200,000.00 (the "Indemnification Threshold"), in which case the first
$100,000.00 of such claims shall be deductible and not recoverable but the
remainder (including the amount between $100,000.00 and $200,000.00) shall be
recoverable to the extent otherwise provided in this Article XI.
XII. TERMINATION; REMEDIES
12.1 Termination of this Agreement. Upon notice to the other
parties hereto, the Purchaser or the Sellers may terminate this Agreement prior
to the Closing under the circumstances set forth below:
(a) Outside Closing Date. The Purchaser or the Sellers
may terminate this Agreement if the Closing has not occurred on or
before March 31, 1997 (the "Outside Closing Date").
(b) Mutual Consent; Failure to Approve Attachments. The
Purchaser and the Sellers may terminate this Agreement upon mutual
consent or by reason of the parties' inability (after the use of
commercially reasonable efforts) to agree to any Attachment to be
attached hereto pursuant to the terms hereof.
(c) Sellers' Breach. The Purchaser may terminate
this Agreement if the representations and warranties that the Sellers
have made hereunder were untrue, in any material respect, when made or
will be untrue, in any material respect, on the Closing Date as if made
on and as of the Closing Date or if the Sellers have failed to perform
promptly the covenants and agreements hereunder that they are required
to perform on or before the Closing Date.
(d) Purchaser's Breach. The Sellers may terminate this
Agreement if the representations and warranties that the Purchaser has
made hereunder were untrue, in any material respect, when made or will
be untrue, in any material respect, on the Closing Date as if made on
and as of the Closing Date or if the Purchaser has failed to perform
promptly the covenants and agreements hereunder that it is required to
perform on or before the Closing Date.
(e) Adverse Environmental Circumstances. The Purchaser
may terminate this Agreement under the circumstances described in
Section 8.8 hereof.
59
(f) Schedules. The Purchaser may terminate this Agreement
under the circumstances set forth in Section 8.3 hereof.
12.2 Effect of Termination; Remedies. If this Agreement is terminated
pursuant to Section 12.1(a), (b) or (f) hereof, no party hereto shall possess
any right against any other party hereto because of such termination or the
reasons therefor, except as set forth in Section 12.3 hereof. If the Purchaser
terminates this Agreement pursuant to Sections 12.1(c) or (e) hereof, the right
of the Purchaser to pursue any and all remedies that it may have hereunder or at
law or in equity shall survive unimpaired, but the Sellers shall have no
liability for any breach of the representations or warranties set forth in
Section 7.19 hereof in such event if none of them had Knowledge of such breach
prior to the date of delivery of the relevant Schedule(s). If the Sellers
terminate this Agreement pursuant to Section 12.1(d) hereof, the Sellers shall
have as their sole and exclusive remedy the right to demand and collect
$1,000,000 from the Purchaser as liquidated damages. In connection therewith,
the parties hereto agree that (i) damages of the Sellers following any
termination by Sellers pursuant to Section 12.1(d) hereof are difficult or
impossible to accurately estimate or calculate, and (ii) the liquidated damages
amount set forth in this Section 12.2 are a reasonable pre-estimate (and not a
penalty) of what the damages of the Sellers would be in the event of the
occurrence of any such termination and, if assessed, shall be the sole
non-equitable remedy with respect to such termination.
12.3 Topping Fee; Right of First Refusal. If this Agreement is
terminated without a Closing for any reason (other than a default by the
Purchaser), and the Sellers receive an offer for an amount greater than the
Purchase Price to purchase the Shares or substantially all of the Company Assets
within 60 days after the date of termination, which sale is closed within 120
days after the expiration of said 60-day period, then in addition to all the
other remedies that may be available to the Purchaser hereunder, the Sellers
shall pay to Purchaser the amount of $1,000,000 within ten days after the
closing of such sale. If this Agreement is terminated without a Closing for any
reason other than a default by the Purchaser and, as of the date of such
termination, the Purchaser is not in default hereunder, and the Sellers receive
an offer within 60 days after such termination to purchase the Shares or
substantially all of the Company Assets for less than the Purchase Price which
they are willing to accept or cause the Company to accept, then the Sellers
shall promptly notify the Purchaser of such offer, which notification shall
contain all material terms of such offer, and the Purchaser shall have a right
of first refusal to match such offer for thirty (30) days after receipt of such
notice.
