1
STOCK
and
MEMBERSHIP INTEREST
PURCHASE AGREEMENT
by and among
DIAMOND KEY HOMES, INC.,
DIAMOND KEY CONSTRUCTION LLC,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇ ▇. ▇▇▇▇▇
and
▇▇▇▇▇▇ INCORPORATED,
dated as of
October 7, 1998
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TABLE OF CONTENTS
Page
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ARTICLE I GENERAL................................................................................................1
1.1 DEFINITIONS..........................................................................................1
1.2 TERMS GENERALLY......................................................................................1
ARTICLE II THE TRANSACTION.......................................................................................2
2.1 SALE AND PURCHASE OF CAPITAL STOCK AND MEMBERSHIP INTERESTS .........................................2
2.2 PURCHASE PRICE.......................................................................................2
2.3 CLOSING NET BOOK EQUITY ADJUSTMENT...................................................................2
2.4 CLOSING..............................................................................................3
2.5 DELIVERIES AND PROCEEDINGS AT THE CLOSING............................................................4
2.6 DEFERRED PURCHASE PRICE..............................................................................5
2.7 PURCHASE OF BUYER COMMON STOCK BY SELLER; OPTIONS....................................................5
2.8 ALLOCATION OF PURCHASE PRICE.........................................................................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER, ▇▇▇▇▇, THE COMPANY AND THE LLC.............................6
3.1 QUALIFICATION........................................................................................6
3.2 AUTHORIZATION AND ENFORCEABILITY; INTERESTS IN OTHER ENTITIES........................................6
3.3 NO VIOLATION OF LAWS OR AGREEMENTS...................................................................7
3.4 FINANCIAL STATEMENTS.................................................................................8
3.5 NO CHANGES...........................................................................................8
3.6 CONTRACTS............................................................................................9
3.7 PERMITS AND COMPLIANCE WITH LAWS GENERALLY..........................................................10
3.8 ENVIRONMENTAL MATTERS...............................................................................10
3.9 CONSENTS............................................................................................11
3.10 TITLE..............................................................................................12
3.11 REAL PROPERTY; CUSTOMERS; SUPPLIERS................................................................12
3.12 TAXES..............................................................................................13
3.13 PATENTS AND INTELLECTUAL PROPERTY RIGHTS...........................................................14
3.14 EMPLOYEES; LABOR RELATIONS.........................................................................15
3.15 EMPLOYEE BENEFIT PLANS.............................................................................15
3.16 NO PENDING LITIGATION OR PROCEEDINGS...............................................................16
3.17 INSURANCE..........................................................................................16
3.18 WARN ACT...........................................................................................17
3.19 CONDITION OF ASSETS................................................................................17
3.20 BROKERAGE..........................................................................................17
3.21 ALL ASSETS.........................................................................................17
3.22 FULL DISCLOSURE....................................................................................17
3.23 PRIVATE PLACEMENT..................................................................................17
3.24 TRANSACTIONS WITH AFFILIATES.......................................................................18
3.25 WARRANTY RESERVE...................................................................................18
3.26 OMITTED............................................................................................18
3.27 INTERESTS OWNED BY THE COMPANY OR THE LLC..........................................................18
3.28 ABSENCE OF UNDISCLOSED LIABILITIES.................................................................18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER..............................................................19
4.1 ORGANIZATION AND GOOD STANDING......................................................................19
4.2 AUTHORIZATION AND ENFORCEABILITY....................................................................19
4.3 NO VIOLATION OF LAWS OR AGREEMENTS..................................................................19
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TABLE OF CONTENTS
(Continued)
Section Page
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4.4 CONSENTS............................................................................................20
4.5 BROKERAGE...........................................................................................20
4.6 SHARES OF BUYER COMMON STOCK........................................................................20
4.7 FILINGS.............................................................................................20
ARTICLE V ADDITIONAL COVENANTS..................................................................................21
5.1 CONDUCT OF BUSINESS.................................................................................21
5.2 MUTUAL COVENANTS....................................................................................23
5.3 FILINGS AND AUTHORIZATIONS..........................................................................24
5.4 PUBLIC OR PRIVATE ANNOUNCEMENT......................................................................24
5.5 INVESTIGATION.......................................................................................24
5.6 TAXES...............................................................................................24
5.7 CONSENTS............................................................................................26
5.8 CONFIDENTIALITY.....................................................................................26
5.9 REASONABLE BEST EFFORTS.............................................................................27
5.10 NEGOTIATIONS.......................................................................................27
ARTICLE VI CONDITIONS PRECEDENT.................................................................................29
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER........................................................29
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY, THE LLC, AND SELLER.............................31
ARTICLE VII CERTAIN ADDITIONAL COVENANTS........................................................................32
7.1 CERTAIN TAXES AND EXPENSES..........................................................................32
ARTICLE VIII SURVIVAL; INDEMNIFICATION..........................................................................32
8.1 SURVIVAL............................................................................................32
8.2 INDEMNIFICATION BY SELLER...........................................................................33
8.3 INDEMNIFICATION BY BUYER............................................................................35
8.4 NOTIFICATION OF CLAIMS..............................................................................36
ARTICLE IX TERMINATION; MISCELLANEOUS...........................................................................37
9.1 TERMINATION.........................................................................................37
9.2 FURTHER ASSURANCES..................................................................................38
9.3 ENTIRE AGREEMENT....................................................................................38
9.4 BENEFIT; ASSIGNMENT.................................................................................38
9.5 NO PRESUMPTION......................................................................................38
9.6 NOTICES.............................................................................................38
9.7 COUNTERPARTS; HEADINGS..............................................................................39
9.8 SEVERABILITY........................................................................................39
9.9 NO RELIANCE.........................................................................................40
9.10 GOVERNING LAW......................................................................................40
9.11 SUBMISSION TO JURISDICTION; WAIVERS................................................................40
9.12 ARBITRATION........................................................................................40
9.13 WAIVER.............................................................................................41
9.14 AMENDMENT..........................................................................................41
9.15 SPECIFIC PERFORMANCE...............................................................................41
9.16 REGISTRATION RIGHTS................................................................................42
9.17 1933 ACT COMPLIANCE................................................................................46
9.18 LIQUIDATED DAMAGES UPON DEFAULT....................................................................47
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TABLE OF CONTENTS
(Continued)
Annex A Definitions
Schedules
---------
Schedule 3.2(b) Other Property Investments
Schedule 3.3 Exceptions to No Violations of Agreement or Laws
Schedule 3.4 Financial Statements
Part A Financial Statements for 1996 and 1997
Part B Financial Statements for the Eight Months Ended August 31, 1998
Schedule 3.5 Exceptions to No Changes
Schedule 3.6 Contracts
Schedule 3.7 Exceptions to Permits and Compliance With Laws
Schedule 3.8(h) Environmental Reports
Schedule 3.9 Exceptions to No Consents
Schedule 3.10 Exceptions to No Liens
Schedule 3.11(a) Real Property
Schedule 3.11(b) Title Reports
Schedule 3.11(c) Option Agreements
Schedule 3.11(d) Soils Report
Schedule 3.11(e) Customers Accounting for More than 5% of Net Sales
Schedule 3.11(f) List of Top 25 Suppliers for the period from January 1, 1998 to
September 30, 1998
Schedule 3.12(a) Exceptions to Taxes
Schedule 3.13(a) List of all Intellectual Property
Schedule 3.13(b) List of all Registered Intellectual Property
Schedule 3.13(e) License Agreements with Third Parties
Schedule 3.14(a) List of Certain Information Regarding Each Business Employee
Schedule 3.15(a) List of Employment Related Agreements
Schedule 3.15(c) Exceptions to Business Benefit Plans
Schedule 3.16 Exceptions to Pending Litigation or Proceedings
Schedule 3.17 List of Insurance Policies and Contracts
Schedule 3.19 Exceptions to Good Operating Condition of Tangible Assets
Schedule 3.21 Exception to Ownership of Assets
Schedule 3.24 Exceptions to Transactions With Affiliates
Schedule 3.27 Exceptions to Interests Owned
Schedule 5.12 Employee Options
Exhibits
--------
Exhibit A Omitted
Exhibit B Form of Escrow Agreement
Exhibit C Form of Opinion of Seller's Counsel
Exhibit D Form of Opinion of Buyer's Counsel
Exhibit E Form of Employment Agreement
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STOCK AND MEMBERSHIP INTEREST PURCHASE AGREEMENT
STOCK AND MEMBERSHIP INTEREST PURCHASE AGREEMENT (this
"Agreement"), dated as of October 7, 1998, by and among Diamond Key Homes, Inc.,
an Arizona corporation (the "Company"); Diamond Key Construction LLC, an Arizona
limited liability company (the "LLC"); ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, a natural person
resident in Arizona ("Seller"); ▇▇▇▇ ▇. ▇▇▇▇▇, a natural person resident in
Arizona ("▇▇▇▇▇"); and ▇▇▇▇▇▇ Incorporated, a Nevada corporation ("Buyer").
Seller owns 10 0% of the outstanding capital stock of the
Company (the "Capital Stock") and 99% of the membership interests in the LLC
(the "Seller Membership Interests"), and ▇▇▇▇▇ owns 1% of the membership
interests in the LLC (the "▇▇▇▇▇ Membership Interests" and, collectively with
the Seller Membership Interests, the "Membership Interests"). Seller and ▇▇▇▇▇
desire to sell such Capital Stock and Membership Interests to Buyer and Buyer
desires to purchase the Capital Stock and the Membership Interests on the terms
and conditions hereinafter set forth.
Concurrently with the execution and delivery of this
Agreement, Buyer and Seller are entering into that certain Escrow Agreement,
dated the date hereof, with the Escrow Agent, substantially in the form of
Exhibit B hereto (the "Escrow Agreement").
NOW, THEREFORE, in consideration of the premises and mutual
representations, warranties, covenants and agreements contained herein and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
GENERAL
1.1 Definitions.
Certain capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings specified in Annex A hereof.
1.2 Terms Generally.
(a) Words in the singular shall be held to include the plural
and vice versa and words of one gender shall be held to include the other
genders as the context requires, (b) the terms "hereof," "herein," "hereto" and
"herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole (including the Annex and all of
the Schedules and Exhibits hereto) and not to any particular provision of this
Agreement, and Annex, Article, Section, paragraph, Exhibit and Schedule
references are to the Annex, Articles, Sections, paragraphs, Exhibits and
Schedules to this Agreement unless otherwise specified, (c) the word "including"
and words of similar import when used in this Agreement shall mean "including,
without limitation," unless otherwise specified, (d) the word "or" shall not be
exclusive and (e) certain terms not defined in Annex A are defined elsewhere in
this Agreement.
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ARTICLE II
THE TRANSACTION
2.1 Sale and Purchase of Capital stock and Membership Interests.
On the terms and subject to the conditions of this Agreement,
at the Closing, Seller shall sell, assign, transfer, deliver and convey to
Buyer, and Buyer shall purchase, the Capital Stock, and Seller and ▇▇▇▇▇ shall
sell, assign, transfer, deliver and convey, and Buyer shall purchase, the
Membership Interests and the Capital Stock (collectively, the "Purchased
Interests") and consummate the transactions contemplated hereby for the Purchase
Price specified in Section 2.2.
2.2 Purchase Price.
(a) The aggregate purchase price to be paid by Buyer to
Seller (for the account of Seller and ▇▇▇▇▇) for the purchase of the Purchased
Interests and the transactions contemplated hereby (the "Purchase Price") shall
be the sum of (i) the Final Closing Purchase Price and (ii) the Deferred
Purchase Price.
(b) At the Closing, (i) the Initial Cash Payment shall be
paid by Buyer to Seller by wire transfer of immediately available funds to the
account designated by Seller in writing at least two Business Days prior to the
Closing Date and (ii) the Closing Escrow Deposit shall be deposited by Buyer
with the Escrow Agent by wire transfer of immediately available funds to the
Closing Escrow Deposit Account.
(c) Concurrently with the execution hereof, Buyer has
deposited into escrow with the Escrow Agent the Initial Escrow Deposit, which,
together with any interest earned thereon, shall be paid to Seller at the
Closing, and the amount of such payment shall be applied to payment of and
credited against the Final Closing Purchase Price.
2.3 Closing Net Book Equity Adjustment.
(a) As promptly as practicable, but in no event later than
10 days after the determination of Closing Net Book Equity by the Auditors
(which determination shall be made as soon as practicable after the Closing) and
the communication thereof to Buyer and to the Escrow Agent, Buyer shall provide
Seller in writing a schedule setting forth in reasonable detail the Auditors'
calculation of Closing Net Book Equity. The Auditors' determination of Closing
Net Book Equity shall be made pursuant to audits of the Company and the LLC as
of the Closing Date, for which the Auditors have given an unqualified opinion,
in accordance with GAAP and consistent with the Company's and the LLC's, as the
case may be, past practice. The Escrow Agent shall be entitled to rely on such
Auditors' determination of Closing Net Book Equity in disbursing any amounts
pursuant to paragraphs (b), (c) and (d) of this Section 2.3.
(b) If the Final Closing Purchase Price is greater than the
Initial Closing Payment, Buyer shall pay to Seller the amount of such excess.
Such excess shall be satisfied first by the monies in the Closing Escrow Deposit
Account, with any additional excess
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to be paid directly by Buyer to Seller, plus interest on any additional amount
in excess of the Closing Escrow Deposit at the Prime Rate. Any monies remaining
in the Closing Escrow Deposit Account after such payment of any such excess to
Seller shall be released to Buyer. Any payments to be made under this Section
2.3(c) shall be made within 10 days after the Auditor's determination of Closing
Net Book Equity and the communication thereof to Buyer.
(c) If the Initial Closing Payment is greater than the Final
Closing Purchase Price, Seller shall pay to Buyer the amount of such excess,
plus interest thereon at the Prime Rate, and the monies in the Closing Escrow
Deposit Account shall be released to Buyer. Any payments to be made under this
Section 2.3(c) shall be paid immediately upon demand by Buyer.
(d) Upon the disbursement of any funds from the Closing
Escrow Deposit Account to either (or both) of Buyer and Seller, interest earned
on any amount so disbursed shall be paid to the recipient of such funds (pro
rata).
2.4 Closing.
(a) Subject to the terms and conditions of this Agreement,
the closing of the sale and purchase of the Purchased Interests (the "Closing")
shall take place at 10:00 a.m., Pacific Time, (i) on such date after October 30,
1998 mutually satisfactory to Buyer and Seller which is after satisfaction (or
waiver) of the conditions to the Closing set forth in Sections 6.1 and 6.2
hereof (other than those conditions which require the delivery of any documents
or the taking of other action at the Closing) and (ii) in any event not later
than January 2, 1999 (the "Termination Date"), unless extended by Buyer pursuant
to Section 2.4(b) hereof, in either case at the offices of ▇▇▇▇▇ & ▇▇▇▇▇▇
L.L.P., ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, or such other date and at
such other time or place as may be mutually agreed upon in writing by the
parties hereto (the "Closing Date").
(b) Buyer may, in its sole and absolute discretion, extend
the Termination Date for a period ending on February 2, 1999, by paying to
Seller an extension fee of $250,000 (the "Extension Fee"), which Extension Fee
shall be credited against the Initial Closing Payment if the transaction closes,
but retained without recourse by Seller if the transaction does not close prior
to the Termination Date, as it may be extended; provided, however, that nothing
in this Section 2.4(b) shall be construed to limit or restrict any of Buyer's
rights or remedies otherwise provided for in this Agreement.
(c) Notwithstanding anything to the contrary contained in
this Agreement or otherwise, in the event that at any time on or after November
3, 1998 (i) either the Company or the LLC shall fail to have a valid and current
Contractor's License (as hereinafter defined) or (ii) either the Company's or
the LLC's Contractor's License is subject to any revocation, suspension or other
similar proceedings or to any disciplinary action which is reasonably likely to
materially adversely affect the ability of either the Company or the LLC to
conduct its respective business consistent with past practice, Buyer may, at any
such time, in its sole and absolute discretion, terminate this Agreement. Upon
any such termination by Buyer pursuant to this Section 2.4(c), Buyer shall have
no further obligations or liabilities under this
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Agreement or otherwise and any monies paid by or on account of Buyer to Seller
or deposited with the Escrow Agent, including the Initial Escrow Deposit, shall
be immediately returned to Buyer.
2.5 Deliveries and Proceedings at the Closing.
Subject to the terms and conditions of this Agreement, at the
Closing:
(a) Deliveries to Buyer. Seller and ▇▇▇▇▇ shall deliver to Buyer:
(i) certificates representing all the Purchased Interests
accompanied by stock and other powers as required by Section 2.1 hereof, with
all necessary stock transfer and other documentary stamps attached, and any
other documents that are necessary to transfer to Buyer good and marketable
title to all the Purchased Interests;
(ii) consents and permits, if any, required for the transfer
of the Purchased Interests;
(iii) a receipt for the payment of the Initial Cash Payment,
the Initial Escrow Deposit and the Additional Consideration, each duly executed
by Seller and ▇▇▇▇▇;
(iv) the certificates and other documents required to be
delivered by Seller, ▇▇▇▇▇, the Company and the LLC, pursuant to Section 6.1
hereof and certified board and stockholder resolutions evidencing the authority
of the Company and the LLC as set forth in Section 3.2 hereof;
(v) an opinion of counsel addressed to Buyer, in the form
attached hereto as Exhibit C;
(vi) evidence reasonably satisfactory to Buyer of the current
validity of each of the Company's and the LLC's Contractor's Licenses and that
each such License is in full force and effect; and
(vii) all such other documents and instruments of conveyance
as shall, in the reasonable opinion of Buyer, be necessary to transfer to Buyer
the Purchased Interests and to consummate the transactions as contemplated
hereby and in accordance herewith.
