Exhibit 10.1
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STOCK PURCHASE AGREEMENT
Dated as of April 6, 2002
between
Newmark Homes Corp.
and
Standard Pacific Corp.
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS................................................................. 1
ARTICLE II STOCK PURCHASE............................................................. 8
2.1 Sale and Delivery............................................................... 8
2.2 Purchase Price.................................................................. 8
2.3 Closing......................................................................... 9
2.4 Post-Closing Adjustments........................................................ 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER.................................. 11
3.1 Ownership of Shares............................................................. 11
3.2 Authorization, Validity, and Effect of Agreements............................... 11
3.3 No Violations; Consents......................................................... 12
3.4 No Brokers...................................................................... 12
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER AS TO THE SUBJECT COMPANIES....... 13
4.1 Existence; Good Standing; Compliance with Law................................... 13
4.2 Capitalization.................................................................. 13
4.3 Subsidiaries.................................................................... 14
4.4 Other Interests................................................................. 14
4.5 Material Contracts; No Violation................................................ 15
4.6 Financial Statements; Projections; Undisclosed Liabilities...................... 18
4.7 Compliance; Permits; Litigation................................................. 19
4.8 Absence of Certain Changes...................................................... 20
4.9 Taxes........................................................................... 21
4.10 Certain Employee Plans.......................................................... 22
4.11 Labor Matters................................................................... 24
4.12 No Brokers...................................................................... 25
4.13 Environmental Matters........................................................... 25
4.14 Related Party Transactions...................................................... 27
4.15 Restrictions on Business Activities............................................. 28
4.16 Real Property................................................................... 28
4.17 Intellectual Property........................................................... 32
4.18 Insurance....................................................................... 32
4.19 Assets Other than Real Property Interests....................................... 33
4.20 Antitakeover Statutes........................................................... 34
4.21 Warranties...................................................................... 34
4.22 Suppliers, Distributors and Subcontractors...................................... 34
4.23 Obligations to Key Employees.................................................... 35
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4.24 Disclosure.............................................................. 35
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER............................. 35
5.1 Existence; Good Standing; Corporate Authority; Compliance with Law...... 35
5.2 Authorization, Validity, and Effect of Agreements....................... 36
5.3 No Violation............................................................ 36
5.4 No Brokers.............................................................. 36
5.5 Funds................................................................... 36
5.6 Investment Purpose...................................................... 36
5.7 Access to Information................................................... 37
5.8 Limited Representations................................................. 37
5.9. No Discoveries of Any Breach of Representations and Warranties.......... 37
ARTICLE VI COVENANTS.......................................................... 38
6.1 Conduct of Business..................................................... 38
6.2 Further Action.......................................................... 40
6.3 Access to Information; Confidentiality.................................. 40
6.4 Publicity............................................................... 41
6.5 Expenses................................................................ 41
6.6 Certain Benefits........................................................ 42
6.7 Third Party Offers...................................................... 44
6.8 Non-Solicitation........................................................ 44
6.9 Acquired Company Directors and Officers................................. 46
6.10 Corporate Actions....................................................... 46
6.11 Insurance............................................................... 46
6.12 Release of Credit Enhancements or Indemnification....................... 47
6.13 Mortgage Services....................................................... 47
6.14 Park/Walnut Creek Investors............................................. 47
ARTICLE VII SURVIVAL; INDEMNIFICATION......................................... 47
7.1 Survival of Representations and Warranties.............................. 47
7.2 Indemnification......................................................... 48
7.3 Time Limitations........................................................ 48
7.4 Other Limitations....................................................... 49
7.5 Procedures Relating to Indemnification Involving Third Parties.......... 50
7.6 Other Claims............................................................ 52
7.7 Sole and Exclusive Remedy............................................... 52
ARTICLE VIII TAX MATTERS...................................................... 52
8.1 Section 338(h)(10) Elections............................................ 52
8.2 Indemnification Obligations With Respect to Taxes....................... 53
8.3 Tax Returns and Payment Responsibility.................................. 55
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8.4 Contest Provisions........................................................ 56
8.5 Tax Sharing Agreement..................................................... 56
8.6 Assistance and Cooperation................................................ 57
8.7 Retention of Records...................................................... 57
8.8 Other Provisions.......................................................... 57
ARTICLE IX WARRANTY INDEMNIFICATION............................................. 57
9.1 Warranty Indemnification.................................................. 57
9.2 Management of Warranty Claims............................................. 57
9.3 Further Assurances........................................................ 58
9.4 Reimbursement............................................................. 58
9.5 Indemnification........................................................... 59
9.6 Time Limitations.......................................................... 59
9.7 Other Limitations......................................................... 59
ARTICLE X CONDITIONS............................................................ 60
10.1 Conditions to Each Party's Obligation to Effect the Stock Purchase........ 60
10.2 Conditions to Obligations of Buyer........................................ 60
10.3 Conditions to Obligations of Seller....................................... 62
10.4 Supplemental Disclosure................................................... 63
ARTICLE XI TERMINATION.......................................................... 64
11.1 Termination by Mutual Consent............................................. 64
11.2 Termination by Either Buyer or Seller..................................... 64
11.3 Termination by Seller..................................................... 64
11.4 Termination by Buyer...................................................... 64
11.5 Effect of Termination..................................................... 65
ARTICLE XII MISCELLANEOUS....................................................... 65
12.1 Entire Agreement; Assignment.............................................. 65
12.2 Validity.................................................................. 66
12.3 Notices................................................................... 66
12.4 Governing Law............................................................. 67
12.5 Construction.............................................................. 67
12.6 Counterparts.............................................................. 67
12.7 Parties In Interest....................................................... 67
12.8 Waiver.................................................................... 68
12.9 Amendments................................................................ 68
12.10 Further Assurances........................................................ 68
12.11 Arbitration............................................................... 68
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement"), is dated as of April
6, 2002, by and between Newmark Homes Corp., a Delaware corporation ("Seller")
and Standard Pacific Corp., a Delaware corporation ("Buyer").
WHEREAS, Seller is the owner of 10,000,000 shares (the "Shares") of
common stock, par value $.01 per share ("Company Common Stock"), of Westbrooke
Acquisition Corp., a Florida corporation (the "Company"), which represents all
of the issued and outstanding shares of Company Capital Stock;
WHEREAS, subject to all the terms and conditions of this Agreement,
Seller has agreed to sell the Shares to Buyer, and Buyer has agreed to purchase
the Shares (the "Stock Purchase"), in exchange for the consideration set forth
in this Agreement; and
WHEREAS, the parties desire to make certain representations,
warranties, covenants and agreements in connection with the Stock Purchase, and
also to prescribe various conditions to such transactions.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and for
other good and valuable consideration, intending to be legally bound herein,
Seller and Buyer agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"2001 Balance Sheet" is defined in Section 4.6(a).
"AAA" is defined in Section 12.1(c).
"Acquired Companies" means the Company and Westbrooke Communities,
Inc., a Florida corporation ("Communities"), Westbrooke at Oak Ridge, Inc., a
Florida corporation ("Oak Ridge"), Westbrooke at Pembroke Pines, Inc., a Florida
corporation ("Pembroke Pines"), Westbrooke at West Lake, Inc., a Florida
corporation ("West Lake"), Westbrooke at Winston Trails, Inc., a Florida
corporation ("Winston Trails"), Westbrooke Companies, Inc., a Florida
corporation ("WCI") and The Westbrooke Partnership, a Florida partnership (the
"Partnership").
"Acceptance Notice" is defined in Section 2.4(b).
"Adjustment Amount" is defined in Section 2.4(a).
"Affiliate", as applied to any Person, shall mean any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly
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or indirectly, of the power to direct or cause the direction of the management
and policies of that Person, whether through the ownership of voting securities,
by Contract or otherwise.
"Agreement" is defined in the introductory paragraph of this Agreement.
"Allocation Agreement" is defined in Section 8.19b).
"Arbitration Panel" is defined in Section 12.11(d).
"Assumed Claim" is defined in Section 9.2(b).
"Business Day" means any day other than a day on which banks in the
State of New York are authorized or required to close or the national securities
exchanges in the United States are closed.
"Buyer" is defined in the introductory paragraph of this Agreement.
"Buyer 401(k) Plan" is defined in Section 6.6(e).
"Buyer Disclosure Schedule" is defined in the introductory paragraph of
Article V.
"Capital Stock" means common stock, preferred stock, partnership
interests, limited liability company interests or other equity ownership
interests entitling the holder thereof to vote with respect to matters involving
the issuer thereof.
"Closing" and "Closing Date" are defined in Section 2.3(a).
"Closing Payment" is defined in Section 2.2(a)(i).
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
"Code" means the Internal Revenue Code of 1986, as amended (or any
successor thereto).
"Company" is defined in the first recital of this Agreement.
"Company 401(k) Plan" is defined in Section 6.6(a)(ii).
"Company Benefit Plan" means each of the following which is sponsored,
maintained, contributed to or otherwise used by any of the Acquired Companies
for the benefit of the current or former employees, officers or directors of any
of the Acquired Companies: (i) each "employee benefit plan," as such term is
defined in Section 3(3) of ERISA (including, but not limited to, employee
benefit plans, such as foreign plans, which are not subject to the provisions of
ERISA), and (ii) each stock option plan, bonus plan or arrangement, incentive
award plan or arrangement, change in control or severance pay plan or policy,
deferred compensation arrangement, executive compensation or supplemental income
arrangement, and each other employee benefit plan, program or practice which is
not described in clause (i) of this sentence;
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provided, however, that such term shall not include collective bargaining
agreements, employment agreements and consulting agreements.
"Company Common Stock" is defined in the first recital of this
Agreement.
"Company Disclosure Schedule" is defined in the introductory paragraph
of Article III.
"Company Indebtedness" is defined in Section 2.2(a)(ii).
"Company Key Employee" is defined in Section 6.8(a).
"Company Net Income" shall mean the net income (or loss), after Taxes,
of the Acquired Companies (taken as a whole) for the period from January 1, 2002
through the Closing Date calculated in accordance with GAAP and consistent with
the standards, principles, practices and policies used in connection with the
Financial Statements.
"Company Permits" is defined in Section 4.7(a).
"Competing Business" is defined in Section 4.14(c).
"Confidentiality Agreement" is defined in Section 11.5.
"Continuing Employee" is defined in Section 6.6(a)(ii).
"Contracts" shall mean all contracts, agreements and other instruments
and understandings of any kind, including without limitation change in control
or severance agreements, deferred compensation agreements and employment
agreements, and all amendments, supplements, modifications, extensions or
renewals in respect of the foregoing, in each case, whether written or oral,
provided, however, that such term shall not include the Company Benefit Plans.
"Corporate Dividend" is defined in Section 6.10(a).
"Covered Claims" means Warranty Claims that relate to Warranty Homes.
"Credit Enhancements" is defined in Section 6.12(a).
"Current Projects" is defined in Section 4.16(a).
"Damages" is defined in Section 7.2(a).
"Debt" means (i) any indebtedness of any Acquired Company, whether or
not contingent, in respect of borrowed money or evidenced by bonds, notes,
debentures or other similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or banker's acceptances or representing
capitalized lease obligations, (ii) all indebtedness of others secured by a Lien
on any asset of the Acquired Companies (whether or not such indebtedness is
assumed by any Acquired Company) and, (iii) to the extent not otherwise included
by clauses (i) and (ii), any guaranty by any Acquired Company of any
indebtedness of any other Person.
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"Differing Party" is defined in Section 2.4(b).
"Dispute" is defined in Section 12.11(a).
"Dispute Notice" is defined in Section 12.11(d).
"Disputing Party" is defined in Section 12.11(d).
"▇▇▇▇▇" means ▇▇▇▇▇ Holdings Corp., a Delaware corporation.
"Entitlements" is defined in Section 4.16(e)(iii).
"Environmental Laws" is defined in Section 4.13.
"Environmental Matters" is defined in Section 4.13.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended (or any successor thereto).
"Estimated Adjustment Amount" is defined in Section 2.4(a).
"Excess Reserves" means the extent to which the actual Damages incurred
by the Acquired Companies arising from the Maple Ridge Matter and the
Hearthstone Matter, net of actual recoveries arising from the counterclaim of
the Acquired Companies with respect to the Hearthstone Matter, when fully
satisfied are less than the Reserve Balance.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Final Adjustment Amount" is defined in Section 2.4(a).
"Financial Statements" is defined in Section 4.6(a).
"GAAP" means United States generally accepted accounting principles as
in effect from time to time and applied on a consistent basis throughout the
periods involved.
"Governmental Entity" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing which has competent jurisdiction over the relevant Persons or its
business, property, assets or operations.
"Hazardous Materials" is defined in Section 4.13.
"Hearthstone Matter" means the matter or dispute identified as the
"Hearthstone Matter" in Schedule 7.2(a)(vi) of the Company Disclosure Schedule.
"Insurance Policies" is defined in Section 4.18(a).
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"Intellectual Property" is defined in Section 4.17(a).
"Intercompany Payable" shall mean the net liabilities between any
Acquired Company, on the one hand, and Seller or any of its Affiliates (other
than the Acquired Companies), on the other hand, set forth on Schedule 2.2
hereof, including without limitation, all amounts owed by the Acquired Companies
under that certain Tax Allocation Agreement, dated as of March 15, 2000, between
Technical Olympic, Seller and the wholly-owned subsidiaries and affiliates of
Seller, for the taxable years commencing on and after December 15, 1999,
provided that amounts owed under such Agreement shall not include any payment
for Taxes for periods prior to January 1, 2002, to the extent that such Taxes
are not shown as a liability on the 2001 Balance Sheet.
"J.V. Entity" shall mean Universal Land Title of South Florida, Ltd., a
Florida partnership.
"Key Employee" of any Person shall mean any person employed by such
Person in the position of an officer, controller, project manager, construction
manager or director (such as director of land development), or any person
employed by such Person in a position with responsibilities customarily
performed by persons in the foregoing positions.
"Knowledge of Seller and the Acquired Companies" shall mean that Seller
and the Acquired Companies shall be deemed to have knowledge of a particular
fact or matter if any director or officer of Seller or its Affiliates (other
than the Acquired Companies), or any person listed on Schedule 1.1 of the
Company Disclosure Schedule, has actual knowledge of such fact or matter, in
each case after due inquiry.
"Land Contract Breach" means a breach or violation of a representation
or warranty of Seller contained in Section 4.5(c) or (d) or Section 4.16 of this
Agreement, which breach or violation (i) results in the Acquired Companies
losing or forfeiting the right to (A) begin or continue development activities
on any Current Project, (B) acquire land for development in any Current Project,
or (C) construct homes on any Current Project, and (ii) causes the Acquired
Companies to experience a Material Adverse Effect.
"Land Financing Debt" mean the Debt of Florida-Durham Properties LLC
and Walnut Creek Investors, each as set forth on Schedule 2.2(a) hereto.
"Lien" or "Liens" means all liens, mortgages, assessments, security
interests, claims, pledges, trusts (constructive or otherwise), deeds of trust,
options, encumbrances, restrictions or other Contracts having the same economic
effect as any of the foregoing.
"Maple Ridge Matter" means the matter or dispute identified as the
"Maple Ridge Matter" in Schedule 7.2 (a)(vi) of the Company Disclosure Schedule.
"Material Adverse Effect" means with respect to any Person a material
adverse effect on (i) the business, assets, financial condition or results of
operations of such Person, taken as a whole with its Subsidiaries, or (ii) the
ability of such Person to consummate the transactions contemplated hereby;
provided, however, that any such effect resulting from any change in (A) any
applicable law, rule or regulation or GAAP or interpretations thereof, or (B)
economic or
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business conditions generally or in the homebuilding or financial services
industry specifically, shall not be considered when determining if a Material
Adverse Effect has occurred.
"Material Contracts" is defined in Section 4.5(a).
"Objection Notice" is defined in Section 2.4(b).
"Order" is defined in Section 10.1(b).
"Other Party" is defined in Section 12.11(d).
"Payoff Amounts" is defined in Section 2.2(a)(ii).
"Permitted Liens" is defined in Section 4.19(a).
"Person" shall mean any individual, corporation, limited liability
company, partnership, trust, joint venture, association, organization or other
entity or group (which term shall include a "group" as such term is defined in
Section 13(d)(3) of the Exchange Act) or Governmental Entity.
"Preferred Mortgage" shall mean Preferred Home Mortgage Company, a
Florida corporation.
"Projects" is defined in Section 4.16(e)(i).
"Purchase Price" means the sum of (i) the Closing Payment (as adjusted
by the Adjustment Amount pursuant to Section 2.4), plus (ii) the Company
Indebtedness paid by Buyer pursuant to Section 2.2.
"Release" is defined in Section 4.13.
"Reserve Balance" means (i) the sum of (A) the reserve with respect to
the Maple Ridge Matter on the financial statements of the Acquired Companies as
of the Closing Date, and (B) the reserve with respect to the Hearthstone Matter
on the financial statements of the Acquired Companies as of the Closing Date,
less (ii) the receivable as set forth on the financial statements of the
Acquired Companies as of the Closing Date with respect to the Hearthstone
Matter.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" is defined in the introductory paragraph of this Agreement.
"Seller Key Employee" is defined in Section 6.8(b)(i).
"Section 338(h)(10) Election" is defined in Section 8.1.
"Separate Return" is defined in Section 8.3(c).
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"Shares" is defined in the preamble to this Agreement.
"Stock Purchase" is defined in the second recital of this Agreement.
"Straddle Periods" is defined in Section 8.2(a)(ii).
"Subsidiary" or "Subsidiaries" means, with respect to any Person, any
corporation, limited liability company, partnership, joint venture or other
entity of which such Person (either alone or through or together with any other
subsidiary), owns, directly or indirectly, securities or other interests the
holders of which are generally entitled to more than 50% of the vote for the
election of the board of directors or other similar governing body of such
corporation or other legal entity, or otherwise having the power to direct the
business and policies of that Person.
"Tax" or "Taxes" means (A) all federal, state, local, foreign, and
other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
windfall profits, customs duties or other taxes or assessments, together with
any interest and any penalties, additions to tax or additional amounts with
respect thereto, (B) any liability for payment of amounts described in clause
(A) whether as a result of transferee liability, joint and several liability for
being a member of an affiliated, consolidated, combined or unitary group for any
period, or otherwise through operation of law, and (C) any liability for the
payment of amounts described in clauses (A) or (B) as a result of any tax
sharing, tax indemnity or tax allocation agreement or any other express or
implied Contract to indemnify any other Person.
"Tax Benefit" is defined in Section 7.4(c).
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Technical Mortgage" means Technical Mortgage, L.P., a Texas limited
partnership.
"Technical Olympic" means Technical Olympic, Inc., a Delaware
corporation and parent of Seller.
"Third Party Acquisition" is defined in Section 6.7(b).
"Third Party Claim" is defined in Section 7.5(a).
"Unrelated Accounting Firm" is defined in Section 2.4(b).
"Valuations" is defined in Section 8.1(b).
"Walnut Creek Investors" means Park/Walnut Creek Investors, LLC, a
Florida limited liability company.
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"Warranty Claim" means any claim based upon any theory of product
liability, builder's liability or express or implied warranty.
"Warranty Costs" means (i) the Acquired Companies' out-of-pocket costs
incurred in connection with work performed to address Covered Claims, (ii) an
amount equal to $25 for each hour any customer service employee of any Acquired
Company performs work to address any Covered Claim, provided that such work is
reasonably necessary to address such Covered Claim and is supported by
reasonable documentation of the hours spent, and (iii) any amounts for which the
Acquired Companies reimburses Seller pursuant to Section 9.4(b)(ii) hereof.
"Warranty Homes" is defined in Section 9.1.
"Warranty Threshold" means the sum of (i) the warranty reserve on the
financial statements of the Company as of the Closing Date, which amount shall
equal $257,315 (which is the warranty reserve on the financial statements of the
Company as of February 28, 2002) plus or minus, as applicable, any change in the
warranty reserve on the financial statements of the Company from February 28,
2002 through the Closing Date, calculated in accordance with GAAP and consistent
with the standards, principles, practices and policies used in connection with
the Financial Statements, and (ii) $300,000.
ARTICLE II
STOCK PURCHASE
2.1 Sale and Delivery. At the Closing, on the terms and
subject to the conditions set forth herein, Seller shall sell and deliver to
Buyer the Shares, and Buyer shall purchase and accept the Shares from Seller for
the consideration described in Section 2.2.
2.2 Purchase Price.
(a) At the Closing, Buyer shall:
(i) pay to Seller in cash the sum of (A) $41,000,000;
(B) an amount equal to the Intercompany Payable, as set forth on
Schedule 2.2 (as such amount may be adjusted to reflect any amounts
paid or additional Debt incurred after the date hereof and prior to the
Closing, provided that such changes are in conformity and pursuant to
the Contracts governing such Debt listed on Schedule 4.5(xvi) of the
Company Disclosure Schedule); and (C) the Estimated Adjustment Amount
(or less the Estimated Adjustment Amount, if such amount results in a
decrease in the Purchase Price pursuant to Section 2.4(a))
(collectively, the "Closing Payment"); and,
(ii) satisfy the Debt of the Acquired Companies set
forth in Schedule 2.2 (the "Company Indebtedness") by paying the
amounts set forth in the payoff letters for the Company Indebtedness,
including any applicable per diem amounts specified therein (the
"Payoff Amounts").
(b) The Closing Payment shall be delivered to Seller at the
Closing by wire transfer to an account designated in writing by Seller prior to
the Closing. Payment of the
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Purchase Price by Buyer shall represent full payment for the Shares.
Notwithstanding the foregoing, the Company or one of the other Acquired
Companies shall pay all penalty interest, prepayment penalties, exit fees or
other penalties as a result of the prepayment of the Company Indebtedness, the
Intercompany Payable and the Land Financing Debt. The pre-tax net income of the
Company shall be reduced by the amount of such penalty interest, penalties or
fees paid by the Acquired Companies for purposes of calculating the Company Net
Income.
2.3 Closing.
(a) The closing (the "Closing") of the transactions contemplated by
this Agreement shall take place at the offices of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ at 10:00 a.m. (local time) on the
second Business Day after the last of the conditions to Closing set forth in
Sections 10.2 and 10.3 have been satisfied or waived by the party or parties
entitled to waive the same or such other date and time as to which the parties
may agree in writing (the "Closing Date").
