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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported) March 15, 1999
ZARING NATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 333-22679 31-1506058
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(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
11300 Cornell Park Drive, Suite 500, Cincinnati, Ohio 43215
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513) 489-8849
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(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 15, 1999 Zaring National Corporation (Zaring National) completed an
agreement with American Homestar Corporation (American Homestar) whereby
American Homestar acquired 25% of the outstanding common stock of HomeMax, Inc.
(HomeMax) from Zaring National for approximately $4.4 million in the form of a
promissory note and provided a subordinated loan to HomeMax of approximately
$4.0 million. The subordinated loan is convertible into an additional 25% of
HomeMax common stock. In addition, Zaring National has an option to sell, and
American Homestar has an option to buy, the remaining 50% of HomeMax within 39
months. The purchase price for such sale or purchase shall be equal to the
greater of (i) 50% of the net book value of HomeMax and its subsidiaries as then
applicable (as defined in the Purchase Agreement) or (ii) seven times the EBIT
of HomeMax and its subsidiaries (as defined in the Purchase Agreement) for the
preceding four calendar quarters less outstanding debt, times 50%. In addition,
Zaring National received an option to purchase 150,000 shares of American
Homestar common stock in three installments at $18 per share. Upon closing,
American Homestar commenced managing and directing the operations of HomeMax.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro forma financial information.
Pro forma financial information for the transaction described in response to
Item 2 above will be furnished by an amendment to this form not later than sixty
days after the date that this initial report on Form 8-K is filed.
(c) Exhibits.
10.20 -Amended and Restated Securities Purchase Agreement by and among Zaring
National Corporation, HomeMax, Inc., HomeMax Operating Properties, L.L.C. and
American Homestar Corporation dated as of March 15, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: March 30, 1999
ZARING NATIONAL CORPORATION
By: /s/ Ronald G. Gratz
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Ronald G. Gratz
Chief Financial Officer,
Secretary and Treasurer
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INDEX TO EXHIBITS
10.20 -Amended and Restated Securities Purchase Agreement by and among Zaring
National Corporation, HomeMax, Inc., HomeMax Operating Properties, L.L.C.
and American Homestar Corporation dated as of March 15, 1999.
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AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
ZARING NATIONAL CORPORATION,
HOMEMAX, INC.,
HOMEMAX OPERATING PROPERTIES, L.L.C.
AND
AMERICAN HOMESTAR CORPORATION
DATED AS OF MARCH 15, 1999
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TABLE OF CONTENTS
Article 1. Definitions.......................................................1
1.1 Definitions.................................................1
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Article 2. Purchase and Sale; Investment Covenants...........................1
2.1 Investor's Purchase of Common Stock and HOP Interests.......1
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2.2 Investor's Loan to the Company..............................2
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2.3 Option to Purchase Common Stock of Investor.................2
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2.4 Working Capital Loans.......................................2
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2.5 Operating Leases............................................3
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2.6 Replacement of Model Homes..................................3
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2.7 Management and Consulting Agreement.........................3
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2.8 Noncompetition Agreement....................................3
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2.9 Securityholders Agreement...................................4
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2.10 Registration Rights Agreement...............................4
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2.11 Cooperation.................................................4
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2.12 Conversion of Debt..........................................4
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Article 3. Closing; Conditions to Closing....................................4
3.1 Closing.....................................................4
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3.2 Conditions to Closing of Investor...........................4
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3.3 Conditions to Closing of ZNC, the Company and HOP...........6
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Article 4. Representations and Warranties of ZNC.............................7
4.1 Organization................................................7
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4.2 Power.......................................................7
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4.3 Authorization...............................................7
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4.4 Capitalization..............................................8
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4.5 Preemptive Rights; Registration Rights......................8
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4.6 Financial Statements........................................8
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4.7 Liabilities and Obligations.................................8
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4.8 Employee Matters............................................8
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4.9 Employee Benefit Plans......................................9
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4.10 Absence of Certain Changes.................................10
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4.11 Commitments................................................11
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4.12 Insurance..................................................13
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4.13 Patents, Trademarks, Service Marks and Copyrights..........13
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4.14 Tax Matters................................................14
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4.15 Title to Assets; Condition of Assets.......................14
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4.16 Real Property..............................................14
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4.17 Effect of Transactions; Compliance with Obligations........14
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4.18 Litigation.................................................14
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4.19 Legal Compliance...........................................15
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4.20 Subsidiaries; Joint Ventures...............................15
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4.21 Brokerage..................................................15
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4.22 Disclosure.................................................15
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4.23 Ownership Interests of Interested Persons..................15
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4.24 Investments in Competitors.................................15
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4.25 Environmental Matters......................................15
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4.26 Certain Payments...........................................15
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4.27 Government Inquiries.......................................16
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4.28 Consents...................................................16
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4.29 Inventory..................................................16
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4.30 Books of Account...........................................16
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4.31 Accounts Receivable........................................16
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4.32 Distributions and Repurchases..............................16
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4.33 Product Warranties.........................................16
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4.34 Year 2000 Compliance.......................................16
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4.35 Completion of Villages.....................................16
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Article 5. Representations of Investor......................................17
5.1 Authorization..............................................17
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5.2 Status of Investor.........................................17
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5.3 Shares Purchased for Investment............................17
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5.4 Brokerage..................................................17
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5.5 Litigation.................................................17