(b) Deliveries by Buyer to Seller. The Buyer will deliver to
Seller:
(i) wire transfer of immediately available funds in an amount
equal to the sum of the Initial Cash Payment and the Additional Consideration;
(ii) a receipt for the delivery of certificates representing
the Purchased Interests;
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(iii) the certificates and other documents required to be
delivered by Buyer pursuant to Section 6.2 hereof and certified resolutions
evidencing the authority of Buyer as set forth in Section 4.2 hereof;
(iv) an opinion of counsel addressed to Seller in the form
attached hereto as Exhibit D; and
(v) all such other documents and instruments as shall, in the
reasonable opinion of Seller, be necessary for Buyer to purchase the Purchased
Interests and to consummate the transactions as contemplated hereby and in
accordance herewith.
(c) Deliveries by Company and Seller. At the Closing, the Company
and Seller will enter into the Employment Agreement substantially in the form of
Exhibit E hereto (the "Employment Agreement").
(d) Deliveries by Buyer to Escrow Agent. At the Closing, Buyer
shall have deposited into escrow with the Escrow Agent the Closing Escrow
Deposit;
2.6 Deferred Purchase Price.
(a) The Deferred Purchase Price shall consist of (i)
$1,000,000 in cash (the "Deferred Cash") and (ii) shares of Buyer Common Stock
with an aggregate value of $1,000,000 (the "Deferred Common Stock"), with such
shares to be valued at the average closing market price of Buyer Common Stock on
the principal market on which it is then being traded (or in the absence of any
trading on any such day the mean between the closing bid and asked quotations
for such day) on each of the last 20 trading days immediately preceding the
Closing.
(b) The Deferred Purchase Price shall be disbursed, subject to
the provisions of paragraphs (c) and (d) of Section 8.2 hereof, as follows:
(i) On April 15, 1999, Buyer shall pay to Seller $300,000 of
the Deferred Cash by wire transfer of immediately available funds to an account
identified by Seller to Buyer in writing at least two Business Days prior to
April 15, 1999; and
(ii) On the first anniversary of the Closing Date (A) Buyer
shall pay Seller the remainder of the Deferred Cash by wire transfer of
immediately available funds to an account identified by Seller to Buyer in
writing at least two Business Days prior to the first anniversary of the Closing
Date and (B) Buyer shall deliver to Seller the Deferred Common Stock.
2.7 Omitted.
2.8 Allocation of Purchase Price.
The parties hereto agree that the Final Closing Purchase Price
shall be allocated as follows: an amount equal to the "book" value of the LLC
shall be allocated to the purchase of the Membership Interests, with the
remaining amount of the Final Closing Purchase Price allocated to the purchase
of the Capital Stock.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF SELLER, ▇▇▇▇▇, THE COMPANY AND THE LLC
Seller, the Company, the LLC and ▇▇▇▇▇ (in the case of ▇▇▇▇▇
solely with respect to Section 3.2 and 3.23 hereof insofar as they relate to
her) hereby jointly and severally represent and warrant to Buyer as follows:
3.1 Qualification.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Arizona and has all
requisite power and authority to own, lease and operate its assets and its
businesses as currently being conducted. The Company is duly licensed or
qualified to do business and is in good standing as a foreign corporation in all
jurisdictions wherein the nature of its businesses or ownership or use of its
assets make such licensing or qualification necessary, except such failures to
be licensed or qualified or to be in good standing, if any, which when taken
together with all such other failures of the Company do not have a Material
Adverse Effect. The Company has previously delivered to Buyer complete and
correct copies of its Articles of Incorporation and all amendments thereto to
the date hereof and its By-Laws, as currently in effect.
(b) The LLC is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Arizona and
has all requisite power and authority to own, lease and operate its assets and
its businesses as currently being conducted. The LLC is duly licensed or
qualified to do business and is in good standing as a foreign person in all
jurisdictions wherein the nature of its businesses or ownership or use of its
assets make such licensing or qualification necessary, except such failures to
be licensed or qualified or to be in good standing, if any, which when taken
together with all such other failures of the LLC do not have a Material Adverse
Effect. The LLC has previously delivered to Buyer complete and correct copies of
its Articles of Organization and all amendments thereto to the date hereof and
its Operating Agreement, as currently in effect.
3.2 Authorization and Enforceability; Interests in Other Entities.
(a) Each of the Company, the LLC, Seller and ▇▇▇▇▇ has full power
and authority (corporate or otherwise) and, in the case of Seller and ▇▇▇▇▇, are
legally competent, to execute, deliver and perform this Agreement and all other
agreements and instruments to be executed in connection herewith (such other
agreements and instruments being hereinafter referred to collectively as the
"Transaction Documents") to which any of the Company, the LLC, Seller and ▇▇▇▇▇
is a party. The execution, delivery and performance by the Company, the LLC,
Seller and ▇▇▇▇▇ of this Agreement and the Transaction Documents to which each
is a party have been duly authorized by all necessary action (corporate or
otherwise) on the part of the Company,
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the LLC, Seller and ▇▇▇▇▇, as the case may be. Seller is the sole stockholder of
the Company and the holder of 99% of the membership interests in the LLC, and
▇▇▇▇▇ is the holder of the remaining 1% of the membership interests in the LLC;
no other Person owns or has any rights to acquire any shares of capital stock of
the Company or membership interests in the LLC. This Agreement has been duly
executed and delivered by the Company, the LLC, Seller and ▇▇▇▇▇, and, as of the
Closing Date, the other Transaction Documents to which the Company, the LLC,
Seller and ▇▇▇▇▇ is a party will be duly executed and delivered by the Company,
the LLC, Seller and ▇▇▇▇▇, as the case may be. This Agreement is a legal, valid
and binding obligation of each of the Company, the LLC, Seller and ▇▇▇▇▇,
enforceable against each in accordance with its terms, except as such
enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar laws
affecting creditors' rights generally or by general equitable principles and
rules of law governing specific performance or estoppel, and except to the
extent that injunctive or other equitable relief is within the discretion of a
court. As of the Closing Date, each of the other Transaction Documents to which
the Company, the LLC, Seller and ▇▇▇▇▇ is a party will be duly executed and
delivered by the Company, the LLC, Seller and ▇▇▇▇▇ and will constitute the
legal, valid and binding obligations of each, enforceable against each in
accordance with its terms, except as such enforceability may be limited by
applicable laws relating to bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws affecting creditors' rights generally
or by general equitable principles and rules of law governing specific
performance or estoppel, and except to the extent that injunctive or other
equitable relief is within the discretion of a court.
(b) Except as set forth in Schedule 3.2(b), none of the Company,
the LLC or Seller is a partner, member of a limited liability company,
shareholder, beneficiary of a trust, or holds any other form of ownership or
economic interest, in or to any real estate related entity.
3.3 No Violation of Laws or Agreements.
The execution, delivery, and performance by the Company, the LLC,
Seller and ▇▇▇▇▇ of this Agreement and the Transaction Documents to which each
is a party do not, and the consummation by the Company, the LLC, Seller and
▇▇▇▇▇ of the transactions contemplated hereby and thereby, will not, (a)
violate, conflict with or result in the breach of any provision of the Articles
of Incorporation or By-Laws of the Company or the Articles of Organization or
Operating Agreement of the LLC or (b) except as set forth on Schedule 3.3,
violate, conflict with, result in a breach of, or constitute a default (or an
event which would, with the passage of time or the giving of notice or both,
constitute a default) under, require any consent under, or result in or permit
the termination, amendment, modification, acceleration, suspensions, revocation
or cancellation of, or result in the creation or imposition of any Lien of any
nature whatsoever upon any of the assets of either of the Company or the LLC or
give to others any interests or rights therein under (i) any indenture,
mortgage, loan or credit agreement, license, instrument, lease, contract, plan,
permit or other agreement or commitment, oral or written, to which the Company,
the LLC, Seller or ▇▇▇▇▇ is a party, or by which any of the Company, the LLC,
Seller or ▇▇▇▇▇ may be bound or affected, except for such violations, conflicts,
breaches, terminations, modifications, amendments, accelerations, suspensions,
revocations, cancellations, Liens, interests or rights which, individually and
in the aggregate, do not have a Material Adverse Effect, or (ii) any judgment,
injunction, writ, award, decree, restriction, ruling, or order of any
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court, arbitrator or Governmental Entity or any applicable constitution, or Law,
to which the Company, the LLC, Seller or ▇▇▇▇▇ is subject.
3.4 Financial Statements.
True, correct and complete copies of the audited combined balance
sheets of the Company and the LLC as of December 31, 1996 and 1997 and the
related audited combined statements of income, retained earnings, stockholder's
equity and cash flows for the twelve-month periods then ended are attached
hereto as Part A of Schedule 3.4 and true, correct and complete copies of the
unaudited combined balance sheet of the Company and the LLC (the "Interim
Balance Sheets") at August 31, 1998 and the related unaudited statements of
income, retained earnings and stockholder's equity for the eight month then
ended are attached hereto as Part B of Schedule 3.4 (all such financial
statements are referred to herein collectively as the "Financial Statements").
The Financial Statements were prepared in accordance with the books and records
of the Company and the LLC and fairly present in all material respects the
financial condition and results of operations of the Company and the LLC as of
the dates and for the periods indicated, in each case in conformity with GAAP,
consistently applied, throughout the periods specified, except as expressly set
forth therein and except that the Interim Balance Sheets may omit footnotes and
are subject to normal year end (or closing balance sheet) adjustments which are
not, in the aggregate, material.
3.5 No Changes.
Except as set forth on Schedule 3.5, since December 31, 1997,
each of the Company and the LLC has conducted its respective business only in
the ordinary course of business consistent with past practices and, other than
in the ordinary course of business, there has not been:
(a) any Material Adverse Effect;
(b) any change in the salaries or other compensation payable
or to become payable to, or any advance (excluding advances for ordinary
business expenses) or loan to, any Business Employee, or material change or
material addition to, or material modification of, other benefits (including any
bonus, profit-sharing, pension or other plan in which any of the Business
Employees participate) to which any of the Business Employees may be entitled,
or any payments to any pension, retirement, profit-sharing, bonus or similar
plan;
(c) any change or modification in any manner of either the
Company's or the LLC's existing inventory management, valuation, and collection
and payment policies, procedures and practices with respect to inventories and
accounts receivable and accounts payable, including acceleration of collections
of receivables, failure to make or delay in making collections of receivables
(whether or not past due), acceleration of payment of payables or failure to pay
or delay in payment of payables and any material change in the Company's or the
LLC's respective existing policies, procedures and practices, with respect to
the provision of discounts, rebates or allowances;
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13
(d) any change or, to the Company's, the LLC's or Seller's
knowledge, any threat of any change in any of its relations with, or any loss
or, to the Company's, the LLC's or Seller's knowledge, threat of loss of, any of
the subcontractors, suppliers, clients, distributors, customers or employees of
the Company or the LLC which, individually or in the aggregate, has had or is
reasonably likely to have a Material Adverse Effect;
(e) any cancellation or waiver of any right material to the
business or operations of either the Company or the LLC or any cancellation or
waiver of any debts of or claims against the Company or the LLC;
(f) any disposition of or failure to keep in effect any
rights in, to or for the use of any Permit which individually or in the
aggregate would have a Material Adverse Effect;
(g) any physical damage, destruction or loss affecting the
business or operations of either the Company or the LLC which individually or in
the aggregate would have a Material Adverse Effect whether or not covered by
insurance;
(h) any change by either the Company or the LLC in its method
of accounting or keeping its books of account or accounting practices except as
required by GAAP;
(i) any sale, transfer or other disposition of any material
assets, properties or rights of the Company or the LLC;
(j) any changes in the policies of the Company and the LLC
with respect to warranty reserves, depreciation, allowance for doubtful
accounts, accrual of expenses, capitalization and revenue recognition.
3.6 Contracts.
(a) As of the date of this Agreement, Schedule 3.6 contains a
list of all Contracts (other than with respect to which the total annual
liability or expense is less than (a) $10,000 per such non-listed Contract and
(b) $50,000 per all such non-listed Contracts). Each of the Company and the LLC
has delivered to Buyer a correct and complete copy of each written agreement and
a written description of each oral agreement listed on Schedule 3.6. With
respect to each Contract, neither the Company, the LLC nor Seller nor, to the
Company's, the LLC's or Seller's knowledge, any other party thereto, is in
breach or default and no event has occurred which with notice or lapse of time
would constitute a breach or default, or permit termination, modification, or
acceleration, under such Contract, except for such breaches, terminations,
modifications, accelerations or defaults which, individually and in the
aggregate, are not reasonably likely to have a Material Adverse Effect. There
are no disputes pending nor, to the Company's, the LLC's and Seller's knowledge,
threatened, under or in respect of any of the Contracts other than those that,
individually and in the aggregate, are not reasonably likely to have a Material
Adverse Effect.
(b) Each of the Contracts is in full force and effect and
constitutes the legal, valid and binding obligation of, and is legally
enforceable against, the Company and the
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LLC, to the extent that each is a party thereto, and, to the Company's, the
LLC's and Seller's knowledge, any other party thereto, in accordance with its
terms, subject to the effect of any applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar laws affecting
creditors' rights generally or by general equitable principles and rules of law
governing specific performance or estoppel, and subject, as to enforceability,
to the effect of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) other than
such failures to be legal, valid and binding obligations and enforceable as are
not reasonably likely to, individually or in the aggregate, have a Material
Adverse Effect.
3.7 Permits and Compliance With Laws Generally.
(a) Except as set forth on Schedule 3.7, each of the Company
and the LLC possesses and is in compliance with all Permits required to operate
its business as presently operated and to own, lease or otherwise hold its
property under all applicable Laws, including Environmental Laws, except to the
extent that any failure to possess, or to comply with, any Permits or Laws would
not, individually or in the aggregate, have a Material Adverse Effect. Each of
the Company and the LLC conducts its business and operations in compliance with
all applicable Laws (including the Occupational Safety and Health Act and the
rules and regulations thereunder ("OSHA"), zoning, building and similar Laws and
Environmental Laws), except for such failures to comply which do not
individually or in the aggregate have a Material Adverse Effect. Except as set
forth on Schedule 3.7, all Permits of the Company and the LLC relating to their
respective business and operations are in full force and effect, other than
those the failure of which to be in full force and effect would not individually
or in the aggregate have a Material Adverse Effect. Except as set forth on
Schedule 3.7, there are no proceedings pending or, to the Company's, the LLC's
or Seller's knowledge, threatened that seek the revocation, cancellation,
suspension or any adverse modification of any such Permits presently possessed
by the Company, the LLC or Seller other than those revocations, cancellations,
suspensions or modifications which do not individually or in the aggregate have
a Material Adverse Effect.
(b) Except as set forth on Schedule 3.7, no outstanding
notice, citation, summons or order has been issued, no outstanding complaint has
been filed, no outstanding penalty has been assessed and no investigation or
review is pending or, to the Company's, the LLC's or Seller's knowledge,
threatened by any Governmental Entity or other Person with respect to any
alleged (i) violation by any of the Company, the LLC or any Affiliate thereof
relating to any law, ordinance, rule, regulation, code or order of any
Governmental Entity or (ii) failure by any of the Company, the LLC or any
Affiliate thereof to have any Permit required in connection with the conduct of
its business, except, in each case, where such violations or failures,
individually or in the aggregate, would not have a Material Adverse Effect.
3.8 Environmental Matters.
(a) Neither the Company nor the LLC has disposed of or
arranged for the disposal of or Released any Hazardous Substances at any
facility currently or formerly owned, leased, operated or otherwise used or
occupied by any of them in connection with the operation of their respective
businesses (the "Business Real Property").
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(b) Neither the Company nor the LLC has received any notice
or request for information with respect to, and has not been designated a
responsible or potentially responsible party for Remedial Action, response
costs, or investigation, in connection with any Business Real Property pursuant
to any Environmental Law.
(c) No Business Real Property has been used by the Company or
the LLC, or, to the Company's, the LLC's or Seller's knowledge, by any other
person, for the storage, treatment, generation, processing, production or
disposal of any Hazardous Substances.
(d) To the Company's, the LLC's or Seller's knowledge, no
underground or aboveground storage tanks are or have been located on or under
the Business Real Property.
(e) There are no pending or unresolved (or, to the Company's,
the LLC's or the Seller's knowledge, threatened) claims against any of the
Company, the LLC or Seller for costs of Remedial Actions or investigation,
cleanup, removal or response actions, or natural resource damages, arising out
of any Release or threat of Release of any Hazardous Substances at any Business
Real Property.