(b) At the Closing:
(i) Seller shall deliver, or cause to be delivered, to Buyer,
against payment by Buyer to Seller of the Closing Payment and satisfaction
of the Company Indebtedness:
(A) the stock certificate or certificates representing the
Shares, duly endorsed for transfer, or accompanied by duly executed
assignments separate from the certificate or other documentation
reasonably requested by Buyer to transfer the Shares in the stock
records of the Company, transferring to Buyer full and exclusive
ownership of the Shares; and
(B) all other documents, certificates and other
instruments required to be delivered, or caused to be delivered, by
Seller pursuant hereto.
(ii) Buyer shall deliver, or cause to be delivered, to Seller,
against delivery of the certificate or certificates representing the Shares
(properly endorsed for transfer or accompanied by proper assignments):
(A) the Closing Payment; and
(B) all of the documents, certificates and other
instruments required to be delivered, or caused to be delivered, by
Buyer pursuant hereto.
(iii) Buyer shall deliver, or cause to be delivered, to the
lenders of the Company Indebtedness the Payoff Amounts.
2.4 Purchase Price Adjustment.
(a) An adjustment in the Purchase Price paid by Buyer for the Shares
shall be made as described below. Such adjustment shall provide for (i) an
increase in the Purchase Price for the amount of any Company Net Income (or a
decrease in the Purchase Price in the event of a
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loss), (ii) a decrease in the Purchase Price for the value of all dividends and
distributions paid by the Company to its stockholders from January 1, 2002
through the Closing Date (including, without limitation, the Corporate Dividend,
but excluding the distribution of those certain deferred tax assets in the
approximate amount of $6.6 million), and (iii) for purposes of calculating the
Final Adjustment Amount, an increase in the Purchase Price for the amount by
which the estimated Taxes for the period January 1, 2002 through the Closing
Date set forth as an intercompany payable on Schedule 2.2 and used in the
calculation of the Estimated Adjustment Amount and the Intercompany Payable, is
less than the amount for Taxes for such period used in the calculation of the
Final Adjustment Amount (or a decrease in the Purchase Price in the event the
amount of Taxes for such period used in the Final Adjustment Amount is less than
the amount used in calculating the Estimated Adjustment Amount and the
Intercompany Payable). The net adjustment in the Purchase Price shall be the
"Adjustment Amount" and shall be calculated and paid by the owing party as set
forth in this Section 2.4. The calculation of the initial estimate of the
Adjustment Amount, including (A) an estimate of the components of the Company
Net Income and (B) the value of each distribution and dividend, is set forth on
Schedule 2.4(a) hereto (the "Estimated Adjustment Amount"). As set forth in this
Section 2.4, after the Closing the final Adjustment Amount shall be calculated,
consistent with the principles used in calculating the Estimated Adjustment
Amount (the "Final Adjustment Amount"). The difference between the Final
Adjustment Amount less the Estimated Adjustment Amount shall be paid by the
owing party hereto to the other party entitled thereto (which shall be Seller if
such amount is positive and Buyer if such amount is negative). The parties agree
that all amounts considered in the determination of the Adjustment Amount shall
be rounded to the nearest $1,000.
(b) Within 90 days following the Closing, Buyer shall prepare and
deliver to Seller its calculation of the Final Adjustment Amount. Within 30 days
following Buyer's notification to Seller of its calculation of the Final
Adjustment Amount, Seller shall deliver to Buyer a notice of objection (an
"Objection Notice") or a notice of acceptance (an "Acceptance Notice") with
respect to the calculation of the Final Adjustment Amount. Buyer shall provide
Seller and its accountants and other representatives, upon reasonable advance
notice, access to such books and records of the Acquired Companies relating to
the calculation of the Final Adjustment Amount as may be reasonably requested by
Seller. Buyer's Calculation of the Final Adjustment Amount shall be final and
binding on the parties if an Acceptance Notice is delivered to Buyer or if no
Objection Notice is delivered to Buyer within such 30 day period. Any Objection
Notice shall specify the items disputed, shall describe the reasons for the
objection thereof, shall state the amount in dispute and shall state Seller's
calculation of the Final Adjustment Amount. If an Objection Notice is given,
Seller and Buyer shall consult with each other with respect to the objection. If
the parties are unable to reach agreement within 15 days after an Objection
Notice has been given, any unresolved disputed items shall be promptly referred
to Deloitte & Touche LLP, provided however, if either of the parties has used
the services of Deloitte & Touche LLP at any time in the six month period prior
to such selection of an accounting firm, then the unresolved items shall be
promptly referred to such other accounting firm mutually agreed to by the
parties (the "Unrelated Accounting Firm"). The Unrelated Accounting Firm shall
be directed to render a written report on the unresolved disputed issues as
promptly as practicable (but in no event later than 45 days following submission
of the matter to the Unrelated Accounting Firm) and to resolve only those issues
of dispute set forth in the Objection Notice. The resolution of the dispute by
the Unrelated
10
Accounting Firm shall be final and binding on the parties. The fees and expenses
of the Unrelated Accounting Firm shall be borne equally between Seller and
Buyer; provided, however, that if the Final Adjustment Amount calculated by one
of the parties (the "Differing Party") pursuant to this subsection differs from
the final determination of the Unrelated Accounting Firm by more than twenty
percent to the detriment of such Differing Party, then such Differing Party
shall be responsible for the payment of all of the fees and expenses of the
Unrelated Accounting Firm.
(c) If Seller delivers to Buyer the Acceptance Notice referred to
in Section 2.4(c) or fails to deliver an Objection Notice within the 30 day
period required by Section 2.4(c), either Buyer or Seller, as the case may be,
shall pay to the other party any amounts which Buyer's calculation shall
indicate to be owed to the other party within five Business Days after the
delivery of such Acceptance Notice or the expiration of such 30 day period, as
the case may be. Alternatively, if Seller delivers to Buyer the Objection Notice
referred to in Section 2.4(b), within five Business Days after such delivery,
the owing party shall pay the undisputed portion, if any, of the amount owed
and, within five Business Days after the resolution of any dispute by the
parties or the Unrelated Accounting Firm relating to the Objection Notice, the
owing party shall pay the remainder owed, if any. Any payment pursuant to this
Section 2.4 shall be considered an adjustment to the Purchase Price, and shall
be made in immediately available funds. Any payment pursuant to this Section
2.4(c), if not paid within the time set forth herein shall be accompanied by
payment of interest thereon at the rate of ten percent per annum calculated
beginning on the date such amount became payable pursuant to this Section 2.4
and ending on the day prior to the date of payment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth in the disclosure schedule delivered by Seller to
Buyer at or prior to the execution hereof that is arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this
Agreement (the "Company Disclosure Schedule"), Seller represents and warrants to
Buyer, as of the date of this Agreement and as of the Closing Date, as follows:
3.1 Ownership of Shares. Seller owns of record and beneficially the
Shares, free and clear of all Liens. The Shares are duly registered solely in
the name of Seller on the stock register records of the Company. Upon delivery
to Buyer at the Closing of the certificates representing the Shares, Buyer will
own the Shares, free and clear of any Liens (other than Liens created as a
result of Buyer's participation in such transaction that would not be applicable
to purchasers of the Shares generally), and will receive good and valid title to
the Shares. The Shares represent all of the issued and outstanding Capital Stock
of the Company. Other than this Agreement, the Shares are not subject to any
voting trust agreement or other similar Contract, including any such Contract
restricting or otherwise relating to the voting, dividend rights or disposition
of the Shares.
3.2 Authorization, Validity, and Effect of Agreements. Seller is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of
11
incorporation and has the requisite corporate power and authority to execute and
deliver this Agreement and all agreements and documents contemplated herein to
be executed and delivered by it and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement, and all other
agreements and documents contemplated hereby, by Seller, and the consummation by
Seller of the transactions contemplated hereby and thereby, has been duly
authorized by all requisite corporate action of Seller. This Agreement has been
duly executed and delivered by Seller and constitutes, and all agreements and
documents contemplated hereby to be executed by Seller (when executed and
delivered pursuant hereto) will constitute, the valid and legally binding
obligations of Seller, enforceable in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance or other similar laws relating to creditors' rights and
general principles of equity, whether at equity or law.
3.3 No Violations; Consents.
(a) Except as listed on Schedule 3.3(a) of the Company
Disclosure Schedule, neither the execution and delivery by Seller of this
Agreement and the other agreements or documents contemplated hereby nor the
consummation of the transactions contemplated herein or therein in accordance
with the terms hereof or thereof will:
(i) conflict with or result in a breach of any
provisions of the articles of incorporation or by-laws (or other
similar constituent documents with respect to any Person other than a
corporation) of Seller or the Acquired Companies; or
(ii) violate any judgment, order or decree, or statute,
law, ordinance, rule or regulation applicable to Seller or any of the
Acquired Companies or their respective properties or assets.
(b) Except as listed on Schedule 3.3(b) of the Company
Disclosure Schedule, no consent, approval or authorization of, or declaration,
filing or registration with, any Governmental Entity or any other Person is
required to be made by or with respect to Seller or any of the Acquired
Companies in connection with the execution, delivery and performance of this
Agreement or the other agreements or documents contemplated hereby or the
consummation of the transactions contemplated hereby or thereby, or conduct by
the Acquired Companies of their respective businesses following the Closing as
conducted on the date hereof, other than those that may be required solely by
reason of Buyer's participation in the transactions contemplated hereby and
except where the failure to obtain such consent, approval or authorization of,
or declare, file or register has not and would not reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect on the Acquired
Companies.
3.4 No Brokers. No broker, finder or similar agent has been
employed by or acted on behalf of, directly or indirectly, Seller or any of its
Affiliates in connection with this Agreement or the transactions contemplated
hereby. Neither Seller nor any of its Affiliates has entered into any
arrangement or other Contract of any kind with any Person, or taken any other
actions, which would obligate Buyer or any of the Acquired Companies to pay any
brokerage commission, finder's fee or any similar compensation in connection
with this Agreement or the transactions contemplated hereby.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
AS TO THE SUBJECT COMPANIES
Except as set forth in the Company Disclosure Schedule, Seller
represents and warrants to Buyer, as of the date of this Agreement and as of the
Closing Date, as follows:
4.1 Existence; Good Standing; Compliance with Law.
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of Florida. The Company is not, and
is not required to be, licensed or qualified to do business as a foreign
corporation under the laws of any other state of the United States. The Company
has all requisite corporate power and authority to own, operate and lease its
properties and assets and carry on its business as now conducted.
(b) Each of the other Acquired Companies is a corporation,
limited liability company or partnership duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation or
organization, has the corporate, limited liability company or partnership power
and authority to own its properties and assets and to carry on its business as
it is now being conducted, and is duly qualified to do business and is in good
standing in each jurisdiction in which the ownership of its properties and
assets or the conduct of its business requires such qualification, except for
jurisdictions in which such failure to be so qualified or to be in good standing
do not and would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on such Acquired Company.
(c) The copies of the Company's articles of incorporation and
by-laws previously delivered to or made available to Buyer are true, correct and
complete. The copies of the articles of incorporation and by-laws (or other
organizational documents for each Acquired Company that is not a corporation) of
each other Acquired Company previously delivered or made available to Buyer are
true, correct and complete.
4.2 Capitalization. The authorized Capital Stock of the Company
consists of 10,000,000 shares of Company Common Stock. There are 10,000,000
shares of Company Common Stock issued and outstanding. Except as set forth on
Schedule 4.2 of the Company Disclosure Schedule, none of the Acquired Companies
has any outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with its stockholders on any matter and
there are no equity equivalent interests in the ownership or earnings of any of
the Acquired Companies. All issued and outstanding Capital Stock of the Company
is duly authorized, validly issued, fully paid and nonassessable, and none of
such Capital Stock has been issued in violation of or, except as set forth on
Schedule 4.2 of the Company Disclosure Schedule, is subject to any purchase
option, call, right of first refusal, preemptive, subscription or similar right
under any provision of applicable law, the articles of incorporation of the
Company, or any Contract to which the Company is subject, bound by or a party
thereto or otherwise. There are no options, warrants, calls, subscriptions,
convertible securities, or other rights or other Contracts which obligate the
Company or any other Acquired Company to issue, transfer or sell any Capital
Stock of the Company or any other Acquired Company or any securities exercisable
or exchangeable
13
for, or convertible into, such Capital Stock. There are no obligations,
contingent or otherwise, of the Company or any of the other Acquired Companies
to repurchase, redeem or otherwise acquire any of its Capital Stock or to make
any investment (in the form of a loan, capital contribution or otherwise) in any
Acquired Company.
4.3 Subsidiaries. Schedule 4.3 of the Company Disclosure
Schedule sets forth for each Acquired Company (i) the jurisdiction of
organization, (ii) for each Acquired Company, (A) that is a corporation, the
amount of its authorized Capital Stock, the amount of its outstanding Capital
Stock and the record and beneficial owners of its outstanding Capital Stock, and
(B) that is a partnership, limited liability company or joint venture, the names
and interests of the partners or members thereof. Except as set forth in
Schedule 4.3 of the Company Disclosure Schedule, the Company owns directly or
indirectly all of the outstanding Capital Stock of each of the other Acquired
Companies, and such interests are held free and clear of all Liens. All of the
outstanding Capital Stock of each Acquired Company is duly authorized, validly
issued, fully paid and nonassessable, and none of such Capital Stock has been
issued in violation of or, except as set forth on Schedule 4.3 of the Company
Disclosure Schedule is subject to, any purchase option, call, right of first
refusal, preemptive, subscription or similar right under any provision of
applicable law, the articles of incorporation or comparable governing
instruments of the applicable Acquired Company, or any Contract to which any
Acquired Company is subject to, bound by or a party thereto or otherwise. The
outstanding Capital Stock of each of the Acquired Companies has been issued in
compliance with all applicable securities laws. Oak Ridge and West Lake have no
active operations.
4.4 Other Interests.
(a) Except for interests in the Acquired Companies and the
interests set forth in Schedule 4.4(a) of the Company Disclosure Schedule, no
Acquired Company owns directly or indirectly any interest or investment (whether
equity or debt) in any other Person. Schedule 4.4(a) of the Company Disclosure
Schedule sets forth for each such other interest listed thereon (i) the
jurisdiction and date of organization of the issuer, (ii) for each issuer, (A)
that is a corporation, the amount of its authorized Capital Stock, the amount of
its outstanding Capital Stock and the record and beneficial owners of its
outstanding Capital Stock and (B) that is a partnership, limited liability
company or joint venture, the names and interests of the partners or members
thereof. Except as set forth on Schedule 4.4(a) of the Company Disclosure
Schedule, all of the interests held by the Acquired Companies are held free and
clear of all Liens.
(b) None of the Capital Stock of the J.V. Entity has been
issued in violation of or, except as set forth on Schedule 4.4(b) of the Company
Disclosure Schedule is subject to, any purchase option, call, right of first
refusal, preemptive, subscription or similar right under any provision of
applicable law, the articles of incorporation or comparable governing
instruments of the J.V. Entity, or any Contract to which the J.V. Entity is
subject to, bound by or a party thereto or otherwise. Seller has been provided a
true, accurate and complete copy of the partnership agreement for the J.V.
Entity. Except for such partnership agreement and as set forth on Schedule
4.4(b) of the Company Disclosure Schedule, there are no Contracts between the
J.V. Entity and its partners (or such partner's Affiliates), and such
partnership agreement is the only Contract setting forth the respective rights
and obligations of the Acquired Companies in the J.V. Entity or to the other
partners, in their capacity as partners, in the J.V. Entity. There are no
14
options, warrants, calls, subscriptions, convertible securities, or other rights
or other Contracts which obligate the J.V Entity to issue, transfer or sell any
of its Capital Stock or any securities exercisable or exchangeable for, or
convertible into, such Capital Stock. There are no obligations, contingent or
otherwise, of the J.V Entity to repurchase, redeem or otherwise acquire any of
its Capital Stock or to make any investment (in the form of a loan, capital
contribution or otherwise) in any other Person.
(c) Except for interests in the other Acquired Companies,
since January 1, 1998 through the date hereof, none of the Acquired Companies,
directly or indirectly, has owned any Subsidiary.
4.5 Material Contracts; No Violation.
(a) Except as set forth in Schedule 4.5(a) of the Company
Disclosure Schedule, no Acquired Company is a party to nor is any Acquired
Company or its assets or business bound by any:
(i) real property purchase, sale or option Contract,
other than Contracts for sales of completed homes to individual
homebuyers in the ordinary course of business;
(ii) Contract with any Governmental Entity that relates
to real property owned by any Acquired Company, including development
agreements, that have aggregate future liability or anticipated
receipts in excess of $250,000 (other than Contracts for the payment of
impact fees pursuant to impact fee schedules);
(iii) performance bond in an amount in excess of
$250,000;
(iv) Contract relating to community development
districts;
(v) Contract not entered into in the ordinary course
of business;
(vi) employment Contract;
(vii) employee collective bargaining agreement or other
Contract with any labor union;
(viii) covenant of any Acquired Company not to compete;
(ix) Contract with (A) Seller or any Affiliate of
Seller (other than the Acquired Companies), or (B) to the knowledge of
Seller and the Acquired Companies, any current or former officer,
director or employee of Seller or any Affiliate of Seller (other than
the Acquired Companies);
(x) to the knowledge of Seller and the Acquired
Companies, any Contract with any current or former officer, director or
employee of an Acquired Company (other than advances to employees not
in excess of $10,000 and employment Contracts covered by clause (vi)
above);
15
(xi) lease, sublease or similar Contract with any Person (other
than Contracts between the Acquired Companies) under which (A) any Acquired
Company is a lessor or sublessor of, or makes available for use to any
Person, (1) any real property of any Acquired Company, or (2) any portion
of any premises otherwise occupied by an Acquired Company, or (B) any
Acquired Company is a lessee or sublessee of, or holds or uses any real
property owned by any other Person (other than the Acquired Companies);
(xii) lease or similar Contract with any Person (other than
Contracts between the Acquired Companies) under which (A) any Acquired
Company is lessee or sublessee of, or holds or uses, any machinery,
equipment, vehicle or other tangible personal property owned by any Person
(except personal property leases and installment and conditional sales
agreements having annual payments of less than $100,000), or (B) any
Acquired Company is a lessor or sublessor of, or makes available for use by
any Person, any tangible personal property owned or leased by any Acquired
Company, in any such case which has a future liability or receivable, as
the case may be, in excess of $100,000;
(xiii) Contract for the future purchase of materials, supplies or
equipment for the construction of homes (other than Contracts between the
Acquired Companies), (A) with a future liability in excess of $500,000, or
(B) which obligates any Acquiring Company to use the services of the
supplier of such materials, supplies or equipment for future Projects that
have not yet been bid;
(xiv) management, consulting, financial advisory or other
similar type of Contract (other than Contracts for architectural,
geotechnical, design and engineering services relating to a single
project);
(xv) license, option or other Contract relating in whole or in
part to the Intellectual Property set forth in Schedule 4.17 of the Company
Disclosure Schedule;
(xvi) Contract under which any Acquired Company has borrowed any
money from, or issued any note, bond, debenture or other evidence of Debt
or reimbursement obligation to, any Person (other than Contracts between
the Acquired Companies) or any other note, bond, debenture or other
evidence of Debt issued to any Person (other than Contracts between the
Acquired Companies), in any such case which individually is in excess of
$50,000;
(xvii) Contract (including so-called take-or-pay or keep-well
agreements) under which (A) any Person (including the Acquired Companies)
has directly or indirectly guaranteed Debt or other obligations of any
Acquired Company, or (B) any Acquired Company has directly or indirectly
guaranteed or directly assumed Debt or other obligations of any Person (in
each case other than endorsements for the purpose of collection in the
ordinary course of business), in any such case which individually is in
excess of $50,000;
16
(xviii) Contract under which any Acquired Company has, directly
or indirectly, made any advance, loan or extension of credit, in any such
case which individually is in excess of $50,000;
(xix) Contract which contemplates the granting of a security
interest in any property of an Acquired Company, which security interest
(A) secures any Debt for borrowed money in excess of $50,000, (B) secures
any obligation in excess of $50,000 to pay the deferred purchase price of
stock or assets acquired by any Acquired Company, or (C) secures any
obligation of, or is held by, Seller or any Affiliate thereof;
(xx) Contract providing for indemnification of any Person with
respect to liabilities relating to any current or former business of any
Acquired Company, any Subsidiary of any Acquired Company or any predecessor
of such Persons;
(xxi) power of attorney (other than powers of attorney entered
into in the ordinary course of business);
(xxii) tax sharing or tax allocation agreement;
(xxiii) joint venture or partnership agreement or similar
Contract; and
(xxiv) Contract to which any Acquired Company has future
liability or anticipated receipts in excess of $50,000 (other than a
Contract listed above or which would have been listed above but for a
dollar or other materiality threshold).
The Contracts listed in Schedule 4.5(a) are referred to herein as the
"Material Contracts".
(b) Schedule 4.5(b) sets forth a list of each Contract to which any
officer, director or employee of any of the Acquired Companies, on the one hand,
and Seller or any of its Affiliates (other than the Acquired Companies), on the
other hand, are parties.
(c) Except as set forth in Schedule 4.5(c) of the Company Disclosure
Schedule, (i) all Material Contracts are valid, binding and in full force and
effect and are enforceable by the relevant Acquired Company in accordance with
their terms subject to applicable bankruptcy, insolvency, moratorium, fraudulent
conveyance, reorganization or other similar laws relating to creditors' rights
and general principles of equity, whether at equity or at law, except where any
such failure has not and would not reasonably be expected to result in Damages
to the Acquired Companies in excess of $200,000, and except that Seller makes no
representations in this subsection (i) with respect to those Contracts listed in
subsections (vi), (viii) and (xxi) of Schedule 4.5(a) of the Company Disclosure
Schedule, (ii) Seller and the Acquired Companies have performed all material
obligations required to be performed by them to date under the Material
Contracts and they are not (with or without the lapse of time or the giving of
notice, or both) in breach or default in any material respect thereunder, except
where any such failure, breach or default has not and would not reasonably be
expected to result in Damages to the Acquired Companies in excess of $200,000,
and (iii) to the knowledge of Seller and the Acquired Companies, no other party
to any of the Material Contracts is (with or without the lapse of time or the
giving of notice, or both) in breach or default in any material respect
17
thereunder. A copy of each Material Contract has been made available to Buyer,
and such copies are true, complete and correct.