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5.6 Organization...............................................18
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5.7 Effect of Transactions.....................................18
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5.8 Financial Statements.......................................18
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5.9 Power......................................................18
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5.10 Consents...................................................18
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5.11 1934 Act...................................................18
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Article 6. ZNC's, the Company's and HOP's Covenants.........................18
6.1 Consummation of Agreement..................................18
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6.2 Business Operations........................................19
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6.3 Access.....................................................19
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6.4 Material Change............................................19
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6.5 Approvals of Third Parties.................................19
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6.6 No Negotiation with Others.................................19
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6.7 Amendment of Schedules.....................................19
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Article 7. Investor's Covenants.............................................19
7.1 Consummation of Agreement..................................20
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7.2 Approvals of Third Parties.................................20
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7.3 Material Change............................................20
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Article 8. Indemnification..................................................20
8.1 Indemnification by ZNC.....................................20
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8.2 Indemnification by Investor................................20
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8.3 Limitations on Indemnification Obligations.................20
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8.4 Conditions of Indemnification..............................21
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8.5 Waiver.....................................................22
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8.6 Remedies Exclusive.........................................22
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8.7 Offset.....................................................22
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8.8 Indemnification, Costs, Expenses and Legal Fees............22
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8.9 Specific Performance.......................................22
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8.10 Insurance and Warranties...................................22
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8.11 Survival of Representations and Warranties.................22
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Article 9. Termination......................................................23
9.1 Termination................................................23
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Article 10. Post-Closing Covenants .........................................23
10.1 ...........................................................23
10.2 ...........................................................24
10.3 ...........................................................24
10.4 ...........................................................24
10.5 ...........................................................24
Article 11. General.........................................................24
11.1 Amendments.................................................24
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11.2 Headings...................................................24
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11.3 Governing Law..............................................24
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11.4 Notices and Demands........................................24
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11.5 Severability...............................................24
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11.6 Expenses...................................................24
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11.7 Publicity and Disclosures..................................24
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11.8 Entire Agreement...........................................25
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11.9 Assignment.................................................25
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11.10 Parties in Interest; No Third Party Beneficiaries..........25
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11.11 Counterparts...............................................25
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EXHIBITS
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A Definitions
B Investor Note
C Company Note
D Option Agreement
E Form of Working Capital Note
F ZNC Note
G Management and Consulting Agreement
H Noncompetition Agreement
I Securityholders Agreement
J Registration Rights Agreement
K Frost & Jacobs Opinion
L Jackson Walker L.L.P. Opinion
M HOP Operating Agreement
N Operating Leases Assignment and Assumption Agreement
O Sublease Agreement
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AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
Zaring National Corporation, an Ohio corporation (the "ZNC"), HomeMax,
Inc., a Delaware corporation and wholly-owned subsidiary of ZNC (the "Company"),
HomeMax Operating Properties, L.L.C., a Delaware limited liability company and
wholly-owned subsidiary of ZNC ("HOP"), and American Homestar Corporation, a
Texas corporation ("Investor"), enter into this Amended and Restated Securities
Purchase Agreement, dated as of March 15, 1999 (this "Agreement"). This
Agreement amends, restates and replaces in its entirety that certain Securities
Purchase Agreement by and among ZNC, the Company, HOP and Investor dated as of
February 24, 1999 and all references to such agreement shall now mean this
Agreement.
ARTICLE 1.
DEFINITIONS
1.1 DEFINITIONS. Certain terms used in this Agreement have the meanings
set forth in EXHIBIT A attached hereto.
ARTICLE 2.
PURCHASE AND SALE; INVESTMENT COVENANTS
2.1 INVESTOR'S PURCHASE OF COMMON STOCK AND HOP INTERESTS.
(a) At the Closing, (i) Investor shall purchase from ZNC, and ZNC
shall sell to Investor, 25% of the Outstanding Common Stock (the "Investor
Shares") at a purchase price (the "Purchase Price") equal to 25% of the Net Book
Value as of December 31, 1998, for which Investor shall issue to ZNC a
promissory note, in substantially the form set forth in EXHIBIT B attached
hereto (the "Investor Note"); (ii) HOP, Investor and ZNC shall execute and
deliver the Operating Agreement, and ZNC shall sell to Investor 25% of the
Outstanding HOP Interests (the "Investor Interests") at a purchase price of
$10.00; and (iii) upon conversion of the Company Note (as defined below), ZNC
shall, and shall cause any transferee of ZNC to, assign 25% of the outstanding
Investor Interests to Investor at a purchase price of $10.00 (such that such
assigned Investor Interests, together with the Investor Interests assigned in
(ii) above, equal 50% of the then issued and outstanding Investor Interests).
(b) The Company will cause Arthur Andersen L.L.P. (the "Company's
Auditors") to perform an audit of the Company (the "Audit"). The Audit shall
include a schedule depicting Net Book Value as of December 31, 1998 shall be
prepared by the Company in accordance with GAAP applied on a basis consistent
with those applied in the preparation of the Company's 1997 financial statements
except that the schedule will not give effect to any asset impairment reserves,
if any, which would otherwise be required by GAAP. In addition, the schedule
depicting Net Book Value shall give effect to the inclusion of the Total
Intercompany Financing Transactions (including assignments, if any, referred to
in 3.2(h)) in Net Book Value as of December 31, 1998 and otherwise be presented
in a form consistent with Schedule II, Exhibit A. The Net Book Value schedule
shall be accompanied by a certified special purpose report ("Special Purpose
Report") which identifies procedures to be performed by the Company's Auditors
as determined by the Company and Investor. The Company shall submit the Special
Purpose Report, together with all applicable workpapers of Investor and their
auditors, KPMG Peat Marwick LLP ("Investors's Auditors") for review and
acceptance. If the Audit is reviewed and accepted by Investor's Auditors prior
to the Closing, then the Purchase Price shall be as determined utilizing the
Audit. If the Audit is not reviewed and accepted by Investor's auditors on or
prior to the Closing, then ZNC shall provide its best estimate of Net Book Value
(the "Estimate") to Investor at least five business days prior to the Closing,
and Investor shall have the opportunity to review and accept the estimate (which
acceptance shall not be unreasonably withheld). If the Estimate is used and
accepted by Investor, then the Investor Note will be
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issued utilizing the Estimate. Following the Closing, when Net Book Value is
finally determined as provided in Section 2.1, the Investor Note shall be
canceled and replaced with an Investor Note that reflects the Purchase Price
determined utilizing the Audit.