XIII. DEFINITIONS
Capitalized terms used herein shall have the following meanings:
13.1 "Affiliate" with respect to any Person means any other Person
that directly or indirectly controls, is controlled by, or is under common
control with, such Person.
60
13.2 "Applicable Laws" means all applicable statutes, laws,
ordinances, judgments, regulations, rules, injunctions, orders, policies and
writs of all federal, state, local, and foreign governmental entities (and any
agencies, departments, and political subdivisions thereof).
13.3 "Business Day" means a day that is not a Sunday, Saturday, or
holiday when banks in the State of Georgia are required or permitted to be
closed.
13.4 "Claims" means any action, assessment, cause of action, charge,
claim, cost, counterclaim, damage, defense, deficiency, demand, disbursement,
expense, fine, interest, inquiry, investigation, judgment, lawsuit, legal
action, litigation, liability (joint or several), loss (including any diminution
in value), payment, penalty, proceeding, or suit (including actual and
reasonably incurred fees and expenses of attorneys, accountants, other
professional advisers, and expert witnesses and costs of investigation and
preparation) of any kind or nature whatsoever.
13.5 "Company Assets" means all assets, franchises, interests,
properties, and rights of every kind and description, real, personal or mixed,
tangible or intangible, necessary or appropriate to the conduct of the Company's
business as it is currently being conducted, whether owned by the Company or
used by it in connection with its business, including without limitation, all
right, title and interest of the Company in, to and under (a) all assets
reflected on the 1996 Balance Sheet and all assets subsequently acquired in the
ordinary course of business, except for assets disposed of after December 31,
1996 in the ordinary course of business (b) all Real Property, Leased Real
Property, and Intellectual Property, (c) all Company Contracts and (d) all
assets owned or used by the Partnerships.
13.6 "Copyright" means all copyrights in published and unpublished
works, now or hereafter existing, in the United States of America or any foreign
jurisdiction, and all applications, registrations, and recordings relating
thereto filed in the United States Copyright Office or in any other government
office or agency in the United States of America or any foreign jurisdiction.
13.7 "Documents" means this Agreement, the certificates, instruments,
consents, documents, policies, reports or other items delivered at or in
connection with the Closing.
13.8 "Employee Liabilities" means any Company cost, liability, or
obligation relating to any (a) Applicable Law relating to employees, including
laws relating to concerted activity, discrimination, hours, occupational health
and safety, wages, and the withholding of Taxes, (b) collective bargaining
agreement, (c) compensation owed to employees, including salaries, wages, and
bonuses, (d) employee disability, including disability relating to accidents,
exposure to harmful conditions, injury, sickness, and tort, (e) employment
contract, whether written or oral, (f) employment discrimination, (g) employee
benefit plan, (h) employee fringe benefit, (i) employee insurance coverage, (j)
compensation, (k) health and safety, (l) pension plan, (m) plant closing, (n)
retiree medical, (o) severance pay, (p) unfair labor practice, (q) vacation, (r)
unemployment benefit, (s) wage and hour law, (t) workers' compensation, and (u)
wrongful discharge.
61
13.9 "Environmental Laws" means any present federal, state or local
code, regulation, rule, statute, ordinance or similar item of any governmental
authority, and any covenant running with the land, that relates to
environmental, health, industrial hygiene, pollution, or safety matters,
including the Clean Air Act, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Federal Water Pollution
Control Act, the Hazardous Materials Transportation Act, the Resource
Conservation and Recovery Act of 1976, and the Toxic Substances Control Act, and
any applicable laws of any state in which the Company is conducting or has
conducted business, and any judicial or administrative decree, interpretation,
judgment, or order with respect thereto.
13.10 "Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
13.11 "Intellectual Property" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all Patents (as defined in Section 13.16 hereof),
patent applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all Trademarks, service marks, trade dress, logos, trade names, and
corporate names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all Copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all rights of publicity
with respect to the Torrey Names, (f) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(g) all computer software (including data related documentation), (h) all other
proprietary rights, and (i) all copies and tangible embodiments thereof (in
whatever form or medium).
13.12 With respect to the Purchaser,"Knowledge" means actual knowledge
of Donald R. Horton and Richard Beckwitt. With respect to the Sellers,
"Knowledge" means the actual knowledge of GS, BTH, Dwaine Rivers, Linda Sloman,
Sam Sparks (as to factual matters only), Bill Noland, David Weber, Lisa Brutvan,
Jonathan Giles, Pat Longo, and Larry Setter.