(d) Neither the execution and delivery by Seller of this Agreement, nor
the consummation by Seller of the transactions contemplated herein in accordance
with the terms hereof, will, in any material respect, violate, or conflict with,
or result in a breach of any provision of, or constitute a material default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination or in a right of termination or
cancellation of, or accelerate the performance required by, or result in the
triggering of any payment obligations under, or result in the creation of any
Lien upon any of the material properties of Seller or the Acquired Companies
(including the Shares) under, or result in being declared void, voidable, or
without further binding effect, any of the terms, conditions or provisions of
any Material Contract to which Seller or any of the Acquired Companies is a
party, or by which any of their respective properties are bound or affected.
Except as set forth on Schedule 4.5(d) of the Company Disclosure Schedule, no
consent of or approval of any party to a Material Contract is required in
connection with the execution, delivery and performance of this Agreement or the
other agreements or documents contemplated hereby or the consummation of the
transactions contemplated hereby and thereby (except for such consents or
approvals for which the failure to obtain would not result in a material breach
of or termination or the right to terminate such Material Contract).
(e) Seller has provided Buyer with a complete and accurate copy of the
standard form master home sales contract and master subcontractor contract used
by each of the Acquired Companies. It is the custom and practice of the Acquired
Companies and their respective employees and agents not to generally deviate
from such contracts in any material respect.
4.6 Financial Statements; Projections; No Undisclosed Liabilities.
(a) Schedule 4.6(a) of the Company Disclosure Schedule sets forth true
and complete copies of the consolidated and consolidating balance sheets and
related consolidated and consolidating statements of operations, retained
earnings and cash flows for the Acquired Companies for the year ended December
31 2001, audited by the independent public accountants whose reports are
attached thereto (the "Financial Statements"). The December 31, 2001 balance
sheet therein is referred to herein as the "2001 Balance Sheet."
(b) The Financial Statements (i) have been prepared based on the books
and records of the Acquired Companies in accordance with GAAP and the Company's
normal accounting practices, consistent with past practice, and present fairly
the consolidated financial condition, consolidated results of operations and
consolidated statements of cash flow of the Acquired Companies as of the dates
or for the periods indicated, and (ii) contain and reflect all necessary
adjustments, accruals, provisions and allowances for a fair presentation of the
financial condition and the results of operations of the Acquired Companies for
the periods covered by the Financial Statements. No financial statements of any
Person other than the Acquired Companies are required by GAAP to be included in
the Financial Statements. The Financial Statements do not contain any items of a
special or nonrecurring nature, except as expressly stated therein.
18
(c) The three year business plan of the Acquired Companies (covering
actual financial results for 2001 and forecast financial results for 2002 and
2003) provided by Seller to Buyer is a true, accurate and complete copy of the
three year business plan prepared by management of Seller for delivery to the
Special Committee formed by Seller to review the potential merger of ▇▇▇▇▇ and
Seller. The business plan was prepared in good faith on the basis of assumptions
which management of Seller, based on its knowledge at the time, believed to be
reasonable (with the understanding that such forecasts and projections can be
subject to significant uncertainties and contingencies, many of which are beyond
the control of Seller or the Company). Seller does not provide any
representation, warranty or assurance that the forecast or projections in the
business plan will be achieved.
(d) Except as set forth on Schedule 4.6(d) of the Company Disclosure
Schedule, there are no material liabilities or other obligations of any Acquired
Company of a type required pursuant to GAAP to be reflected on a consolidated
balance sheet of the Acquired Companies other than: (i) liabilities accrued on
the 2001 Balance Sheet; and (ii) liabilities incurred since the date of the 2001
Balance Sheet that have been incurred in the ordinary course of business of the
Acquired Company and that do not and would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on the
Company.
(e) Except for the Intercompany Payable and Debt as disclosed on
Schedule 4.6(e) of the Company Disclosure Schedule, the Payoff Amounts represent
all of the Debt of the Acquired Companies that will be outstanding as of the
Closing Date. None of the Acquired Companies has any liabilities or obligations
to Seller or any of its Affiliates (other than the Acquired Companies) other
than Intercompany Payable and liabilities and obligations arising under
Contracts disclosed in Schedule 4.5(a)(viii) of the Company Disclosure Schedule.
4.7 Permits; Compliance; Litigation.
(a) Each of the Acquired Companies has obtained all material licenses,
permits, exemptions, consents, certificates, orders, approvals and other
authorizations from Governmental Entities necessary to the operation of its
business as now conducted (collectively, the "Company Permits"). The Acquired
Companies are in compliance in all material respects with the terms of the
Company Permits. Schedule 4.7(a) of the Company Disclosure Schedule sets forth a
list of the Company Permits. No Company Permit will be subject to suspension,
modification or revocation as a result of the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby (other
than as a result of Buyer's participation in such transactions which
suspensions, modifications or revocations would not be applicable to purchasers
of the Shares generally).
(b) Each of the Acquired Companies is, and since January 1, 1998 at all
times has been, in material compliance with all material applicable laws and
governmental rules and regulations (although no representation is made in this
Section with respect to laws and governmental regulations relating to Taxes,
environmental matters and benefit plan/ERISA matters which are addressed only
and exclusively in Sections 4.9, 4.10 and 4.13 hereof).
(c) Except as set forth in Schedule 4.7(c) of the Company Disclosure
Schedule, no Acquired Company is a party or subject to or in default under any
judgment, order,
19
injunction or decree of any Governmental Entity or arbitration tribunal
applicable to it or any of its respective properties, assets, operations or
business.
(d) Schedule 4.7(d) of the Company Disclosure Schedule sets forth a
list and description of all pending or, to the knowledge of Seller and the
Acquired Companies threatened, lawsuits, arbitrations or other claims (i)
against any Acquired Company or any of their respective properties, assets,
operations or businesses, (A) that relate to or involve more than $50,000, (B)
that relate to claims involving this Transaction or (C) where the claimant, to
the knowledge of Seller and the Acquired Companies, is represented by counsel,
and (ii) by any Acquired Company pending against any other Person.
4.8 Absence of Certain Changes. Except as disclosed in Schedule 4.8 of the
Company Disclosure Schedule, since December 31, 2001 each Acquired Company has
conducted its business only in the ordinary course of such business consistent
with past practice and there has not been:
(i) any event or events which, individually or in the aggregate, has
or would reasonably be expected to have a Material Adverse Effect on the
Company;
(ii) any declaration, setting aside or payment of any dividend or
other distribution with respect to the Capital Stock of any Acquired
Company or any redemption or repurchase of any such Capital Stock, or any
other payment of any kind to Seller or any Affiliate of Seller (other than
the Acquired Companies);
(iii) any material change in the accounting principles, practices or
methods of any Acquired Company;
(iv) any increase in the salaries or other compensation payable to
any officer, director or employee of any Acquired Company (except for
normal increases for employees in the ordinary course of business
consistent with past practice) or any increase in, or addition to, other
benefits to which such officer, director or employee may be entitled
(except as required by the terms of plans as in effect on the date of this
Agreement and which are listed on Schedule 4.8 of the Company Disclosure
Schedule or as required by law);
(v) any incurrence or assumption by any Acquired Company of
indebtedness for borrowed money or incurrence or assumption of any
guarantee;
(vi) any material adverse change or, to the knowledge of Seller and
the Acquired Companies, threat of a material adverse change, in any of the
Acquired Companies' relations with, or any loss or, to the knowledge of
Seller and the Acquired Companies, threat of loss, of any of the Acquired
Companies' important suppliers or customers or Key Employees;
(vii) any termination, cancellation or waiver of any Material Contract
or other right material to the operation of the business of the Acquired
Companies, taken as a whole; or
20
(viii) any material damage, destruction or loss, whether or not
covered by insurance, adversely affecting the properties, assets or
business of the Acquired Companies, taken as a whole.
4.9 Taxes.
(a) All Tax Returns that were required to be filed with respect to
any of the Acquired Companies have been accurately prepared and timely filed.
All such Tax Returns are true, correct, and complete and such Tax Returns
contain all disclosures and other items required to avoid additional Taxes or
other adverse Tax consequences. Each Acquired Company has at all times complied
with applicable laws pertaining to Taxes, including, without limitation, all
applicable laws relating to record retention.
(b) Each Acquired Company has timely paid all Taxes that have become
due or payable (without regard to whether or not such Taxes are shown on any Tax
Return) and has adequately provided in the financial statements (in accordance
with GAAP) for all Taxes that have accrued but are not yet due or payable.
(c) No claim has been made by any taxing authority in any
jurisdiction where any Acquired Company does not file Tax Returns that such
Acquired Company is or may be subject to Tax by that jurisdiction. No extensions
or waivers of statutes of limitations with respect to any Tax Returns have been
given by or requested from any Acquired Company.
(d) No Acquired Company is a party to any action, proceeding or audit
relating to Taxes by any taxing authority for which such Acquired Company or
Buyer could be held liable or has knowledge of any pending or threatened action,
proceeding or audit by any taxing authority. All deficiencies asserted or
assessments made against any Acquired Company as a result of any examinations by
any taxing authority have been fully paid.
(e) There are no Liens for Taxes (other than for current Taxes not
yet due and payable) upon the assets of the Acquired Companies. None of the
assets of the Acquired Companies (i) is property that is required to be treated
as being owned by any other Person pursuant to the so-called "safe harbor lease"
provisions of former Section 168(f)(8) of the Code; (ii) directly or indirectly
secures any debt the interest on which is tax exempt under Section 103(a) of the
Code; or (iii) is "tax-exempt use property" within the meaning of Section 168(h)
of the Code.
(f) No Acquired Company is a party to or bound by any closing
agreement, offer in compromise, or other agreement with any taxing authority
that could affect Taxes for which the Acquired Companies or Buyer may be liable.
(g) Except as set forth on Schedule 4.09(g), from January 1, 1998,
none of the Acquired Companies has been a member of an affiliated group of
corporations, within the meaning of Section 1504 of the Code, or a member of a
combined, consolidated or unitary group for state, local or foreign Tax
purposes, other than a group that has Technical Olympic or Seller as its common
parent.
21
(h) Except as set forth on Schedule 4.9(h) of the Company
Disclosure Schedule, none of the Acquired Companies is a party to any plan or
other Contract that has resulted or would result, separately or in the
aggregate, in connection with this Agreement, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code.
(i) Schedule 4.9(i) of the Company Disclosure Schedule sets
forth (i) all foreign jurisdictions in which the Acquired Companies are subject
to Tax, are engaged in business or have a permanent establishment, and (ii) all
elections pursuant to Treas. Reg. ss. 301.7701-3 that have been made by business
entities in which any of the Acquired Companies own an equity interest.
(j) None of the Acquired Companies has any foreign subsidiaries.
(k) There is currently no limitation on the utilization of net
operating losses, capital losses, built-in losses, tax credits or similar items
of the Acquired Companies under Sections 382, 383, 384 or 1502 of the Code and
the Treasury Regulations thereunder (and comparable provisions of state, local
or foreign law).
(l) No Acquired Company has been a "distributing corporation" or
a "controlled corporation" in connection with a distribution described in
Section 355 of the Code.
(m) None of the Acquired Companies has filed a consent under
Section 341 of the Code.
(n) None of the Acquired Companies has any actual or contingent
liability for unpaid Taxes of any Person (other than the Acquired Companies)
under Treasury Regulation 1.1502-6 (or any corresponding provision of state,
local or foreign income Tax law), as transferee or successor, by contract or
otherwise.
4.10 Certain Employee Plans.
(a) (i) Each Company Benefit Plan complies, and has been
administered, in all material respects in accordance with its governing
documents and all applicable material requirements of law, and (ii) no
"prohibited transaction" (as such term is defined in ERISA) or termination has
occurred with respect to any Company Benefit Plan which under either
circumstance presents a risk of material liability by any Acquired Company to
any Governmental Entity or other Person, including a Company Benefit Plan. The
Company Benefit Plans are listed on Schedule 4.10(a) of the Company Disclosure
Schedule and copies or descriptions of all material Company Benefit Plans have
previously been provided to Buyer. There has also been furnished to Buyer, with
respect to each Company Benefit Plan required to file such description, the most
recent summary plan description.
(b) Each Company Benefit Plan intended to qualify under Section
401(a) of the Code is so qualified and a determination letter has been issued by
the IRS with respect to the qualification of such Company Benefit Plan and no
circumstances exist which would adversely affect such qualification. A copy of
each determination letter referred to in the preceding sentence has previously
been furnished to Buyer. As to any Company Benefit Plan intended to be qualified
under Section 401(a) of the Code, there has been no termination or partial
termination
22
of the Company Benefit Plan within the meaning of Section 411(d)(3) of the Code.
There is no trust funding a Company Benefit Plan which is intended to be exempt
from federal income taxation pursuant to Section 501(c)(9) of the Code. No
Company Benefit Plan nor any other benefit plan maintained or contributed to by
any Acquired Company is subject to Title IV of ERISA or is subject to Part 3 of
Subtitle B of Title I of ERISA or Section 412 of the Code.
(c) Except as required by applicable law or as set forth on
Schedule 4.10(c) of the Company Disclosure Schedule, none of the Acquired
Companies provides any health, welfare or life insurance benefits to any of its
former or retired employees.
(d) Except as otherwise set forth in Schedule 4.10(d) of the
Company Disclosure Schedule:
(i) the Acquired Companies have in all material
aspects performed all material obligations, whether arising by
operation of law or by contract, required to be performed by them in
connection with the Company Benefit Plans,
(ii) to the knowledge of Seller and its Affiliates
there have been no defaults or violations by any other party to the
Company Benefit Plans, and
(iii) there are no actions, suits, or claims pending
(other than routine claims for benefits), or to the knowledge of Seller
and its Affiliates threatened against, or with respect to, any of the
Company Benefit Plans or their assets, which under any of the
circumstances present a risk of material liability to any Acquired
Company to any Governmental Entity or other Person, including a Company
Benefit Plan. There is no matter pending (other than routine
qualification determination filings) with respect to any of the Company
Benefit Plans before any Governmental Entity. All contributions
required to be made to the Company Benefit Plans pursuant to their
terms and the provisions of ERISA, the Code, or any other applicable
law have been timely made.
(e) No act, omission or transaction has occurred which would
result in imposition on any of the Acquired Companies of (i) breach of fiduciary
duty liability damages under Section 409 of ERISA, (ii) a civil penalty assessed
pursuant to subsections (c), (i) or (l) of Section 502 of ERISA, or (iii) a tax
imposed pursuant to Chapter 43 of Subtitle D of the Code. With respect to any
employee benefit plan, within the meaning of Section 3(3) of ERISA, which is not
listed on Schedule 4.10(a) of the Company Disclosure Schedule but which is
sponsored, maintained, or contributed to, or has been sponsored, maintained, or
contributed to within six years prior to the Closing Date, by any corporation,
trade, business, or entity under common control with any of the Acquired
Companies, within the meaning of Section 414(b), (c), (m) or (o) of the Code or
Section 4001 of ERISA, (A) no withdrawal liability, within the meaning of
Section 4201 of ERISA, has been incurred, which withdrawal liability has not
been satisfied, (B) no liability to the Pension Benefit Guaranty Corporation has
been incurred by any such entity, which liability has not been satisfied, (C) no
accumulated funding deficiency, whether or not waived, within the meaning of
Section 302 of ERISA or Section 412 of the Code has been incurred, and (D) all
contributions (including installments) to such plan required by Section 302 of
ERISA and Section 412 of the Code have been timely made.
23
(f) Except as disclosed in Schedule 4.10(f) of the Company
Disclosure Schedule or as provided in Section 6.6 of this Agreement, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not (i) require any of the Acquired
Companies to make a larger contribution to, or pay greater benefits or provide
other rights under, any Contract or Company Benefit Plan than it otherwise
would, whether or not some other subsequent action or event would be required to
cause such payment or provision to be triggered, or (ii) create or give rise to
any additional vested rights or service credits under any Contract or Company
Benefit Plan. Except as otherwise set forth on Schedule 4.10(f) of the Company
Disclosure Schedule or as provided in Section 6.6 of this Agreement, none of the
Acquired Companies is a party to any Contract, nor has any of the Acquired
Companies established any other policy or practice, requiring it to make a
payment or provide any other form of compensation or benefit to any person
performing services for the Acquired Companies upon termination of such services
which would not be payable or provided in the absence of the consummation of the
transactions contemplated by this Agreement.
(g) In connection with the consummation of the transactions
contemplated by this Agreement, no payments of money or other property,
acceleration of benefits, or provisions of other rights have or will be made
hereunder, under the Company Benefit Plans, or under any other Contract that
would result in imposition of the sanctions imposed under Sections 280G and 4999
of the Code, whether or not some other subsequent action or event would be
required to cause such payment, acceleration, or provision to be triggered.
4.11 Labor Matters.
(a) None of the Acquired Companies is a party to, or bound by,
any collective bargaining agreement or Contract with a labor union or labor
organization. There is no unfair labor practice or labor arbitration proceeding
pending or, to the knowledge of Seller and the Acquired Companies, threatened
against any of the Acquired Companies relating to their business. To the
knowledge of Seller and the Acquired Companies, there are no organizational
efforts with respect to the formation of a collective bargaining unit presently
being made or threatened involving employees of any of the Acquired Companies.
There are no controversies pending or, to the knowledge of Seller and the
Acquired Companies, threatened between any of the Acquired Companies and any of
their respective employees, which, individually or in the aggregate, have or
would reasonably be expected to have a Material Adverse Effect on the Company.
Neither Seller, nor any Acquired Company has received notice of any strikes,
slowdowns, work stoppages, lockouts, or threats thereof, by or with respect to
any employees of any of the Acquired Companies.
(b) Except as set forth on Schedule 4.11(b) of the Company
Disclosure Schedule, to the knowledge of Seller and the Acquired Companies, no
executive officer or director of any Acquired Company or any other employee of
any Acquired Company, is a party to, or is otherwise bound by, any Contract,
including any confidentiality, noncompetition, or proprietary rights agreement,
between such officer, director or employee and any other Person that in any way
adversely affects or will affect (i) the performance of his or her duties as an
officer, director or employee of the Acquired Companies, or (ii) the ability of
any Acquired Company to conduct its business, including any such Contract with
Seller or its Affiliates (other than the Acquired Companies). No Key Employee or
any director of any Acquired Company
24
has threatened to terminate his or her employment with such Acquired Company, as
a result of the transaction contemplated hereby or otherwise.
(c) Except as set forth on Schedule 4.11(c) of the Company
Disclosure Schedule, no charges have been filed claiming employment
discrimination or unfair labor practices against or involving any Acquired
Company, and to the knowledge of Seller and the Acquired Companies, no such
charges are threatened.
4.12 No Brokers. No Acquired Company has entered into any
Contract with any Person which may result in the obligation of any Acquired
Company or Buyer to pay any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated herein.
4.13 Environmental Matters. Seller has made available to Buyer
all environmental assessments and reports relating to environmental conditions
with respect to the real property owned or leased by the Acquired Companies,
which are in the possession of Seller or any Acquired Company. Except as set
forth on Schedule 4.13 of the Company Disclosure Schedule:
(i) the Acquired Companies have been and currently are
in compliance with all applicable Environmental Laws, except where such
noncompliance has not and would not reasonably be expected to have a
Material Adverse Effect on the Company;
(ii) with regard to the properties currently or formerly
owned or operated by the Acquired Companies or their former
Subsidiaries (including soils, groundwater, surface water, buildings,
or other structures), during the period of ownership or operation by
the Acquired Companies or their former Subsidiaries, there was and has
been no Release of any Hazardous Materials, in any amount or
concentration (y) that exceeds any applicable standard promulgated,
enacted, or issued by any Governmental Entity, or (z) that could result
in any liability under the Environmental Laws, except for Releases that
have not and would not reasonably be expected to have a Material
Adverse Effect on the Company;
(iii) with regard to the properties currently or formerly
owned or operated by any of the Acquired Companies or their former
Subsidiaries (including soils, groundwater, surface water, buildings,
or other structures), prior to the period of ownership or operation by
the Acquired Companies or their former Subsidiaries, to the knowledge
of Seller and the Acquired Companies, there was no Release of any
Hazardous Materials, in any amount or concentration (y) that exceeds
any applicable standard promulgated, enacted or issued by any
Governmental Entity, or (z) that could result in any liability under
the Environmental Laws, except for Releases that have not and would not
reasonably be expected to have a Material Adverse Effect on the
Company;
25
(iv) no Acquired Company has disposed or arranged to
dispose of any Hazardous Materials on any third party property which
could result in any liability under the Environmental Laws, except for
such disposal that has not and would not reasonably be expected to have
a Material Adverse Effect on the Company;
(v) received any notices, demand letters, complaints,
claims or requests for information from any Governmental Entity or any
other Person since January 1, 1998 indicating that the Acquired Company
may be in violation of, or liable under, any Environmental Law, except
for such violations as have not and would not reasonably be expected to
have a Material Adverse Effect on the Company;
(vi) none of the Acquired Companies or their respective
properties are subject to any order or decree of any Governmental
Entity or any Contract with any Government Entity arising under any
Environmental Law, or is a party to any indemnity or other Contract
with any third party which could result in any liability under any
Environmental Law, except for such liability that has not and would not
reasonably be expected to have a Material Adverse Effect on the
Company;
(vii) to the knowledge of Seller and the Acquired
Companies, there are no circumstances, conditions, or activities
involving any Acquired Company that could result in any liability under
any Environmental Law or in any restriction pursuant to any
Environmental Law on the ownership, use, or transfer of any property
now owned by any Acquired Company, except for such circumstances,
conditions and activities that have not and would not reasonably be
expected to have a Material Adverse Effect on the Company;
(viii) to the knowledge of Seller and the Acquired
Companies, no properties currently owned by any Acquired Company
contains any underground storage tank or polychlorinated biphenyls; and
(ix) to the knowledge of Seller and the Acquired
Companies, the properties currently owned or operated by any Acquired
Company are not subject to any Liens imposed by any Governmental Entity
in connection with the presence on or off such property of any
Hazardous Materials, except for such Liens as have not and would not
reasonably be expected to have a Material Adverse Effect on the
Company.