(c) If following the Closing Date, the Company's Auditors and
Investor's Auditors reach agreement on the Audit, then the Net Book Value as of
December 31, 1998, shall be as so agreed, and the Investor Note shall be
accordingly completed to reflect such Net Book Value determination; provided,
that (i) if the difference between the Estimate and the Audit is an amount that
exceeds the Estimate multiplied by five percent (5%) (the "5% Amount"), then the
Net Book Value used to determine the Purchase Price shall be an amount equal to
(A) the Estimate plus (B) the 5% Amount and (ii) if the difference between the
Estimate and the Audit is an amount that is less than the 5% Amount, then the
Net Book Value used to determine the Purchase Price shall be an amount equal to
(A) the Estimate minus (B) the 5% Amount (the "Lowest Net Book Value");
provided, further that if the Net Book Value is determined by the Audit to be
less than the Lowest Net Book Value, ZNC shall contribute capital to the Company
(without receiving any capital stock, promissory notes or other securities) in
an amount equal to the difference between the Net Book Value determined by the
Audit and the Lowest Net Book Value, in order to increase the Company's actual
Net Book Value to equal the Lowest Net Book Value. If following the Closing Date
the Company's Auditors and Investor's Auditors are unable to reach agreement on
any material term of the Audit (being defined as amounts in excess of $100,000
in the aggregate), then, at the request of either auditors, the disagreement
shall be submitted to PricewaterhouseCoopers, L.L.P. (the "Third-Party
Auditors") for its determination, which determination shall be final and binding
on the Parties. The Parties acknowledge and agree that there shall not exist as
a basis for disagreement any previously utilized and disclosed capitalization
policies of the Companies. Each Party shall bear its own cost and expense in
connection with this Section 2.1 (with the costs and expenses of the Companies
being borne by ZNC), with the cost and expenses of the Third-Party Auditors
being split equally between Investor and ZNC.
(d) In addition to the possible adjustment provided in
subparagraphs (b) and (c) above, upon the date of the actual Closing, an
adjustment to the Purchase Price (and a corresponding adjustment to the Investor
Note (either an increase or decrease, as the case may be)), shall be made to
reflect the operating results of the Companies for the period from January 29,
1999 to the Closing Date (with the Investor Note either being: (i) decreased by
an amount equal to 25% of the consolidated net income of the Companies for such
period; or (ii) increased by an amount equal to 25% of the consolidated net loss
of the Companies for such period.
2.2 INVESTOR'S LOAN TO THE COMPANY. At the Closing, Investor shall loan
to the Company, and the Company shall borrow from Investor, $4,000,000 (the
"Company Note Amount"), for which the Company will issue to Investor a
subordinated convertible promissory note, substantially in the form set forth in
EXHIBIT C attached hereto (the "Company Note"). The proceeds of the Company Note
shall by used for working capital purposes. Upon conversion of the Company Note,
ZNC, AHC and HOP will amend the Operating Agreement so that AHC will own an
additional twenty-five percent (25%) of the issued and outstanding HOP Interests
on a fully-diluted basis in addition to any other HOP Interests owned by AHC; it
being understood and agreed that (i) at the Closing AHC will own 25% of the
issued and outstanding HOP Interests on a fully-diluted basis, and (ii) upon
conversion of the Company Note, AHC will then own 50% of the issued and
outstanding HOP Interests on a fully-diluted basis.
2.3 OPTION TO PURCHASE COMMON STOCK OF INVESTOR. At the Closing,
Investor shall grant to ZNC options to purchase up to 150,000 shares of common
stock, par value $0.05 per share, of the Investor (the "Investor Common Stock"),
pursuant to an option agreement, substantially in the form set forth in EXHIBIT
D (the "Option Agreement").
2.4 WORKING CAPITAL LOANS. Investor and ZNC shall each agree to loan to
the Company up to $500,000, for which the Company will issue to each of Investor
and ZNC a promissory note, substantially in the form set forth in EXHIBIT E
(collectively, the "Working
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Capital Notes"). The Company may request drawdowns under the Working Capital
Notes from time to time upon written request to Investor and ZNC as provided in
the Working Capital Notes; it being agreed that all such drawdowns shall be
split equally between Investor and ZNC. The proceeds of the Working Capital
Notes shall be used by the Company for short-term working capital needs of the
Companies. Any future working capital needs of the Companies that are not
obtained from a third party may be obtained from Investor and ZNC, each at their
sole option, and in any event, unless agreed otherwise by Investor and ZNC, on
an equal basis.
2.5 OPERATING LEASES.
(a) Immediately prior to the Closing, (i) the Companies shall
assign to HOP, and HOP shall assume, all operating leases of the Companies,
which operating leases are described in SCHEDULE 2.5(a) (the "Operating
Leases"), and the Companies and HOP shall execute and deliver the Operating
Leases Assignment and Assumption Agreement; and (ii) the Companies and HOP shall
enter into a Sublease Agreement, pursuant to which the Companies shall sublease
the Operating Leases from HOP. The Operating Leases include all lease
obligations of the Companies as of the Closing Date and all operating leases to
be entered into after the Closing by the Companies which are of the type which
the Companies generally enter into with respect to their operating retail sales
centers, in each case, as of the Closing Date, excluding real estate ground
leases, which real estate ground leases are described in SCHEDULE 2.5(b), and
which shall remain the obligation of the Companies.
(b) With respect to each Operating Lease (except for those listed
on SCHEDULE 2.5(A) with an *), Zaring represents that HOP shall have the right
to purchase the assets underlying the Operating Leases (the "Underlying Assets")
at fair market value at the end of the applicable term. In the event that the
aggregate purchase price of the Underlying Assets so purchased by HOP exceeds
20% of the aggregate fair market value of such Underlying Assets as of the date
that they were first placed in service by the Companies (which fair market
values for each Underlying Asset is as set forth on SCHEDULE 2.5(a) attached
hereto) (each, a "Previous FMV"), then ZNC shall, upon the written request of
Investor, pay to HOP an amount equal to the amount by which the aggregate
purchase price for the Underlying Assets so purchased exceeds 20% of the
Previous FMVs for the Underlying Assets so purchased; provided that ZNC is
permitted to be involved in the asset purchase negotiation.
(c) Upon the dissolution or winding up of HOP, Investor and ZNC
shall assign the Operating Leases and/or Underlying Assets (as the case may be)
to the Companies and contribute to the Companies any other assets, including but
not limited to cash, received by the Members upon liquidation of HOP.