(f) To the Company's, the LLC's or Seller's knowledge, no
polychlorinated biphenyls or asbestos-containing materials are located at, in or
upon any Business Real Property or improvements thereon.
(g) To the Company's, the LLC's or Seller's knowledge, none
of the Company, the LLC or Seller is subject to any liability, existing or
inchoate, actual or contingent, under any Environmental Law.
(h) Schedule 3.8(h) sets forth all Phase I, Phase II and
other environmental reports with respect to the Real Property (collectively, the
"Environmental Reports") obtained by or provided to the Company or the LLC. The
Company, the LLC or Seller has complied in all material respects with all
recommendations contained in such Environmental Reports, and the Company or the
LLC is entitled to rely on such Environmental Reports as if all such
Environmental Reports were addressed and delivered to either the Company or the
LLC, as the case may be.
3.9 Consents.
No consent, approval or authorization of, or registration or
filing with, any Person (governmental or private) is required in connection with
the execution, delivery and performance by the Company, the LLC or Seller of
this Agreement, the other Transaction Documents to which the Company, the LLC or
Seller is a party, or the consummation by the Company, the LLC or Seller of the
transactions contemplated hereby or thereby, including without limitation in
connection with the purchase of the Purchased Interests contemplated hereby,
except (i) as set forth on Schedule 3.9 and (ii) for such other consents,
approvals, authorizations, registrations or filings the failure of which to
obtain or make would not individually or in the aggregate have a Material
Adverse Effect.
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3.10 Title.
To the Company's, the LLC's or the Seller's knowledge, each of
the Company and the LLC has fee title to all of its Real Property (as defined
below), free and clear of all Liens other than Permitted Liens. Except as set
forth in Schedule 3.10, each of the Company and the LLC has good and valid title
to all of its other assets, in each case, free and clear of Liens other than
Permitted Liens. Seller owns all of the outstanding shares of the capital stock
of the Company, and Seller and ▇▇▇▇▇ own collectively all of the outstanding
membership interests in the LLC, in each instance free and clear of all Liens.
3.11 Real Property; Customers; Suppliers.
(a) Schedule 3.11(a) sets forth all real property (including
any fixtures, fittings, buildings, structures or other improvements erected
thereon and any easements, rights of way, water lines, rights of use, licenses,
hereditaments, tenements, privileges or other appurtenances (such as appurtenant
rights in and to public streets)) owned by each of the Company and the LLC
("Real Property").
(b) Schedule 3.11(b) sets forth the most recent available
preliminary title reports, commitments for title insurance and/or policies of
title insurance (collectively, the "Title Reports") with respect to the Real
Property identified on Schedule 3.11(a).
(c) Schedule 3.11(c) sets forth all options, agreements to
purchase and other contracts and agreements (collectively, the "Option
Agreements") relating to the acquisition of real property or leases of real
property by each of the Company and the LLC (collectively, the "Option
Property") and indicates which parcels that are the subject thereof have been
purchased and which parcels remain subject to such options and/or agreements to
purchase. To the Company's, the LLC's or the Seller's knowledge, each of the
Option Agreements is in full force and effect, none of the parties thereto is in
default or breach under any Option Agreement and there have been no failures of
any conditions precedent under any Option Agreement. Except as disclosed on
Schedule 3.11(c), the Company or the LLC currently has the right to acquire all
the Option Property free and clear of all Liens that would materially affect the
ability of the Company or the LLC to build and sell homes on any Option Property
as contemplated by the applicable recorded plat map for such Property.
(d) Schedule 3.11(d) sets forth all soil reports with respect
to the Option Property and the Real Property (collectively, the "Soils Reports")
obtained by or provided to the Company or the LLC. The Company or the LLC (i)
have complied in all material respects with all recommendations contained in
such Soils Reports and (ii) are entitled to rely on such Soils Reports as if all
such Soils Reports were addressed and delivered to either the Company or the
LLC. Upon the consummation of the transactions contemplated by this Agreement,
the Company or the LLC will be entitled to rely on such Soils Reports as if such
the Soils Reports were addressed and delivered to the Company or the LLC, as the
case may be.
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(e) Except as set forth on Schedule 3.11(e), there is no
customer of either the Company or the LLC which accounted for more than 5% of
the net sales of the Company or the LLC, respectively, in any of the calendar
years 1995, 1996 or 1997.
(f) Schedule 3.11(f) lists the combined top 25 suppliers and
vendors of goods and top 25 subcontractors to the Company and the LLC, taken as
a whole, during the period from January 1, 1998 to September 30, 1998 (based on
invoice price) and the value of goods supplied to each of them in such period
(based on invoice price). Neither the Company, the LLC nor Seller is aware of
any event, occurrence, or fact which would lead it to believe that any of such
suppliers or vendors will not continue to supply the current level and type of
goods currently being provided to the Company or the LLC, as the case may be, on
similar terms and conditions.
3.12 Taxes.
(a) The Company is, and for all taxable years since January
1, 1993 has been, an S corporation within the meaning of Section 1361(a)(1) of
the Code. Except as set forth on Schedule 3.12(a), the Company has (i) timely
filed all returns and reports for Taxes, including information returns, that are
required to have been filed by it, (ii) paid all Taxes required to be paid by it
that are shown to have come due pursuant to such returns or reports, and (iii)
paid all other Taxes required to be paid by it that are not required to be
reported on returns in connection with, relating to, or arising out of, or
imposed on its property for which a notice of assessment or demand for payment
has been received or which have otherwise become due. All such returns or
reports have been prepared in accordance with all applicable Laws and
requirements. None of the assets of the Company (i) is property that is required
to be treated as owned by another Person pursuant to the "safe harbor lease"
provisions of former Section 168(f)(8) of the Code, (ii) is "tax-exempt use
property" within the meaning of Section 168(h) of the Code or (iii) directly or
indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code. The copies that Company has previously delivered or caused
to be delivered to Buyer of its returns and reports for federal and state income
Taxes filed by or on behalf of the Company for all periods since the Company's
incorporation and prior to the Company becoming an S corporation within the
meaning of Section 1361(a)(1) of the Code are true, correct and complete copies
of such returns and reports.
(b) The LLC has (i) timely filed all returns and reports for
Taxes, including information returns, that are required to have been filed by
it, (ii) paid all Taxes required to be paid by it that are shown to have come
due pursuant to such returns or reports, and (iii) paid all other Taxes required
to be paid by it that are not required to be reported on returns in connection
with, relating to, or arising out of, or imposed on its property for which a
notice of assessment or demand for payment has been received or which have
otherwise become due. All such returns or reports have been prepared in
accordance with all applicable Laws and requirements. None of the assets of the
LLC (i) is property that is required to be treated as owned by another Person
pursuant to the "safe harbor lease" provisions of former Section 168(f)(8) of
the Code, (ii) is "tax-exempt use property" within the meaning of Section 168(h)
of the Code or (iii) directly or indirectly secures any debt the interest on
which is tax-exempt under Section 103(a) of the Code.
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(c) The Company and the LLC have paid all Taxes that
are due and payable by each
of them, including those in the nature and/or type of sales and privilege Taxes,
in the full amounts owed on all purchases and sales of real property by the
Company and the LLC.
3.13 Patents and Intellectual Property Rights.
(a) Schedule 3.13(a) contains a true, correct and complete
list of all Intellectual Property.
(b) Schedule 3.13(b) contains a true, correct and complete
list of all Intellectual Property which has been registered in, filed in or
issued by the PTO, the United States Copyright Office, any state trademark
offices and the patent, trademark, copyright and other corresponding offices of
foreign jurisdictions. All such applications and registrations have been duly
filed, and those registered and issued are valid and in full force and effect.
(c) Section 8 and 15 declarations with respect to all U.S.
registered trademarks and service marks listed in Schedule 3.13(b) were timely
filed in and accepted by the PTO. No trademarks or service marks listed in
Schedule 3.13(b) have been abandoned.
(d) At the Closing, the Company, the LLC or Seller will
transfer to Buyer all Intellectual Property and Technology, to the extent that
either the Company, the LLC or Seller has any interests or rights therein,
without payment of royalties, free and clear of any Liens.
(e) Except as set forth on Schedule 3.13(e), there are no
licenses or other agreements from or with third parties under which any of the
Company, the LLC or Seller uses, has the right to use or exercises any rights
with respect to any of the Intellectual Property or Technology, other than
Permitted Liens, if any.
(f) Neither the Company, the LLC, Seller nor any Affiliate
thereof has received (and the Company, the LLC, and Seller have no knowledge of)
any notice from any other Person pertaining to or challenging the right of any
of the Company, the LLC or Seller (or any of their Affiliates or any other
Person) to use any of the Intellectual Property or any Technology, and there is
no interference, opposition, cancellation, reexamination or other contest
proceeding, action, lien, dispute or claim of infringement, or misappropriation,
administrative or judicial, pending or threatened with respect to any
Intellectual Property or Technology.
(g) No licenses have been granted and none of the Company,
the LLC or Seller has any obligation to grant licenses with respect to any
Intellectual Property or Technology. No claims have been made by or against the
Company, the LLC or Seller of any violation or infringement by others of rights
with respect to any Intellectual Property or Technology, and neither the
Company, the LLC nor Seller knows of any basis for the making of any such claim.
The use by the Company, the LLC and Seller of the Intellectual Property and
Technology (past and present) has not violated or infringed any rights of other
Persons, or constituted a breach of any Contract (or other agreement or
commitment).
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(h) The Intellectual Property and Technology includes all
such rights necessary for the Company and the LLC to conduct their respective
business as now conducted and as proposed to be conducted, and such rights will
not be adversely affected by the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
(i) All statements and representations made by any of the
Company, the LLC or Seller in any pending patent, copyright and federal
trademark applications with respect to the Intellectual Property were true in
all material respects as of the time they were made.
3.14 Employees; Labor Relations.
(a) Set forth on Schedule 3.14(a) is a true, complete and
correct list (as of a date not more than two Business Days prior to the date
hereof) showing the name, job title, base salary or wage rate, and bonus
entitlement of each Business Employee.
(b) There have been no union organizing efforts with respect
to any of the Company or the LLC conducted within the last three years and there
are none now being conducted with respect thereto. Neither the Company, the LLC
nor Seller has at any time during the three years prior to the date of this
Agreement had, nor, to the Company's, the LLC's and Seller's knowledge, is there
now threatened, a strike, work stoppage or work slowdown with respect to or
affecting the Company, the LLC or their respective business. No Business
Employee is represented by any union or other labor organization and there is no
unfair labor practice charge pending or, to the Company's, the LLC's and
Seller's knowledge, threatened against either the Company or the LLC relating to
any of the Business Employees which individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect.
3.15 Employee Benefit Plans.
(a) Set forth on Schedule 3.15(a) hereto is a true, complete
and correct list of (i) each "employee benefit plan" within the meaning of
Section 3(3) of ERISA, (ii) any other employee benefit plan, arrangement or
policy, including without limitation, any stock option, stock purchase, deferred
compensation, retirement, health, life insurance, flexible spending, dependent
care, fringe benefit, vacation pay, holiday pay, disability, sick pay, workers
compensation, unemployment, severance pay, employee loan, educational
assistance, incentive or bonus plan, policy or arrangement and (iii) any
employment, indemnification, consulting or severance agreement, whether written
or oral, which is sponsored or maintained by each of the Company, the LLC or any
Affiliates thereof, or to which any of the Company, the LLC or any of their
Affiliates contributes or is required to contribute, on behalf of current or
former employees, consultants or directors of any of the Company, the LLC or
their beneficiaries or dependents ("Business Benefit Plans").
(b) Each of the Company and the LLC has delivered to Buyer
true, complete and correct copies of each Business Benefit Plan, or written
summaries of any unwritten Business Benefit Plan, any collective bargaining
agreement covering Business Employees and any employee handbook applicable to
Business Employees.
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(c) Each Business Benefit Plan is and has been operated in
all material respects in accordance with its terms and all applicable laws.
Except as set forth on Schedule 3.15(c), no Business Benefit Plan is a "group
health plan," within the meaning of Section 5000(b) of the Code, a defined
benefit plan, within the meaning of Section 3(35) of ERISA, a multiemployer
plan, within the meaning of Section 3(37) of ERISA, or a plan subject to Section
412 of the Code; and neither the Company nor the LLC has any outstanding
liability with respect to any such plan (including any such plan maintained by
an Affiliate of any of the Company or the LLC or any such plan previously
maintained or contributed to by any of the Company or the LLC) and no event has
occurred and no circumstance exists which could give rise to any such liability.
(d) There are no actions, suits or claims (other than routine
claims for benefits in the ordinary course) with respect to any Business Benefit
Plan pending or, to the Company's, the LLC's and Seller's knowledge, threatened
which could give rise to a material liability, and neither the Company, the LLC
nor Seller has knowledge of any facts which could give rise to any such actions,
suits or claims (other than routine claims for benefits in the ordinary course).
(e) Neither the Company, the LLC nor any of their ERISA
Affiliates nor, to the Company's, the LLC's and Seller's knowledge, any other
Person has taken any action or failed to take any action with respect to any
Business Benefit Plan that may subject Buyer or any Business Benefit Plan under
which liabilities are to be assumed by Buyer hereunder to any tax, penalty, fine
or other liability under the Code or ERISA.
3.16 No Pending Litigation or Proceedings.
Except as set forth on Schedule 3.16, there are no claims,
actions, suits, arbitrations, inquiries, investigations or proceedings pending
against or, to the Company's, the LLC's and Seller's knowledge, directly
affecting or threatened against the Company, the LLC or Seller, or against or
affecting the business of either the Company or the LLC or affecting any of the
assets of either the Company or the LLC before any court or arbitrator or
Governmental Entity (including the United States Environmental Protection
Agency, the United States Equal Employment Opportunity Commission or any similar
Governmental Entity of the State of Arizona), which individually or in the
aggregate could have a Material Adverse Effect. Except as set forth on Schedule
3.16, there are no outstanding judgments, decrees, writs, injunctions or orders
of any court or arbitrator or Governmental Entity against the Company, the LLC
or Seller (nor, to the Company's, the LLC's or Seller's knowledge, threatened to
be imposed against the Company, the LLC or Seller), which individually or in the
aggregate could have a Material Adverse Effect.
3.17 Insurance.
Schedule 3.17 lists each of the Company's and the LLC's policies
and contracts in effect as of the date hereof for insurance (including policies
providing property, casualty, liability, workers' compensation, and bond and
surety arrangements), together with the risks insured against, coverage limits
and deductible amounts.
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3.18 WARN Act.
Within six months prior to the date hereof, (i) neither the
Company nor the LLC has effectuated (a) a "plant closing" (as defined in the
WARN Act) affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of the Company or the
LLC or (b) a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or one or more facilities or operating units within any site of
employment or facility of the Company or the LLC, and (ii) neither the Company
nor the LLC has been affected by any transaction or engaged in layoffs or
employment terminations with respect to its business or operations sufficient in
number to trigger application of any similar state or local law.
3.19 Condition of Assets.
Except as set forth on Schedule 3.19, the fixed tangible assets
of each of the Company and the LLC or subject to any Contract of either the
Company or the LLC (which Contract requires either the Company or the LLC to
maintain or repair any asset or equipment) are in good operating condition and
repair, reasonable wear and tear excepted.
3.20 Brokerage.
Neither the Company, the LLC, Seller, nor any of their Affiliates
have made any agreement or taken any other action which might cause any Person
to become entitled to a broker's or finder's fee or commission or other fee as a
result of or in connection with the transactions contemplated hereunder, except
that the Company has engaged Monterey Homes Corporation and has agreed to pay it
a success fee of $100,000, which fee shall be assumed and paid by Seller
concurrently with the Closing.
3.21 All Assets.
Except as set forth on Schedule 3.21, none of the assets of the
Company or the LLC are owned, in whole or in part, by any Person other than the
Company or the LLC, as the case may be.
3.22 Full Disclosure.
Neither the Company, the LLC nor Seller is aware of any facts
pertaining to either the Company or the LLC which are reasonably likely to cause
a Material Adverse Effect and which have not been disclosed in this Agreement,
the Schedules hereto or the Financial Statements.
3.23 Private Placement.
(a) Each of Seller and ▇▇▇▇▇ qualifies as an "accredited
investor" within the meaning of Regulation D promulgated under the 1933 Act;
(b) Seller and ▇▇▇▇▇ will acquire the shares of Buyer Common
Stock acquired hereunder for their own account; and
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(c) Seller and ▇▇▇▇▇ are not acquiring the shares of Buyer
Common Stock acquired hereunder with a view to any distributions thereof within
the meaning of the 1933 Act.