For the purposes of this Agreement, "Environmental Laws" means
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. 9601 et seq., the Emergency Planning and Community Right-to-Know Act of
1986, 42 U.S.C. 11001 et seq., the Resource Conservation and Recovery Act, 42
U.S.C. 6901 et seq., the Toxic Substances Control Act, 15 U.S.C. 2601 et seq.,
the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. 136 et seq.,
the Clean Air Act, 42 U.S.C. 7401 et seq., the Clean Water Act (Federal Water
Pollution Control Act), 33 U.S.C. 1251 et seq., the Safe Drinking Water Act, 42
U.S.C. 300f et seq., the Occupational Safety and Health Act, 29 U.S.C. 641 et
seq., the Hazardous Materials Transportation Act, 49 U.S.C. 1801 et seq., as any
of the above statutes have been amended from time to time, all rules and
regulations promulgated pursuant to any of the above statutes, and any other
foreign, federal, state or local law, statute, ordinance, permit, order,
26
decree, rule or regulation or other directive related to or governing
Environmental Matters as the same have been amended from time to time, including
any common law cause of action providing any right or remedy with respect to
Environmental Matters, and all applicable decisions, orders, and decrees of any
Governmental Entity relating to Environmental Matters.
"Environmental Matters" means all matters involving pollution,
wetlands and other natural resources, protection of the environment, noise,
human health, and occupational health and safety.
"Hazardous Materials" means any substance or material that is
defined under the Environmental Laws as a "hazardous substance," "hazardous
waste," "extremely hazardous substance," "toxic substance," or "hazardous
material," or that is otherwise defined in or regulated under the Environmental
Laws, including, without limitation, petroleum, asbestos containing materials,
polychlorinated biphenyls, and radioactive materials.
"Release" means any releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing, or dumping into the soil, surface waters, groundwaters, land, stream
sediments, surface or subsurface strata, ambient air, or any other environmental
medium.
4.14 Related Party Transactions.
(a) Except as set forth on Schedule 4.14(a) of the Company
Disclosure Schedule, no director or officer nor, to the knowledge of Seller and
the Acquired Companies, any employee, of any of the Acquired Companies provides
any services to, including without limitation serving on the board of directors
of, or is a party to a Contract with, any Seller or any Affiliate of Seller
other than the Acquired Companies.
(b) Except as set forth in Schedule 4.14(b) of the Company
Disclosure Schedule, neither Seller nor any Affiliate of Seller (other than the
Acquired Companies) or any officer or director of Seller or any Affiliate of
Seller (including the Acquired Companies), or to the knowledge of Seller and the
Acquired Companies, any immediate family member of any of the foregoing Persons:
(i) has, or since the first day of the next to last
completed fiscal year of the Acquired Companies has had, any interest
in any property (whether real, personal, or mixed and whether tangible
or intangible, but excluding such inherently personal effects as,
without limitation, desk ornaments, wall decorations and related
accessories), used in or pertaining to the business of any of the
Acquired Companies;
(ii) is, or since the first day of the next to last
completed fiscal year of the Acquired Companies has owned (of record or
as a beneficial owner), an equity interest or any other financial or
profit interest in, a Person that has had business dealings or a
material financial interest in any transaction with any Acquired
Company, or;
(iii) to the knowledge of Seller and the Acquired
Companies, has any claim or right against any Acquired Company.
27
(c) Except as set forth in Schedule 4.14(c) of the Company
Disclosure Schedule, to the knowledge of Seller and the Acquired Companies, no
officer or director of the Acquired Companies or any immediate family member of
any of the Acquired Companies is engaged in competition with any Acquired
Company with respect to any line of the products or services of any Acquired
Company (a "Competing Business") in any market presently served by any Acquired
Company except for ownership (of records or as a beneficial owner) of less than
one percent of the outstanding capital stock of any Competing Business that is
publicly traded on any national, regional or foreign recognized exchange, the
NASDAQ Stock Market or the over-the-counter market.
(d) Except as set forth in Schedule 4.14(d) of the Company
Disclosure Schedule, the Acquired Companies have not served as general
contractor for, performed activities for or on behalf of, or otherwise been
involved in the operations of, Seller or its Affiliates (other than the Acquired
Companies), which activities would subject the Acquired Companies to any
obligations or liabilities.
4.15 Restrictions on Business Activities. No director or
officer, or to the knowledge of Seller and the Acquired Companies, any agent,
employee, consultant or contractor of Seller and the Acquired Companies, has
directly or indirectly: (i) made any improper or illegal contribution, gift,
bribe, rebate, payoff, influence payment, kickback, or other payment to any
Person, private or public, regardless of form, whether in money, property, or
services (A) to obtain favorable treatment in securing business, (B) to pay for
favorable treatment for business secured, (C) to obtain special concessions or
for special concessions already obtained, for or in respect of any Acquired
Company or any Affiliate of an Acquired Company, or (D) in violation of any
applicable law; or (ii) established or maintained any fund or asset that has not
been recorded in the books and records of the Acquired Companies.
4.16 Real Property.
(a) Schedule 4.16(a) of the Company Disclosure Schedule lists
all real property owned by the Acquired Companies at projects at which the
Acquired Companies are currently selling homes (the "Current Projects") or real
property leased by any of the Acquired Companies, the locations of real property
leased by any of the Acquired Companies, and the real property that any of the
Acquired Companies has the right or obligation to purchase. Each Acquired
Company has good, marketable and indefeasible title in fee simple, or as to
optioned property or property subject to a purchase contract, has the right to
acquire good, marketable and indefeasible title in fee simple (or as to leased
property, has good and valid title to the leasehold estate), to the real
property purported to be owned, optioned, under contract or leased by it on
Schedule 4.16(a) of the Company Disclosure Schedule, free and clear of all
Liens, except Liens for Taxes and assessments not yet due and payable, Liens
relating to the indebtedness described on Schedule 4.5 of the Company Disclosure
Schedule, and Permitted Liens.
(b) Except as set forth in Schedule 4.16(b) of the Company
Disclosure Schedule, no Acquired Company has given, nor has it received, any
notice that a breach or an event of default exists, and no condition or event
has occurred that with the giving of notice, the lapse of time, or both would
constitute a breach or event of default, by any of the Acquired Companies, or,
to the knowledge of Seller and the Acquired Companies, any other Person with
28
respect to any covenants, conditions, deeds, deeds of trust, rights-of-way,
easements, mortgages, restrictions, surveys, title insurance policies, or other
Contracts granting, constituting or evidencing a conveyance by or to any of the
Acquired Companies of title to or an interest in or otherwise affecting the real
property or the ownership thereof which, individually or in the aggregate, is
material to the ownership, use or development of such parcel of real property by
any of the Acquired Companies, as such Acquired Company's business is presently
conducted. Except as set forth on Schedule 4.16(b) of the Company Disclosure
Schedule, no condemnation, eminent domain, or similar proceeding exists, is
pending or, to the knowledge of Seller and the Acquired Companies, is threatened
with respect to, or that could affect, any real property owned, leased,
optioned, or under contract by any Acquired Company. No developer-related
charges or assessments by proffers to any public authority or any other Person
for public improvements with respect to any of the Entitlements or otherwise
made against any property developed by any Acquired Company are unpaid or
incomplete (other than those reflected on the Financial Statements or incurred
since the date of such statements in the ordinary course of business consistent
with past practices, and other than standard development agreements such as
impact fee and water and sewer connection fee agreements and road and school
impact fee/assessments paid on a per unit basis at the time of applying for a
building permit or certificate of occupancy and other than community development
district assessments), except for charges or assessments that do not and would
not be reasonably expected to, individually or in the aggregate, have a Material
Adverse Effect on the Company.
(c) Except as set forth on Schedule 4.16(c), to the knowledge
of Seller and the Acquired Companies, there is no material impediment to the
development of (or to approval for the development of) any Current Project
(including access to streets, utilities, water and other similar services) in
the manner in which the Acquired Companies currently anticipate building
thereon, nor are there any moratoriums on such development.
(d) To the knowledge of Seller and the Acquired Companies,
there are no material encroachments on the Current Projects, nor any
encroachments by improvements on such real property onto any easements or any
adjoining property or which would otherwise conflict with the property rights of
any other Person.
(e) Except as set forth in Schedule 4.16(e) of the Company
Disclosure Schedule:
(i) The Acquired Companies have not developed,
constructed or otherwise participated and do not currently intend to
develop, construct or otherwise participate in any real estate projects
other than the projects identified on Schedule 4.16(a) or (e) of
Company Disclosure Schedule (the "Projects"). Schedule 4.16(e) of
Company Disclosure Schedule includes as of February 28, 2002 the total
number of units developed and under development, and the total units
remaining unsold.
(ii) To the knowledge of Seller and the Acquired
Companies, all work performed by the Acquired Companies or by
subcontractors on behalf of the Acquired Companies on or in any of the
properties involved in the Current Projects has been or shall be
performed in substantial accordance with the plans and specifications
approved
29
by all applicable Governmental Entities (including VA and FHA, as
applicable), in compliance with all applicable material laws,
ordinances, and regulations, and in a good and workmanlike manner, free
from any defect or Lien, other than inchoate mechanics' liens for
amounts not yet due.
(iii) The approvals, consents, licenses, permits, waivers
or other authorizations issued, granted or otherwise made available by
any Governmental Entity pertaining to the Current Projects
(collectively, the "Entitlements"), and any Contracts (for example, and
not in limitation, proffers and subdivision improvement agreements)
executed in connection therewith, are in full force and effect and no
party thereto is in material default there under. All material
Entitlements necessary or appropriate for the development and
construction of the Current Projects are in full force and effect,
without material default, and are enforceable in accordance with
Florida law. Neither the Acquired Companies, nor to the knowledge of
Seller and the Acquired Companies, the fee owner, if the Acquired
Companies are not the fee owner of any property involved in any of the
Current Projects, is in material default under, and the Acquired
Companies have not received any notice that any event has occurred
which with the giving of notice or the passage of time, or both, would
constitute a default under any Entitlements, transaction, covenant,
condition, restriction, easement, encumbrance or other Contract
pertaining to the property involved in any Current Project. All
subdivision improvement bonds and other sureties or assurances relating
in any way to any such property and required by any applicable
Governmental Entity or pursuant to any Entitlements have been posted
and are being maintained in accordance with the requirements of such
applicable Governmental Entitles and/or Entitlements and no claim has
been made there under or thereto.
(iv) Except for obligations contained in the Contracts
listed in Schedule 4.5(a) of the Company Disclosure Schedule, none of
the Acquired Companies has any development or improvement obligations
with respect to the Current Projects.
(v) None of the Acquired Companies (or to knowledge of
Seller and the Acquired Companies, the fee owner, if one of the
Acquired Companies is not the fee owner) has made any oral or, except
for the Entitlements, written commitments or representations to, or
understandings or Contracts with, any Person or any adjoining property
owner which would in any way be binding on any of the Acquired
Companies and would interfere with any Acquired Company's ability to
develop and improve any of the properties involved in the Current
Projects with residential developments in accordance with the
Entitlements, and none of the Acquired Companies, nor the fee owner,
shall make or enter into any such commitment, representations,
understandings or Contracts without Buyer's written consent.
(vi) Except as set forth on Schedule 4.16(e)(vi) of the
Company Disclosure Schedule, no property involved in any Current
Project or, to the knowledge of Seller and the Acquired Companies, any
Project that is not a Current Project, is located in an area that is
designated, or in the process of being designated, as a wetland by the
Army Corps of Engineers, as a critical habitat for any threatened or
endangered species under the endangered Species Act of 1973, as
amended, or designated under any other law for
30
the preservation of fish, wildlife, plants, insects, forests or
wetlands, or for the preservation of any historical or archeological
site under the National Historic Preservation Act of 1979, as amended,
or designated under any other law, that would limit, impair, delay or
prohibit the construction and development of the Project in accordance
with the existing or currently proposed plans therefor.
(vii) None of the Acquired Companies has received any
notice from any of their insurance carriers of any defects or
inadequacies in any of the properties involved in the Current Projects,
or any portion thereof, which have or would reasonably be expected to
adversely affect the insurability of any properties or the cost of any
such insurance. There are no pending insurance claims with respect to
any portion of any such properties.
(viii) To the knowledge of Seller and the Acquired
Companies, there are no soil conditions that would require construction
of foundations different than those customarily built in residential
projects in the areas in which the Current Projects are located, nor,
any seismic safety problems relating to any of the properties involved
in the Projects, any recent seismic activity affecting any such
properties or any active fault bisecting, underlying or adjacent to any
such properties. Each of the Acquired Companies or their contractors
have installed foundations appropriate and customary for the applicable
soil conditions.
(ix) All work performed with respect to the Current
Projects has been approved by holders of security interests in the
Current Projects to the extent required by the applicable Contracts.
(x) Other than in connection with its sales of homes to
buyers in the ordinary course of business, none of the Acquired
Companies has assigned to any third party any of its respective
development or other rights with respect to the properties involved in
the Current Projects.
(xi) Other than in connection with its sales to home
buyers in the ordinary course of business, none of the Acquired
Companies has entered into any Contact to sell any of the properties
involved in the Current Projects to any third party that was not
consummated or terminated on or before December 31, 2001.
(g) Except as set forth on Schedule 4.16(g) of the Company
Disclosure Schedule, since December 31, 2001 no real property owned by the
Acquired Companies has become subject to repurchase by any Person, whether as a
result of the failure of any Acquired Company to begin construction thereon or
to complete construction thereon within the time period required or otherwise.
(h) The backlog of home sales of each of the Current Projects
as of March 31, 2002 is set forth in Schedule 4.16(h). All of the home purchase
Contracts representing the backlog of home sales set forth on Schedule 4.16(h)
have been incurred in the ordinary course of business. Seller is not aware of
any reason that the cancellation rates for such backlog could
31
exceed those experienced by the Acquired Companies during the period covered by
the Financial Statements.
4.17 Intellectual Property.
(a) Schedule 4.17 of the Company Disclosure Schedule sets forth
a true and complete list of all patents, trademarks, trade names, service marks,
internet domain names and copyrights and applications for registration of any of
the foregoing, technology, know-how, computer software programs or applications,
and tangible or intangible intellectual property and proprietary rights, whether
or not subject to statutory registration or protection (collectively,
"Intellectual Property"), owned, used, filed by or licensed to any of the
Acquired Companies, in each case which are, individually or in the aggregate,
material to the financial condition, operating results, assets or operations of
the Company or any of the other Acquired Companies. Except as set forth in
Schedule 4.17 of the Company Disclosure Schedule, each of the Acquired Companies
own, free and clear of any and all Liens, or is licensed or otherwise possess
legally enforceable rights to use, without payment to any other Person (other
than payments to third parties pursuant to the Contracts listed in Schedule
4.5(a)(xv) of the Company Disclosure Schedule), all Intellectual Property that
is used in the business of such Acquired Company as currently conducted, except
where the failure to own, be licensed or to possess such rights has not and
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company, and the consummation of the transactions
contemplated hereby will not conflict with, alter or impair any such rights.
(b) To the knowledge of Seller and the Acquired Companies, the
conduct of the business of the Acquired Companies does not conflict with the
valid Intellectual Property rights of others and there are no conflicts with or
infringements of any of the Intellectual Property of the Acquired Companies by
any other Person. To the knowledge of Seller and the Acquired Companies, no
other Person has any rights in or right to use any of the Intellectual Property
owned by any of the Acquired Companies.
4.18 Insurance.
(a) Schedule 4.18(a) of the Company Disclosure Schedule
contains a true and complete list of all liability, property, workers'
compensation, directors' and officers' liability and other insurance policies in
effect at any time since January 1, 2001 and all general liability policies
(including umbrella and excess policies) in effect at any time during the period
from March 31, 1998 through and including December 31, 2000, that insure or did
insure the business, operations or employees of any of the Acquired Companies or
affect or relate to the ownership, use or operation of any of the assets (both
past and present) of any of the Acquired Companies, whether issued to one of the
Acquired Companies or to any other Person for the benefit of one of the Acquired
Companies (the "Insurance Policies"); provided, however, that the term
"Insurance Policies" shall not include insurance policies maintained in
connection with any Company Benefit Plan (other than workers' compensation
insurance policies). For each Insurance Policy, Schedule 4.18(a) of the Company
Disclosure Schedule lists (i) the names and addresses of the insurers, (ii) the
names of the Persons to whom such policies have been issued, (iii) the
expiration dates thereof, (iv) whether the policies are currently in effect, (v)
the annual premiums and payment terms thereof, (vi) whether it is a "claims
made" or an "occurrence" policy,
32
(vii) any self insured retention or deductible, (viii) the aggregate limit of
the policy and the claims paid to date, and (ix) a brief description of the
interests insured thereby. Seller has provided Buyer with true, accurate and
complete copies of each Insurance Policy, provided that general liability,
umbrella and excess policies are the best available copies in the possession of
Seller and the Acquired Companies.
(b) Except as set forth in Schedule 4.18(b) of the Company
Disclosure Schedule, (i) the Insurance Policies, in light of the respective
business, operations and assets of the Acquired Companies and the other insureds
under the policies, are or were in amounts and have or had coverages that are
reasonable and customary for Persons engaged in such businesses and operations
and having such assets; (ii) none of the Acquired Companies, nor the Person to
whom such policy has been issued has received notice that any insurer under any
Insurance Policy is denying liability with respect to a claim there under or
defending under a reservation of rights clause, or, to the knowledge of Seller
and the Acquired Companies, indicated any intent to do so or not to renew any
such policy; (iii) the Insurance Policies do not provide for any retrospective
premium adjustment or other experienced-based liability that would be an
obligation of any Acquired Company, (iv) no side agreements or other Contracts
exist that alter the terms of the Insurance Policies, and (v) none of the
liability Insurance Policies contain any mold or soils exclusions from coverage.
(c) Each current Insurance Policy is valid and binding and in
full force and effect, no premiums due there under have not been paid and none
of the Acquired Companies nor the Person to whom such policy has been issued has
received any notice of cancellation or termination in respect of any such policy
or is in default thereunder. Schedule 4.18(c) of the Company Disclosure Schedule
contains a listing of all material open claims made or otherwise asserted by any
of the Acquired Companies against any Insurance Policy. Except as set forth on
Schedule 4.18(c) of the Company Disclosure Schedule, neither Seller nor any
Acquired Company has received any notice of cancellation or any other indication
that any insurance policy is no longer in full force or effect or will not be
renewed or that the issuer of any policy is not willing or able to perform its
obligations thereunder.
(d) Notwithstanding the foregoing, any representations or
warranties made in the foregoing provisions of this Section 4.18 with respect to
general liability policies (including umbrella and excess policies) in effect at
any time during the period from March 31, 1998 through and including December
31, 2000 are made solely to the knowledge of Seller and the Acquired Companies.
4.19 Assets Other than Real Property Interests.
(a) The Company or another Acquired Company owns all material
assets reflected on the 2001 Balance Sheet, or thereafter acquired, except those
sold or otherwise disposed of since December 31, 2001 in the ordinary course of
business consistent with past practice and not in violation of this Agreement,
in each case free and clear of all Liens except:
(i) such Liens as are set forth in Schedule 4.19 of the
Company Disclosure Schedule;
33
(ii) mechanics', carriers', workmen's, repairmen's or
other like Liens arising or incurred in the ordinary course of
business, Liens arising under original purchase price conditional sales
contracts and equipment leases with third parties entered into in the
ordinary course of business and listed in Schedule 4.5 of the Company
Disclosure Schedule and those Contracts not required to be listed under
such Schedule 4.5 because they do not meet the threshold limits set
forth therein, and Liens for Taxes or assessments which are not due and
payable or which may thereafter be paid without penalty or which are
being contested in good faith;
(iii) Liens which secure debt that is reflected as a
liability on the 2001 Balance Sheet or the existence of which is
expressly indicated in the notes thereto;
(iv) Liens and other rights of lessors and lessees under
leases executed in the ordinary course of business; and
(v) other Liens or other imperfections of title, if any,
which, do not, individually or in the aggregate, materially impair the
assets or the intended use thereof.
The Liens set forth in subsections (ii) through (v) are collectively referred to
herein as the "Permitted Liens".
(b) All the material tangible personal property of the
Acquired Companies has been maintained in accordance with the past practice of
the Acquired Companies and generally accepted industry practice and is in good
operating condition and repair, ordinary wear and tear excepted. The assets
owned or leased by the Acquired Companies include all of the properties and
other assets necessary for the Acquired Companies to conduct their business in
the manner presently conducted.
(c) All of the books and records of the Acquired Companies
(including without limitation, the financial records) are true, complete and
accurate in all material respects. True, complete and accurate copies of such
records have been made available to Buyer.
4.20 Antitakeover Statutes. Florida Statute Section 6.07.0902
(Control Share Acquisition Statute) does not apply to the transactions
contemplated herein and the Board of Directors of the Company is not required to
take any action under the terms thereof. To the knowledge of Seller and the
Acquired Companies, no other "fair price", "moratorium", "control share
acquisition" or other similar antitakeover statute or regulation under the laws
of Florida is applicable to the transactions contemplated hereby.
4.21 Warranties. Schedule 4.21 of the Company Disclosure
Schedule sets forth complete and accurate copies of the written warranties and
guaranties by the Acquired Companies currently in effect with respect to their
respective products. It is the custom and practice of the Acquired Companies and
their respective employees and agents not to deviate from such written
warranties and guaranties in any material respect.
4.22. Suppliers and Subcontractors. Except as set forth in
Schedule 4.22 of the Company Disclosure Schedule, during the last 12 months,
none of the Acquired Companies has
34
received any notices of termination or threats of termination from any of the
five largest suppliers or ten largest subcontractors for the Acquired Companies,
as a whole.