2.6 REPLACEMENT OF MODEL HOMES. After the Closing, the Companies and
HOP shall replace the model home inventory of the Companies described on
SCHEDULE 2.6 with homes manufactured by Investor and its affiliates, with such
replacements being done in a manner that both: (i) maximizes the Companies'
profits after the Closing; and (ii) methodically and expeditiously converts such
model home inventory. The costs and expenses of replacing such model home
inventory will be payable by HOP, but pursuant to capital contributions to HOP
made by Investor and ZNC as set forth in the HOP Operating Agreement. The costs
and expenses of replacing such model home inventory shall be allocated at a rate
of $7,500 per single-section homes and $12,500 per multi-section homes or in
such greater amounts as approved by the Company's Board of Directors.
2.7 MANAGEMENT AND CONSULTING AGREEMENT. At the Closing, ZNC, the
Company and Investor shall enter into a Management and Consulting Agreement, in
substantially the form attached hereto as EXHIBIT G (the "Management
Agreement").
2.8 NONCOMPETITION AGREEMENT. At the Closing, ZNC and Investor shall
enter into a Noncompetition Agreement, in substantially the form attached hereto
as EXHIBIT H (the "Noncompetition Agreement").
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2.9 SECURITYHOLDERS AGREEMENT. At the Closing, the Parties shall enter
into a Securityholders Agreement, in substantially the form attached hereto as
EXHIBIT I (the "Securityholders Agreement").
2.10 REGISTRATION RIGHTS AGREEMENT. At the Closing, Investor and ZNC
shall enter into a Registration Rights Agreement, in substantially the form
attached hereto as EXHIBIT J (the "Registration Rights Agreement.").
2.11 COOPERATION. Between the date hereof and the Closing, the Parties
agree to review, in good faith, all the documents contemplated by this Agreement
and to make such changes thereto as may be necessary to properly document the
transactions contemplated by this Agreement and such other documents.
2.12 CONVERSION OF DEBT. The Parties agree that as of the Closing Date,
all loans and advances made by ZNC to the Company which are outstanding as of
the Closing Date, such amounts being equal to the Total Intercompany Financing
Transactions (except for $4,000,000 of such amount, which amount shall be
converted to a promissory note in the principal amount of $4,000,000, and
substantially in the form of Exhibit "F" attached hereto (the "ZNC Note"), shall
be deemed to have been converted into a capital contribution by ZNC to the
Company, which capital contribution shall be added to the Company's capital, but
for which ZNC shall not receive any capital stock.
ARTICLE 3.
CLOSING; CONDITIONS TO CLOSING
3.1 CLOSING. The closing of the transactions contemplated herein (the
"Closing") will take place at the offices of Jackson Walker L.L.P., 901 Main
Street, Suite 6000, Dallas, Texas 75202, at 10:00 a.m., on or before March 12,
1999, unless extended by the mutual written agreement of ZNC and Investor (the
"Closing Date").
3.2 CONDITIONS TO CLOSING OF INVESTOR. Except as may be waived in
writing by Investor, the obligations of Investor to consummate the transactions
contemplated herein shall be subject to the fulfillment at or prior to the
Closing Date of each of the following conditions:
(a) ZNC shall deliver to Investor the Investor Shares and the
Investor Interests.
(b) ZNC, the Company and HOP shall deliver to Investor the
following executed documents:
(i) the Management Agreement;
(ii) the Noncompetition Agreement;
(iii) the Securityholders Agreement;
(iv) the Option Agreement;
(v) the Registration Rights Agreement; and
(vi) the HOP Operating Agreement.
(c) The Company shall deliver to Investor (i) its Working Capital
Note; and (ii) the Company Note.
(d) The President of each of ZNC and the Company shall have
delivered to Investor an Officer's Certificate certifying to Investor that
(i) the representations and warranties of ZNC and the Company
contained in the Transaction Documents were true and correct in all
material respects when initially made and, after delivery of the
Schedule Amendment, are true and correct in all material respects
as of the Closing Date;
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(ii) ZNC and the Companies have performed and complied in all
material respects with all covenants and conditions required by
this Agreement to be performed and complied with by ZNC and the
Company prior to the Closing Date;
(iii) no bona fide investigation, action, suit, proceeding or
order by any court or governmental body or agency has been
threatened, orally or in writing, asserted, instituted or entered
to restrain or prohibit the carrying out of the transactions
contemplated hereby; and
(iv) no material adverse change in the condition (financial or
otherwise), operations, assets, liabilities, or business of ZNC or
any of the Companies has occurred, and no such material adverse
disclosure has been made, since the date of this Agreement.
(e) The Secretary of each of ZNC, the Company and HOP shall deliver
to Investor a Secretary's Certificate certifying to Investor:
(i) the resolutions of the Boards of Directors of ZNC, the
Company and HOP authorizing the execution, delivery and performance
of the Transaction Documents; and
(ii) the incumbency of the officers of ZNC, the Company and HOP
executing the Transaction Documents.
(f) ZNC shall deliver to Investor certificates, dated within ten
days of the Closing Date, of the Secretary of State of each State in which: (i)
ZNC and the Companies were organized; and (ii) any of the Companies are
qualified to do business, in each case of (i) and (ii) above, such certificate
shall state that such corporation is in existence and is in good standing to
transact business in such State.
(g) Frost & Jacobs, LLP, counsel for ZNC, the Company and HOP,
shall deliver to Investor a legal opinion, dated as of the Closing Date, in
substantially the form attached hereto as EXHIBIT K.
(h) The representations and warranties of ZNC and the Company
contained herein shall have been true and correct in all material respects when
initially made and, after the delivery of the Schedule Amendment, shall be true
and correct in all material respects as of the Closing Date.
(i) No bona fide investigation, action, suit, proceeding or order
by any court or governmental body or agency shall have been threatened orally or
in writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
(j) No material adverse change in the condition (financial or
otherwise), operations, assets, liabilities or business of ZNC or the Companies
shall have occurred, and no such material adverse development shall have been
disclosed, since the date of this Agreement.
(k) All authorizations, approvals, consents and waivers of any
governmental authority or third party, each as required to permit the
consummation of the transactions contemplated by this Agreement, shall have been
obtained and shall not be terminated, suspended or withdrawn as of the Closing
Date.
(l) ZNC, the Company and HOP shall have performed and complied in
all material respects with all covenants and conditions required by the
Agreement to be performed and complied with by them prior to the Closing Date.