13.13 "Liens" means any charge, claim, equity, judgment, lease,
liability, license, lien, mortgage, pledge, restriction, security interest, Tax
lien or encumbrance of any kind.
13.14 "Material Change" with respect to any Person means that such
Person has (a) entered into any transaction outside its ordinary course of
business consistent with past practices, (b) undergone a material adverse change
with respect to its assets, cash flows, business, financial condition,
operations, or prospects, (c) materially amended, modified, or terminated any
material agreement, arrangement, contract, lease, or permit, to which it is a
party, including its articles of incorporation and bylaws, or suffered the
occurrence of any such amendment, modification, or termination, (d) defaulted
under or breached any material agreement, arrangement, contract, lease, or
62
permit to which it is a party or by which any of its assets are bound, which
default has not been cured within any grace period or time allowed for such
cure, (e) permitted any material right to lapse, including any Intellectual
Property Right, (f) assumed, created, guaranteed, or incurred any material
indebtedness, whether absolute or contingent (other than to finance the
acquisition, development or maintenance of real property after the date hereof
in the ordinary course of business and consistent with past practice), (g)
settled any material lawsuit, or been sued, other than settlements and lawsuits
that have an insignificant effect upon it, (h) changed the accounting principles
used when maintaining its accounting records or presenting its financial
statements, or otherwise altered the manner of keeping its accounts, books, and
records, or filing its tax returns (except to the extent any such change of the
Company was initiated at the request of the Purchaser or as required hereunder),
(i) entered into any agreement to take any of the actions described in the
foregoing clauses (a) through (h).
13.15 "Material of Environmental Concern" means any substance that (a)
is subject to investigation or remediation under any Environmental Law,
constitutes a contaminant, hazardous waste, hazardous substance, or pollutant
under any Environmental Law, or is adversely designated, listed, or regulated
thereunder, (b) is corrosive, explosive, flammable, radioactive, toxic, or
otherwise regulated by any domestic governmental entity, (c) contains diesel
fuel, gasoline, or other petroleum hydrocarbons, (d) contains polychlorinated
biphenyls in excess of authorized levels, (e) contains asbestos that is or can
become friable, (f) contains urea formaldehyde foam insulation, (g) constitutes
or threatens to cause an environmentally related nuisance upon the subject
property or any adjacent property, or (h) poses or threatens to pose a hazard to
the health or safety of any individual.
13.16 "Patent" means (a) all letters patent of the United States of
America or any similar rights under the laws of any foreign jurisdiction and any
divisions, extensions, or reissues thereof, and (b) all applications for letters
patent of the United States of America or any similar rights under the laws of
any foreign jurisdiction and all continuations, continuations-in-part, or
divisions of such applications.
13.17 "Person" means an association, corporation, estate, general
partnership, governmental entity (or any agency, department, or political
subdivision thereof), individual, joint stock company, joint venture, limited
liability company, limited partnership, trust or any other organization or
entity.
13.18 "Previously Owned Property" means property constructed,
developed or sold by the Company but neither owned by the Company on the Closing
Date nor constituting Real Property or Leased Real Property.
13.19 "Securities Act" means the Securities Act of 1933, as amended.
13.20 "Substantially Complete" means that each and all of the
requirements listed in this Section 13.20 have been met with respect to the
Developed Real Property and each lot contained therein ("Lot" or "Lots"):
63
(a) Final subdivision plats have been approved by all
applicable governmental authorities and recorded in the official
records of the County, municipality or applicable governmental
authority;
(b) Final acceptance letters have been issued by the
appropriate governmental authority which evidence that such authority
has accepted for permanent maintenance all the streets, water lines,
sanitary sewer, and storm sewers for the Lots;
(c) The appropriate governmental authority has certified
that operable water and sewer taps are available to each of the Lots;
and
(d) The appropriate governmental authority has certified that
building permits are obtainable for the construction of single-family
houses on the Lots.
13.21 "Taxes" or "Tax" means any federal, state, local, foreign, or
other ad valorem, customs, documentary, duty, employment, excise, franchise,
gross income, gross receipts, lease, license, net income, payroll, premium,
profits, property, occupation, sales, service, service use, stamp, severance,
transaction privilege, transfer, use, or withholding tax, or other assessments,
charges, fees, imposts, levies, or taxes of any kind whatever, together with any
interest and penalties thereon and any additional amounts with respect thereto.