3.24 Transactions with Affiliates.
Except as set forth on Schedule 3.24, there are no Contracts to
which the Company, the LLC or any of their Affiliates (other than Seller) (the
"Insiders"), on the one hand, and Seller or any of his Related Parties, on the
other hand, is a party nor any transactions of any kind (the "Insider
Transactions") between Seller or his Related Parties, on one hand, and any
Insider, on the other hand, that have occurred since December 31, 1995. For
purposes of this Agreement, a "Related Party" of a specified Person is (i) an
Affiliate of the Person specified, (ii) a director of any of the foregoing
referred to in this sentence, (iii) a spouse, parent, sibling, child, mother- or
father-in-law, son- or daughter-in-law, or brother- or sister-in-law of any of
the foregoing referred to in this sentence or (iv) any trust or other estate in
which any of the foregoing referred to in this sentence has a substantial
beneficial interest or as to which any of the foregoing referred to in this
sentence serves as trustee or in a similar fiduciary capacity.
3.25 Warranty Reserve.
The warranty reserves maintained by the Company are adequate and
sufficient to cover any post-Closing liabilities for the applicable warranty
period that may arise on account of or relating to work performed by the Company
or the LLC, as the case may be, prior to the Closing. Seller shall indemnify
Buyer in the event and to the extent that the warranty reserves are insufficient
to cover any such post-Closing liabilities. In the event, and to the extent,
that the warranty reserves are in excess of any such post-Closing liabilities,
as determined after the applicable warranty period has elapsed, the Company
shall pay such excess to Seller.
Buyer, Seller, the Company and the LLC agree to allocate warranty
costs as determined by the Auditors to be in accordance with GAAP.
3.26 Omitted.
3.27 Interests Owned by the Company or the LLC.
Except as disclosed on Schedule 3.27, neither the Company nor the
LLC (i) is a partner or investor in any partnerships, corporations, joint
venture or any other entity, (ii) is party or subject to any pledge of its
capital stock or membership interests, or (iii) is party or subject to any
agreement with respect to or directly affecting its capital stock or membership
interests.
3.28 Absence of Undisclosed Liabilities.
Neither the Company nor the LLC is subject to any liabilities
which have not been disclosed to Buyer in writing except for (i) obligations,
duties and liabilities of the Company and the LLC reflected in the Financial
Statements, (ii) obligations, duties and liabilities incurred in
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the ordinary course of business since the date of the Interim Balance Sheets,
(iii) normal accruals, reclassification and audit adjustments which would be
reflected on an audited financial statement, and (iv) obligations, duties and
liabilities incurred in the ordinary course of business prior to the date of the
Interim Balance Sheets which, in accordance with GAAP, were not recorded
thereon, which obligations, duties and liabilities described in clauses (i)
through (iv) above, either individually or in the aggregate, would not have a
Material Adverse Effect on either the Company or the LLC.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF BUYER
Buyer hereby represents and warrants to the Company, the LLC,
Seller and ▇▇▇▇▇ as follows:
4.1 Organization and Good Standing.
Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada.
4.2 Authorization and Enforceability.
Buyer has full corporate power and authority to execute, deliver
and perform this Agreement and all other Transaction Documents to which it is a
party. The execution, delivery and performance by Buyer of this Agreement and
the other Transaction Documents to which it is a party have been duly authorized
by all necessary corporate action on the part of Buyer. This Agreement has been
duly executed and delivered by Buyer, and, as of the Closing Date, the other
Transaction Documents to which it is a party will be duly executed and delivered
by it. This Agreement is a legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, except as such
enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court. As of the Closing Date, each of the other
Transaction Documents to which Buyer is a party will be duly executed and
delivered by Buyer and will constitute the legal, valid and binding obligations
of Buyer, enforceable against Buyer in accordance with its terms, except as such
enforceability may be limited by applicable laws relating to bankruptcy,
insolvency, fraudulent conveyance, reorganization or affecting creditors' rights
generally and except to the extent that injunctive or other equitable relief is
within the discretion of a court.
4.3 No Violation of Laws or Agreements.
The execution, delivery and performance by Buyer of this
Agreement and the Transaction Documents to which it is a party do not, and the
consummation by Buyer of the transactions contemplated hereby and thereby, will
not, (a) violate, conflict with or result in the breach of any provision of the
Articles of Incorporation or By-Laws of Buyer or (b) violate,
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conflict with, result in a breach of, or constitute a default (or an event which
would, with the passage of time or the giving of notice or both, constitute a
default) under, require any consent under or result in or permit the
termination, amendment, modification, suspension, revocation, acceleration or
cancellation of, (i) any indenture, mortgage, loan or credit agreement, license,
instrument, lease, contract, plan, permit or other agreement or commitment, oral
or written, to which Buyer is a party, or by which any of its assets or
properties may be bound or affected, except for such violations, conflicts,
breaches, terminations, amendments, modifications, suspensions, revocations,
accelerations, cancellations, interests or rights which, individually and in the
aggregate, do not have a material adverse effect on its ability to perform its
respective obligations under this Agreement and the other Transaction Documents
to which it is a party, or (ii) any judgment, injunction, writ, award, decree,
restriction, ruling, or order of any court, arbitrator or Governmental Entity or
any applicable constitution or Law, to which Buyer is subject other than those
violations and conflicts which individually and in the aggregate would not have
a material adverse effect on its ability to perform its obligations under this
Agreement and the other Transaction Documents to which Buyer is a party.
4.4 Consents.
No consent, approval or authorization of, or registration or
filing with, any Person (governmental or private) is required in connection with
the execution, delivery and performance by Buyer of this Agreement, the other
Transaction Documents to which Buyer is a party, or the consummation by Buyer of
the transactions contemplated hereby or thereby except for such consents,
approvals, authorizations, registrations or filings which will be obtained or
filed on or prior to the Closing Date, the failure of which to obtain or make
would not individually and in the aggregate have a material adverse effect on
its ability to perform its obligations under this Agreement and the other
Transaction Documents to which Buyer is a party.
4.5 Brokerage.
Buyer has not made any agreement or taken any other action which
might cause any Person to become entitled to a broker's or finder's fee or
commission or other fee as a result of or in connection with the transactions
contemplated hereunder.
4.6 Shares of Buyer Common Stock.
The shares of Buyer Common Stock to be issued in accordance with
this Agreement, when issued in accordance with this Agreement, will be duly
authorized, validly issued, fully paid and non-assessable and not subject to any
preemptive rights or Liens.
4.7 Filings.
Buyer has timely made all filings required under the Securities
Exchange Act of 1934, as amended, and none of such filings contained and no
future filings to be made prior to the Closing will contain an untrue statement
of a material fact or omitted to state 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.
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ARTICLE V
ADDITIONAL COVENANTS
5.1 Conduct of Business.
(a) Except as otherwise specifically permitted by this
Agreement or with the prior written consent of Buyer, from and after the date of
this Agreement and until the Closing Date, each of the Company, the LLC, and
Seller agrees that:
(i) Each of the Company and the LLC shall conduct their
respective business in the same manner as it has been regularly conducted,
including maintaining in all material respects its Contracts and Permits in full
force and effect;
(ii) Each of the Company and the LLC shall use its
reasonable best efforts to preserve its assets and to maintain its business and
employees, sales representatives, customers, asset suppliers, licensees and
operations in accordance with past custom and practice.
(iii) Each of the Company and the LLC shall promptly
inform Buyer in writing of any specific event or circumstance of which it is
aware, or of which it receives notice, that has or is likely to have,
individually or in the aggregate, taken together with the other events or
circumstances, a Material Adverse Effect;
(iv) Each of the Company and the LLC shall use its
reasonable best efforts to satisfy each of the closing conditions provided
herein and to consummate the transactions contemplated hereby;
(v) Notwithstanding anything to the contrary contained in
this Agreement, including Section 5.1(a)(vi), neither the Company and the LLC
shall purchase land nor enter into any agreement for the purchase of land
without the prior written consent of Buyer, which consent shall not be
unreasonably withheld; provided, however, that if Buyer withholds its consent to
any bona fide proposal to purchase land by the Company, then, in the event that
the Closing does not occur other than due to a breach or default of this
Agreement by any of the Company, the LLC or Seller, Buyer shall not enter into
any agreement for the acquisition of such land for six months after the
termination of this Agreement without the prior written consent of Seller, which
consent may be withheld in Seller's sole and absolute discretion.
(vi) Neither the Company nor the LLC shall enter into any
contract or transaction other than in the ordinary course of business, nor enter
into any transaction with Affiliated persons or entities other than as
contemplated by this Agreement, nor accept any capital contributions, without
the prior written consent of Buyer, provided that the Company shall distribute
to Seller the Taliverde lot 94 prior to the Closing.
(vii) Neither the Company nor the LLC shall (A) redeem or
repurchase any stock, (B) issue additional stock, (C) make any loans, (D) incur
any debt or
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(E) increase the compensation, incentive arrangements or other benefits of any
employee other than in the ordinary course of business consistent with past
practices of the Company.
(viii) Neither the Company nor the LLC shall:
(1) change or modify in any material respect existing
inventory management or credit and collection policies, procedures and practices
with respect to accounts receivable;
(2) enter into any contract or commitment, waive any right or
enter into any other transaction which is reasonably likely to have a Material
Adverse Effect;
(3) mortgage, pledge or subject to any Lien (other than
Permitted Liens) any of their respective assets;
(4) change any compensation or benefits or grant any material
new compensation or benefits payable to or in respect of any Business Employee
(except, for regularly scheduled merit increases in the ordinary course of
business consistent with past practice);
(5) sell, lease or otherwise transfer any assets necessary,
or otherwise material to the conduct of, their respective business;
(6) change either of the Company's or the LLC's method of
accounting or keeping its books of account or accounting or tax practices,
except as required by GAAP.
(7) engage in any practice or take or omit to take any action
which if taken or omitted prior to the date hereof would constitute or result in
a breach of any representations or warranties of any of the Company, the LLC or
Seller contained herein;
(8) enter into, amend or exercise an extension or renewal
option for any lease of Business Real Property except with the prior written
consent of Buyer, which consent shall not be unreasonably withheld.
(ix) Each of the Company and the LLC shall deliver to Buyer (i)
within two Business Days after the receipt thereof, copies of all corrective
work orders from the Arizona Registrar of Contractors and (ii) within five
Business Days after the preparation thereof, copies of all reports prepared by
either the Company or the LLC with respect to such corrective work orders, the
status of complaints filed with the Arizona Registrar of Contractors and
correspondence from the Arizona Registrar of Contractors. Each of the Company
and the LLC shall promptly deliver to Buyer, upon Buyer's request, copies of any
such correspondence.
(b) As of the Closing Date, Seller shall cause HomeBanc Mortgage
Corporation ("HomeBanc"), if not purchased by Buyer on or prior to such date, to
cease
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conducting business except as necessary to close any transactions entered into
prior to the Closing Date or as otherwise mutually agreed upon in writing by
Buyer in its sole discretion.
(c) Except as otherwise specifically permitted by this Agreement
or with the prior written consent of Seller, from and after the date of this
Agreement and until the Closing Date, Buyer agrees that:
(i) It shall conduct its business in the same manner as it
has been regularly conducted;
(ii) It shall use its reasonable best efforts to preserve the
assets of Buyer and to maintain its business and employees, sales
representatives, customers, assets, suppliers, licenses and operations in
accordance with past custom and practice;
(iii) It shall use its reasonable best efforts to satisfy
each of the closing conditions provided herein and to consummate the
transactions contemplated hereby; and
(iv) It shall not engage in any practice or take or omit to
take any action which if taken or omitted prior to the date hereof would
constitute or result in a breach of any representations or warranties of Buyer
contained herein.
(d) (i) If Buyer and Seller fail to enter in a definitive
agreement for the purchase by Buyer of Seller's interests in HomeBanc (a
"HomeBanc Agreement"), or if Buyer and Seller enter into a HomeBanc Agreement
and Buyer elects not to purchase Seller's interests in HomeBanc for any reason
other than (A) a material misrepresentation by a party, other than Buyer, to the
HomeBanc Agreement or (B) the failure of a condition precedent to Buyer's
obligation to consummate the transactions contemplated therein, Buyer will not
hire any employees of HomeBanc for a period of two years after the Closing Date;
(ii) If Buyer and Seller enter into a HomeBanc Agreement and
Buyer elects, after the expiration of any feasibility period thereunder, not to
purchase Seller's interests in HomeBanc for any reason other than (A) a material
misrepresentation by a party, other than Buyer, to the HomeBanc Agreement or (B)
the failure of a condition precedent to Buyer's obligation to consummate the
transactions contemplated therein, Buyer will not, for two years after the
Closing Date, enter into a business in the Phoenix or Tuscon areas of Arizona
which would have been similar to and competitive with the mortgage
banking/broker business conducted by HomeBanc as of the date of this Agreement.
5.2 Mutual Covenants.
The parties hereto mutually covenant from the date of this
Agreement to the Closing Date (and subject to the other terms of this
Agreement):
(a) to cooperate with each other in determining whether
filings are required to be made or consents required to be obtained in any
jurisdiction in connection with the consummation of the transactions
contemplated by this Agreement and in making or causing to be made any such
filings promptly and in seeking to obtain timely any such consents (each party
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hereto shall furnish to the other and to the other's counsel all such
information as may be reasonably required in order to effectuate the foregoing
action); and
(b) to advise the other parties promptly if such party
determines that any condition precedent to its obligations hereunder will not be
satisfied in a timely manner.
5.3 Filings and Authorizations.
The parties hereto will, as promptly as practicable, make or
cause to be made all such filings and submissions under Laws applicable to them
or their Affiliates as may be required to consummate the terms of this
Agreement. The Company, the LLC, Seller and Buyer shall keep each other apprised
of the status of any communications with, and inquiries or requests for
additional information from, any Governmental Entity and shall comply promptly
with any such inquiry or request.
5.4 Public or Private Announcement.
Prior to the Closing, no party hereto shall make or issue, or
cause to be made or issued any public or private announcement or written
statement concerning this Agreement or the transactions contemplated hereby
without the prior written consent of the other parties hereto (which will not be
unreasonably withheld or delayed); provided, however, that Buyer may disclose
such information Buyer may deem reasonably necessary in connection with
obtaining financing for the transactions contemplated hereby or if counsel to
Buyer advises that such announcement or statement is required by law; provided,
further, however, that Buyer shall provide prior notice of any public disclosure
regarding the transactions contemplated by this Agreement and an opportunity to
comment thereon to Seller, to the extent practicable. The Company, the LLC, and
Seller may respond to public inquiries after any public disclosure by Buyer,
but, subject to Buyer's compliance with the provisions of this Section 5.4,
shall not disclose any information beyond that disclosed by Buyer.
5.5 Investigation.
From the date hereof until the Closing, each of the Company and
the LLC shall give Buyer and its representatives (including Buyer's accountants,
consultants, counsel, employees and authorized agents), upon reasonable notice
and during normal business hours, full access to the properties, contracts,
employees, books, records and affairs of each of the Company and the LLC, and
shall cause its officers, directors, employees, agents, representatives,
accountants and counsel to furnish to Buyer all documents, records and
information (and copies thereof), as Buyer may reasonably request. No
investigation or receipt of information by Buyer pursuant to, or in connection
with, this Agreement, shall diminish or obviate any of the representations,
warranties, covenants or agreements of any of the Company, the LLC, and Seller
under this Agreement or the conditions to the obligations of Buyer under this
Agreement.
5.6 Taxes.
(a) Each of the Company, the LLC, Seller and Buyer shall (a)
each provide the other with such assistance as may reasonably be requested by
either of them in
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connection with the preparation of any Tax return, any audit or other
examination by any taxing Governmental Entity or any judicial or administrative
proceeding with respect to Taxes, (b) each retain and provide the other with any
records or other information which may be relevant to such return, audit,
examination or proceeding and (c) each provide the other with any final
determination of any such audit or examination, proceeding or determination that
affects any amount required to be shown on any Tax return of the other for any
period (which shall be maintained confidentially). It is expressly provided that
in connection with any audit or examination relating to taxable periods of the
Company prior to the Closing Date, Seller shall be authorized to assume control
of and contest or settle any proposed assessment at its own expense; provided,
however, that Seller shall not contest or settle any proposed assessment or
deficiency without Buyer's prior written consent if such contest, if successful,
or such settlement would result in a material increase in Taxes of the Company
for taxable periods commencing on or after the Closing Date. Without limiting
the generality of the foregoing, the Company, the LLC, Buyer and Seller shall
retain, until the applicable statutes of limitations (including all extensions)
have expired, copies of all Tax returns, supporting workpapers, and other books
and records or information which may be relevant to such returns for all Tax
periods or portions thereof ending before or including the Closing Date, and
shall not destroy or dispose of such records or information without first
providing the other party with a reasonable opportunity to review and copy the
same.
(b) ▇▇▇▇▇ and Seller shall have the sole responsibility for
the preparation and filing of tax returns that relate to (a) taxable periods of
the Company and the LLC ending before the Closing Date, including tax returns
relating to the Company's "S short year" (within the meaning of Section
1362(e)(1)(A) of the Code and the corresponding provisions of state and local
law) and (b) the taxable period of the LLC ending on the Closing Date; provided,
however, that with respect to any taxable period that includes any part of the
calendar year in which the Closing Date occurs, Buyer shall have the opportunity
to review and approve any such tax return prior to filing, which approval shall
not be unreasonably withheld.