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(m) In the event the Village Obligations (as defined in Section
4.35 below) have not been paid in full, then ZNC shall deliver to the Companies
an assumption agreement pertaining to the assumption of the Village Obligations,
which assumption agreement shall be in form and substance reasonably acceptable
to the Parties.
3.3 CONDITIONS TO CLOSING OF ZNC, THE COMPANY AND HOP. Except as may be
waived in writing by ZNC, the Company and HOP, the obligations of ZNC, the
Company and HOP to be performed hereunder are subject to fulfillment at or prior
to the Closing Date of each of the following conditions:
(a) Investor shall have delivered to ZNC, the Company or HOP (as
the case may be) the following executed documents:
(i) the Investor Note;
(ii) the Management Agreement;
(iii) the Noncompetition Agreement;
(iv) the Option Agreement;
(v) the Securityholders Agreement;
(vi) the Registration Rights Agreement; and
(vii) the HOP Operating Agreement.
(b) The President of Investor shall have delivered to ZNC, the
Company and HOP an Officer's Certificate certifying to ZNC, the Company and HOP
that:
(i) the representations and warranties of Investor contained in
the Transaction Documents were true and correct in all material
respects when initially made and are true and correct in all
material respects as of the Closing Date;
(ii) Investor has performed and complied in all material
respects with all covenants and conditions required by this
Agreement to be performed and complied with by Investor prior to
the Closing Date; and
(iii) no bona fide investigation, action suit, proceeding or
order by any court or governmental body or agency has been
threatened, orally or in writing, asserted, instituted or entered
to restrain or prohibit the carrying out of the transactions
contemplated hereby.
(c) The Secretary of Investor shall have delivered to ZNC, the
Company and HOP a Secretary's Certificate certifying to ZNC, the Company and
HOP:
(i) that the resolutions of the Boards of Directors of Investor
authorizing the execution, delivery and performance of the
Transaction Documents are true and correct copies of the originals
thereof subject to no modifications or amendments; and
(ii) the incumbency of the officers of Investor executing the
Transaction Documents.
(d) Jackson Walker L.L.P., counsel for Investor, shall deliver to
ZNC a legal opinion, dated as of the Closing Date, in substantially the form
attached hereto as EXHIBIT L.
(e) The representations and warranties of Investor contained herein
shall have been true and correct in all material respects when initially made
and shall be true and correct in all material respects as of the Closing Date.
(f) Investor shall have performed and complied in all material
respects with all covenants and conditions required by this Agreement to be
performed and complied with by it
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prior to the Closing Date.
(g) No bona fide investigation, action, suit, proceeding or order
by any court or governmental body or agency shall have been threatened orally or
in writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
(h) No material adverse change in the condition (financial or
otherwise), operations, assets, liabilities or business of Investor shall have
occurred, and no such material adverse development shall have been disclosed,
since the execution of this Agreement.
(i) Investor shall have delivered to ZNC a certificate, dated
within ten days of the Closing Date, of the Secretary of State of Texas which
shall state that Investor is in existence and good standing to transact business
in Texas.
(j) All authorizations, approvals, consents and waivers of any
governmental authority or third party, each as required to permit the
consummation of the transactions contemplated by this Agreement, shall have been
obtained and shall not be terminated, suspended or withdrawn as of the Closing
Date.
(k) The Company shall deliver to ZNC (i) its Working Capital Note;
and (ii) the ZNC Note.
(l) Investor shall deliver to the Company the Company Note Amount.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF ZNC
ZNC represents and warrants to Investor that the following are true and
correct as of the date hereof and will be true and correct, after delivery of
the Schedule Amendment, as of the Closing Date as if made on that date:
4.1 ORGANIZATION. ZNC and each of the Companies is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. The Companies are qualified to do business in
the States listed on SCHEDULE 4.1, and none of the Companies are required to be
qualified to do business as a foreign corporation in any other jurisdiction
where the failure to so qualify would have a material adverse effect on such
Company.
4.2 POWER. ZNC and each of the Companies have all required corporate
power and authority to own their respective properties and to carry on their
respective businesses as presently conducted. ZNC, the Company and HOP have all
required power and authority to execute and deliver the Transaction Documents
and to carry out the transactions contemplated by the Transaction Documents. The
Certificate of Incorporation and Bylaws of each of the Companies (including the
Articles of Formation of HOP), copies of which have been provided to Investor,
are correct and complete.
4.3 AUTHORIZATION. All action on the part of ZNC, the Company and HOP
necessary for the authorization, execution, delivery and performance of the
Transaction Documents by ZNC, the Company and HOP and the performance of all of
ZNC's, the Company's and HOP's obligations hereunder have been taken. The
Transaction Documents executed by ZNC, the Company and HOP are valid and binding
obligations of ZNC, the Company and HOP enforceable according to their terms,
except as may be limited by (a) applicable bankruptcy, insolvency,
reorganization or other similar laws of general application relating to or
affecting the enforcement of creditor rights or the relief of debtors, (b) laws
and judicial decisions regarding indemnification for violations of federal
securities laws, and (c) the availability of specific performance or other
equitable remedies. The execution, delivery and performance of the Transaction
Documents have been duly authorized by all necessary action of ZNC, the Company
and HOP.
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4.4 CAPITALIZATION. The authorized and issued capital stock of each of
the Companies and the names and ownership interests of their respective
shareholders is as set forth in SCHEDULE 4.4. All of the presently outstanding
shares of capital stock of the Companies have been validly authorized and issued
and are fully paid and nonassessable. Except as provided in SCHEDULE 4.4, none
of the Companies has issued any other shares of its capital stock and there are
no outstanding options, warrants, subscriptions or other rights or obligations
to purchase or acquire any of such shares, nor any outstanding securities
convertible into or exchangeable for such shares. Except as set forth on
SCHEDULE 4.4 or as contemplated under the Transaction Documents, there are no
agreements to which ZNC or any of the Companies is a party or has knowledge
regarding the issuance, registration, voting or transfer of its outstanding
shares of capital stock of the Companies. No dividends are accrued but unpaid on
any capital stock of any of the Companies.
4.5 PREEMPTIVE RIGHTS; REGISTRATION RIGHTS. There are no preemptive
rights affecting the issuance or sale of any of the Companies' capital stock.