13.22 "Trademark" means any business name, logo, service mark,
trademark, trade name, trade style, and other business or source identifier, and
any combination, contraction, derivative, expansion, modification, or variation
thereof.
XIV. GENERAL
14.1 Amendment. No amendment or modification of any of the
provisions of this Agreement shall be effective unless in writing and signed by
all of the parties hereto or signed by one party hereto and deemed acceptable by
the other party(ies) in accordance herewith.
14.2 Counterparts. Any Document may be executed in any number of
counterparts, each of which shall be deemed to be an original document, but all
of which shall constitute one and the same document. Any party to any Document
may execute and deliver such Document by an executed signature page transmitted
via facsimile machine, if such party promptly thereafter delivers an originally
executed signature page to each other party thereto.
14.3 Entire Agreement. This Agreement and the other Documents
constitute the entire agreement and understanding among the parties hereto and
supersede all prior agreements and understandings, both written and oral, with
respect to the subject matter contained herein, including without limitation the
Letter of Intent, dated November 8, 1996, between the Sellers and the Purchaser,
except that any obligations of (a) the Purchaser to maintain the confidentiality
of any personal confidential information of the Sellers shall survive the
execution of this Agreement, (b) the Sellers to maintain the confidentiality of
64
any Company Confidential Information and Purchaser Confidential Information
shall survive the execution of this Agreement as provided in Section 9.6 hereof
and shall expire, as to the Company Confidential Information and trade secrets
of the Company only, upon the termination of this Agreement, and (c) the
Purchaser to maintain the confidentiality of the Company Confidential
Information or any trade secret of the Company shall survive the execution of
this Agreement and expire only if the Closing occurs.
14.4 Expenses. Each party hereto shall bear its own accounting and
legal fees and other costs and expenses with respect to the negotiation and
preparation of this Agreement and the consummation of the transactions
contemplated hereby, except as otherwise provided herein. It is expressly
understood and agreed that Sellers shall be responsible for the payment of any
fee to Smith Barney Inc. and one half of the filing fee under the
Hart-Scott-Rodino Act up to $22,500 and the Purchaser shall be responsible for
the payment of the remainder of such filing fee. Any provision hereof providing
for a payment of any cost, expense or other amount by the Sellers, or any of
them, shall require such payment from the consideration otherwise payable to the
Sellers hereunder and not from the Company or its assets.
14.5 Governing Law. This Agreement shall be construed and
interpreted according to, governed by and performed under the laws of the State
of Georgia, without regard to the principles of conflicts of law thereof, and
such federal laws of the United States of America as may apply.
14.6 Headings. Article, section and other headings are used herein
only as a matter of convenience, are not a part of this Agreement, and shall not
have any effect upon the construction or interpretation hereof.
14.7 Assignment. No party hereto may assign its benefits or delegate
its duties hereunder without the prior written consent of the other parties
hereto, but the Purchaser may assign its interest herein to a wholly owned
subsidiary, so long as (a) the Purchaser will remain obligated to the Sellers
for its obligations hereunder and (b) the Purchaser Shares will continue to be
shares of Common Stock.
14.8 No Third-Party Beneficiaries. Except with respect to the
indemnities set forth in Article XI hereof and permitted assignees, this
Agreement is solely for the benefit of the parties hereto and no other Person
shall have any right, interest, or claim hereunder.
14.9 Notices. All notices and other communications in connection with
this Agreement shall be in writing and deemed to have been received on the day
of delivery if delivered by hand, overnight express, regular mail, or facsimile
transmission (which shall be deemed a writing for purposes hereof), or three (3)
Business Days after the date of posting if mailed by registered or certified
mail, postage prepaid, addressed to each party at its address set forth below
(or to such other address to which such party has notified each other party in
accordance with this Section 14.9 to send such notices or communications):
65
Purchaser: D.R. Horton, Inc.