4.23. Obligations to Key Employees. Schedule 4.23 of the Company
Disclosure Schedule sets forth (i) the identities of all Persons who are
entitled to receive any further payments pursuant to that certain Stock Purchase
Agreement as of January 15, 1998 by and among ▇▇▇▇▇ ▇▇▇▇, Communities, West
Lake, Winston Trails, Pembroke Pines, Oak Ridge, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, the Partnership, Pacific USA Holdings Corp., Seller
and the Company and any related or similar agreement (in each case, as amended
through the date hereof), (ii) the period for which such payments shall continue
and (iii) the amount (or formula to calculate the amount) to which each such
Person is entitled. Adequate accruals have been made in the financial statements
of the Acquired Companies for any amounts payable to ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ pursuant to such agreements,
with respect to operations of the Acquired Companies through the Closing Date,
and the pre-tax net income of the Company has been decreased by the amount of
any such accruals not reflected on the Financial Statements for purposes of
calculating the Company Net Income.
4.24 Disclosure. Copies of all documents heretofore or hereafter
delivered or made available by Seller to Buyer pursuant hereto were or will be
complete and accurate records of such documents.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF BUYER
Except as set forth in the Disclosure Schedule delivered by or on
behalf of Buyer to Seller at or prior to the execution hereof that is arranged
in paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article V (the "Buyer Disclosure Schedule"), Buyer represents and warrants
to Seller, as of the date of this Agreement and as of the Closing Date, as
follows:
5.1 Existence; Good Standing; Corporate Authority; Compliance with
Law. Buyer is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Buyer is duly
licensed or qualified to do business as a foreign corporation and is in good
standing under the laws of any other state of the United States in which the
character of the properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary, except where the
failure to be so qualified or in good standing does not and would not reasonably
be expected to have a Material Adverse Effect on Buyer. Buyer has all requisite
corporate power and authority to own, operate and lease its properties and carry
on its business as now conducted. Buyer is not in violation of any order or
decree of any Governmental Entity, or any law, ordinance, or regulation to which
Buyer or any of its properties or assets is subject, except where such
violation, individually or in the aggregate, has not and would not reasonably be
expected to have a Material Adverse Effect on Buyer. Buyer has obtained all
material licenses, permits and other authorizations and have taken all actions
required by applicable law or regulations of any Governmental Entity in
connection with its business as now conducted.
35
5.2 Authorization, Validity, and Effect of Agreements. Buyer has
the requisite corporate power and authority to execute and deliver this
Agreement and all agreements and documents contemplated herein, as applicable.
The consummation by Buyer of the transactions contemplated herein has been duly
authorized by all requisite corporate action. This Agreement constitutes, and
all agreements and documents contemplated herein to be executed by Buyer (when
executed and delivered pursuant hereto for value received) will constitute, the
valid and legally binding obligations of Buyer, enforceable in accordance with
their respective terms, subject to applicable bankruptcy, insolvency,
moratorium, fraudulent conveyance, reorganization or other similar laws relating
to creditors' rights and general principles of equity, whether at equity or at
law.
5.3 No Violation. Neither the execution and delivery by Buyer of
this Agreement, nor the consummation by Buyer of the transactions contemplated
herein in accordance with the terms hereof, will:
(i) conflict with or result in a breach of any provisions of
the articles of incorporation or by-laws of Buyer;
(ii) violate, or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, or result
in the termination or in a right of termination or cancellation of, or
accelerate the performance required by, or result in the creation of
any Lien upon any of the material properties of Buyer under, or result
in being declared void, voidable, or without further binding effect,
any of the terms, conditions or provisions of any material Contract to
which Buyer is a party, or by which Buyer or any of its properties is
bound or affected; or
(iii) except as set forth in Schedule 5.3 of the Buyer
Disclosure Schedule, require any material consent, approval or
authorization of, or declaration, filing or registration with, any
Governmental Entity or other Person.
5.4 No Brokers. Buyer has not entered into any Contract with any
Person, or taken any other action, which may result in the obligation of any
other party to this Agreement to pay any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
5.5 Funds. Buyer has the funds necessary to consummate the Stock
Purchase and the transactions contemplated herein on a timely basis in
accordance with this Agreement.
5.6 Investment Purpose. Buyer is an "accredited investor," as such
term is defined in Regulation D of the Securities Act and will acquire the
Shares for its own account and not with a view to a sale or distribution thereof
in violation of any securities laws. Buyer acknowledges that the Shares will be
subject to restriction on transfer under applicable securities laws and will not
sell or distribute any of the Shares in violation of any securities laws. Buyer
has the present intention of holding the Shares for investment purposes.
36
5.7 Access to Information. During the course of the negotiation of
this Agreement, Buyer reviewed or has been afforded the opportunity to review
all information provided to it by Seller and has had the opportunity to ask
questions of and receive answers to its satisfaction from representatives of
Seller concerning the Acquired Companies, the Shares, and to obtain certain
additional information reasonably requested by Buyer. Buyer hereby acknowledges
and affirms that it has completed its own independent investigation, analysis
and evaluation of the Acquired Companies, that it has made all such reviews and
inspections of the business, assets, results of operations and financial
condition of the Acquired Companies as it has deemed necessary or appropriate,
and that in making its decision to enter into this Agreement it has relied
solely on the representations of Seller made in this Agreement and its own
independent investigation, analysis, and evaluation of the Acquired Companies.
The foregoing access or review shall not be deemed to affect the representations
and warranties and indemnities made by Seller hereunder.
5.8 Limited Representations. BUYER ACKNOWLEDGES THAT:
(a) EXCEPT AS AND TO THE EXTENT SET FORTH IN THIS AGREEMENT OR THE
DOCUMENTS CONTEMPLATED TO BE DELIVERED HEREBY, OR ANY OTHER REPRESENTATION MADE
IN WRITING AND DELIVERED TO BUYER AFTER THE DATE HEREOF, SELLER MAKES NO
REPRESENTATIONS OR WARRANTIES WHATSOEVER TO BUYER AND HEREBY DISCLAIMS ALL
LIABILITY AND RESPONSIBILITY FOR ANY REPRESENTATION, WARRANTY, STATEMENT, OR
INFORMATION MADE, COMMUNICATED, OR FURNISHED (ORALLY OR IN WRITING) TO BUYER OR
ITS REPRESENTATIVES (INCLUDING WITHOUT LIMITATION ANY OPINION, INFORMATION,
PROJECTION, OR ADVICE THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYER BY ANY
DIRECTOR, OFFICER, EMPLOYEE, AGENT, CONSULTANT, OR REPRESENTATIVE OF SELLER OR
ANY AFFILIATE THEREOF NOT EXPRESSLY REFERENCED HEREIN).
(b) EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN
THIS AGREEMENT OR THE DOCUMENTS CONTEMPLATED TO BE DELIVERED HEREBY, OR ANY
OTHER REPRESENTATION MADE IN WRITING AND DELIVERED TO BUYER AFTER THE DATE
HEREOF AND PRIOR TO THE CLOSING, SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES
ANY REPRESENTATION OR WARRANTY, EXPRESSED OR IMPLIED, AT COMMON LAW, BY STATUTE,
OR OTHERWISE, RELATING TO THE CONDITION OF THE ASSETS OF THE ACQUIRED COMPANIES
(INCLUDING ANY IMPLIED OR EXPRESSED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE).
(c) SELLER MAKES NO REPRESENTATIONS OR WARRANTIES TO BUYER
REGARDING THE PROBABLE SUCCESS OR PROFITABILITY OF THE BUSINESS OF THE ACQUIRED
COMPANIES.
5.9 No Discoveries of Any Breach of Representations and
Warranties. None of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, Chief Executive Officer of Buyer,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President of Buyer, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Senior Vice
President-Finance of Buyer, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Senior Vice President and General
Counsel of Buyer or ▇▇▇ ▇▇▇▇▇▇▇▇▇, Land Development Controller,
37
of Buyer is aware of any information relating to the Acquired Companies which
such person knows and understands would constitute a breach of the
representations and warranties of Seller contained herein.
ARTICLE VI
COVENANTS
6.1 Conduct of Business. Except as (i) expressly contemplated in
this Agreement, (ii) set forth in Schedule 6.1 of the Company Disclosure
Schedule, or (iii) as expressly agreed to in writing by Buyer, during the period
from the date of this Agreement to the earlier of the termination of this
Agreement or the Closing Date, Seller shall use all reasonable efforts to cause
the Acquired Companies:
(a) to conduct their respective operations according to the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted;
(b) to preserve intact their respective business organizations and
goodwill, keep available the services of their officers and employees and
maintain relationships with their customers, suppliers and other Persons having
business relationships with them;
(c) to confer on a regular basis with one or more representatives
of Buyer regarding operational matters of materiality and any proposals of the
Acquired Companies to engage in material transactions, and to provide such
information as Buyer may reasonably request;
(d) not to amend the organizational documents of any of the
Acquired Companies;
(e) to promptly notify Buyer of (i) any material change of which
Seller or any Acquired Company is aware in the condition (financial or
otherwise) of any Acquired Company's business, properties, assets, liabilities
or the normal course of its businesses or in the operation of its properties, or
(ii) any material litigation or material complaints, investigations or hearings
of any Governmental Entity (or communications indicating that the same may be
contemplated);
(f) to promptly deliver to Buyer any material report, statement,
schedule or correspondence filed or submitted by any Acquired Company to, or
received by any Acquired Company from, any Governmental Entity;
(g) not to (i) issue any Capital Stock, effect any stock split or
combination, reclassify its stock or otherwise change its capitalization as it
exists on the date of this Agreement, (ii) grant, confer or award any option,
warrant, conversion right or other right not existing on the date hereof to
acquire any of its Capital Stock, (iii) increase any compensation or benefits or
enter into or amend any employment, severance, termination or similar Contract
with any of its present or future employees, officers or directors, except for
normal increases in compensation and benefits to employees consistent with past
practice and the payment of cash bonuses to employees pursuant to and consistent
with existing plans or programs, (iv) adopt any new employee benefit plan
(including any stock option, stock benefit or stock purchase plan) or
38
amend any existing employee benefit plan in any material respect, except for
changes which may be required by applicable law, or (v) increase the amount, or
expand the scope, of any indemnification currently provided for employees,
officers or directors;
(h) not to (i) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any of its Capital Stock (other
than the Corporate Dividend); or (ii) directly or indirectly redeem, purchase or
otherwise acquire any of its Capital Stock or that of any of the other Acquired
Companies, or make any commitment for any such action;
(i) not to sell, lease or otherwise dispose of any assets
(including Capital Stock of any other Acquired Company), or enter into any
commitment to do so; provided that the sale of completed homes to individual
homebuyers by any Acquired Company in the ordinary the course of business shall
not be a violation of this clause (i);
(j) not to (i) incur or assume any long-term or short-term Debt or
issue any Debt securities, including without limitation, any Debt that Buyer
shall payoff at the Closing; (ii) assume, guaranty, endorse or otherwise become
liable or responsible (whether directly, indirectly, contingently or otherwise)
for the obligations of any other Person; (iii) modify in any manner adverse to
any of the Acquired Companies any outstanding Debt or obligation of any of the
Acquired Companies; (iv) pledge or otherwise encumber Capital Stock of any of
the Acquired Companies; or (v) mortgage or pledge any of its material assets,
tangible or intangible, or create or suffer to create any material Lien of any
kind in respect to such asset except in the ordinary course of business
consistent with past practices;
(k) not to change any of its financial accounting principles or
practices except as may be required by applicable laws, regulations or GAAP;
(l) not, without the prior consent of Buyer (which will not be
unreasonably withheld) to:
(i) acquire (by merger, consolidation or acquisition of
stock or assets) any Person or division thereof or any Capital Stock
therein;
(ii) enter into any Contract which would be required to be
listed on Schedules 4.5 (a)(i) if such Contract involves $250,000 or
more, (ii), (v), (vi), (vii), (viii), (ix), (x), (xi), (xiii), (xiv),
(xv), (xvi), (xvii), (xix), (xx), (xxi), (xxii) or (xxiii) of the
Company Disclosure Schedule or amend, in any material respect, any such
Contract;
(iii) authorize any new capital expenditure or expenditures
(except in the ordinary course of business consistent with past
practice or pursuant to Contracts listed in Schedule 4.5 of the Company
Disclosure Schedule) which, individually, is in excess of $250,000 or,
in the aggregate, are in excess of $500,000; or
(iv) enter into any Contract to purchase any real property;
(m) not to pay, discharge or satisfy any liabilities, other than
the payment, discharge or satisfaction in the ordinary course of business
consistent with past practice;
39
(n) not to settle or compromise any pending or threatened suit,
action or claim relating to the transactions contemplated herein;
(o) not to permit any of the Acquired Companies to make any
material Tax election (other than in a manner consistent with prior practices),
settle or compromise any material Tax liability (other than Taxes due) or agree
to an extension of a statute of limitations with respect to any material amount
of Tax, except to the extent the amount of any such Tax, settlement or
compromise has been reserved for in the Financial Statements; provided, Buyer
shall not unreasonably withhold or delay consent as to such matters;
(p) not to loan or advance any amount to, or sell, transfer or
lease any of its assets to, or enter into any Contract or other transaction
with, or otherwise make any payments to Seller or any of its Affiliates or (with
the exception of payments of salary in the ordinary course, consistent with past
practice) any officer or director thereof;
(q) not to take any action that would knowingly result in a breach
of any representation, warranty or covenant of Seller contained in this
Agreement; and
(r) not to permit any of the Acquired Companies to commit to, take
any action or fail to take any reasonable action, or agree in writing or
otherwise to take any actions having the same or similar effect, or being of the
same or similar nature, as any of the actions described in Sections 6.1(a)
through (p).
6.2 Further Action.
(a) Upon the terms and subject to the conditions of this
Agreement, Seller, on the one hand, and Buyer, on the other hand, shall use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all other things necessary, proper or advisable to consummate
and make effective as promptly as practicable the transactions contemplated in
this Agreement, to obtain in a timely manner all material waivers, consents and
approvals, and to effect all necessary registrations and filings, and otherwise
to satisfy or cause to be satisfied in all material respects all conditions
precedent to its obligations under this Agreement.
(b) From the date of this Agreement until the termination of this
Agreement or the Closing Date, no party shall take any action which would (i)
materially adversely affect the ability of any party to this Agreement to obtain
any consents, approvals, or authorizations required for the transactions
contemplated herein, or (ii) materially adversely affect the ability of any
party to perform its covenants and agreements under this Agreement.
6.3 Access to Information; Confidentiality.
(a) From the date hereof until the termination of this Agreement
or the Closing Date, upon reasonable notice and subject to applicable laws,
Seller shall cause the Company to afford Buyer and its accountants, counsel, and
other representatives, during normal business hours, access to all of the
Acquired Companies properties and assets, books, Contracts, and records
reasonably requested by Buyer, subject to any confidentiality obligations
affecting Seller or the Acquired Companies and provided Seller and the Acquired
Companies will not be
40
required to take actions which could result in a waiver of or jeopardize any
attorney-client privilege. Buyer shall, and shall cause its respective advisors
and representatives to:
(i) conduct its investigation in such a manner that will not
unreasonably interfere with the normal operations, customers or
employee relations of the Acquired Companies, and
(ii) treat as confidential in accordance the terms of the
Confidentiality Agreement all such information obtained hereunder or in
connection herewith and not otherwise known to them prior to disclosure
hereunder.
(b) From the date hereof until the termination of this Agreement
or the Closing Date, each party shall furnish promptly to the other: a copy of
all filings made with any Governmental Entity in connection with the
transactions contemplated in this Agreement and all written communications
received from such Governmental Entities related thereto.
(c) Each party shall promptly notify the other orally and in
writing of:
(i) the occurrence of any breach of any representation,
warranty or covenant contained in this Agreement of such party in any
material respect;
(ii) any failure of such party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; and
(iii) any notice or other communication from any third party
alleging that the consent of such Third Party is or may be required in
connection with the transactions contemplated in this Agreement.
6.4 Publicity. The initial press release relating to this
Agreement shall be a joint press release which has heretofore been approved by
the parties hereto, and thereafter until the Closing Date Seller and Buyer
shall, subject to their respective legal obligations (including requirements of
stock exchanges and other similar Governmental Entities), consult with each
other, and use reasonable efforts to agree upon the text of any press release,
before issuing any such press release or otherwise making public statements with
respect to the transactions contemplated hereby and in making any filings with
any Governmental Entity or with any national securities exchange with respect
thereto. Notwithstanding the foregoing, nothing herein will prohibit any party
from making any disclosures, filings, announcements or reports required by
applicable securities laws.
6.5 Expenses. Except as set forth herein, all costs and expenses
(including fees of attorneys and accountants) incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses, provided however if the Stock Purchase is consummated,
Seller shall pay all costs and expenses (including fees of attorneys and
accountants) of the Acquired Companies incurred in connection with this
Agreement and the transactions contemplated hereby.
41
6.6 Certain Benefits.
(a) Except as otherwise provided in this Section 6.6, on or before
the Closing Date, but effective as of the Closing Date, Seller shall cause:
(i) the Acquired Companies to cease to be sponsors and/or
adopting employers under the Company Benefit Plans that are not
sponsored or maintained solely by the Acquired Companies; provided
however, that after the Closing, the Acquired Companies shall
contribute such amounts to, or with respect to, the Company 401(k) Plan
as are necessary to satisfy their obligations with respect to benefits
accrued under such plan prior to the Closing Date; and
(ii) each individual who is employed by any Acquired Company
as of the Closing (a "Continuing Employee") to have a fully vested and
nonforfeitable interest in his or her entire account balance under any
Company Benefit Plan that is subject to Code Section 401(a), including
any plan subject to Code Section 401(k) (the "Company 401(k) Plan").
(b) From and after the Closing, Buyer shall cause each Continuing
Employee to be provided with compensation and benefits on a basis substantially
similar to those provided to similarly situated employees of Buyer and its
Affiliates. Notwithstanding the foregoing, nothing contained in this Section 6.6
or this Agreement is intended to confer upon any Continuing Employee any right
to continued employment or any right to wages or benefits at any time after the
Closing Date.
(c) Buyer shall cause each Continuing Employee and his or her
eligible dependents, as determined under the terms of Buyer's benefit plans
(including all such Continuing Employee's dependents covered immediately prior
to the Closing Date by a Company Benefit Plan that is a group health plan,
provided that such dependent is not a qualified beneficiary receiving
continuation coverage under such plan pursuant to Code section 4980B(f) (COBRA)
or similar state law) to be covered under a group health plan maintained by
Buyer or an Affiliate of Buyer that provides medical and dental benefits to the
Continuing Employee and such eligible dependents effective as of the Closing
Date.
(d) Buyer shall cause the employee benefit plans and programs
maintained after the Closing by Buyer, the Acquired Companies and the other
Affiliates of Buyer to recognize each Continuing Employee's years of service
prior to the Closing Date with the Acquired Companies, Seller and the Affiliates
of Seller for purposes of terms of employment, eligibility and vesting
determinations under such plans and programs, and determining the level of
benefits to be provided under applicable severance and vacation plans and
policies.
(e) Seller shall (i) take such actions, if any, as may be
necessary to provide for the distribution to the Continuing Employees of their
vested account balances under the Company 401(k) Plan, (ii) permit each
Continuing Employee to elect on the Closing Date (or as soon thereafter as
reasonably practicable) a direct rollover of his or her rolloverable account
balance (including any outstanding loans) under the Company 401(k) Plan to a
defined contribution plan designated by Buyer and maintained by Buyer or an
Affiliate of Buyer (the
42
"Buyer 401(k) Plan"), and (iii) cause the Company 401(k) Plan to deliver to the
Buyer 401(k) Plan as soon as reasonably practicable after the Closing Date the
promissory notes and other loan documentation, if any, of the Continuing
Employees who have elected such a direct rollover in accordance with the
procedures established by Seller. Seller shall also take such actions, if any,
as are necessary to permit the continuation of loan repayments to the Company
401(k) Plan by Continuing Employees (which loan repayments shall be made by
payroll deduction by Buyer or one of its Affiliates) during the period beginning
on the Closing Date and ending 90 calendar days after the Closing Date;
provided, however, that if a Continuing Employee makes a direct rollover
election as described in this paragraph within such 90-day period, then the
Company 401(k) Plan shall continue to accept such loan repayments from such
Continuing Employee until the date of such direct rollover. Buyer shall cause
the Buyer 401(k) Plan to accept the direct rollover of electing Continuing
Employees' benefits in cash and, if applicable, promissory notes from the
Company 401(k) Plan. Buyer represents, covenants and agrees with respect to the
Buyer 401(k) Plan that, as of the date of each rollover described in this
paragraph, such plan (1) is intended to satisfy the requirements of Code
Sections 401(a), (k), and (m) and (2) has received a favorable determination
letter from the Internal Revenue Service regarding such qualified status.
(f) Buyer expressly agrees that it assumes all obligations to provide
any required notice under the Worker Adjustment and Retraining Notification Act,
as amended, with respect to the termination of any employee of an Acquired
Company that occurs after the Closing Date.
(g) From and after the Closing Date, Buyer shall cause the Acquired
Companies to honor their respective obligations under the employment Contracts
set forth on Schedule 4.5(a)(vi) of the Company Disclosure Schedule.
(h) From and after the Closing Date, Buyer shall assume all liability
for workers' compensation claims relating to any Continuing Employee, provided
that the Acquired Companies continue to be named insureds under Seller's or its
Affiliate's, as applicable, workers' compensation insurance policy covering such
Continuing Employee for services performed on or before the Closing Date.
(i) Seller expressly agrees that it retains liability for all claims
arising under any Company Benefit Plan, including without limitation, any
Company Benefit Plan that is an "employee welfare benefit plan" as defined in
ERISA Section 3(1), provided such claim arises out of an event occurring, or
with respect to a Company Benefit Plan that is a group health plan, a service or
supply provided, prior to the Closing Date. Buyer expressly agrees that Buyer
and the Acquired Companies shall have all liability for all claims arising under
any "employee benefit plan" as defined in ERISA Section 3(3) providing coverage
to Continuing Employees and their dependents to the extent that such claim
arises out of an event occurring, or, with respect to any such plan that is a
group health plan, a service or supply provided, on or after the Closing Date.