None of the Companies is under any contractual obligation to register (in
compliance with the filing requirements and being deemed effective under the
Securities Act) any of its presently outstanding securities or any of its
securities which may hereafter be issued.
4.6 FINANCIAL STATEMENTS. SCHEDULE 4.6(a) contains correct and complete
copies of the Financial Statements. The Financial Statements are in accordance
with the books and records of the Companies, have been prepared consistent with
past practices, have been prepared in accordance with GAAP (except as set forth
in SCHEDULE 4.6(b)) consistently applied and present fairly the financial
position of the Companies on the dates of such statements and the results of
their operations on a consolidated basis for the periods covered. The Companies
maintain their books, records and accounts in accordance with good business
practice and in sufficient detail to reflect accurately and fairly the
transactions and dispositions of its assets, liabilities and securities.
4.7 LIABILITIES AND OBLIGATIONS. Except as set forth in SCHEDULE 4.7,
the Financial Statements reflect all liabilities of the Companies required to be
included therein in accordance with GAAP, and arising out of transactions
effected or events occurring on or prior to the date hereof and the Closing
Date. Except as set forth in the Financial Statements, none of the Companies is
liable upon or with respect to, or obligated in any other way to provide funds
in respect of or to guarantee or assume in any manner, any debt, obligation or
dividend of any person, corporation, association, partnership, joint venture,
trust or other entity (except of other Companies), and none of the Companies
knows of any basis for the assertion of any other claims or liabilities of any
nature or in any amount. HOP has no assets or liabilities, except it will assume
the Operating Leases prior to Closing as provided in this Agreement.
4.8 EMPLOYEE MATTERS.
(a) CASH COMPENSATION. SCHEDULE 4.8(a) contains a complete and
accurate list of the names, titles and Cash Compensation of all executive
management of the Companies, regardless of compensation levels and all other
employees as of the date hereof. In addition, SCHEDULE 4.8(a) contains a
complete and accurate description of (i) all increases in Cash Compensation of
such employees during the current calendar year, (ii) any promised increases in
Cash Compensation of such employees that have not yet been effected and (iii)
the amount of all accrued but unpaid incentive compensation as of December 31,
1998.
(b) COMPENSATION PLANS. SCHEDULE 4.8(b) contains a complete and
accurate list of all Compensation Plans sponsored by the Companies or to which
any of the Companies contributes on behalf of its employees, other than Employee
Benefit Plans listed in SCHEDULE 4.9(a). The Compensation Plans include without
limitation plans, arrangements or practices that provide for severance pay,
deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options.
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(c) EMPLOYMENT AGREEMENTS. SCHEDULE 4.8(c) contains a complete and
accurate list of all written employment agreements and the terms of all oral
arrangements (other than those for normal employer/employee relationships which
are terminable at will) of the Companies (the "Employment Agreements"). The
Employment Agreements include, without limitation, employee leasing agreements,
employee services agreements, severance agreements and noncompetition
agreements.
(d) EMPLOYEE POLICIES AND PROCEDURES. SCHEDULE 4.8(d) contains a
complete and accurate list of all written Employee Policies and Procedures.
There are no material unwritten Employee Policies or Procedures.
(e) UNWRITTEN AMENDMENTS. No material unwritten amendments have
been made, whether by oral communication, pattern of conduct or otherwise, with
respect to any Compensation Plans, Employment Agreements or Employee Policies
and Procedures.
(f) LABOR COMPLIANCE. Except as set forth in SCHEDULE 4.8(f), since
November 26, 1996, each of the Companies (i) has been and is in compliance with
all laws, rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and (ii) is
not liable for any arrears of wages or penalties for failure to comply with any
of the foregoing. Except as set forth in SCHEDULE 4.8(f), since November 26,
1996, none of the Companies has engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. Except as set forth in
SCHEDULE 4.8(f), since November 26, 1996, there are no (i) unfair labor practice
charges or complaints or racial, color, religious, sex, national origin, age or
handicap discrimination charges or complaints pending or threatened against any
of the Companies before any federal, state or local court, board, department,
commission or agency nor to its knowledge does any basis therefor exist or (ii)
existing or threatened labor strikes, disputes, grievances, controversies or
other labor troubles affecting any of the Companies, nor to its knowledge does
any basis therefor exist.
(g) UNIONS. None of the Companies is a party to any agreement with
any union, labor organization or collective bargaining unit. No employees of any
of the Companies are represented by any union, labor organization or collective
bargaining unit. None of the employees of any of the Companies have threatened
to organize or join a union, labor organization or collective bargaining unit.
(h) ALIENS. To its knowledge, all of the employees of the Companies
are citizens of, or are authorized to be employed in, the United States.
4.9 EMPLOYEE BENEFIT PLANS.
(a) IDENTIFICATION. SCHEDULE 4.9(a) contains a complete and
accurate list of all Employee Benefit Plans sponsored by ZNC or any of the
Companies to which employees of the Companies participate in or are entitled to
benefits under or to which ZNC or any of the Companies contributes on behalf of
the employees of any of the Companies and all Employee Benefit Plans previously
sponsored or contributed to on behalf of those employees within the three years
preceding the date hereof. No unwritten amendment exists with respect to any
Employee Benefit Plan. Neither ZNC, any of the Companies nor any member of a
Controlled Group is or ever has been obligated to contribute to a multiemployer
plan within the meaning of Section 3(37) of ERISA.
(b) ADMINISTRATION. Each Employee Benefit Plan has been
administered and maintained in substantial compliance with all laws, rules and
regulations. No Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency. No prohibited transactions (within the meaning of
Section 4975 of the Code) have occurred with respect to any Employee Benefit
Plan. To its knowledge, no threatened or pending claims, suits or other
proceedings exist with respect to any Employee Benefit Plan other than normal
benefit claims filed by participants or
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beneficiaries.
(c) QUALIFICATION. ZNC or the Companies (as the case may be) has
received a favorable determination letter or ruling from the Internal Revenue
Service for each Employee Benefit Plan intended to be qualified within the
meaning of Section 401(a) of the Code and/or tax-exempt within the meaning of
Section 501(a) of the Code (although any such determination letter does not
apply to any requirements applicable to such plan with respect to which the
remedial amendment period for making amendments to such plan has not yet expired
under Revenue procedures, notices or other guidance of the Internal Revenue
Service.) No proceedings exist or to its knowledge have been threatened that
could result in the revocation of any such favorable determination letter or
ruling.