1901 Ascension Boulevard, Suite 100
Arlington, Texas 76006
Attn: Richard Beckwitt
Facsimile No.: (817) 856-8249
Sellers: Mr. Ghassan M. Saab
P.O. Box 7718
Flint, Michigan 48507
Facsimile No.: (810) 235-9498
Ghassan M. Saab Trust
P.O. Box 7718
Flint, Michigan 48507
Facsimile No.: (810) 235-9498
Mr. Burl T. Horton
c/o The Torrey Group
5400 Highlands Parkway
Smyrna, Georgia 30082
Facsimile No.: (770) 434-2004
with copies to: Torrey Development Corp.
5400 Highlands Parkway
Smyrna, Georgia 30082
Attn: Sam Sparks
Facsimile No.: (770) 434-3092
and
Troutman Sanders LLP
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
Attn: Richard P. Keck, Esq.
Facsimile No.: (404) 885-3900
14.10 Performance on Business Days. If any event or the expiration
of any period provided for herein is scheduled to occur or expire on a day that
is not a Business Day, such event shall occur or such period shall expire on the
next succeeding day that is a Business Day.
14.11 Plural and Singular Words. Whenever the plural of a word is
used herein, that word shall, if appropriate, include the singular of that word.
Whenever the singular of a word is used herein, that word shall, if appropriate,
include the plural of that word.
14.12 Pronouns. Whenever a pronoun of a particular gender is used
herein, that pronoun shall, if appropriate, also refer to the other gender and
66
the neuter. Whenever a neuter pronoun is used herein, that pronoun shall, if
appropriate, also refer to the masculine and feminine gender.
14.13 Schedules. All Schedules, Exhibits and Attachments referenced
herein are hereby incorporated herein and shall be deemed to be a part of this
Agreement for all purposes.
14.14 Set-Off. Each party hereto and each Affiliate thereof may set-off
any amounts that any other party hereto or its Affiliates owes to it or its
Affiliates (whether because of the breach of any representation, warranty, or
covenant contained in this Agreement or otherwise) against any amounts that such
party or its Affiliates owes to such other party or its Affiliates.
14.15 Severability. Any provision hereof that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability (but shall be construed
and given effect to the extent possible), without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
14.16 Specific Performance. The Sellers acknowledge that the Shares are
unique and irreplaceable, and that the failure of the Sellers to convey them in
a timely manner to the Purchaser pursuant to the terms hereof would damage the
Purchaser in a manner for which monetary damages could not adequately compensate
it. Accordingly, if the Sellers fail to transfer the Shares to the Purchaser
pursuant hereto in a timely manner, the Purchaser shall be entitled to seek an
order from a court of competent jurisdiction requiring the Sellers to perform
hereunder and the Company to transfer the Shares to the Purchaser pursuant
hereto (but no equitable damages in lieu of specific performance). The Sellers
shall not have any right to specific performance in respect hereof.
14.17 Successors. This Agreement shall be binding upon and shall inure
to the benefit of each party hereto and its heirs, legal representatives,
permitted assigns, and successors, provided that this Section 14.17 shall not
permit the assignment or other transfer of this Agreement, whether by operation
of law or otherwise, if such assignment or other transfer is not otherwise
permitted hereunder.
14.18 Survivability. The agreements, covenants, indemnifications,
representations and warranties, and other terms of this Agreement shall survive
the Closing and any investigation by the parties hereto except no claim may be
made for the breach of any representation or warranty after the third
anniversary of the Closing Date except for breaches with respect to the
following Sections of this Agreement: Section 3.1 (Investment Intent;
Sophisticated Investor), Section 6.1 (Organization), Section 6.2 (Power and
Authority), Section 6.3 (Execution, Delivery and Enforceability of the
Documents), Section 6.4 (Conflicts), Section 6.5 (No Broker), Section 6.6
(Investment), Section 6.7 (Capitalization), Section 6.8 (Shares), Section 7-A.1
(Legal Capacity), Section 7-A.2 (Execution, Delivery and Enforceability of the
Documents), Section 7-A.3 (Conflicts), Section 7.1 (Organization of the Company;
Capitalization), Section 7.2 (Power and Authority), Section 7.3 (Conflicts),
Section 7.4 (No Broker), Section 7.19 (Environmental Matters), Section 7.33
(Taxes), and Section 7.36 (Employee Benefit Plans and Related Matters).
67
14.19 Waiver. No provision herein shall be considered waived unless
such waiver is in writing and signed by each party hereto that benefits from the
enforcement of such provision. No waiver of any provision herein, however, shall
be deemed a waiver of a subsequent breach of such provision (or right arising
under such provision) or a waiver of a similar provision. Moreover, a waiver of
any breach or a failure to enforce any term or condition of this Agreement shall
not in any way affect, limit, or waive a party's rights hereunder at any time to
enforce strict compliance thereafter with every term and condition hereof.