(c) Buyer shall have sole responsibility for the preparation
and filing of tax returns of the Company and the LLC that relate to taxable
periods commencing on or after the Closing Date, including tax returns relating
to the Company's "C short year" (within the meaning of Section 1362(e)(1)(B) of
the Code and the corresponding provisions of state and local law) and tax
returns relating to the LLC's taxable year commencing on the date following the
Closing Date; provided, however, that with respect to any taxable period that
includes any part of the calendar year in which the Closing Date occurs, Seller
shall have the opportunity to review and approve any such tax return prior to
filing, which approval shall not be unreasonably withheld.
(d) The parties agrees to use the "closing of the books
method" of allocating income of the LLC between the taxable period of the LLC
ending on the Closing Date and the immediately succeeding taxable period.
(e) Buyer shall not, for any purpose, elect to treat the
purchase of the stock of the Purchased Interests as purchases of the assets of
the Company and/or the LLC.
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(f) Seller shall be entitled to claim, and shall be entitled
to, any refund of Taxes of the Company with respect to taxable periods of the
Company ending on or prior to the Closing Date, other than any refund
attributable to the carryback of losses or credits arising in taxable periods of
the Company ending after the Closing Date; provided, however, that without
Buyer's prior written consent Seller shall not claim any refund of Taxes of the
Company with respect to taxable periods of the Company ending on or prior to the
Closing Date which would result in an increase in Taxes of the Company for
taxable periods of the Company ending after the Closing Date; provided, further,
that Seller shall promptly pay to Buyer upon receipt any refund of Taxes of the
Company with respect to taxable periods of the Company ending on or prior to the
Closing Date to the extent (but only to the extent) that the adjustment or
adjustments to which such refund is attributable result in an increase in Taxes
of the Company for taxable periods of the Company commencing on or after the
Closing Date; and provided, further, that Seller shall furnish Buyer with a copy
of any claim for refund filed by Seller with respect to Taxes of the Company.
5.7 Consents.
Each of the parties hereto will use its reasonable best efforts
and will cooperate with the other parties hereto to obtain all consents required
from third Persons, whose consent or approval is required pursuant to any
Contract or Permit to consummate the transactions contemplated hereby.
5.8 Confidentiality.
(a) Subject to Section 5.4 hereof, each party hereto agrees
that any confidential business, financial or other information relating to the
other party disclosed at any time prior to the Closing to such party, or its
advisors, employees, agents, attorneys, accountants or Affiliates ("Related
Persons"), by or on behalf of the other party (collectively, "Confidential
Information") will be maintained in strictest confidence by such party and each
of its Related Persons, and will not be disclosed to any other person without
the prior written consent of the disclosing party. No such party nor any of its
Related Persons will use any Confidential Information for any purpose other than
the performance of this Agreement and the transactions contemplated hereby. In
the event of any termination of this Agreement, each party will promptly return
to the other party all of the other party's Confidential Information and copies
thereof in the possession of such party or its Related Persons, provided that
internally prepared notes or documents containing or based upon Confidential
Information may be promptly destroyed in lieu of being returned.
(b) The restrictions set forth in Section 5.8(a) will not
apply to any information which (i) was already rightfully known to a party or
any of its Related Persons without obligations of confidentiality to the other
party prior to the time of its disclosure to such party by or on behalf of the
other party; (ii) is in the public domain through no breach of Section 5.8(a) or
other wrongful act of such party of its Related Persons; (iii) has been
rightfully received by such party or its Related Persons from a third party not
under obligation of confidentiality to the other party without breach of Section
5.8(a); (iv) is independently developed by the other party or its Related
Persons without use of any Confidential Information
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of the other party; or (v) is disclosed pursuant to court order or other legal
requirements, provided that such party and its Related Persons shall give the
other party as much advance notice as practicable of the intention to make a
disclosure under this clause (v) so that the other party, if it so desires, may
contest such court order or other legal requirement.
(c) Each party hereto agrees that it, he or she will not,
directly or indirectly through Affiliates, solicit for employment any employees
of the other party for a period of one year from the date hereof.
(d) Each party agrees that money damages would not be a
sufficient remedy for any breach of this Section 5.8 by such party or any of its
Related Persons and that the other party will be entitled to specific
performance and injunctive relief or other equitable relief as remedies for any
such breach. Such remedies will not be deemed to be the exclusive remedies but
will be in addition to all other remedies available at law or in equity. Each
party hereby waives, and agrees to use its best efforts to cause each of his
Related Persons to waive, any requirement for the securing or posting of any
bond in connection with any such remedy.
(e) For purposes of this Section 5.8 (and this Section 5.8
only), Seller, the Company, the LLC and ▇▇▇▇▇ shall be deemed to be one party.
5.9 Reasonable Best Efforts.
Without limiting the specific obligations of any party hereto
under any covenant or agreement hereunder, each party hereto shall use
reasonable best efforts to take all action and do all things necessary in order
to promptly consummate the transactions contemplated hereby, including, without
limitation, satisfaction, but not waiver, of the Closing conditions set forth in
Article VI.
5.10 Negotiations.
(a) From the date hereof until the Closing or earlier
termination of this Agreement in accordance with its terms (the "Exclusivity
Period"), Buyer will have the exclusive right to negotiate with the Company, the
LLC, and Seller concerning any merger, consolidation, sale of assets not in the
ordinary course of business, acquisition, business exchange or transfer of
shares of either the Company or the LLC. The Company, the LLC, and Seller agree
that, during the Exclusivity Period, neither the Company, the LLC, Seller nor
any of their employees, directors, representatives, Affiliates or advisors
(including, without limitation, legal, accounting, financial and investment
banking advisors) will directly or indirectly, except with the prior written
consent of Buyer, which consent shall not be unreasonably withheld, (a) enter
into any agreement (or grant any option or right) to sell, transfer or otherwise
dispose of the shares of stock or the assets of either the Company or the LLC
(except, solely with respect to the assets of the Company or the LLC, in the
ordinary course of business) or issue any shares of stock or membership
interests of either the Company or the LLC, directly or indirectly, to any
Person, (b) hold any discussion with, or provide any information to, any Person
concerning either the Company or the LLC in connection therewith (other than
with respect to the sale of assets in the ordinary course of business) or (c)
respond to any inquiry made by any Person concerning a
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proposed acquisition of any assets, stock or interests of either the Company or
the LLC (including Persons with whom the Company or the LLC or their advisors
may have had discussions prior to the date hereof), except to advise such Person
that a prospective purchaser has been granted the exclusive right to negotiate
concerning a proposed transaction, without identifying the Buyer, unless
previously publicly identified. The Company, the LLC, and Seller further agree
to advise Buyer immediately upon receiving any inquiry from any such Person
(including the identity of any such Person, the terms of any proposal to acquire
any stock, assets or interests in or of either the Company or the LLC, and any
other relevant information that Buyer may request), and to supply Buyer with a
copy of any written offer, proposal or other indication of interest received
from any such Person.
(b) Buyer agrees that, during the Exclusivity Period, neither
Buyer nor any of its employees, directors, representatives, affiliates or
advisers (including, without limitation, legal, accounting, financial and
investment banking advisers) will directly or indirectly, except with the prior
written consent of Seller, which shall not be unreasonably withheld, (a) enter
into any agreement to acquire the stock or the assets (other than in the
ordinary course of business) of any Arizona homebuilder, (b) hold any discussion
with, or provide any information to, any person concerning any such homebuilder
in connection therewith, or (c) respond to any inquiry made by any person
concerning a proposed acquisition of any assets (other than in the ordinary
course of business) or stock of any such homebuilder (including persons with
whom Buyer or its advisers may have had discussions prior to the date of this
Agreement), except to advise such person that Buyer has been granted certain
rights concerning a proposed transaction with another homebuilder, without
identifying the Company. Buyer further agrees to advise the Company immediately
upon making or receiving any inquiry from any such person (including the
identity of any such person, the terms of any proposal to buy any portion of the
stock or assets (other than in the ordinary course of business) of any such
homebuilder made during the Exclusivity Period, and any other relevant
information that the Company may request), and to supply the Company with a copy
of any written offer, proposal or other indication of interest made to or
received from any such person. For purposes hereof, the acquisition of a
material portion of the assets of an Arizona homebuilder shall not be considered
in the ordinary course of Buyer's business.
(c) In the event that any party materially breaches the
obligations set forth in this Section 5.10 prior to the end of the Exclusivity
Period or enters into any agreement of the type referred to therein within six
months of the end thereof with any person with whom such party discussed any
such transaction during the Exclusivity Period, then, upon closing of such
transaction, such party shall promptly pay the other liquidated damages of
$1,000,000; provided, however, that no such payment shall be due to a party that
terminated this Agreement without cause or to a party that itself materially
breached this Agreement, it being specifically understood that Seller would have
no obligation hereunder if Buyer terminates this Agreement as a result of
Buyer's failure to obtain financing necessary to consummate the transactions
contemplated hereby. The parties agree that actual damages would be substantial
but difficult to calculate and that such amount represents a reasonable estimate
thereof. In the event of such termination, payment of such amounts by a party
pursuant to this Section 5.10 shall constitute the sole and exclusive remedy of
the other party against such party under this Agreement.
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5.11 Omitted
5.12 Employees After the Closing
Buyer does not intend to compel the Company to reduce any
competitive compensation packages which have been maintained by the Company for
at least 12 months prior to the Closing. The Company's employees as of the
Closing, other than Seller, shall be entitled to grants of stock options under
Buyer's employee stock option plan in the amounts set forth on Schedule 5.12.
The exercise price for said options shall be equal to the closing market price
of Buyer Common Stock as of the day prior to the Closing Date. Said options
shall vest, on an annual basis, equally over five years of employment following
the Closing, and shall otherwise be on the same terms and conditions as
currently provided under Buyer's employee stock option plan.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent to Obligations of Buyer.
The obligations of Buyer to purchase the Purchased Interests and
to consummate the transactions contemplated hereby are subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions (any one or more of which may be waived in writing in whole or in
part by Buyer in its sole discretion):
(a) Representations, Warranties and Covenants. Each of the
representations and warranties of the Company, the LLC, and Seller contained in
this Agreement or in any certificate, document or instrument delivered in
connection herewith shall be true and correct in all material respects on and as
of the date of this Agreement and at and as of the Closing with the same effect
as though such representations and warranties had been made at and as of the
Closing, except for representations and warranties that speak as of a specific
date or time other than the Closing (which need only be true and correct in all
material respects as of such date or time); provided, however, that if any
portion of any such representation or warranty is already qualified by
materiality, for purposes of determining whether this condition has been
satisfied with respect to such portion of such representation or warranty, such
qualification shall be disregarded, i.e., so that such representation or
warranty, without such qualification, shall be true and correct in all material
respects. Each of the Company, the LLC, and Seller shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by such party at or prior to the
Closing. Each of the Company, the LLC, and Seller shall furnish Buyer with a
certificate dated the Closing Date and signed by a senior executive officer of
the Company or the LLC, as the case may be, or Seller, to the effect that the
conditions set forth in this Section 6.1(a) have been satisfied.
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(b) Required Consents. The Company, the LLC, and Seller shall
have obtained, each in form and substance reasonably satisfactory to Buyer in
its reasonable discretion all statutory and regulatory consents and approvals
which are required under any applicable Laws in order for Buyer to purchase the
Purchased Interests and to consummate the transactions contemplated hereby and
all other necessary consents and approvals of third Persons to the transactions
contemplated hereby, and the waiting period prescribed by the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvement Act of 1976 shall have expired.
(c) Injunction; Litigation; Legislation. (i) None of the
Company, the LLC, Seller or Buyer shall be subject to any order or injunction
restraining or prohibiting the consummation of the transactions contemplated
hereby, (ii) no action or proceeding shall have been instituted before any court
or Governmental Entity to restrain or prohibit, or to obtain substantial damages
in respect of, the consummation of the transactions contemplated hereby, (iii)
none of the parties hereto shall have received written notice from any
Governmental Entity of (A) its intention to institute any action or proceeding
to restrain, enjoin or nullify this Agreement or the transactions contemplated
hereby, or to commence any investigation (other than a routine letter of
inquiry, including a routine civil investigative demand) into the consummation
of the transactions contemplated hereby or (B) the actual commencement of such
investigation, (iv) except as set forth on Schedule 3.6, there shall not be any
pending or threatened litigation, suit, action or proceeding by any party which
would reasonably be expected to limit or materially adversely affect the benefit
expected by Buyer from its purchase of the Purchased Interests (other than
pending or threatened litigation the Company, the LLC, Seller and Buyer mutually
view as frivolous) and (v) no statute, rule or regulation shall have been
promulgated or enacted by any Governmental Entity, which would prevent or make
illegal the consummation of the transactions contemplated hereby.
(d) Documents. Each of the Company, the LLC, and Seller shall
have delivered to Buyer at the Closing such other documents and instruments as
shall be reasonably necessary to transfer to Buyer the Purchased Interests as
contemplated by this Agreement. Each of the Company, the LLC, and Seller shall
have delivered all the certificates, instruments, contracts and other documents
specified to be delivered by each such Person hereunder, including pursuant to
Section 2.5 hereof.
(e) Material Adverse Change. There shall have been no
material adverse change in the business or financial condition in either the
Company or the LLC from such conditions as of the date hereof.
(f) Contractor's License. Each of the Company and the LLC
shall have a current and valid general contractor's license issued by the State
of Arizona Registrar of Contractors sufficient to and allowing the Company and
the LLC, respectively, to conduct their home-building businesses as presently
conducted (each, a "Contractor's License"), which Contractor's Licenses shall be
in full force and effect and shall not be subject to any revocation, suspension
or other similar proceedings or to any disciplinary action which is reasonably
likely to materially adversely affect the ability of either the Company or the
LLC to conduct its respective business consistent with past practice.
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6.2 Conditions Precedent to Obligations of the Company, the LLC, and
Seller.
The obligations of the Company, the LLC, Seller and ▇▇▇▇▇ to
consummate the transactions contemplated hereby are subject to the satisfaction,
on or prior to the Closing Date, of each of the following conditions (any one or
more of which may be waived in writing in whole or in part by Seller in its sole
discretion):
(a) Representations, Warranties and Covenants. Each of the
representations and warranties of Buyer contained in this Agreement or in any
certificate, document or other instrument delivered in connection herewith shall
be true and correct in all material respects on and as of the date of this
Agreement and at and as of the Closing with the same effect as though such
representations and warranties had been made at and as of the Closing, except
for representations and warranties that speak as of a specific date or time
other than the Closing (which need only be true and correct in all material
respects as of such date or time); provided, however, that if any portion of any
such representation or warranty is already qualified by materiality, for
purposes of determining whether this condition has been satisfied with respect
to such portion of such representation or warranty, such portion of such
representation or warranty as so qualified shall be true and correct in all
respects. Buyer shall have performed and complied in all material respects with
all covenants and agreements required by this Agreement to be performed and
complied with by it at or prior to the Closing. Buyer shall furnish the Company,
the LLC, and Seller with a certificate dated the Closing Date and signed by a
senior executive officer of Buyer to the effect that the conditions set forth in
this Section 6.2(a) have been satisfied.
(b) Injunction; Litigation; Legislation. (i) Neither the
Company, the LLC nor Seller shall be subject to any order or injunction
restraining or prohibiting the consummation of the transactions contemplated
hereby, (ii) no action or proceeding shall have been instituted before any court
or Governmental Entity to restrain or prohibit, or to obtain substantial damages
from Seller or Stockholder in respect of, the consummation of the transactions
contemplated hereby, (iii) none of the parties hereto shall have received
written notice from any Governmental Entity of (A) its intention to institute
any action or proceeding to restrain, enjoin or nullify this Agreement or the
transactions contemplated hereby, or to commence any investigation (other than a
routine letter of inquiry, including a routine civil investigative demand) into
the consummation of the transactions contemplated hereby or (B) the actual
commencement of such investigation and (iv) no statute, rule or regulation shall
have been promulgated or enacted by any Governmental Entity, which would prevent
or make illegal the consummation of the transactions contemplated hereby.
(c) Documents. Buyer shall have delivered to at the Closing
all the certificates, instruments, contracts and other documents specified to be
delivered by it hereunder, including pursuant to Section 2.6 hereof.
(d) Material Adverse Change. There shall have been no
material adverse change in the business or financial condition of Buyer from
such condition as of the date hereof.
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(e) Release or Indemnification of Guaranties. The Company's
lenders and, if applicable, lessors, shall have agreed to release Seller from
his personal guaranties of bona fide obligations of the Company or the LLC as of
the Closing or Buyer shall have agreed to indemnify Seller with respect to such
guaranties, with such indemnification to be in form and substance reasonably
satisfactory to Seller.
ARTICLE VII
CERTAIN ADDITIONAL COVENANTS
7.1 Certain Taxes and Expenses.
Buyer shall be responsible for all state and local sales, use,
transfer, real property transfer, documentary stamp, recording and other similar
taxes and closing costs arising from and with respect to the sale and purchase
of the Purchased Interests. Buyer shall be responsible for any title costs or
costs of environmental reviews and costs of the filing fees required in
connection with all filings pursuant to the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvement Act of 1976. Except as otherwise expressly provided in this
Agreement, each of the parties hereto shall each bear its respective accounting,
legal and other similar expenses (none of which shall be deemed closing costs)
incurred in connection with the transactions contemplated by this Agreement.