(d) FUNDING STATUS. No accumulated funding deficiency (within the
meaning of Section 412 of the Code), whether waived or unwaived, exists with
respect to any Employee Benefit Plan or any plan sponsored by any member of a
Controlled Group. With respect to each Employee Benefit Plan subject to Title IV
of ERISA, the assets of each such plan are at least equal in value to the
present value of accrued benefits determined on an ongoing basis as of the date
hereof. With respect to each Employee Benefit Plan described in Section
501(c)(9) of the Code, the assets of each such plan are at least equal in value
to the present value of accrued benefits as of the date hereof. Neither ZNC, any
of the Companies nor any member of a Controlled Group has any liability to pay
excise taxes with respect to any Employee Benefit Plan under applicable
provisions of the Code or ERISA. The Financial Statements contain an accrual for
any liabilities as of the date thereof under any Employee Benefit Plans.
(e) PBGC. No facts or circumstances exist that would result in the
imposition of liability against Investor by the Pension Benefit Guaranty Company
as a result of any act or omission by ZNC, any of the Companies, or any member
of a Controlled Group. No reportable event (within the meaning of Section 4043
of ERISA) for which the notice requirement has not been waived has occurred with
respect to any Employee Benefit Plan subject to the requirements of Title IV of
ERISA.
(f) RETIREES. None of the Companies has any obligation or
commitment to provide medical, dental or life insurance benefits to or on behalf
of any of its employees who may retire or any of its former employees who have
retired from employment with any of the Companies other than coverage mandated
by Sections 601 through 608 of ERISA and 4980(f) of the Code, short-term
extensions of coverage (such as for six months in the event of disability) or
other extensions required by law.
4.10 ABSENCE OF CERTAIN CHANGES. Except as set forth in SCHEDULE 4.10,
since October 31, 1998, none of the Companies has:
(a) suffered any material adverse change, whether or not caused by
any deliberate act or omission of ZNC, any of the Companies or any shareholder
of ZNC or any of the Companies in its condition (financial or otherwise),
operations, assets, liabilities or business;
(b) contracted for the purchase of any capital assets having a cost
in excess of $100,000 or paid any capital expenditures in excess of $100,000,
except for any such purchases or payments related to the completion of the
Villages;
(c) incurred any indebtedness for borrowed money or issued or sold
any debt securities except in the ordinary course of business;
(d) incurred or discharged any liabilities or obligations except in
the ordinary course of business;
(e) paid any amount on any indebtedness prior to the due date,
forgiven or canceled any debts or claims or released or waived any rights or
claims, except in the ordinary course of business;
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(f) mortgaged, pledged or subjected to any security interest, lien,
lease or other charge or encumbrance any of its properties or assets, except in
the ordinary course of business;
(g) suffered any damage or destruction to or loss of any assets
(whether or not covered by insurance) that has materially adversely affected, or
could materially adversely affect, its business;
(h) acquired or disposed of any assets except in the ordinary
course of business;
(i) written up or written down the carrying value of any of its
assets;
(j) changed any accounting principles, methods or practices
followed or changed the costing system or depreciation methods of accounting for
its assets;
(k) waived any rights or forgiven any claims of over $10,000;
(l) lost, terminated or been advised of any substantial change in
the relationship with any salaried employee, customer or supplier, which
termination or change has materially and adversely affected, or could materially
and adversely affect, its business or assets;
(m) increased the compensation of any director or officer;
(n) increased the compensation of any employee except in the
ordinary course of business;
(o) made any payments to or loaned any money to any person or
entity referred to in Section 4.23;
(p) formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
(q) redeemed, purchased or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such rights or paid any dividends or
made any distribution to the holders of its capital stock;
(r) entered into any material agreement with any person or group,
or modified or amended in any material respect the terms of any such existing
material agreement except in the ordinary course of business; or
(s) entered into, adopted or amended any Employee Benefit Plan.
4.11 COMMITMENTS.
(a) COMMITMENTS; DEFAULTS. Except as set forth in SCHEDULE 4.11,
none of the Companies has entered into and remains obligated under, nor are the
stock, the assets or the business of any of the Companies bound by, whether or
not in writing, any
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement in respect of
any obligation in excess of $10,000;
(iii) guaranty or suretyship, indemnification or contribution
agreement or performance bond in respect of any obligation in
excess of $10,000;
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(iv) employment, consulting or compensation agreement or
arrangement (other than those for normal employer/employee
relationships which are terminable at will), including the election
or retention in office of any director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be
lent to another in excess of $10,000;
(vii) deed or other document currently in effect evidencing an
interest in or contract to purchase or sell real property;
(viii) agreement with dealers or sales or commission agents,
investment bankers, financial advisors, business brokers, public
relations or advertising agencies, accountants or attorneys
providing for payments in excess of $10,000 in any year;
(ix) lease of real or personal property, whether as lessor,
lessee, sublessor or sublessee (excluding the real estate leases
set forth on SCHEDULE 2.5(a) AND (b)) providing for payments in
excess of $10,000 in any year;
(x) agreement between any of the Companies and any affiliate of
ZNC or any of the Companies;
(xi) agreement relating to any material matter or transaction
in which a material interest is held by a person or entity that is
an affiliate of ZNC or any of the Companies;
(xii) any agreement out of the ordinary course of business for
the acquisition of services, supplies, equipment or other personal
property and involving more than $100,000 in the aggregate;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that involves either an
unperformed commitment in excess of $100,000 or in excess of $5,000
if it terminates more than 30 days after the date hereof;
(xvi) agreement relating to any matter or transaction in excess
of $5,000 and in which an interest is held by any person or entity
referred to in Section 4.23;
(xvii) agreement providing for the purchase from a supplier of
all or substantially all of the requirements of any of the
Companies of a particular product or service for an amount in
excess of $5,000; or
(xviii) any other agreement or commitment not made in the
ordinary course of business providing for payments in amounts or
the provisions of services having a value in excess of $10,000.