IN WITNESS WHEREOF, each individual party hereto has executed this
Agreement under seal and the corporate parties hereto have caused this Agreement
to be executed and attested by their duly authorized officers and their
corporate seals affixed hereto, this Agreement being executed and delivered as
of the date first written above.
D.R. HORTON, INC.
By: \s\
Name: Richard Beckwitt
Title:
[CORPORATE SEAL]
\s\ (SEAL)
Burl T. Horton
\s\ (SEAL)
Ghassan M. Saab
\s\
Ghassan M. Saab, as Trustee of the Ghassan M. Saab
Trust Agreement dated February 16, 1987, as amended
68
EXHIBIT A
CORPORATIONS FORMED UNDER QUALIFIED TO DO DATE DATE OF S
THE LAWS OF: BUSINESS IN: INCORPORATED: ELECTION:
AG Roth Agency, Inc. Georgia North Carolina 12/31/93 None *
Alburns Development Corporation, Inc. Georgia None 1/19/96 None
Aspen Associates, Inc. Georgia None 7/8/96 None
BG-1, Inc. Georgia None 12/2/94 None
B&G Holdings, Inc. Georgia None 5/9/96 None
Green Thumb, Inc. Georgia None 12/1/94 12/1/94
Provincial Realty & Investment Company, Inc. Georgia None 1/10/94 5/1/94
S.G. - 1, Inc. Georgia South Carolina, 12/2/94 1/1/96
North Carolina
S.G. Torrey Atlanta, Ltd. Georgia None 5/18/87 1/1/88
The Mallard Group, Inc. Georgia South Carolina, 1/1/94 1/1/95
North Carolina
The Torrey Corporation Georgia North Carolina 8/10/95 None
Torrey Development Corporation Georgia None 6/14/88 1/1/89
Torrey Development Corporation of North Carolina, Inc. Georgia North Carolina 3/7/95 3/7/95
Torrey Development Corporation of South Carolina, Inc. Georgia South Carolina 3/7/95 3/7/95
The Torrey Group of Companies, Inc. (inactive) Georgia None 7/29/96 None
Torrey Homes, Inc. Georgia None 4/8/93 1/1/95
Torrey Homes of North Carolina, Inc. Georgia North Carolina 3/7/95 3/7/95
Torrey Homes of South Carolina, Inc. Georgia South Carolina 3/8/95 3/8/95
Torrey National Mortgage, Inc. (inactive) Georgia None 12/2/94 None
Torrey Realty Services, Inc. Georgia None 10/31/89 1/1/91
Torrey Realty Services of North Carolina, Inc. Georgia North Carolina 4/11/95 4/11/95
Torrey Realty Services of Charlotte, North Carolina,
Inc. Georgia North Carolina 1/17/96 None
Torrey Realty Services of South Carolina, Inc. Georgia South Carolina 4/11/95 4/11/95
* "None" indicates that the relevant corporation is not an S-Corp.
EXHIBIT A
PARTNERSHIPS ORGANIZED UNDER QUALIFIED TO DO
THE LAWS OF: BUSINESS IN:
TDC 51 Partnership, Limited Partnership Georgia None
TDC 52 Partnership, Limited Partnership Georgia None
TDC 98 Partnership, LP Georgia North Carolina
TDC 100 Partnership, LP Georgia South Carolina
TDC 101 Partnership, Limited Partnership Georgia None
TDC 102 Partnership, LP Georgia North Carolina
TDC 103 Partnership, LP Georgia None
TDC 200 Partnership, Limited Partnership Georgia North Carolina
TDC 201 Partnership, Limited Partnership Georgia None
TDC 202 Partnership, Limited Partnership Georgia None
TDC 301 Partnership, LP Georgia None
TDC 302 Partnership, LP Georgia None
TDC 303 Partnership, LP Georgia None
TDC 304 Partnership, Limited Partnership Georgia None
TDC 305 Partnership, Limited Partnership Georgia None
TDC 306 Partnership, Limited Partnership Georgia None
TDC 307 Partnership, Limited Partnership Georgia None
EXHIBIT B
Saab 50%
BTH 50%