The parties agree that the Company and the LLC shall be audited
for the period commencing January 1, 1998 and ending as of the Closing Date,
with Seller paying the normal audit fees of the Company and the LLC associated
with this period (including any additional charges not associated with the
transactions contemplated by this Agreement) and with Buyer paying the balance,
if any. Buyer may request additional procedures by the Auditor, at Buyer's
expense. If it is subsequently determined that, pursuant to SEC rule or
regulation, audited financial statements of 1995 of the Company are required,
the parties shall share in those expenses on the basis of the foregoing
sentence. Additionally, Buyer shall be responsible for any fees associated with
making the Company's 1997 or 1996 audited statements compliant with Regulation
S-X of the Securities Act of 1933.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
8.1 Survival.
All representations, warranties, covenants and agreements
contained in this Agreement or the other Transaction Documents shall survive
(and not be affected in any respect by) the Closing and any investigation
conducted by any party hereto. Notwithstanding the foregoing, the
representations and warranties contained in or made pursuant to this Agreement
and the related indemnity obligations set forth in Sections 8.2(a)(i) and
8.3(a)(i) shall terminate on, and no claim or action with respect thereto may be
brought after, the date two years after the Closing Date, except that (i) the
representations and warranties contained in the last sentence of
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Section 3.10 and Section 3.23 and the related indemnity obligations contained in
Section 8.2, but only to the extent that they relate to such representations and
warranties, shall survive until the tenth anniversary of the Closing Date, (ii)
the representations and warranties contained in Sections 3.12 and 3.15 and the
related indemnity obligations contained in Section 8.2, but only to the extent
that they relate to such representations and warranties, shall survive until 30
days after the expiration of the applicable statute of limitations (or
extensions or waivers thereof) and (iii) any intentional or fraudulent
misrepresentations by the Company, the LLC or Seller shall survive indefinitely.
The representations and warranties which terminate on the date two years after
the Closing Date and the representations and warranties referred to in the
foregoing clause (ii), and the liability of any party hereto with respect
thereto pursuant to this Article VIII, shall not terminate with respect to any
claim, whether or not fixed as to liability or liquidated as to amount, with
respect to which the Indemnifying Party has been given written notice setting
forth the facts upon which the claim for indemnification is based and, if
possible, a reasonable estimate of the amount of the claims prior to the date
two years after the Closing Date or 30 days after the expiration of the
applicable statute of limitations (or extensions or waivers thereof), as the
case may be. The rights and remedies of the parties under this Article VIII
shall constitute the sole post-Closing remedies for damages under this Agreement
and the Transaction Documents.
8.2 Indemnification by Seller.
(a) Subject to Section 8.1 hereof, Seller shall indemnify and
hold Buyer and its employees, officers, directors and agents (collectively, the
"Buyer Indemnified Parties") harmless from and against, and agree promptly to
defend any Buyer Indemnified Party from and reimburse any Buyer Indemnified
Party for, any and all Losses which any Buyer Indemnified Party may at any time
suffer or incur, or become subject to, as a result of or in connection with:
(i) any breach or inaccuracy as of the date of this
Agreement or the Closing Date of any of the representations, warranties or
covenants made by the Company, the LLC, or Seller in or pursuant to this
Agreement, or in any instrument or certificate delivered by the Company, the
LLC, or Seller at the Closing in accordance herewith (it being understood and
agreed that, notwithstanding anything to the contrary contained in this
Agreement, to determine if there had been an inaccuracy or breach of a
representation, warranty or covenant of the Company, the LLC, or Seller and the
Losses arising from such inaccuracy or breach, such representation, warranty or
covenant shall be read as if it were not qualified by materiality, including,
without limitation, qualifications indicating accuracy in all material respects,
or accuracy except to the extent the inaccuracy will not have a Material Adverse
Effect); provided, however, that Seller and ▇▇▇▇▇ shall have no liability for
Taxes relating to (a) taxable periods of the Company commencing on or after the
Closing Date, including, without limitation, the Company's "C short year"
(within the meaning of Section 1362(e)(1)(B) of the Code and the corresponding
provisions of state and local law), (b) taxable periods of the LLC commencing
after the Closing Date, including without limitation, the taxable period of the
LLC beginning on the day following the Closing Date, and (c) further in the case
of the LLC, Taxes attributable to operations of the LLC on the Closing Date by
Buyer following the Closing;
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(ii) any failure by the Company, the LLC, or Seller to
carry out, perform, satisfy and discharge any of its or his covenants,
agreements, undertakings, liabilities or obligations under this Agreement or
under any of the other Transaction Documents delivered by the Company, the LLC,
or Seller pursuant to this Agreement; and
(iii) any failure by the Company, the LLC or Seller prior
to the Closing Date to comply with the WARN Act with respect to any employee of
either the Company or the LLC.
(b) Notwithstanding any other provision herein to the
contrary, (i) Seller shall not be required to indemnify and hold harmless any
Buyer Indemnified Party pursuant to Section 8.2(a)(i), unless the applicable
Buyer Indemnified Party has asserted a claim with respect to such matters within
the applicable survival period set forth in Section 8.1 hereof and (ii) Seller
shall not be required, pursuant to Section 8.2(a)(i), to indemnify and hold
harmless any Buyer Indemnified Party until the aggregate amount of Buyer
Indemnified Parties' Losses under Section 8.2(a)(i) exceeds $25,000 (the "Basket
Amount"), after which Seller shall be obligated for all Losses of Buyer
Indemnified Parties in excess of the Basket Amount up to an aggregate amount of
$3,000,000; provided, however, that such $3,000,000 limitation shall not be
applicable to Losses of Buyer Indemnified Parties resulting from intentional or
fraudulent misrepresentations of the Company, the LLC, Seller or ▇▇▇▇▇.
(c) Further notwithstanding any other provision herein to the
contrary, Buyer shall be entitled to offset any Losses of Buyer Indemnified
Parties under Section 8.2(a)(i) against amounts owing and unpaid to Seller under
this Agreement without regard to the $3,000,000 limitation contained in Section
8.2(b).
(d) Notwithstanding anything to the contrary contained
herein, for purposes of computing any liability of Seller for indemnification
under this Article 8, the parties shall first submit any prospective claims for
indemnification to insurers under any applicable insurance policies (including
title insurance policies) of the Company and/or Buyer, and any Losses suffered
by Buyer shall be offset by any insurance recovery to the extent received under
(i) any policies of the Company owned (or paid for) at or prior to Closing, and
(ii) any pre-Closing or post-Closing policies of Buyer or any policies of the
Company procured after the Closing, but (in the case of any policies of the type
specified in this clause (ii)) net of (x) an allocable portion of the premiums
paid on such policies and (y) any increase in premiums that Buyer or the Company
may incur as a result of the claim; provided, however, that Buyer need not
submit any claim under any of its policies or any post-Closing policies of the
Company if in the reasonable judgment of Buyer's Chief Executive Officer such
claim would result in a termination of such policies. Buyer shall, in connection
with any claim for indemnity, (i) first seek recovery against any insurance
policies as provided above, subject to the limitations set forth above; (ii)
second offset the claim against the Deferred Purchase Price; and (iii) seek
recourse against Seller personally; provided, however, that if pursuant to a
final arbitration award or judgment, Seller becomes liable to Buyer for an
indemnifiable claim, and insurance proceeds are insufficient to satisfy such
claim, then Buyer may immediately pursue the balance against Seller personally,
subject to any limitations set forth in paragraph (b) of this Section 8.2.
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8.3 Indemnification by Buyer.
(a) Subject to Section 8.1 hereof, Buyer shall indemnify and
hold the Company, the LLC, and Seller and their respective employees, officers,
directors and agents (collectively, the "Seller Indemnified Parties") harmless
from and against, and agree promptly to defend any Seller Indemnified Party from
and reimburse any Seller Indemnified Party for, any and all Losses which any
Seller Indemnified Party may at any time suffer or incur, or become subject to,
as a result of or in connection with:
(i) any breach or inaccuracy as of the date of this
Agreement or the Closing Date of any of the representations, warranties or
covenants made by Buyer in or pursuant to this Agreement, or in any instrument
or certificate delivered by Buyer at the Closing in accordance herewith (it
being understood and agreed that, notwithstanding anything to the contrary
contained in this Agreement to determine if there had been an inaccuracy or
breach of a representation, warranty or covenant of Buyer and the Losses arising
from such inaccuracy or breach, such representation, warranty or covenant shall
be read as if it were not qualified by materiality, including, without
limitation, qualifications indicating accuracy in all material respects, or
accuracy except to the extent the inaccuracy will not have a material adverse
effect on the ability of Buyer to perform its obligations under this Agreement
and the other Transaction Documents to which it is a party); or
(ii) any failure by Buyer to carry out, perform, satisfy
and discharge any of its covenants, agreements, undertakings, liabilities or
obligations under this Agreement or under any of the other Transaction Documents
delivered by Buyer pursuant to this Agreement; or
(iii) any liability for Taxes arising out of (a) any
action taken by or at the direction of Buyer with respect to the LLC on the
Closing Date following the Closing and (b) any taxable period of the Company or
the LLC beginning on or after the Closing Date, including, in the case of the
Company, the Company's "C short year" (within the meaning of Section
1362(e)(1)(B) of the Code and the corresponding provisions of state and local
law) and, in the case of the LLC, the taxable period beginning on the day
following the Closing Date.
(b) Notwithstanding any other provision herein to the
contrary, (i) Buyer shall not be required to indemnify and hold harmless any
Seller Indemnified Party pursuant to Section 8.3(a)(i), unless the applicable
Seller Indemnified Party has asserted a claim with respect to such matters
within the applicable survival period set forth in Section 8.1 hereof and (ii)
Buyer shall not be required, pursuant to Section 8.3(a)(i), to indemnify and
hold harmless any Seller Indemnified Party until the aggregate amount of Seller
Indemnified Parties' Losses under Section 8.3(a)(i) exceeds the Basket Amount,
after which Buyer shall be obligated for all Losses of Seller Indemnified
Parties in excess of the Basket Amount up to an aggregate amount of $3,000,000;
provided, however, that such $3,000,000 limitation shall not be applicable to
Losses of Seller Indemnified Parties resulting from intentional or fraudulent
misrepresentations of Buyer.
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8.4 Notification of Claims.
(a) If any Buyer Indemnified Party, on the one hand, or
Seller Indemnified Party, on the other hand (an "Indemnified Party"), has a
claim or potential claim or receives notice of any claim, potential claim or the
commencement of any action or proceeding which could give rise to an obligation
on the part of the Company, the LLC, Seller, or Buyer, as the case may be, to
provide indemnification (the "Indemnifying Party") pursuant to Section 8.2 or
8.3, respectively, the Indemnified Party shall promptly give the Indemnifying
Party notice thereof (an "Indemnification Claim"); provided, however, that the
failure to give such prompt notice shall not prevent any Indemnified Party from
being indemnified hereunder for any Losses, except to the extent that the
failure to so promptly notify the Indemnifying Party actually damages the
Indemnifying Party.
(b) In the event of a claim, a potential claim or the
commencement of any action or proceeding by a third party which could give rise
to an obligation to provide indemnification pursuant to Sections 8.2 or 8.3, the
Indemnified Party will give the Indemnifying Party prompt written notice thereof
(the "Third Party Indemnification Claim"); provided, however, that the failure
of the Indemnified Party to so promptly notify the Indemnifying Party shall not
prevent any Indemnified Party from being indemnified for any Losses, except to
the extent that the failure to so promptly notify actually damages the
Indemnifying Party.
(c) Any Indemnification Claim or Third Party Indemnification
Claim will describe the claim in reasonable detail, will include copies of all
material written evidence thereof and will indicate the estimated amount if
reasonably practicable, of the Loss, that has been or may be sustained by the
Indemnified Party. If the Indemnifying Party confirms in writing to the
Indemnified Party within 15 days after receipt of the Third Party
Indemnification Claim the Indemnifying Party's responsibility to indemnify and
hold harmless the Indemnified Party therefor in accordance herewith and within
such 15-day period demonstrates to the Indemnified Party's reasonable
satisfaction that, as of such time the Indemnifying Party has sufficient
financial resources in order to indemnify for the full amount of any potential
liability in connection with such claim, the Indemnifying Party may elect to
compromise or defend, at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, which counsel shall be reasonably satisfactory
to the Indemnified Party, any such matter involving the asserted liability of
the Indemnified Party. If the Indemnifying Party elects to compromise or defend
any such asserted liability, it shall within 15 days (or sooner, if the nature
of the asserted liability so requires) notify the Indemnified Party of its
intent to do so, and the Indemnified Party shall cooperate, at the expense of
the Indemnifying Party, in the compromise of, or defense against, any such
asserted liability; provided that (i) the Indemnified Party may, if it so
desires, employ counsel at its own expense to assist in the handling of any such
third party claim, (ii) the Indemnifying Party shall keep the Indemnified Party
advised of all material events with respect to any such third party claim, (iii)
the Indemnifying Party shall obtain the prior written approval of the
Indemnified Party (which approval may not be unreasonably withheld) before
ceasing to defend against such third party claim or entering into any
settlement, adjustment or compromise of such third party claim involving
injunctive or similar equitable relief being asserted against any Indemnified
Party or any of their Affiliates and (iv) no Indemnifying Party will, without
the
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prior written consent of each Indemnified Party, settle or compromise or consent
to the entry of any judgment in any pending or threatened demand, claim, action
or cause of action, suit or proceeding in respect of which indemnification may
be sought hereunder (whether or not any such Indemnified Party is a party to
such demand, claim, action or cause of action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of all such
Indemnified Parties from all liability arising out of such claim, action, suit
or proceeding. Notwithstanding anything contained herein to the contrary, the
Indemnifying Party shall not be entitled to have sole control over the defense,
settlement, adjustment or compromise of any third party non-monetary claim that
seeks an order, injunction or other equitable relief against any Indemnified
Party or its Affiliates which, if successful, could materially interfere with
the business, assets, liabilities, obligations, financial condition or results
of operations of the Indemnified Party or any of its Affiliates. If the
Indemnifying Party elects not to compromise or defend against the asserted
liability, or fails to notify the Indemnified Party of its election as herein
provided, the Indemnified Party may, at the Indemnifying Party's expense, pay,
compromise or defend against such asserted liability.
ARTICLE IX
TERMINATION; MISCELLANEOUS
9.1 Termination.
(a) This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date, as
follows: (i) by the mutual written agreement of Buyer, the Company, the LLC, and
Seller, (ii) by any of Buyer, the Company, the LLC, or Seller if the Closing has
not occurred on or before January 2, 1999 (or February 2, 1999 in the event
Buyer elects to extend the Termination Date pursuant to Section 2.4(b) hereof),
or (iii) by Buyer, in its sole and absolute discretion, in the event that at any
time on or after November 3, 1998 (A) either the Company or the LLC shall fail
to have a valid and current Contractor's License or (B) either the Company's or
the LLC's Contractor's License is subject to any revocation, suspension or other
similar proceedings or to any disciplinary action which is reasonably likely to
materially adversely affect the ability of either the Company or the LLC to
conduct its respective business consistent with past practice.
(b) Except for the obligations contained in Sections 5.4,
5.8, 5.10(c) and 7.1, which shall survive any termination of this Agreement,
upon the termination of this Agreement pursuant to this Section 9.1, this
Agreement shall forthwith become null and void, and no party hereto or any of
its officers, directors, employees, agents, consultants, stockholders or
principals shall have any rights, liabilities or obligations hereunder or with
respect hereto; provided, however, that nothing contained herein shall relieve
any party hereto from liability for any knowing breach or inaccuracy of any
representation or warranty contained herein or any willful failure to comply
with any covenant or agreement contained herein.
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9.2 Further Assurances.
From time to time prior to, at and after the Closing Date, Buyer,
the Company, the LLC, Seller and ▇▇▇▇▇ shall execute and deliver or cause to be
executed and delivered such further documents, certificates, instruments of
conveyance, assignment and transfer and take such further action as Buyer, the
Company, the LLC, or Seller may reasonably request in order more effectively to
consummate the transactions contemplated hereby. Each party hereto shall
cooperate and deliver such instruments and take such action as may be reasonably
requested by any other parties hereto in order to carry out the provisions and
purposes of this Agreement and the transactions contemplated hereby. Buyer, the
Company, the LLC, Seller and ▇▇▇▇▇ and shall cooperate and shall cause their
respective Affiliates, officers, employees, agents and representatives to
cooperate to ensure the orderly consummation of the transactions contemplated
hereby and to minimize the disruption to the each of the Company's and the LLC's
business resulting from the transactions contemplated hereby.
9.3 Entire Agreement.
This Agreement and the documents and agreements referred to
herein and to be delivered pursuant hereto constitute the entire agreement
between the parties hereto pertaining to the subject matter hereof, and
supersede all prior and contemporaneous agreements, understandings, negotiations
and discussions of the parties, whether oral or written, including the Letter of
Intent among the Company, Buyer and Seller dated September 2, 1998.