43
6.7 Third Party Offers.
(a) From and after the date of this Agreement until the earlier of the
Closing or termination of this Agreement, each of Seller, its Affiliates and
their respective officers, directors, employees, representatives (including,
without limitation, any investment banker, attorney or accountant) and agents
shall immediately cease any discussions or negotiations with any parties with
respect to any Third Party Acquisition, and neither Seller, nor any of its
Affiliates shall, nor shall Seller authorize or permit any of its Affiliates or
their respective officers, directors, employees, representatives (including,
without limitation, any investment banker, attorney or accountant) or agents to,
directly or indirectly, encourage, solicit, participate in or initiate any
inquiries, discussions or negotiations with or provide any information or access
to any Person concerning any potential Third Party Acquisition or that may
reasonably be expected to lead to any Third Party Acquisition or attempted Third
Party Acquisition, or otherwise facilitate any effort or attempt to make or
implement a Third Party Acquisition. Seller shall promptly communicate to Buyer
the existence or occurrence and the terms of any potential Third Party
Acquisition or contact related to any potential Third Party Acquisition that
Seller, the Acquired Companies or any of their Affiliates, or their respective
officers, directors, employees, representatives or agents, receive in respect of
such a proposed transaction, and the identify of the Person from whom such
proposal or contact was received.
(b) "Third Party Acquisition" means the acquisition by a Person or
group, other than Buyer or any Affiliate of Buyer, of more than ten percent, in
a single transaction or series of transactions, of the Capital Stock or the
assets of the Company, or any other Acquired Company, whether by sale of Capital
Stock, sale, lease or other disposition of assets, merger or otherwise.
(c) Seller represents and warrants to Buyer that Seller and its
Affiliates and their respective officers, directors, employees, representatives
(including, without limitation, any investment banker, attorney or accountant)
or agents have terminated any and all existing discussions with third parties
relating to a Third Party Acquisition.
6.8 Non-Solicitation.
(a) (i) For a period of two years from the Closing, Seller shall not,
and Seller shall cause each of its Affiliates not to, directly or
indirectly perform any action, activity or course of conduct consisting
of or encouraging the following: (A) soliciting, recruiting or hiring any
Key Employees of any Acquired Company or any Subsidiary of the Company
(collectively, the "Company Key Employees"); or (B) soliciting or
encouraging any Company Key Employee to leave the employment of the
Company or any Subsidiary of the Company.
(ii) For a period of one year from the Closing, Seller shall not,
and Seller shall cause each of its Affiliates not to, directly or
indirectly perform any action, activity or course of conduct consisting
of or encouraging the following: (A) soliciting, recruiting or hiring any
employee of the Company or any Subsidiary of the Company who is not a
Company Key Employee; or (B) soliciting or encouraging any such employee
to leave the employment of the Company or any Subsidiary of the
44
Company, provided that nothing contained in this subsection (ii) shall
prohibit or restrict Seller or its Affiliates from hiring any such
employee who responds to a general advertisement by Seller or its
Affiliates or approaches Seller or its Affiliates without any
solicitation by Seller or its Affiliates.
(b) (i) For a period of two years from the Closing, Buyer shall
not, and Buyer shall cause each of its Affiliates not to, directly or
indirectly perform any action, activity or course of conduct consisting
of or encouraging the following: (A) soliciting, recruiting or hiring any
Key Employees of Seller or its Affiliates (other than the Acquired
Companies) (collectively, the "Seller Key Employees"); or (B) soliciting
or encouraging any Seller Key Employee to leave the employment of Seller
or its Affiliates (other than the Acquired Companies).
(ii) For a period of one year from the Closing, Buyer shall
not, and Buyer shall cause each of its Affiliates not to, directly or
indirectly perform any action, activity or course of conduct consisting
of or encouraging the following: (A) soliciting, recruiting or hiring any
employee of Seller or its Affiliates who is not a Seller Key Employee; or
(B) soliciting or encouraging any such employee to leave the employment
of Seller or its Affiliates, provided that nothing contained in this
subsection (ii) shall prohibit or restrict Buyer or its Affiliates from
hiring any such employee who responds to a general advertisement by Buyer
or its Affiliates or approaches Buyer or its Affiliates without any
solicitation by Buyer or its Affiliates.
(c) Notwithstanding the foregoing, the parties acknowledge that ▇▇▇▇▇
▇▇▇▇ who is an employee of the Acquired Companies, shall be permitted to provide
consulting services to Technical Olympic pursuant to that certain Consulting
Services Agreement entered into between ▇▇▇▇▇ ▇▇▇▇ and Technical Olympic
concurrent herewith, in the form consented to by Buyer. Except and only to the
extent as set forth in such Consulting Services Agreement, Seller agrees that
▇▇▇▇▇ ▇▇▇▇ shall not provide any services to Seller or its Affiliates (other
than the Acquired Companies).
(d) Notwithstanding anything contained in this Agreement to the
contrary, the parties hereto recognize and agree that in the event of a breach
of the covenants set forth in this Section 6.8 by any party, money damages would
not be an adequate remedy to the injured party for such breach and, even if
money damages were adequate, it would be impossible to ascertain or measure with
any degree of accuracy the damages sustained by such injured party therefrom.
Accordingly, if there should be a breach or threatened breach by any party of
any provisions of this Section 6.8, the injured party shall be entitled, either
with or without pursuing any potential damage remedies, to immediately obtain an
injunction prohibiting the breaching party from violating this section without
showing or proving actual damage sustained by the injured party. Nothing in the
preceding sentence shall limit or otherwise affect any remedies that a party may
otherwise have under applicable law.
(e) If any covenant in this Section 6.8 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
45
public policy, will be effective, binding, and enforceable against Seller or
Buyer, as applicable. Any violation of the provisions of this Section 6.8 shall
automatically toll and suspend the period set forth herein for the duration of
such violations.
6.9 Acquired Company Directors and Officers. Seller shall cause
Andreas Stengos to resign from his position on the Board of Directors of each
Acquired Company effective as of the Closing Date and shall cause Andreas
Stengos and ▇▇▇▇▇ ▇▇▇▇▇▇ to resign from all officer positions such persons hold
with each Acquired Company effective as of the Closing Date.
6.10 Corporate Actions .
(a) Prior to the Closing, Seller shall cause the Company and WCI, as
applicable, to declare and pay a dividend on the Shares of the corporate
condominium owned by WCI and located at Unit No. 2712, One Tequesta Place, Miami
Beach, Florida, subject to all obligations of the Acquired Companies with
respect to such property, including those certain notes dated March 15, 2001 in
the original principal amount of $606,103 (the "Corporate Dividend"), and Seller
shall take all actions necessary for the release of the Acquired Companies prior
to the Closing under such Debt.
(b) Prior to or at the Closing, Seller shall cause the Acquired
Companies to write off the following items on the Financial Statements: (i) the
prepaid insurance in the amount of $375,200, (ii) all unamortized loan
costs/fees relating to the indebtedness of the Acquired Companies and the Land
Financing Debt, and (iii) a cost of sales adjustment in the amount of $50,000,
and in each case the pre-tax net income of the Company will be decreased by such
amounts for purposes of calculating the Company Net Income.
(c) Prior to or at the Closing, Seller shall cause the Acquired
Companies to provide adequate accruals in the financial statements of the
Acquired Companies as of the Closing Date for any amounts payable to ▇▇▇▇▇ ▇▇▇▇
pursuant to that certain Employment Agreement between Communities and ▇▇▇▇▇
▇▇▇▇, dated December 15, 1999, and to ▇▇▇▇▇ ▇▇▇▇▇▇ pursuant to that certain
Employment Agreement between Communities and ▇▇▇▇▇ ▇▇▇▇▇▇ dated November 1,
1999, with respect to operations of the Acquired Companies through the Closing
Date, and the pre-tax net income of the Company will be decreased by the amount
of any such accruals not reflected on the Financial Statements for purposes of
calculating the Company Net Income.
6.11 Insurance.
(a) On or before the Closing, Buyer shall secure general liability
insurance policies covering the Acquired Companies, which in light of the
respective business, operations and assets of the Acquired Companies are in
amounts that are reasonable and customary for Persons engaged in such businesses
and operations and having such assets.
(b) Neither Seller nor any of its Affiliates has or will take any
action for the purpose of canceling, eliminating or otherwise diminishing the
insurance coverage provided to the Acquired Companies under the Insurance
Policies with respect to the pre-Closing operations
46
of the Acquired Companies, provided however Seller may notify the carriers and
remove the Acquired Companies as named insureds under such policies for periods
after the Closing.
6.12 Release of Credit Enhancements or Indemnification.
(a) Seller has executed certain credit enhancements for the purpose
of guarantying the payment by the Acquired Companies of certain amounts owed by
the Acquired Companies (the "Credit Enhancements"). Set forth in Schedule 6.12
of the Company Disclosure Schedule, with respect to each Credit Enhancement, is
the other party thereto, the Acquired Company that is the beneficiary of the
Credit Enhancement, the amount guaranteed, and, in the case of letters of
credit, the beneficiary thereto.
(b) Buyer shall use all reasonable efforts to cause Seller to be
released, as of the Closing Date, from any and all obligations under the Credit
Enhancements (which will include Buyer presenting letters of credit to the
issuers of the letters of credit of the Acquired Companies guaranteed by Seller
to guarantee the outstanding letters of credit). In the event that Buyer is
unable to obtain a full and complete release of Seller from any Credit
Enhancement, Buyer and the applicable Acquired Company shall, jointly and
severally, indemnify Seller from any Damages Seller suffers or incurs to the
extent arising from any claim, action, suit, proceeding, or investigation, based
on actions or events after the Closing relating to such Credit Enhancement, and
shall execute and deliver to Seller such other agreements or documents as
reasonably requested by Seller to properly evidence such indemnification
obligation.
6.13 Mortgage Services.
(a) At or prior to the Closing, Seller shall cause Technical Mortgage
to redeem the interests of the Acquired Companies in Technical Mortgage for an
amount equal to the capital contribution of the Acquired Companies in Technical
Mortgage.
(b) Seller shall cause Preferred Mortgage to handle all mortgages
which Preferred Mortgage has committed as of the Closing Date to buyers of homes
from the Acquired Companies to be handled in the normal course of business.
6.14 Park/Walnut Creek Investors. At the Closing, the parties shall
cause WCI to complete the purchase from Walnut Creek Investors of all
unpurchased lots subject to that certain Option and Development Agreement
entered into between Walnut Creek Investors and WCI dated May 25, 2001, at the
carrying value of $34,800 per lot. Seller shall indemnify and hold harmless the
Acquired Companies from any additional amounts for which any of the Acquired
Companies may, at the Closing, be liable to Walnut Creek Investors or its
members, in their capacity as members of Walnut Creek Investors.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
7.1 Survival of Representations and Warranties. The representations
and warranties made in this Agreement shall survive for eighteen months
following the Closing Date. Notwithstanding the foregoing, the representations
and warranties set forth in (i) Section 4.10
47
shall survive for a period of three years following the Closing Date, (ii)
Section 4.13 shall survive for a period of four years following the Closing
Date, and (iii) Sections 3.1, 3.4, 4.2, 4.3, 4.9, and 4.12 shall survive for the
applicable statute of limitations period.
7.2 Indemnification.
(a) Seller shall indemnify Buyer, its Affiliates (including the
Company and its Subsidiaries following the Closing) and each of their respective
officers, directors, employees, stockholders, agents and representatives against
and hold them harmless from any loss, liability, claim, damage or expense
(including reasonable legal fees and expenses) (collectively "Damages") suffered
or incurred by any such indemnified party to the extent arising from (i) any
breach of any representation or warranty of Seller contained in this Agreement,
or contained in any certificate delivered pursuant hereto; (ii) any breach of
any covenant of Seller contained in this Agreement; (iii) any actions taken by
or on behalf of Seller or any of its Affiliates (including the Acquired
Companies) related to the operations or dissolution of The ▇▇▇▇▇ Companies, Inc.
or its Subsidiaries; (iv) any existing bodily injury litigation listed on
Schedule 7.2(a)(iv) hereto; (v) a lack of coverage under any Insurance Policy
issued by Reliance Insurance Company, to the extent such Damages would have been
covered by such Insurance Policy if Reliance Insurance Company had been
financially sound (subject however to any applicable self insured retentions and
aggregate limits on such Insurance Policy, and only after reduction for all
other third party sources of recovery, including any state insurance fund); (vi)
any Damages relating to the Maple Ridge Matter or the Hearthstone Matter which
in the aggregate exceed the Reserve Balance (provided that Buyer and the
Acquired Companies shall use their good faith reasonable efforts to minimize any
Damages as a result of such matters); and (vii) any claim by any Person for
brokerage, commission, finders' fee or any similar compensation based on
Contracts made or alleged to be made between such Person and Seller or any
Affiliate of Seller in connection with this Agreement or the transactions
contemplated hereby.
(b) Buyer shall indemnify Seller and its Affiliates and each of their
respective officers, directors, employees, stockholders, agents and
representatives against and hold them harmless from any Damages suffered or
incurred by any such indemnified party to the extent arising from (i) any breach
of any representation or warranty of Buyer contained in this Agreement or
contained in any certificate delivered pursuant hereto; (ii) any breach of any
covenant of Buyer contained in this Agreement, or (iii) any claim by any Person
for brokerage, commission, finders' fee or any similar compensation based on
Contracts made or alleged to be made between such Person and Buyer or any
Affiliate of Buyer in connection with this Agreement or the transactions
contemplated hereby.
7.3 Time Limitations. Neither Buyer nor Seller will have any liability
(for indemnification or otherwise) with respect to:
(i) any representation or warranty contained in this Agreement,
other than those in Sections 3.1, 3.4, 4.2, 4.3, 4.9, 4.10, 4.12 and
4.13, unless on or before eighteen months following the Closing Date the
party seeking indemnification notifies the party or parties from which it
is seeking indemnification in writing of a claim for Damages;
(ii) any representation or warranty contained in Section 4.10
unless on or before three years following the Closing Date, the party
seeking indemnification notifies the party or parties from which it is
seeking indemnification in writing of a claim for Damages; or
(iii) any representation or warranty contained in Section 4.13
unless on or before four years following the Closing Date the party
seeking indemnification notifies the party or parties from which it is
seeking indemnification in writing of a claim for Damages;
in each case, specifying the factual basis of that claim in reasonable
detail. A claim with respect to Section 3.1, 3.4, 4.2, 4.3, 4.9 or 4.12
may be made at any time prior to 30 days after the expiration of the
applicable statute of limitations period.
7.4 Other Limitations.
(a) Seller will have no liability (for indemnification or otherwise)
with respect to the matters described in Section 7.2(a)(i) (other than a breach
of the representations and warranties of Seller contained in Section 4.14(d),
which shall not be subject to such threshold for Damages) or a breach of the
covenants contained in Article VI (other than the covenants contained in
Sections 6.5, 6.6, 6.9, 6.10 and 6.14, which shall not be subject to such
threshold for Damages) until the total of all Damages with respect to such
matters exceeds the sum of $300,000 and the Excess Reserves, and then only for
the amount by which such Damages exceed the sum of $300,000 and the Excess
Reserves.
(b) Buyer will have no liability (for indemnification or otherwise)
with respect to the matters described in Section 7.2(b) until the total of all
Damages with respect to such matters exceeds $300,000, and then only for the
amount by which such Damages exceed $300,000.
(c) Any amounts otherwise payable to an indemnified party with respect
to indemnification for Damages or Taxes incurred by such indemnified party shall
be reduced by any Tax Benefit received by such indemnified party. The
indemnified party shall use its reasonable best efforts (provided that this
shall not be deemed to require the commencement of legal proceedings) to take
such action as is necessary (including, without limitation, the filing of an
amended Federal and state income tax return or a claim for refund) in order to
obtain any Tax Benefit that may be available as a result of any Damages or Taxes
indemnified hereunder, unless in the opinion of counsel to such indemnified
party there is not substantial authority for claiming a loss, deduction or
credit for such Damages or Taxes. A "Tax Benefit" shall arise if, after taking
into account the tax consequences of the payment or incurrence by such
indemnified party of the Damages or Taxes and any income tax arising out of such
indemnified party's receipt of indemnification pursuant to this Article VII or
Article VIII in respect of such Damages or Taxes, such indemnified party
realizes an actual savings in its liability for Taxes as a result thereof. For
this purpose, an indemnified party shall be deemed to realize an actual savings
in its liability for Taxes upon the filing of its Tax Return claiming actual Tax
savings attributable to such indemnification; provided, however, that if and to
the extent that any such Tax Benefit is ultimately denied by a taxing authority,
the indemnifying party shall pay to such indemnified
49
party the amount of such denied Tax Benefit plus interest at the rate applied by
such taxing authority to underpayments of Tax from the date that interest begins
to accrue on the underpayment of Tax as a result of the denial of such Tax
Benefit until the date that the amount of such denied Tax Benefit (plus
interest) is paid to such indemnified party by the indemnifying party. In the
event such indemnified party has a net operating loss for Federal income tax
purposes for (or a net operating loss carryover or investment tax credit
carryover to) the year in which a Tax Benefit would otherwise be realized, the
Tax Benefit shall be deemed to be realized, if ever, only in the year or years
in which there is an actual reduction in or refund of the amount of Taxes paid
over what would have been paid in the absence of such Tax Benefit (after giving
effect to such net operating loss or net operating loss carryover or investment
tax credit carryover).
(d) In no event will Seller's liability (for indemnification or
otherwise) with respect to the matters in Section 7.2(a)(i) or a breach of the
covenants contained in Article VI (other than the covenants contained in
Sections 6.5, 6.9, 6.10 and 6.14, which shall not be subject to such cap) exceed
$32,000,000 in the aggregate.
(e) NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT,
SELLER SHALL NOT BE LIABLE TO BUYER OR ANY BUYER INDEMNITEES NOR BUYER TO SELLER
OR ANY SELLER INDEMNITEES FOR ANY EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES,
EXCEPT TO THE EXTENT ANY SUCH DAMAGES ARE INCLUDED IN AN ACTION BY A THIRD PARTY
AGAINST A BUYER INDEMNITEE OR SELLER INDEMNITEE FOR WHICH SUCH BUYER INDEMNITEE
OR SELLER INDEMNITEE IS ENTITLED TO INDEMNIFICATION UNDER THIS AGREEMENT;
PROVIDED THAT NOTWITHSTANDING THE FOREGOING, ANY CLAIM FOR INDEMNIFICATION BY
BUYER AGAINST SELLER INVOLVING A LAND CONTRACT BREACH MAY INCLUDE A CLAIM FOR
CONSEQUENTIAL DAMAGES PROVIDED THAT THE AMOUNT OF CONSEQUENTIAL DAMAGES
RECOVERABLE WITH RESPECT TO EACH CURRENT PROJECT WHICH IS SUBJECT TO A LAND
CONTRACT BREACH SHALL BE LIMITED TO $1,500,000.
7.5 Procedures Relating to Indemnification Involving Third Party
Claims.
(a) In order for a party to be entitled to any indemnification
provided for under this Agreement in respect of, arising out of or involving a
claim or demand made by any Person against the indemnified party (a "Third Party
Claim"), such indemnified party must notify the indemnifying party in writing,
and in reasonable detail, of the Third Party Claim within 10 Business Days after
receipt by such indemnified party of written notice of the Third Party Claim;
provided, however, that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the indemnifying party
shall have been actually prejudiced as a result of such failure (except that the
indemnifying party shall not be liable for any expenses incurred during the
period in which the indemnified party failed to give such notice). Any notice of
an indemnification claim involving a Third Party Claim shall specify the nature
of the claim in reasonable detail, the Persons making the claim and the
estimated amount, if practicable, and shall be accompanied by any correspondence
from the third party relating to the Third Party Claim. Thereafter, the
indemnified party shall deliver to the indemnifying party, within five Business
Days after the indemnified party's receipt thereof,
50
copies of all notices and documents (including court papers) received by the
indemnified party relating to the Third Party Claim. In the event the provisions
of Section 8.4 are inconsistent with any provision of this Article VII, the
provisions of Section 8.4 shall control with respect to the contest of tax
matters.
(b) If a Third Party Claim is made against an indemnified party,
the indemnifying party shall be entitled to participate in the defense thereof
and, if it promptly so chooses, to assume the defense thereof with counsel
selected by the indemnifying party; provided that such counsel has been
consented to by the indemnified party, which consent shall not be unreasonably
withheld. The parties acknowledge that, except where the claim reasonably
requires an earlier action be taken for the indemnified party to avoid liability
or prejudice, a response by the indemnified party within 30 days following
receipt of notice of a claim from the indemnified party shall be deemed to be a
prompt response. Should the indemnifying party so elect to assume the defense of
a Third Party Claim, the indemnifying party shall not be liable to the
indemnified party for legal expenses subsequently incurred by the indemnified
party in connection with the defense thereof. If the indemnifying party assumes
such defense, the indemnified party shall have the right to participate in the
defense thereof and to employ counsel (not reasonably objected to by the
indemnifying party), at its own expense, separate from the counsel employed by
the indemnifying party, it being understood that the indemnifying party shall
control such defense.
(c) In connection with any Third Party Claim, the indemnified
parties and the indemnifying party shall cooperate with each other in the
defense or prosecution thereof. Such cooperation shall include the retention and
(upon the indemnified or indemnifying party's request) the provision to such
party of records and information which are reasonably relevant to such Third
Party Claim, and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder.
(d) If the indemnifying party shall have assumed the defense of a
Third Party Claim, the indemnifying party shall not agree to any settlement,
compromise or discharge of such Third Party Claim without the prior written
consent of the indemnified party, which consent shall not be unreasonably
withheld, provided however no consent of the indemnified party shall be required
if such settlement, compromise or discharge by its terms releases the
indemnified party completely in connection with such Third Party Claim and would
not otherwise adversely affect the indemnified party. If the indemnifying party
shall not have assumed the defense of a Third Party Claim, the indemnified party
may settle, compromise or discharge, such Third Party Claim in good faith
without the indemnifying party's prior consent.
(e) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that the outcome
of a Third Party Claim may adversely affect it or its Affiliates, other than as
a result of monetary damages for which it would be entitled to indemnification
under this Agreement, the indemnified party may, by notice to the indemnifying
party, assume the right to defend, compromise or settle such Third Party Claim,
but the indemnifying party shall not be bound by any compromise, settlement or
discharge effected without its consent, which consent may not be unreasonably
withheld. Seller shall be entitled to participate in the defense of any such
claim and to employ counsel of its choosing (not
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reasonably objected to by Buyer), at its own expense, separate from the counsel
employed by Buyer.