9.4 Benefit; Assignment.
This Agreement shall be binding upon and inure to the benefit of
and shall be enforceable by the parties hereto and their respective successors
and permitted assigns. This Agreement shall not be assigned by any party hereto
without the prior written consent of the other parties hereto; provided,
however, that Buyer may assign any or all of its rights (but not its
obligations) hereunder to one or more Affiliates of Buyer without the consent of
the Company, the LLC, or Seller.
9.5 No Presumption.
Buyer, the Company, the LLC, and Seller have participated jointly
in the negotiation and drafting of this Agreement. In the event any ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by Buyer, the Company, the LLC, and Seller, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
9.6 Notices.
All notices, requests, claims, demands and other communications
provided for herein shall be in writing and shall be deemed given only if
delivered to the party personally or sent to the party by telecopy, by
registered or certified mail (return receipt requested) with postage and
registration or certification fees thereon prepaid, or by any nationally
recognized overnight courier, addressed to the party at its address set forth
below:
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If to the Company, the LLC, Seller or ▇▇▇▇▇ : Diamond Key Homes
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
If to Buyer : ▇▇▇▇▇▇ Incorporated
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
or to such other address as a party may from time to time designate in writing
in a notice given in accordance with this Section 9.6. All notices, requests,
claims, demands and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt.
9.7 Counterparts; Headings.
This Agreement may be executed in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed shall be deemed an original, but all of which taken together shall
constitute one and the same Agreement. The Article and Section headings in this
Agreement are inserted for convenience of reference only and shall not
constitute a part hereof or affect in any way the meaning or interpretation of
this Agreement.
9.8 Severability.
If any term, provision, clause or part of this Agreement or the
application thereof under certain circumstances is held invalid, illegal or
incapable of being enforced by any Law or public policy, all other terms,
provisions and parts of this Agreement shall nevertheless remain in full force
and effect so long as the economic and legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term, provision or part of this
Agreement is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect
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the original intent of the parties as closely as possible in an acceptable
manner in order that the transactions contemplated hereby are consummated as
originally contemplated to the greatest extent possible.
9.9 No Reliance.
Except for any assignees permitted by Section 9.4 of this
Agreement and the Indemnified Parties pursuant to Sections 8.2 and 8.3:
(a) no third party is entitled to rely on any of the
representations, warranties or agreements of the parties hereto contained in
this Agreement; and
(b) the parties hereto assume no liability to any third party
because of any reliance on the representations, warranties or agreements of such
parties contained in this Agreement.
9.10 Governing Law.
This Agreement shall be governed by and construed in accordance
with the laws of the State of Arizona.
9.11 Submission to Jurisdiction; Waivers.
The parties hereto hereby irrevocably and unconditionally agree
that:
(a) Except as provided in Section 9.12 below, all suits,
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any Arizona state or federal court sitting in Phoenix
and any appellate court from any thereof, and each of the parties hereto hereby
irrevocably submits to the exclusive jurisdiction of such courts in any such
suit, action or proceeding and irrevocably waives, to the fullest extent it may
effectively do so, the defense of an inconvenient forum to the maintenance of
any such suit, action or proceedings and any objection to any such suit action
or proceeding whether on the grounds of venue, residence or domicile. A final
judgment in any such suit, action, or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or any other manner
provided by law.
(b) Service of process in any such suit, action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to such party at its
address as provided in Section 10.6.
9.12 Arbitration.
Any dispute between the parties arising from or relating to this
Agreement or any other dispute between the Parties shall be finally resolved by
arbitration conducted in Phoenix, Arizona, with the selection of the site of the
arbitration to be at the election of Buyer, under the auspices of, and in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA") by a single arbitrator. The parties shall select the
Arbitrator from the Complex Case Panel list of arbitrators provided by the AAA
case coordinator (the "Case Coordinator") assigned to handle the arbitration. If
the parties fail to select an arbitrator
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from the Complex Case Panel list, the Case Coordinator shall appoint as
Arbitrator a partner experienced in transactions of the type contemplated by the
Agreement from a law firm, located in Phoenix, Arizona, comprising of at least
15 partners. In any arbitration, parties shall be entitled to conduct any
discovery that would be permitted under the Federal Rules of Civil Procedure.
The Arbitrator may determine all issues of arbitrability, may award interim,
interlocutory, provisional, partial or complete relief, including temporary
restraining orders, preliminary injunctions, orders to compel discovery, orders
of attachment, and protective orders, and award money damages, specific
performance, permanent injunctions or declarations of rights, and may grant any
other relief in equity or at law. The Arbitrator shall be bound by the terms and
conditions of the Agreement and shall have no power, in rendering its decision,
to alter or depart from any express provision of this Agreement or to make a
decision that is not supported by substantial evidence or is not in accordance
with the law governing this Agreement. The decision of the Arbitrator shall be
final, conclusive and binding on both parties and shall be subject to
confirmation and enforcement by any court of competent jurisdiction. The
prevailing party in any arbitration shall be awarded all costs, charges, and
expenses, including the fees, charges, and fees and expenses of the Arbitrator,
the AAA, expert witnesses and attorneys.
9.13 Waiver.
Any party to this Agreement may (a) extend the time for the
performance of any of the obligations or other acts of the other parties, (b)
waive any inaccuracies in the representations and warranties of the other
parties contained herein or in any document delivered by the other parties
pursuant hereto or (c) waive compliance with any of the agreements or conditions
of the other parties contained herein. Any such extension or waiver shall be
valid only if set forth in an instrument in writing signed by the party to be
bound thereby. Any waiver of any term or condition shall not be construed as a
waiver of any subsequent breach or a subsequent waiver of the same term or
condition, or a waiver of any other term or condition, of this Agreement. The
failure of any party to assert any of its rights hereunder shall not constitute
a waiver of any such rights.
9.14 Amendment.
This Agreement may not be amended, modified or supplemented
except (a) by an instrument in writing signed by, or on behalf of, each of the
parties hereto or (b) by a waiver in accordance with Section 9.13.
9.15 Specific Performance.
Notwithstanding anything to the contrary contained in this
Agreement, including the provisions of Section 9.18 and Article VIII, the
parties hereto agree that irreparable damage would occur in the event any
provision of this Agreement was not performed in accordance with the terms
hereof and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or equity.
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9.16 Registration Rights.
(a) Seller shall have the right, upon written notice to Buyer
(which notice shall not be delivered prior to the first anniversary of the
Closing Date), to require that Buyer prepare and file within 20 days of such
notice and use its reasonable best efforts to cause to become effective as soon
as practicable thereafter a registration statement on Form S-3 or any equivalent
successor form (an "S-3") with respect to any or all shares of Buyer Common
Stock received or to be received by Seller, either pursuant to this Agreement or
the Mortgage Company Purchase Agreement. Seller shall pay the reasonable cost,
not to exceed $10,000, of the preparation, filing and causing to become
effective of such S-3.
(b) Additionally, from the Closing Date until the third
anniversary of the Closing Date, each time Buyer shall determine to proceed with
the actual preparation and filing of a registration statement under the 1933 Act
in connection with the proposed offer and sale for money of any shares of Buyer
Common Stock (other than a registration statement on Form S-4 or Form S-8 or any
successor form at a time when an S-3 with respect to the Buyer Common Stock
received or to be received by Seller is not effective), Buyer will give written
notice of its determination to Seller. Upon the written request of Seller given
within 10 days after receipt of any such notice from Buyer, Buyer will, except
as herein provided, use its reasonable best efforts to cause all shares of Buyer
Common Stock of which Seller has so requested registration to be included in
such registration statement, all to the extent requisite to permit the sale or
other disposition by Seller of the shares of Buyer Common Stock to be so
registered; provided, however, that (i) nothing herein shall prevent Buyer from,
at any time, abandoning or delaying any such registration initiated by it; (ii)
if Buyer determines not to proceed with a registration after the registration
statement has been filed with the Securities and Exchange Commission, Buyer
shall complete the registration for the benefit of Seller if Seller wishes to
proceed with a public offering of its shares of Buyer Common Stock and agrees to
bear all expenses incurred by Buyer as the result of such registration after
Buyer has decided not to proceed; and (iii) for purposes of this sentence, the
use by Buyer of reasonable best efforts shall not require Buyer to materially
reduce the amount or sale price of the securities it proposes to distribute for
its own account. If any registration pursuant to this Section 9.16(b) shall be
underwritten in whole or in part, Buyer may require that the shares of Buyer
Common Stock requested for inclusion pursuant to this Section 9.16(b) be
included in the underwriting on the same terms and conditions as the shares of
Buyer Common Stock otherwise being sold through the underwriters.
(c) In connection with a registration under Section 9.16(b),
Buyer may enter into an underwriting agreement in such customary form as shall
have been negotiated and agreed to by Buyer with the underwriter or underwriters
selected for such underwriting by Buyer. Notwithstanding any other provision of
this Section 9.16, if in the opinion of the managing underwriter the inclusion
of shares of Buyer Common Stock owned by Seller in a registration statement
would materially reduce the amount or sale price of the other securities to be
included in such registration, Buyer may reduce, to as low as zero, the number
of shares of Buyer Common Stock to be included by Seller in the registration and
underwriting under Section 9.16(b), to the extent necessary to cause inclusion
of the Buyer Common Stock not to be materially detrimental to the registration
filed pursuant to Section 9.16(b).
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(d) If and whenever Buyer is required by the provisions of this
Section 9.16 to effect the registration of shares of Buyer Common Stock owned by
Seller under the 1933 Act, Buyer will:
(i) subject to the terms and conditions of this Section 9.16,
prepare and file with the Securities and Exchange Commission a registration
statement with respect to such shares of Buyer Common Stock, and use its
reasonable best efforts to cause such registration statement to become and
remain effective for such period as may be reasonably necessary to effect the
sale of such shares of Buyer Common Stock; provided, however, that Buyer shall
not be obligated to cause such registration statement to become or remain
effective past the third anniversary of the Closing Date;
(ii) prepare and file with the Securities and Exchange
Commission such amendments to such registration statement and supplements to the
prospectus contained therein as may be necessary to keep such registration
statement effective for such period as may be reasonably necessary to effect the
sale of such shares of Buyer Common Stock; provided, however, that Buyer shall
not be obligated to cause such registration statement to become or remain
effective past the third anniversary of the Closing Date;
(iii) furnish to Seller such reasonable number of copies of
the registration statement, preliminary prospectus, final prospectus and such
other documents as such Seller may reasonably request in order to facilitate the
public offering of such shares of Buyer Common Stock;
(iv) prepare and promptly file with the Securities and
Exchange Commission and promptly notify Seller of the filing of such amendment
or supplement to such registration statement or prospectus as may be necessary
to correct any statements or omission if, at the time when a prospectus relating
to such shares of Buyer Common Stock is required to be delivered under the 1933
Act, any event shall have occurred as the result of which any such prospectus or
any other prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading; and
(v) advise Seller, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Securities
and Exchange Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for that purpose
and promptly use its reasonable best efforts to prevent the issuance of any stop
order or to obtain its withdrawal if such stop order should be issued.
Seller, upon receipt of any notice from Buyer of the
happening of any event of the kind described in Section 9.16(d)(iv) or (v), will
forthwith discontinue disposition of the shares of Buyer Common Stock until
Seller's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 9.16(d)(iv) or until it is advised in writing by Buyer
that the use of the prospectus may be resumed and has received copies of any
additional or supplemental filings which are incorporated by reference in the
prospectus. If so
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directed by Buyer, Seller will deliver to Buyer all copies, other than permanent
file copies then in Seller's possession, of the prospectus required to be
supplemented or amended.
(e) Notwithstanding anything to the contrary in this Agreement,
if at any time after the filing of a registration statement or after it is
declared effective by the Securities and Exchange Commission, Buyer determines,
in its reasonable good faith business judgment, that such registration and the
offering of shares of Buyer Common Stock covered by such registration would
interfere with or otherwise adversely affect any financing, acquisition,
corporate reorganization or other material transaction or development involving
Buyer or any of its Affiliates or require Buyer to disclose material matters
that otherwise would not be required to be disclosed at such time, then buyer
may require the suspension of the distribution of any shares of Buyer Common
Stock (a "Blackout Period") by giving notice to Seller. Any such notice need not
specify the reasons for such suspension if buyer determines, in its reasonable
good faith business judgment, that doing so would interfere with or adversely
affect such transaction or development or would result in the disclosure of
material nonpublic information. In the event that such notice is given, then
until Buyer has determined, in its reasonable good faith business judgment, that
such registration and distribution would no longer materially interfere with the
matters described in the preceding sentence and has given notice thereof to
Seller, Buyer's obligations under this Section 9.16 will be suspended. Buyer
shall extend the period of time Buyer is required to maintain effective any
registration statement required pursuant to clauses (i) and (ii) of Section
9.16(d) hereof by a length of time equal to the aggregate length of the Blackout
Periods.
(f) Buyer's obligations under this Section 9.16 to Seller will be
conditioned on Seller's compliance with the following:
(i) Seller will cooperate with Buyer in connection with the
preparation of the applicable registration statement, and for so long as Buyer
is obligated to keep such registration statement effective, Seller will provide
to Buyer, in writing in a timely manner, for use in such registration statement
(and expressly identified in writing as such), all information regarding Seller
and such other information as may be necessary and required by applicable law to
enable Buyer to prepare such registration statement and the related prospectus
covering the applicable shares of Buyer Common Stock owned by Seller and to
maintain the currency and effectiveness thereof;
(ii) Seller will permit Buyer and its representatives and
agents to examine such documents and records and will supply in a timely manner
any information as they may reasonably request in connection with the offering
or other distribution in which Seller proposes to participate;
(iii) Seller will enter into such agreements with Buyer and
any broker-dealer or similar securities industry professional containing
representations, warranties, indemnities and agreements as are customarily
entered into and made by a seller of securities and such seller's controlling
shareholders with respect to secondary distributions under similar
circumstances, and Seller will use its reasonable best efforts to cause its
counsel to give any legal
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opinions customarily given, in connection with secondary distributions under
similar circumstances;
(iv) during such time as Seller may be engaged in a
distribution of the shares, Seller will comply with all applicable laws,
including Regulation M promulgated under the Securities Exchange Act of 1934,
and, to the extent required by such laws, will, among other things: (A) not
engage in any stabilization activity in connection with the securities of Buyer
in contravention of such rules; (B) distribute the shares of Buyer Common Stock
acquired by it solely in the manner described in the applicable registration
statement; (C) if required by applicable law, rules or regulations, cause to be
furnished to each agent or broker-dealer to or through whom such shares may be
offered, or to the offeree if an offer is made directly by Seller, such copies
of the applicable prospectus (as amended and supplemented to such date) and
documents incorporated by reference therein as may be required by such agent,
broker-dealer or offeree, provided that Buyer shall provide Seller with an
adequate number of copies thereof; and (D) not bid for or purchase any
securities of Buyer; and
(v) on notice from Buyer of the happening of any of the
events specified in Section 9.16(d)(iv) or (v), or that, as set forth in Section
9.16(e), it requires the suspension by Seller of the distribution of any of the
shares of Buyer Common Stock owned by Seller, then Seller will cease offering or
distributing the shares of Buyer Common Stock owned by Seller until the offering
and distribution of the shares of Buyer Common Stock owned by Seller may
recommence in accordance with the terms hereof and applicable law.
(g) except as otherwise provided in Section 9.16(a) or Section
9.16(b) with respect to registrations terminated by Buyer, Buyer shall bear the
following fees, costs and expenses in connection with its obligations under this
Section 9.16: all registration, filing and NASD fees, printing expenses, all
internal Buyer expenses, the premiums and other costs of policies of insurance
against liability arising out of the public offering, and all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdiction in which shares of Buyer Common Stock to be offered are
to be registered or qualified. Fees and disbursements of counsel and accountants
for Seller, underwriting discounts and commissions and transfer taxes for Seller
and any other expenses incurred by Seller not expressly included above shall be
borne by Seller.
(h) Buyer shall indemnify and hold harmless Seller, and each
Person, if any, who controls Seller within the meaning of the 1933 Act, from and
against any and all Loss, damage, liability, cost and expenses to which Seller
or any such controlling Person may become subject under the 1933 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 any registration statement filed by Buyer pursuant to this Section
9.16 which includes shares of Buyer Common Stock owned by Seller, 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; provided,
however, that the Buyer shall not be liable in any such case to the extent that
any such loss, damage, liability, costs or expense arises out of or is based
upon an untrue statement or
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alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by such Seller or such controlling Person.
(i) Seller shall indemnify and hold harmless the Buyer and
any underwriter (as defined in the ▇▇▇▇ ▇▇▇) for Buyer, and each Person, if any,
who controls the Buyer or such underwriter within the meaning of the 1933 Act.
from and against any loss, damage, liability, cost or expense to which Buyer or
any such underwriter or controlling Person may become subject under the 1933 Act
or otherwise, insofar as such Losses, damages, liabilities, costs or expenses
are caused by any untrue or alleged untrue statement of any material fact
contained in any registration statement filed by Buyer pursuant to this Section
9.16 which includes shares of Buyer Common Stock owned by Seller, any prospectus
contained therein or any amendment or supplement thereto, and arise out of or
are based upon the omission or the 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, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was so made in reliance
upon and in strict conformity with written information furnished by Seller for
inclusion in such registration statement, prospectus or amendment or supplement
thereto; provided, however, that Seller shall not be liable to indemnify Buyer
hereunder for any amount in excess of the proceeds realized by Seller from the
sale of the Buyer Common Stock by Seller pursuant to such Registration
Statement.
(j) Promptly after receipt by an indemnified party pursuant
to the provisions of paragraph (h) and (i) of this Section 9.16 of notice of
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said paragraph
(h) and (i) promptly notify the indemnifying party of the commencement thereof,
but the omission to so notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party, except to the extent
that the indemnifying party is materially prejudiced by the failure to give such
prompt notice. In the case such action is brought against any indemnified party
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate therein, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
pursuant to the provisions of said paragraph (h) and (i) 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 the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party.
(k) The registration rights granted to Seller pursuant to
this Section 9.16 are not assignable. Any assignment shall be null and void ab
initio.
9.17 1933 Act Compliance.
(a) Seller agrees that it will not offer or sell shares of
Buyer Common Stock it acquires hereunder other than (i) pursuant to an effective
registration statement under
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the 1933 Act or (ii) pursuant to any exemption from the registration
requirements of the 1933 Act;
(b) Seller acknowledges that shares of Buyer Common Stock it
acquires hereunder have not been and will not, except as provided in Section
9.16, be registered under the 1933 Act; and
(c) Seller acknowledges that shares of Buyer Common Stock it
acquires hereunder will contain customary 1933 Act legends.
9.18 Liquidated Damages Upon Default.
In the event that the Company, the LLC, Seller or ▇▇▇▇▇ fails to
proceed with the transactions contemplated hereby for any reason other than a
material breach by Buyer of any provision hereof or any material
misrepresentation by Buyer herein, under circumstances not contemplated in
Section 5.10 hereof, the Company, the LLC, Seller and/or ▇▇▇▇▇ shall pay to
Buyer liquidated damages of $250,000 for its expenses and other consequential
damages. In the event that, Buyer fails to proceed with the transactions
contemplated hereby for any reason other than a material breach by the Company,
the LLC, Seller or ▇▇▇▇▇ of any provision of the Agreement, or any material
misrepresentations by the Company, the LLC, Seller or ▇▇▇▇▇ herein under
circumstances not contemplated in Section 5.10 hereof, the Initial Escrow
Deposit shall be paid to the Company as liquidated damages. The parties hereto
agree that actual damages would be substantial but difficult to calculate and
that the amount set forth herein represents a reasonable estimate thereof. In
the event that Buyer terminates this Agreement or fails to consummate the
transactions contemplated by this Agreement solely as the result of any
revocation, suspension or other similar proceedings with respect to either the
Company's or the LLC's Contractor's License or any disciplinary action with
respect to either the Company's or the LLC's Contractor's License, which
disciplinary action is reasonably likely to materially adversely affect the
ability of either the Company or the LLC to conduct its respective business
consistent with past practice, none of the Company, the LLC, Seller or ▇▇▇▇▇
shall be liable to pay Buyer damages pursuant to this Agreement.
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BUYER: COMPANY:
▇▇▇▇▇▇ INCORPORATED, DIAMOND KEY HOMES, INC.,
a Nevada corporation an Arizona corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------ ------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------- -----------------------
Title: President Title: President
----------------------- -----------------------
SELLER: LLC:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ DIAMOND KEY CONSTRUCTION LLC,
an Arizona limited liability company
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
By: -----------------------
Title: Manager
-----------------------
▇▇▇▇▇:
▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
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ANNEX A
Definitions
1. For purposes of this Agreement, the following terms shall have
the following meanings:
"Additional Consideration" means the $50,000 to be paid by
Buyer to Seller at Closing in consideration of the covenants not to compete
contained in the Employment Agreement.
"Affiliate" means, with respect to any specified Person, any
other Person that, directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
"Agreement" means this Stock and Membership Interest Purchase
Agreement, together with the Annex, Schedules and Exhibits attached hereto, as
the same may be amended from time to time in accordance with the terms hereof.
"Auditors" means the Company's regular auditors, KPMG Peat
Marwick LLP.
"Business Day" means any day other than a Saturday, a Sunday,
or a day on which banking institutions in Las Vegas, Nevada or Phoenix, Arizona
are authorized or obligated by law or executive order to close.
"Business Employees" means the employees of the Company and
the LLC.
"Buyer Common Stock" means the common stock, par value $.001
per share, of Buyer.
"Closing Escrow Deposit" means cash in the amount of $250,000
to be paid by the Buyer into escrow at the Closing.
"Closing Escrow Deposit Account" means the escrow account into
which the Closing Escrow Deposit is made.
"Closing Net Book Equity" means 150% of the net book equity of
the Company and the LLC determined as of the Closing by the Auditors pursuant to
Section 2.3 of the Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company's knowledge" or "LLC's knowledge," and similar words
shall mean what (i) any of Seller, ▇▇▇ ▇▇▇, ▇▇▇ Stock or ▇▇▇▇ ▇▇▇▇▇▇ or (ii) any
employee of the Company or the LLC, as the case may be, who has responsibility
for the subject matter in
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question, knows, reasonably should know or reasonably should have known in such
capacity or in the performance of his or her duties without undertaking any
additional investigation in connection with the transactions contemplated by
this Agreement.
"Contamination" means the uncontained presence of any
Hazardous Substance, including but not limited to the degradation of naturally
occurring water, air or soil quality which is either the direct or indirect
result of human activity.
"Contracts" means (i) all contracts, licenses, commitments,
agreements and instruments, including all customer contracts, operating
contracts and distribution contracts to which either the Company or the LLC is a
party, (ii) all sales and purchase orders and supply agreements and other
agreements relating to either the Company's or the LLC's business, (iii) all
leases of equipment and Real Property relating to the Company's or LLC's
business (such leased Real Property being hereafter referred to as the "Leased
Real Property" and (iv) all other contracts, licenses, agreements and
instruments relating to the Company's or the LLC's business.
"Dealing" means using, generating, manufacturing, refining,
treating, transporting, storing, handling, labeling, documenting, recycling,
disposing of, depositing, transferring, producing or processing any substance,
or contracting to do any of the foregoing.
"Environmental Laws" means all applicable Laws now or
hereafter enacted concerning (i) on-site or off-site Contamination, (ii)
occupational health and safety, (iii) use, treatment, storage, handling, or
disposal of any substances or products, (iv) Releases of Hazardous Substances
into the environment, (v) the Dealing in Hazardous Substances, and (vi) Laws
governing reclamation and restoration of real property.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means (a) any corporation included with
Seller in a controlled group of corporations within the meaning of Section
414(b) of the Code, (b) any trade or business (whether or not incorporated)
which is under common control with either the Company or the LLC within the
meaning of Section 414(c) of the Code, (c) any member of an affiliated service
group of which either the Company or the LLC is a member within the meaning of
Section 414(m) of the Code or (d) any other Person or entity treated as an
Affiliate of either the Company or the LLC under Section 414(o) of the Code.
"Escrow Agent" means First American Title Co., Phoenix,
Arizona or such other commercial bank or trust company or financial institution
appointed by the parties hereto to act as escrow agent pursuant to the Escrow
Agreement.
"Final Closing Purchase Price" shall mean the Initial Closing
Payment (i) plus an amount, if any, equal to the amount by which the Closing Net
Book Equity exceeds the Initial Closing Net Book Equity or (ii) minus an amount,
if any, equal to the amount by which the Initial Closing Net Book Equity exceeds
the Closing Net Book Equity, as the case may be.
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"GAAP" means United States generally accepted accounting
principles.
"Governmental Entity" means (i) any multinational, federal,
provincial, state, municipal, local or other governmental or public department,
court, commission, board, bureau, agency or instrumentality, domestic or
foreign; (ii) any subdivision, agent, commission, board, or Governmental Entity
of any of the foregoing; or (iii) any quasi-governmental or private body
exercising any regulatory, expropriation or taxing governmental authority under
or for the account of any of the foregoing.
"Hazardous Substance" means any substance which is or is
deemed to be, alone or in any combination, hazardous, hazardous waste, toxic,
radioactive, a pollutant, a deleterious substance, a contaminant or a source of
pollution or Contamination under any Environmental Law, whether or not such
substance is defined as hazardous under the Environmental Law.
"Initial Cash Payment" means a sum equal to the difference
between (x) Initial Closing Net Book Equity and (y) $300,000.
"Initial Closing Net Book Equity" means 150% of the net book
equity of the Company and the LLC set forth in an estimated consolidated balance
sheet of the Company and the LLC as of the Closing and provided by the Seller to
the Buyer no more than 15 Business Days and no less than 10 Business Days prior
to the Closing.
"Initial Closing Payment" means the sum of (i) the Initial
Cash Payment, (ii) the Initial Escrow Deposit and (iii) the Additional
Consideration.
"Initial Escrow Deposit" means cash in the amount of $250,000
to be paid into escrow by Buyer upon execution hereof by Buyer.
"Intellectual Property" means all intellectual property
rights, statutory, common law or otherwise, including, without limitation,
patents (including all reissues, divisions, continuations and extensions
thereof), patent rights, service marks, trademarks and tradenames, all brand and
product names, all assumed or fictitious names and all logos, copyrights,
applications for the foregoing, licenses and other contractual rights and other
such property and intangible rights owned, used or held for use by Company or
LLC (including any and all names and marks of any type whatsoever using the name
Diamond Key or any derivative thereof), together with any goodwill in connection
with all of the foregoing.
"Laws" means all statutes, codes, ordinances, decrees, rules,
regulations, municipal by-laws, judicial or arbitral or administrative or
ministerial or departmental or regulatory judgments, orders, decisions, rulings
or awards, policies, voluntary restraints, guidelines, or any provisions or
interpretations of the foregoing, including general principles of common and
civil law and equity, binding on or directly affecting the Person referred to in
the context in which such word is used.
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"Lien" means any lien, (including, without limitation,
environmental and tax liens) charge, claim, pledge, security interest,
conditional sale agreement or other title retention agreement, lease, mortgage,
security agreement, right of first refusal, option, restriction, tenancy,
license, covenant, right of way, easement or other encumbrance (including the
filing of, or agreement to give, any financing statement under the Uniform
Commercial Code or statute or law of any jurisdiction) preferential arrangement
or restriction of any kind (including, without limitation, any restriction on
the use, voting, transfer, receipt of income or other exercise of any
attributes).
"Losses" means any losses, costs, expenses, damages including
compensatory, exemplary, or punitive damages, Taxes, penalties, fines, charges,
demands, liabilities, obligations and claims of any kind (including interest,
penalties and reasonable attorneys' and consultants' fees, expenses and
disbursements).
"Material Adverse Effect" means a circumstances, change or
effect (or series of related circumstances changes or effects) which has caused
or is reasonably likely to cause a material adverse change in or effect upon the
business, assets, liabilities, condition (financial or otherwise), or results of
operations of the Company and the LLC, taken as a whole, or which could
materially adversely affect the ability of Buyer to own and operate the Company
or the LLC in the manner in which it is currently operated or conducted by
Seller.
"Mortgage Company Purchase Agreement" means the proposed
agreement between Buyer and Seller for the purchase by Buyer of Seller's
interest in HomeBanc Mortgage Corporation.
"Permits" means all franchises, approvals, permits,
authorizations, licenses, orders, registrations, certificates, variances, and
other similar permits or rights obtained from any Governmental Entity relating
to the conduct of Company's or LLC's business or the Leased Real Property and
all pending applications therefor.
"Permitted Liens" means (a) Liens which, individually and in
the aggregate, do not and would not detract from the value or impair the use of
any asset of either the Company or the LLC, (b) Liens disclosed on the Title
Reports identified on Schedule 3.11(b) attached hereto and approved by Buyer or
(c) Liens evidenced by UCC financing statements and set forth on Schedule 3.10.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, firm, Governmental Entity, a
trust, unincorporated organization or other entity or organization.
"Prime Rate" means the rate per annum announced from time to
time during the reference period by Bank of America, NT&SA or any successor
entity, as its United States prime, reference or base rate for commercial loans.
"PTO" means the United States Patent and Trademark Office.
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"Release" means to pump, pour, empty, eject, spill, leak,
emit, deposit, discharge, ▇▇▇▇▇, migrate, dispose, dump, inject or place into
the environment, or to allow any of the foregoing.
"Remedial Action" means any action undertaken to (i) clean up,
remove, treat or in any other way respond to any presence, Release or threat of
Release of any Hazardous Substances; (ii) prevent any Release of Hazardous
Substances where such Release would violate any Environmental Laws or would
endanger or threaten to endanger public health or welfare or the environment; or
(iii) perform studies, investigations or monitoring to investigate the
foregoing.
"Seller's knowledge" and similar words shall mean what Seller
knows, reasonably should know or reasonably should have known as the sole owner
of the Capital Stock and the principal owner of the Membership Interests without
undertaking any additional investigation in connection with the transactions
contemplated by this Agreement.
"Taxes" means any and all federal, state, local and foreign
taxes, fees, levies, duties, tariffs, imposts, and other charges of any kind
whatsoever, including, without limitation, income, payroll, withholding, excise,
sales, use, lease, privilege, personal and other property, use and occupancy,
business and occupation, mercantile, real estate, gross receipts, license,
employment, severance, stamp, premium, windfall profits, social security (or
similar unemployment), disability, transfer, registration, value added,
alternative or add-on minimum, estimated, or capital stock and franchise and
other tax of any kind whatsoever, including any interest, penalty or addition
thereto, or additional amounts imposed with respect thereto, whether disputed or
not.
"Technology" means all formulae, processes, procedures,
designs, ideas, strategic and other business plans, research records,
inventions, records of inventions, test information, technical information,
engineering data, know-how, proprietary information, and trade secrets (and all
related manuals, books, files, journals, models, instructions, patterns,
drawings, blueprints, plans, designs specifications, equipment lists, parts
lists, descriptions, data, art work, software, computer programs and source code
data related thereto including all current and historical data bases) owned,
used or held for use by Company or LLC.
"WARN Act" means the Worker Adjustment and Retraining
Notification Act, as codified at 29 U.S.C. ▇▇.▇▇. 2102 - 2109, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
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2. The following terms shall have the meanings ascribed to them
in the section of this Agreement indicated below:
DEFINED TERM SECTION
------------ ---------
"Basket Amount"........................................................................ 8.2(b)
"Blackout Period"...................................................................... 9.16(e)
"Business Benefit Plan"................................................................ 3.15(a)
"Business Real Property"............................................................... 3.8(a)
"Buyer"................................................................................ Preamble
"Buyer Indemnified Parties"............................................................ 8.2(a)
"Capital Stock"........................................................................ Preamble
"▇▇▇▇▇"................................................................................ Preamble
"▇▇▇▇▇ Membership Interests"........................................................... Preamble
"Closing".............................................................................. 2.4(a)
"Closing Date"......................................................................... 2.4(a)
"Company".............................................................................. Preamble
"Confidential Information"............................................................. 5.8(a)
"Contractor's License"................................................................. 6.1(f)
"Deferred Cash"........................................................................ 2.6(a)
"Deferred Common Stock"................................................................ 2.6(a)
"Deferred Purchase Price".............................................................. 2.6(a)
"Employment Agreement"................................................................. 2.5(c)
"Environmental Reports" 3.8(h)
"Escrow Agreement"..................................................................... Preamble
"Exclusivity Period"................................................................... 5.10(a)
"Extension Fee"........................................................................ 2.4(b)
"Financial Statements"................................................................. 3.4
"HomeBanc"............................................................................. 5.1(a)(ix)
"HomeBanc Agreement" 5.1(b)(v)
"Indemnification Claim"................................................................ 8.4(a)
"Indemnified Party".................................................................... 8.4(a)
"Indemnifying Party"................................................................... 8.4(a)
"Insider Transactions"................................................................. 3.24
"Insiders"............................................................................. 3.24
"Interim Balance Sheets"............................................................... 3.4
"LLC".................................................................................. Preamble
"Membership Interests"................................................................. Preamble
"Option Agreements".................................................................... 3.11(c)
"Option Property"...................................................................... 3.11(c)
"OSHA"................................................................................. 3.7(a)
"Purchase Price"....................................................................... 2.2(a)
"Purchased Interests".................................................................. 2.1
"Real Property"........................................................................ 3.11(a)
"Related Party"........................................................................ 3.24
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DEFINED TERM SECTION
------------ ---------
"Related Persons" 5.8(a)
"Seller"............................................................................... Preamble
"Seller Indemnified Parties"........................................................... 8.3(a)
"Seller Membership Interests".......................................................... Preamble
"Soils Reports"........................................................................ 3.11(d)
"Termination Date"..................................................................... 2.4(a)
"Third Party Indemnification Claim".................................................... 8.4(b)
"Title Reports"........................................................................ 3.11(b)
"Transaction Documents"................................................................ 3.2(a)
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