(f) In the event than an indemnified party is required to incur
legal fees and expenses as a result of an indemnifying party's failure, upon a
request for indemnification, to promptly respond under subsection (b) above as
to whether or not the indemnifying party is assuming the defense of the Third
Party Claim, then such legal fees and expenses may be included in any
indemnification claim made by the indemnified party, provided that such actions
were reasonably required in order for the indemnified party to avoid liability
with respect to such matter.
7.6 Other Claims. In the event any indemnified party should have
a claim for Damages against any indemnifying party under Section 7.2(a) that
does not involve a Third Party Claim being asserted against or sought to be
collected from such indemnified party, the indemnified party shall deliver
notice of such claim with reasonable promptness to the indemnifying party. The
failure by any indemnified party so to notify the indemnifying party shall not
relieve the indemnifying party from any liability which it may have to such
indemnified party under Section 7.2(a), except to the extent that the
indemnifying party demonstrates that it has been prejudiced by such failure. If
the indemnifying party has disputed its liability with respect to such claim,
the indemnifying party and the indemnified party shall proceed in good faith to
negotiate a resolution of such dispute and, if not resolved through
negotiations, such dispute shall be resolved by arbitration pursuant to Section
12.11 below.
7.7 Sole and Exclusive Remedy. Should the Closing occur, except as
set forth in Section 6.8 and Article IX hereto, and the Confidentiality
Agreement, (i) Buyer's sole and exclusive remedies for any breach of the
representations, warranties or covenants of Seller under this Agreement and any
certificate delivered pursuant to this Agreement (other than claims of or causes
of action arising from fraud), shall be the remedies provided in this Article
VII and Article VIII, and Buyer hereby waives, from and after the Closing, any
and all other remedies (other than claims of or causes of actions arising from
fraud) which may be available at law or equity for any breach or alleged breach
of any representations, warranties or covenants of Seller hereunder, and (ii)
Seller's sole and exclusive remedies for any breach of the representations,
warranties or covenants of Buyer under this Agreement and any certificate
delivered pursuant to this Agreement (other than claims of or causes of action
arising from fraud), shall be the remedies provided in this Article VII, and
Seller hereby waives, from and after the Closing, any and all other remedies
(other than claims of or causes of actions arising from fraud) which may be
available at law or equity for any breach or alleged breach of any
representations, warranties or covenants of Buyer hereunder.
ARTICLE VIII
TAX MATTERS
8.1 Section 338(h)(10) Elections.
(a) The parties intend that the acquisition by Buyer of the
stock of the Company and its Subsidiaries that are treated as corporations for
federal or state income tax purposes (as applicable) qualify as a "qualified
stock purchase" under Section 338 of the Code.
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Seller (or any appropriate Affiliate of Seller) shall join Buyer in making a
timely election under Section 338(h)(10) of the Code and any comparable election
under state or local law with respect to the acquisition of the Shares acquired
pursuant to this Agreement and with respect to the stock of any of the
Subsidiaries of the Company that are treated as corporations for U.S. federal or
state income tax purposes (as applicable) (the "Section 338(h)(10) Election").
Buyer and Seller (or any appropriate Affiliate of Buyer or Seller) shall be
jointly responsible for the preparation and filing of all forms that are
necessary to effect the Section 338(h)(10) Election, including without
limitation an IRS Form 8023. Buyer and Seller (or any appropriate Affiliate of
Buyer or Seller) shall execute and timely file IRS Forms 8023 and all other
forms, returns, elections, schedules and documents required to effect and
preserve timely the Section 338(h)(10) Elections. After the Closing Date, each
party shall cooperate with the other and shall take all actions reasonably
requested by the other to assure timely and accurate filing of the Section
338(h)(10) Elections.
(b) In connection with the Section 338(h)(10) Election, Buyer shall
reasonably determine, and Seller shall accept if reasonable, the fair market
values of the assets and liabilities deemed purchased for purposes of the
computation of the Aggregate Deemed Sale Price (as defined under applicable
Treasury Regulations) of the assets of the Company and its Subsidiaries with
respect to which a Section 338(h)(10) Election is made and the allocation of
such Aggregate Deemed Sale Price among such assets (the "Allocation Agreement")
in accordance with Section 338 of the Code (the "Valuations"). Buyer and Seller
agree to act, and to cause their respective Affiliates to act, in accordance
with the allocations contained in the Allocation Agreement in any relevant Tax
Returns or similar filings.
(c) Seller and Buyer agree that, except as required by a final
determination with any tax authority, they will report, and will cause their
respective Affiliates to report, the transfers under this Agreement consistent
with the Section 338(h)(10) Election and will not take, or cause to be taken,
any action in connection with the filing of any Tax Return on behalf of Seller,
Buyer, or their Affiliates or otherwise that would be inconsistent with or
prejudice the Section 338(h)(10) Election or the Allocation Agreement, and they
will take all steps necessary to obtain comparable treatment, where applicable,
for state income Tax purposes.
(d) It is understood that Seller plans to file an election to have
the Partnership be taxed as an association taxable as a corporation for United
States federal income tax purposes. Notwithstanding the foregoing, Seller hereby
agrees to file a Florida form F-1065, Florida Partnership Information Return,
for the Partnership for the period commencing with or including the date that
the Partnership elects to be taxed as an association for federal income tax
purposes through the Closing Date so as to cause the Partnership to be treated
as a partnership and not an association taxable as a corporation for Florida
income tax purposes.
8.2 Indemnification Obligations With Respect to Taxes.
(a) Seller shall be responsible for, and shall indemnify, defend and
hold harmless Buyer from and against:
(i) all consolidated federal income Taxes of the Company and its
Subsidiaries and any consolidated, combined or unitary state income Taxes of
the
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Company and its Subsidiaries that are due with respect to periods
ending on or prior to the Closing Date, including, without limitation,
any Taxes resulting from the Company's or its Subsidiaries' ceasing to
be a member of a consolidated, combined, affiliated, or unitary group,
any Taxes incurred as a result of making the Section 338(h)(10)
Election, and any Taxes resulting from the Corporate Dividend, but
excluding any Taxes resulting from an extraordinary transaction
undertaken on the Closing Date after the Closing;
(ii) all Taxes of the Company and its Subsidiaries that
are due with respect to periods ("Straddle Periods") that include but
do not end on the Closing Date to the extent attributable to the
portion of the Straddle Period ending at the close of business on the
Closing Date, but only to the extent such Taxes exceed the amounts
taken into account therefor in computing the Company Net Income;
(iii) all Taxes of the Company and its Subsidiaries that
are due with respect to periods ending on or before the Closing Date
(other than those that are covered by Section 8.2(a)(i) of this
Agreement and excluding any Taxes resulting from an extraordinary
transaction undertaken on the Closing Date after the Closing), but only
to the extent that such Taxes exceed the amounts reserved therefor on
the 2001 Balance Sheet or taken into account therefor in computing the
Company Net Income; and
(iv) all losses resulting from any inaccuracy in or
breach of the representations, warranties and covenants with respect to
Tax matters that are contained in Section 4.9 or this Article VIII of
this Agreement or in any certificate delivered pursuant hereto.
(b) Buyer shall be responsible for all Taxes of the Acquired
Companies other than those Taxes for which Seller is responsible pursuant to
Section 8.2(a).
(c) For purposes of this Article VIII, whenever it is
necessary to determine the liability for Taxes of the Company and its
Subsidiaries for a Straddle Period, the determination of the Taxes for the
portion of the Straddle Period ending on and including, and the portion of the
Straddle Period beginning after, the Closing Date shall be determined by
assuming that the Straddle Period consisted of two taxable years or periods, one
which ended at the close of the Closing Date and the other which began at the
beginning of the day following the Closing Date, and items of income, gain,
deduction, loss or credit, and state and local apportionment factors of the
Company and its Subsidiaries for the Straddle Period shall be allocated between
such two taxable years or periods on a "closing of the books basis" by assuming
that the books of the Company and its Subsidiaries were closed at the close of
the Closing Date. However, (i) exemptions, allowances or deductions that are
calculated on an annual basis, such as the deduction for depreciation; (ii)
periodic taxes such real and personal property taxes shall be apportioned
ratably between such periods on a daily basis and (iii) Taxes resulting from an
extraordinary transaction undertaken on the Closing Date after the Closing shall
be allocated to the post-Closing Date portion of the Straddle Period.
(d) Notwithstanding anything to the contrary in this
Agreement (including provisions set forth in Section 7.4 of this Agreement), the
obligations of Seller and Buyer under this Article VIII shall be unconditional
and absolute, shall not be limited, shall not be subject to a
54
deductible, threshold, cap, or similar concept, and shall remain in effect until
the expiration of all applicable statutes of limitation as to time, except as
provided in Section 7.4(c) of this Agreement.
8.3 Tax Returns and Payment Responsibility.
(a) Seller shall be responsible for and shall cause to be
prepared and duly filed (i) all consolidated federal income Tax Returns of the
Company and its Subsidiaries for all taxable periods ending on or before the
Closing Date, (ii) all consolidated, combined or unitary state income Tax
Returns of the Company and its Subsidiaries for all taxable periods ending on or
before the Closing Date, and (iii) all Tax Returns of the Company that are due
before the Closing Date. Seller shall pay any Taxes due in respect of the Tax
Returns described in the preceding sentence. Buyer shall be responsible for and
shall cause to be prepared and duly filed all Tax Returns with respect to the
Company and its Subsidiaries, other than those that are the responsibility of
Seller pursuant to this paragraph. Buyer shall pay any Taxes due in respect of
the Tax Returns described in the preceding sentence. Seller shall pay by wire
transfer to Buyer any Straddle Period Taxes for which Seller is responsible
pursuant to Section 8.2(a)(ii), but which are payable with the Straddle Period
Tax Returns to be filed by Buyer pursuant to this section at least three days
prior to the due date for the payment of such Taxes.
(b) All Straddle Period Tax Returns that are to be prepared and
filed by Buyer pursuant to the preceding paragraph and that relate to Taxes for
which Seller is liable under Section 8.2(a)(ii) shall be submitted to Seller not
later than 15 Business Days prior to the due date for filing of such Tax Returns
(or if such due date is within 45 days following the Closing Date, as promptly
as practicable following the Closing Date). Seller shall have the right to
review such Tax Returns and to review all work papers and procedures used to
prepare any such Tax Return. If Seller, within ten Business Days after delivery
of any such Tax Return, notifies Buyer in writing that it objects to any of the
items in such Tax Return, the parties shall attempt in good faith to resolve the
dispute and, if they are unable to do so, the disputed items shall be resolved
(within a reasonable time, taking into account the deadline for filing such Tax
Return) by an internationally recognized independent accounting firm chosen by
both Buyer and Seller. Upon resolution of all such items, the relevant Tax
Return shall be filed on that basis. The costs, fees and expenses of such
accounting firm shall be borne equally by Buyer and Seller.
(c) Buyer shall not (and shall not cause or permit Company or
its Subsidiaries to) amend, refile or otherwise modify (or grant an extension of
any statute of limitation with respect to) any Straddle Period Tax Return
without the prior written consent of Seller, which consent may not be
unreasonably withheld. Seller shall not (and shall not cause or permit any of
its Affiliates to) amend, refile, or otherwise modify any Tax Return of the
Company or any of its Subsidiaries that is not prepared on a consolidated,
combined or unitary basis (a "Separate Return") if such action could have an
adverse affect on the liability of Company or its Subsidiaries for any Taxes for
the post-Closing portion of a Straddle Period or for any Taxes for a taxable
year or period beginning after the Closing Date, without the prior written
consent of Buyer, which consent may not be unreasonably withheld.
(d) Any refunds of Taxes that are the liability of Seller under
Section 8.2(a) and that are received by Buyer or the Company or its Subsidiaries
shall be paid by Buyer to
55
Seller within 15 days after receipt thereof, except to the extent that the
amount of such Tax refund is treated as an asset on the 2001 Balance Sheet,
provided that the amount to be remitted to Seller shall be reduced by the net
Tax cost to Buyer or its Affiliates (including the Acquired Companies) resulting
from the claim for and receipt of such refund or credit, including any
additional Taxes imposed on Buyer as a result of the adjustments giving rise to
such refund.
(e) All sales, use, transfer and other similar Taxes, including
any stock or asset transfer stamp Taxes shall be borne equally by Seller and
Buyer.
8.4 Contest Provisions.
(a) In the event (i) Seller or its Affiliates or (ii) Buyer or
its Affiliates receive notice of any pending or threatened Tax audits or
assessments or other disputes concerning Taxes with respect to which the other
party may incur liability under this Article VIII, the party in receipt of such
notice shall promptly notify the other party of such matter in writing, provided
that failure to comply with this provision shall not affect a party's right to
indemnification hereunder unless such failure materially adversely affects the
party's ability to challenge such Tax audits or assessments.
(b) Seller shall have the sole right to represent the interests
of the Company and its Subsidiaries in any Tax audit or administrative or court
proceeding relating to any Tax for any taxable period ending on or before the
Closing Date, and to employ counsel of its choice at its expense.
Notwithstanding the foregoing, Seller shall not be entitled to settle, either
administratively or after the commencement of litigation, any claim for Taxes
with respect to any Separate Return which would adversely affect the liability
for Taxes of Buyer or the Company and its Subsidiaries for any period after the
Closing Date to any extent (including, but not limited to, the imposition of
income Tax deficiencies, the reduction of asset basis or cost adjustments, the
lengthening of any amortization or depreciation periods, the denial of
amortization or depreciation deductions, or the reduction of the loss or credit
carry forwards) without the prior written consent of Buyer, which consent shall
not be unreasonably withheld, and such consent shall not be necessary to the
extent that Seller has indemnified Buyer against the effect of any such
settlement.
(c) Buyer shall have the sole right to represent the interests
of the Company and its Subsidiaries in any Tax audit or administrative or court
proceeding relating to Separate Returns with respect to taxable periods
including (but not ending on) or beginning after the Closing Date and to employ
counsel of its choice at its expense, provided that Buyer shall not be entitled
to settle, either administratively or after the commencement of litigation, any
claim regarding Taxes that would adversely affect the liability of Seller for
any Taxes for any period ending on or before the Closing Date or for any
Straddle Period, which consent shall not be unreasonably withheld and shall not
be required to the extent that Buyer has indemnified Seller against the effects
of such settlement.
8.5 Tax Sharing Agreement. Any Tax allocation or sharing agreement or
arrangement, whether or not written, that may have been entered into by Seller,
or any of its Affiliates, on the one hand, and the Acquired Companies, on the
other hand, shall be terminated as to the Acquired Companies as of the Closing
Date.
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8.6 Assistance and Cooperation. After the Closing Date, Seller,
on the one hand, and Buyer, on the other hand, shall (and shall cause their
respective Affiliates to): (a) assist the other party in preparing and filing
any Tax Returns or reports which such other party is responsible for preparing
and filing in accordance with this Article; (b) cooperate fully in preparing for
any audits of, or disputes with taxing authorities regarding, any Tax Returns of
the Acquired Companies; (c) make available to the other and to any taxing
authority as reasonably requested all information, records, and documents
relating to Taxes of the Acquired Companies; (d) provide timely notice to the
other in writing of any pending or threatened Tax audits or assessments of the
Acquired Companies for taxable periods for which the other may have a liability
under this Article; and (e) furnish the other with copies of all correspondence
received from any taxing authority in connection with any Tax audit or
information request with respect to any such taxable period.
8.7 Retention of Records. After the Closing Date, Seller and
Buyer (including the Acquired Companies) will preserve all information, records
or documents relating to liabilities for Taxes the Acquired Companies until six
months after the expiration of any applicable statute of limitations (including
extensions thereof) with respect to the assessment of such Taxes, provided that
neither party shall dispose of any of the foregoing items without first offering
such items to the other party.
8.8 Other Provisions. The provisions of this Article VIII (and
not Section 7.2) shall govern all indemnity claims with respect to Tax matters
of the Acquired Companies and the purchase of the Shares pursuant to this
Agreement. All indemnity payments under this Agreement and the Adjustment Amount
under Section 2.4 shall be treated as an adjustment to the Purchase Price paid
for the Shares for tax purposes.
ARTICLE IX
WARRANTY INDEMNIFICATION
9.1 Warranty Indemnification. Seller shall indemnify, defend
and hold harmless the Acquired Companies for Warranty Costs incurred by the
Acquired Companies as a result of Warranty Claims that relate to houses sold by
any of the Acquired Companies (and any former, direct or indirect, Subsidiaries
of the Acquired Companies) on or prior to the Closing Date (the "Warranty
Homes") as described in this Article IX. A house shall be considered to be sold
upon the occurrence of a closing in which title is transferred to the home
buyer. The parties acknowledge and agree that any claims for indemnification or
otherwise involving or relating to Warranty Claims shall be governed exclusively
by the provisions of this Article IX. Accordingly, no claim for indemnification
involving or relating to Warranty Claims shall, to the extent of such
involvement or relationship, be made by Buyer under this Agreement (including
any claims under Section 7.2(a)(i)) except for a claim made under and in
accordance with the procedures contained in this Article IX. The foregoing
limitation shall apply notwithstanding that a representation or warranty made by
Seller in Articles III or IV hereof could be construed as including a matter
covered by a Warranty Claim.
9.2 Management of Warranty Claims.
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(a) Except for Covered Claims described in Section 9.2(b), after
the date hereof the Acquired Companies shall be responsible for addressing and
managing all Covered Claims. The Acquired Companies shall address such claims in
such manner as the Acquired Companies deem necessary or appropriate in their
reasonable business judgment, and will not be required to consult with Seller
prior to performing any work or incurring any cost or otherwise managing such
Covered Claims.
(b) Notwithstanding the foregoing, if any Person engages counsel
in connection with a Covered Claim or commences a litigation or arbitration
proceeding relating thereto, then Buyer shall notify Seller of such event
promptly after Buyer becomes aware of such event, and Seller shall thereafter
defend such Covered Claim (an "Assumed Claim") and the Acquired Companies shall
have no further responsibility with respect to the management of such Assumed
Claim, provided however, Buyer's failure to timely give such notification shall
not affect the indemnification and reimbursement provided hereunder, except to
the extent Seller shall have been actually prejudiced as a result of such
failure. If at the ▇▇▇▇ ▇▇▇▇▇▇ assumes the defense of the Assumed Claim, the
aggregate Warranty Costs incurred by the Acquired Companies has not exceeded the
Warranty Threshold, then Seller may not settle, compromise or discharge such
Assumed Claim without Buyer's prior written consent (which consent shall not be
unreasonably withheld). After the aggregate Warranty Costs incurred by the
Acquired Companies has exceeded the Warranty Threshold, Seller may settle,
compromise or discharge any Assumed Claim without Buyer's prior consent,
provided that there is no liability to the Acquired Companies as a result of
such settlement, compromise or discharge and such settlement, compromise or
discharge does not otherwise materially adversely affect the Acquired Companies.
(c) Buyer and/or the Acquired Companies shall be entitled to
participate in the defense of any Assumed Claim and to employ counsel of its
choosing (not reasonably objected to by Seller), at its own expense, separate
from the counsel employed by Seller.
9.3 Cooperation. The parties shall (i) keep each other fully
informed of the status of all Covered Claims and have the right to consult with
counsel retained to represent the other party in connection with any Covered
Claim, and (ii) cooperate in good faith and render to each other such assistance
as may be reasonably requested in order to manage or defend all Covered Claims,
including the provision of records and information which are reasonably relevant
to such Covered Claims, and making employees available on a mutually convenient
basis to provide additional information and explanation relevant to the Covered
Claims.
9.4 Reimbursement.
(a) Seller shall reimburse the Acquired Companies for all
Warranty Costs incurred by the Acquired Companies in excess of the Warranty
Threshold.
(b) (i) Seller shall be liable for all costs, and expenses,
including legal fees and expenses and costs of settlement relating to the
defense of any Assumed Claim, once the aggregate Warranty Costs incurred by the
Acquired Companies has exceeded the Warranty Threshold.
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(ii) Until such time as the aggregate Warranty Costs
incurred by the Acquired Companies equals the Warranty Threshold, the
Acquired Companies shall reimburse Seller for (A) all repair costs
incurred by Seller and payments made by Seller to claimants of any
Assumed Claim approved by Buyer pursuant to Section 9.2(b); (B) all
reasonable legal fees incurred by Seller in defending such Assumed
Claim; (C) an amount equal to $25 for each hour any customer service
employee of Seller performs work to address any Assumed Claim, provided
that such work is reasonably necessary to address such Assumed Claim
and is supported by reasonable documentation of the hours spent; and
(D) such other reasonable out-of-pocket costs incurred by Seller in
defending such Assumed Claim.
(iii) If reimbursement by the Acquired Companies of the
costs listed in subsection (iii) would cause the aggregate Warranty
Costs incurred by the Acquired Companies to exceed the Warranty
Threshold, then the Acquired Companies shall be required to reimburse
Seller only up to an amount such that the aggregate Warranty Costs
incurred by the Acquired Companies equals the Warranty Threshold.
(c) Notwithstanding anything contained herein to the contrary,
no party shall be liable to reimburse or indemnify the other under this
Agreement for any Warranty Costs incurred by such other party to the extent that
the work performed by or on behalf of such other party in addressing any
Warranty Claim exceeds the prevailing standards of the homebuilding construction
industry in the area where the work is performed. If the work performed by or on
behalf of a party exceeds such industry standards, then the other party shall
only be liable to reimburse or indemnify the other to the extent that the
out-of-pocket costs incurred by the other party would have been reasonably
necessary to meet such industry standards.
(d) All reimbursements required hereunder shall be paid promptly
after receipt by the party required to make such reimbursement of documentation
setting forth in reasonable detail the costs incurred and, where appropriate,
the work performed and evidence of payment.
9.5 Indemnification. Seller shall indemnify and defend the
Acquired Companies and their Affiliates and each of their respective officers,
directors, employees, stockholders, agents and representatives against and hold
them harmless from any Damages suffered or incurred by the Acquired Companies to
the extent arising from (i) any unreimbursed Warranty Costs incurred by the
Acquired Companies to the extent that such costs exceed the Warranty Threshold,
and (ii) any breach of any covenant of Seller contained in this Article IX,
including the assumption of the defense by Seller of all Covered Claims required
to be assumed by Seller pursuant to Section 9.2(b).
9.6 No Time Limitations. A claim for reimbursement or
indemnification hereunder may be made at any time and from time to time after
the date hereof.
9.7 Other Limitations. NOTWITHSTANDING ANYTHING TO THE CONTRARY
IN THIS ARTICLE IX, SELLER SHALL NOT BE LIABLE UNDER THIS ARTICLE IX TO THE
ACQUIRED COMPANIES NOR THE ACQUIRED COMPANIES TO SELLER FOR ANY EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES,
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EXCEPT TO THE EXTENT ANY SUCH DAMAGES ARE INCLUDED IN ANY ACTION BY A THIRD
PARTY AGAINST THE ACQUIRED COMPANIES OR SELLER, AS APPLICABLE, FOR WHICH SUCH
PERSON IS ENTITLED TO INDEMNIFICATION OR REIMBURSEMENT UNDER THIS ARTICLE IX.
ARTICLE X
CONDITIONS
10.1 Conditions to Each Party's Obligation to Effect the Stock
Purchase. The respective obligations of each party to effect the Stock Purchase
is subject to the satisfaction or waiver at or prior to the Closing Date of each
of the following conditions:
(a) All filings with any Governmental Entity required to be made
prior to the Closing Date by Seller or Buyer or any of their respective
Subsidiaries, and all consents of any Governmental Entity required to be
obtained prior to the Closing Date by Seller or Buyer or any of their respective
Subsidiaries in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated herein by Seller and Buyer
shall have been made or obtained (as the case may be), except where the failure
to so make or obtain will not result in a Material Adverse Effect upon Buyer,
Seller or the Company.
(b) No court or other Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) (collectively, an "Order") that is in
effect and restrains, enjoins or otherwise prohibits consummation of the
transactions contemplated in this Agreement. There shall not be pending or
threatened by any Governmental Entity any suit, action or proceeding (or by any
other person any suit, action or proceeding which has a reasonable likelihood of
success), challenging or seeking to restrain or prohibit the purchase and sale
of the Shares or any of the other transactions contemplated by this Agreement.
10.2 Conditions to Obligations of Buyer. The obligations of Buyer to
effect the Stock Purchase are also subject to the satisfaction or waiver by
Buyer at or prior to the Closing Date of the following conditions:
(a) the representations and warranties of Seller set forth in
this Agreement qualified as to materiality shall be true and correct, and those
not so qualified shall be true and correct in all material respects, as of the
date of this Agreement and as of the Closing Date as though made on and as of
the Closing Date, without regard to any amendments or supplements to the
Disclosure Schedules of Seller (except to the extent such representations and
warranties speak as of an earlier date, in which case such representation or
warranty shall be true and correct as of such earlier date);
(b) Seller shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date;
(c) Buyer shall have been furnished with certificates, executed
by a duly authorized officer of Seller, dated the Closing Date, certifying as to
the fulfillment of the conditions in Sections 10.2(a) and (b);
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(d) any consents required to be obtained from any Governmental
Entities or other Persons shall have been obtained and delivered to Buyer;
(e) Buyer shall have received an opinion dated the Closing Date
of counsel to Seller, substantially in the form of Exhibit A. Buyer shall have
received an opinion dated the Closing Date of counsel to the Acquired Companies,
substantially in the form of Exhibit B;
(f) there shall not be pending or threatened by any Governmental
Entity any suit, action or proceeding (or by any other Person any suit, action
or proceeding which has a reasonable likelihood of success), (A) seeking to
obtain from Buyer in connection with the purchase and sale of the Shares any
money damages that are material in relation to Buyer taken as a whole; (B)
seeking to prohibit or limit the ownership or operation by Buyer, or any of the
Acquired Companies, of any material portion of the business or assets of Buyer
or the Acquired Companies taken as a whole, or to compel Buyer, or any of the
Acquired Companies to dispose of or hold separate any material portion of the
business or assets of Buyer or the Acquired Companies taken as a whole, in each
case as a result of the purchase and sale of the Shares or any of the other
transactions contemplated by this Agreement; (C) seeking to impose limitations
on the ability of Buyer to acquire or hold, or exercise full rights of ownership
of, the Shares, including the right to vote the Shares on all matters properly
presented to the stockholders of the Company; or (D) seeking to prohibit Buyer
from effectively controlling in any material respect the business or operations
of any Acquired Company;
(g) Buyer shall have received a certificate of the Secretary or
Assistant Secretary (or other authorized corporate officer) of Seller certifying
as true, accurate and complete, as of the date of the execution of this
Agreement and again as of the Closing Date:
(i) a copy of the resolutions of the Board of Directors of
Seller authorizing the execution, delivery and performance of this
Agreement and the other documents contemplated hereby to which it is a
party;
(ii) a certified copy of the articles of incorporation
issued by the Secretary of State of Seller;
(iii) a copy of the bylaws of Seller; and
(iv) the incumbency of the officer or officers authorized
to execute on behalf of Seller this Agreement and the other documents
contemplated hereby to which it is a party;
(h) Buyer shall have received a certificate of the Secretary or
Assistant Secretary (or other authorized corporate officer) of the Company and
each other Acquired Company certifying as true, accurate and complete, as of the
date of this Agreement and again as of the Closing Date:
(i) a certified copy of the articles of incorporation (or
other similar constituent document) of the respective entity issued by
the Secretary of State of the state of such respective entity's
incorporation or organization; and
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(ii) a copy of the bylaws (or other similar constituent
document) of such respective entity;
(i) since the date of this Agreement, there shall have been no
event, change, occurrence or circumstance having, or which could have,
individually or in the aggregate a Material Adverse Effect on the Company;
(j) Buyer shall have received the resignations of the director
and officers of the Acquired Companies pursuant to Section 6.9; and
(k) ▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ shall have each entered
into an amendment to their respective employment agreements with Communities,
each in the form consented to by Buyer on or before the date hereof;
(l) the partners of the Partnership shall have amended the
partnership agreement of the Partnership to elect to be taxed for federal Tax
purposes as a corporation;
(m) all assets of the Acquired Companies shall be free and clear
of all Liens securing indebtedness of any Acquired Company, including any Liens
securing indebtedness to the issuers or beneficiaries of the Credit
Enhancements; and
(n) WCI and ▇▇▇▇▇ Homes/Broward, Inc. shall have entered into a
Real Estate Purchase Agreement, substantially in the form attached hereto as
Exhibit C, providing the Acquired Companies the option to purchase from ▇▇▇▇▇
240 lots at Huntington Lakes.
10.3 Conditions to Obligations of Seller. The obligations of Seller to
effect the Stock Purchase are also subject to the satisfaction or waiver by
Seller prior to the Closing Date of the following conditions:
(a) the representations and warranties of Buyer set forth in
this Agreement qualified as to materiality shall be true and correct, and those
not so qualified shall be true and correct in all material respects, as of the
date of this Agreement and as of the Closing Date as though made on and as of
the Closing Date, without regard to any amendments or supplements to the
Disclosure Schedule of Buyer (except to the extent such representations and
warranties speak as of an earlier date, in which case such representation or
warranty shall be true and correct as of such earlier date);
(b) Buyer shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date;
(c) Seller shall have been furnished with certificates, executed
by a duly authorized officer of Buyer, dated the Closing Date, certifying as to
the fulfillment of conditions in Sections 10.3(a) and (b);
(d) Seller shall have received reasonably satisfactory evidence
of the release of the Guaranties or, if the release has not been obtained, an
agreement or other document in form reasonably satisfactory to Seller evidencing
the indemnification obligations of Buyer and the Company, as set forth in
Section 6.12;
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(e) Buyer shall have delivered the Closing Payment;
(f) Seller shall have received an opinion dated the Closing Date
of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, counsel to Buyer, substantially in the form of
Exhibit D;
(g) all assets of the Acquired Companies shall be free and clear
of all Liens securing indebtedness of any Acquired Company, including any Liens
securing indebtedness to the issuers or beneficiaries of the Credit
Enhancements; and
(h) Seller shall have received a certificate of the Secretary or
Assistant Secretary (or other authorized corporate officer) of Buyer certifying
as true, accurate and complete, as of the date of this Agreement and again as of
the Closing Date:
(i) a copy of resolutions of the Board of Directors of
Buyer authorizing the execution, delivery and performance of this
Agreement and the other documents contemplated hereby to which it is a
party; and
(ii) the incumbency of the officer or officers authorized
to execute on behalf of Buyer this Agreement and the other documents
contemplated hereby to which it is a party.
10.4 Supplemental Disclosure.
(a) With respect to the representations and warranties of each
party contained in this Agreement, such party shall have the continuing right
and obligation until the Closing or termination of this Agreement to supplement
or amend promptly such party's Disclosure Schedule with respect to any matter
hereafter arising or discovered which, if existing or known at the date of this
Agreement (including updates for activities during the period between the date
hereof and the Closing), would have been required to be set forth or described
in such party's Disclosure Schedules.
(b) If any party shall waive satisfaction of any condition for
its benefit set forth in Section 10.2 or 10.3, as applicable, at the Closing,
which condition is not satisfied because of a breach of a representation or
warranty of the other party, such waiver shall preclude any right of such
waiving party to indemnification, payment of Damages, or other remedy based on
the breach of such representation and warranty to the extent that the breach is
expressly disclosed in an amended or supplemented Disclosure Schedule of the
other party delivered at Closing. If a party shall deliver a supplement to its
Disclosure Schedule and the other party proceeds to consummate the Closing, then
all matters disclosed on such supplement shall be deemed to be accepted by the
other party and not be the basis of any claim for indemnification following the
Closing. Notwithstanding the foregoing, no such action by Buyer shall be deemed
or construed to limit any rights or remedies of Buyer under this Agreement for
any breach of the covenant of Seller set forth in Section 6.1(q).
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ARTICLE XI
TERMINATION
11.1 Termination by Mutual Consent. This Agreement may be terminated
and the Stock Purchase may be abandoned at any time prior to the Closing Date,
by mutual written consent of Seller and Buyer.
11.2 Termination by Either Buyer or Seller. This Agreement may be
terminated and the Stock Purchase may be abandoned at any time prior to the
Closing Date by either Buyer or Seller, by action of their respective Boards of
Directors if any Order permanently restraining, enjoining or otherwise
prohibiting the Stock Purchase shall be entered and such Order is or shall have
become nonappealable, provided that (i) the party seeking to terminate this
Agreement shall have complied with its obligations under Section 6. 2 with
respect to the removal or lifting of such Order and the noncompliance with this
Agreement by the party seeking to terminate this Agreement shall not have been
the proximate cause of the issuance of the Order.
11.3 Termination by Seller. This Agreement may be terminated and the
Stock Purchase may be abandoned at any time prior to the Closing Date, by Seller
if:
(a) (i) the Stock Purchase shall not have been consummated on
or before May 6, 2002, or
(ii) any of the conditions set forth in Section 10.1 or
10.3 shall have become incapable of fulfillment;
provided, however, that the right to terminate this Agreement pursuant
to this subsection (a) shall not be available to Seller if it has breached in
any material respect its obligations under this Agreement in any manner that
shall have proximately contributed to the failure to consummate the Stock
Purchase referenced in this subsection (a); or
(b) there has been a material breach by Buyer of any
representation, warranty, covenant or agreement contained in this
Agreement that is not curable or, if curable, is not cured prior to the
earlier of (i) 30 days after written notice of such breach is given by
Seller to Buyer and (ii) the date referred to in subsection (a).
11.4 Termination by Buyer. This Agreement may be terminated and the
Stock Purchase may be abandoned at any time prior to the Closing Date by Buyer
if:
(a) (i) the Stock Purchase shall not have been consummated on
or before May 6, 2002, or
(ii) any of the conditions set forth in Section 10.1 or
Section 10.2 shall have become incapable of fulfillment;
provided, however, that the right to terminate this Agreement pursuant
to this subsection (a) shall not be available to Buyer if it has breached in any
material respect its obligations under this Agreement in any manner that shall
have proximately contributed to the occurrence of the failure referred to in
this subsection (a); or
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(b) there has been a material breach by Seller of any
representation, warranty, covenant or agreement contained in this Agreement that
is not curable or, if curable, is not cured prior to the earlier of (i) 30 days
after written notice of such breach is given by Buyer to such party and (ii) the
date referred to in subsection (a).
11.5 Effect of Termination. Each party's right of termination under
this Article X is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated, all further
obligations of the parties under this Agreement will terminate, except that the
obligations in Section 6.5 and the Confidentiality Agreement between Technical
Olympic and Buyer dated January 25, 2002 (the "Confidentiality Agreement") will
survive; provided, however, that if this Agreement is terminated by a party
because of the breach of the Agreement by the other party or because one or more
of the conditions to the terminating party's obligations under this Agreement is
not satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
ARTICLE XII
MISCELLANEOUS
12.1 Entire Agreement; Assignment.
(a) This Agreement (including the documents, schedules, exhibits
and the instruments referred to herein) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, and
all contemporaneous oral agreements and understandings among the parties with
respect to the subject matter hereof, except for the provisions of the
Confidentiality Agreement not inconsistent herewith. Except for express
representations, warranties and covenants of Seller contained herein or made by
the executive officers or other authorized officers of Seller in writing after
the date hereof, there are no representations or warranties whatsoever by or on
behalf of Seller or any of its officers, directors, employees, affiliates and
agents relating to the Acquired Companies.
(b) Neither this Agreement nor any of the rights, interests or
obligations hereunder will be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of each other
party hereto.
(c) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
(d) If the Closing occurs and if Seller or any of its successors
or assigns shall consolidate with or merge into ▇▇▇▇▇ or its successors or
assigns and shall not be the continuing or surviving entity of such
consolidation or merger or shall transfer all or substantially all of its assets
to any such Person, then in each case, Seller, as applicable, shall not permit
or authorize such transaction unless proper provision shall be made so that the
successors and assigns of Seller shall assume the obligations thereof set forth
in this Agreement or provide comparable protections.
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12.2 Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and effect
and in lieu of such invalid or unenforceable provision there shall be
automatically added as part of this Agreement a valid and enforceable provision
as similar in terms to the invalid or unenforceable provision as possible,
provided that this Agreement as amended, (i) reflects the intent of the parties
hereto, and (ii) does not change the bargained for consideration or benefits to
be received by each party hereto.
12.3 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or telecopier to the
respective parties as follows:
If to Buyer:
Standard Pacific Corp.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
If to Seller:
Newmark Homes Corp.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇-▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Chief Financial Officer
Facsimile Number: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to
Newmark Homes Corp.
c/o Technical Olympic, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, General Counsel
Facsimile Number: ▇▇▇-▇▇▇-▇▇▇▇
and
66
▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.P.
2300 First City Tower
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile Number: ▇▇▇-▇▇▇-▇▇▇▇
Attn: T. ▇▇▇▇ ▇▇▇▇▇
or to such other address as the Person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above;
provided that notice of any change of address shall be effective only upon
receipt thereof.
12.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, regardless of the laws or
rules that might otherwise govern under applicable principles of conflicts of
laws thereof.
12.5 Construction. In interpreting and construing this Agreement, the
following principles shall be followed:
(i) the terms "herein," "hereof," "hereby," and
"hereunder," or other similar terms, refer to this Agreement as a whole
and not only to the particular Article, Section or other subdivision in
which any such terms may be employed;
(ii) references to Articles, Sections, and other
subdivisions refer to the Articles, Sections, and other subdivisions of
this Agreement;
(iii) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP;
(iv) no consideration shall be given to the captions of
the articles, sections, subsections, or clauses, which are inserted for
convenience in locating the provisions of this Agreement and not as an
aid in its construction;
(v) the word "includes" and its syntactical variants
mean "includes, but is not limited to" and corresponding syntactical
variant expressions; and
(vi) the plural shall be deemed to include the singular,
and vice versa.
12.6 Counterparts. This Agreement may be executed in counterparts,
including facsimile counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement. Delivery
of an executed counterpart of a signature page to this Agreement by facsimile
transmission shall be effective delivery of a manually executed counterpart to
this Agreement.
12.7 Parties In Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other Person any rights or
remedies of any nature whatsoever under or by reason
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of this Agreement, including any employee or former employee of the Acquired
Companies (or any beneficiary or dependent thereof). Notwithstanding the
foregoing, the provisions of Article VII shall extend to and benefit such
parties as expressly set forth in such article.
12.8 Waiver. No waiver of any breach of the provisions of this
Agreement will be deemed to have been made by any party, unless such waiver is
expressed in writing and signed by the party against which it is to be enforced.
The waiver by any party of any right under this Agreement or to a remedy for the
breach of any of the provisions herein shall not operate nor be construed by the
breaching party as a waiver of the non-breaching party's remedies with respect
to any other or continuing or subsequent breach.
12.9 Amendments. No amendment, modification or waiver in respect of
this Agreement shall be effective unless it shall be in writing and signed by
the parties hereto.
12.10 Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as any other party hereto may reasonably request for the purpose of carrying out
the transactions contemplated by this Agreement.
12.11 Arbitration.
(a) Any controversy or claim between the parties, whether based
on contract, tort, statute or other legal or equitable theory arising out of or
related to this Agreement (including any amendments or extensions) or the breach
or termination hereof or any right to indemnity hereunder (each, a "Dispute")
shall be settled by arbitration in accordance with arbitration terms and
procedures set forth herein.
(b) Without in any way limiting subsection (a) above, each of
the parties hereto hereby irrevocably waives all right to trial by jury in any
action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising between them out of or relating to this Agreement or the
actions or any of them in the negotiation, administration, performance and
enforcement thereof.
(c) All Disputes submitted to arbitration shall be resolved by
binding arbitration administered by the American Arbitration Association (the
"AAA") in accordance with, and in the following order of priority, the following
procedural rules: (i) the terms of these arbitration provisions; (ii) the
Commercial Arbitration Rules of the AAA; (iii) the Federal Arbitration Act
(Title 9 of the United States Code); and (iv) to the extent the foregoing are
inapplicable, unenforceable or invalid, the laws of the State of New York. The
validity and enforceability of these arbitration provisions shall be determined
in accordance with this same order of priority. In the event of any
inconsistency between these arbitration provisions and such rules and statutes,
these arbitration provisions shall control. Judgment upon any award rendered
hereunder may be entered in any court having jurisdiction thereof.
(d) Either party may invoke arbitration (the "Disputing Party")
by providing notice to the other party (the "Other Party") in which the
Disputing Party shall specify the Dispute in reasonable detail, request
arbitration and designate an arbitrator (the "Dispute Notice"). Within ten
Business Days of receipt of the Dispute Notice, the Other Party shall
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designate one arbitrator. The Disputing Party's arbitrator and the Other Party's
arbitrator shall select the third arbitrator. Such three arbitrators shall
constitute the "Arbitration Panel." If the Other Party fails or refuses to
select an arbitrator within the specified ten Business Day period, the Disputing
Party's arbitrator shall be the single arbitrator to resolve the Dispute. The
arbitrator (or the Arbitration Panel, acting by majority vote, as appropriate)
shall resolve all Disputes. If a Dispute involves less that $250,000, then the
parties agree to cooperate to use reasonable efforts to select one neutral
arbitrator to decide the Dispute, and if the parties cannot select a neutral
arbitrator within ten Business Days of receipt of the Dispute Notice, such
neutral arbitrator shall be selected pursuant to the rules of the AAA. Subject
to any award of damages pursuant to subsection (e) below, each party shall pay
all fees for the arbitrator selected by such party, and the fees of the neutral
arbitrator shall be borne equally by the parties, or, in the event of a single
arbitrator the fees for such arbitrator.
(e) To the maximum extent practicable, the AAA, the arbitrator
(or the Arbitration Panel, acting by majority vote, as appropriate) and the
parties shall take all reasonable steps to conclude any arbitration proceeding
hereunder within 90 days of the later of (i) the filing of the Dispute with the
AAA, or (ii) the selection of the arbitrator or Arbitration Panel, as
appropriate. This time may be extended upon written agreement of the parties or
upon order of the arbitrator (or Arbitration Panel acting by majority vote, as
appropriate). Unless the parties shall agree otherwise, arbitration proceedings
hereunder shall be conducted in Miami, Florida. Arbitrators shall be empowered
to impose sanctions, permit or order depositions and discovery and to take such
other actions as they deem necessary to the same extent a judge could pursuant
to the Federal Rules of Civil Procedure and applicable law. With respect to any
Dispute, each party agrees that all discovery activities shall be expressly
limited to matters directly relevant to the Dispute and any arbitrator,
Arbitration Panel and the AAA shall be required to fully enforce this
requirement. Consistent with the expedited nature of the arbitration, each party
will, upon the written request of the other party, promptly provide the other
with copies of documents on which the producing party may rely in support of or
in opposition to any claim or defense directly relevant to the issues raised by
any claim or counterclaim. The provisions of these arbitration provisions shall
survive any termination, amendment or expiration of this Agreement, unless the
parties otherwise expressly agree in writing.
(f) To the extent permitted by applicable law, arbitrators,
including any Arbitration Panel, shall have the power to award recovery of all
costs and fees (including attorneys' fees, administrative fees, travel expenses,
out-of-pocket costs, witness fees, and arbitrators' fees) to the prevailing
party or, if no clear prevailing party, as the arbitrator (or Arbitration Panel,
if applicable) shall deem just and equitable. The arbitration award shall be in
writing, signed by the arbitrator (or a majority of the Arbitration Panel, as
appropriate). Each party agrees to keep all Disputes and arbitration proceedings
strictly confidential, except for disclosures of information acquired by
applicable law or as may be required for enforcement of any award.
[Signature page follows]
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[SIGNATURE PAGE - STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officer thereunto duly authorized, all
as of the day and year first above written.
"SELLER"
Newmark Homes Corp.,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------ ------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title President and Chief Executive Officer Title Secretary
"BUYER"
Standard Pacific Corp.,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------- --------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title Chairman and Chief Executive Officer Title Senior Vice President-Finance
and Chief Financial Officer
70