All of the foregoing are hereinafter collectively referred to as the
"Commitments." True, correct and complete copies of the written Commitments, and
true, correct and complete written descriptions of the oral Commitments, have
heretofore been delivered or made available to
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Investor. There are no existing material defaults, events of default or events,
occurrences, acts or omissions that, with the giving of notice or lapse of time
or both, would constitute defaults by any of the Companies, and no penalties
have been incurred nor are amendments pending, with respect to the Commitments.
The Commitments are in full force and effect and are valid and enforceable
obligations of the parties thereto in accordance with their respective terms,
and no defenses, off-sets or counterclaims have been asserted or to its
knowledge may be made by any party thereto, nor has any of the Companies waived
any rights thereunder.
(b) NO CANCELLATION OR TERMINATION OF COMMITMENT. Except as
contemplated hereby, neither ZNC nor any of the Companies has received written
notice of any plan or intention of any other party to any Commitment to exercise
any right to cancel or terminate any Commitment or agreement, and neither ZNC
nor any of the Companies knows of any fact that would justify the exercise of
such a right. Neither ZNC nor any of the Companies currently contemplates, or
has reason to believe any other person or entity currently contemplates, any
amendment or change to any Commitment.
4.12 INSURANCE. A list and brief description of all insurance policies
of each of the Companies are set forth in SCHEDULE 4.12.
4.13 PATENTS, TRADEMARKS, SERVICE MARKS AND COPYRIGHTS.
(a) OWNERSHIP. The Company or ZNC owns the federally registered
trademark and tradename "HomeMax" and "Home Sweet Home" without conflict with
the rights of others and at the Closing, if ZNC is the owner, it shall assign
all of its rights in and to such trademark and tradename to the Company. Each of
the Companies owns all other patents, trade-marks, software, service marks and
copyrights, if any, necessary to conduct their business, or possess adequate
licenses or other rights, if any, therefor, without conflict with the rights of
others.
(b) CONFLICTING RIGHTS OF THIRD PARTIES. Each of the Companies has
the sole and exclusive right to use the Proprietary Rights without infringing or
violating the rights of any third parties. Except as set forth in SCHEDULE
4.13(b), use of the Proprietary Rights does not require the consent of any other
person and the Proprietary Rights are freely transferable. No claim has been
asserted by any person to the ownership of or right to use any Proprietary Right
or challenging or questioning the validity or effectiveness of any license or
agreement constituting a part of any Proprietary Right. Each of the Proprietary
Rights is valid and subsisting, has not been canceled, abandoned or otherwise
terminated and, if applicable, has been duly issued or filed.
(c) CLAIMS OF OTHER PERSONS. Neither ZNC nor any of the Companies
has knowledge of any claim that, or inquiry as to whether, any product, activity
or operation of any of the Companies infringes upon or involves, or has resulted
in the infringement of, any proprietary right of any other person, corporation
or other entity; and no proceedings have been instituted, are pending or to its
knowledge are threatened that challenge the rights of any of the Companies with
respect thereto. None of the Companies has given and is bound by any agreement
of indemnification for any Proprietary Right as to any property manufactured,
used or sold by it.
4.14 TAX MATTERS. All required foreign, federal, state, local and other
tax returns, notices and reports (including, without limitation, income,
property, sales, use, franchise, capital stock, excise, added value, employees'
income withholding, social security and unemployment tax returns) of each of the
Companies have been accurately prepared and duly and timely filed, and all
foreign, federal, state, local and other taxes required to be paid with respect
to the periods covered by such returns have been paid. The Companies are not and
have not been delinquent in the payment of any tax, assessment or governmental
charge. The Companies are not and never had any tax deficiency proposed or
assessed against them and have not executed any waiver of any statute of
limitations on the assessment or collection of any tax or governmental charge.
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Except for sales tax audits, none of the Companies' franchise tax returns has
ever been audited by governmental authorities. No tax audit, action, suit,
proceeding investigation or claim is now pending nor to its knowledge threatened
against any of the Companies, and to its knowledge no issue or question has been
raised (and is currently to its knowledge pending) by any taxing authority in
connection with any of the Companies' tax returns or reports.
The reserves for taxes, assessments and governmental charges reflected
in the Financial Statements are sufficient for the payment of all unpaid taxes
and governmental charges payable by the Companies with respect to the period
ended December 31, 1998. Since January 1, 1998, the Companies have made adequate
provisions on their respective books of account for all taxes, assessments and
governmental charges with respect to their respective businesses, properties and
operations for such period. The Companies have withheld or collected from each
payment made to each of its employees, the amount of all taxes (including, but
not limited to, federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and have paid the same to the proper tax receiving officers or
authorized depositories. ZNC is responsible for, and shall pay, any tax
liability arising from the business of the Companies prior to the Closing Date
except as provided for in the Financial Statements.
4.15 TITLE TO ASSETS; CONDITION OF ASSETS. Except as disclosed on
SCHEDULE 4.15(a), the Companies have good and marketable title to, or a valid
leasehold interest in, their respective assets, including, without limitation,
those reflected on the Financial Statements (other than those since disposed of
in the ordinary course of business), free and clear of all security interests,
liens, charges and other encumbrances, except for (a) liens for taxes and
assessments, as listed on SCHEDULE 4.15(b), not yet due and payable or being
contested in good faith in appropriate proceedings, as listed on SCHEDULE
4.15(b), and (b) encumbrances that are incidental to the conduct of their
respective businesses or ownership of property, not incurred in connection with
the borrowing of money or the obtaining of credit, and which do not in the
aggregate materially detract from the value of the assets affected or materially
impair their use by the Company or the Subsidiaries, as the case may be, and (c)
easements, restrictions, encroachments and conditions which do not have a
material adverse effect on the use of such asset (collectively, the "Permitted
Exceptions"). The Companies lease the personal property with a value in excess
of $1,000 described on SCHEDULE 2.5(a) attached hereto, all of which leases are
valid and subsisting and none of them is in default. The Companies possess all
tools which have been provided to them by any suppliers or which they lease, all
of which tools are in good working order, wear and tear excepted, except for
such tools at any manufacturing plant where the obligation with respect to
returning any such tools that are missing or do not work does not exceed $5,000
in the aggregate. All real property leases under which the Companies are
operating are valid and subsisting and none of them is in default. A listing of
said leases, their terms and current monthly lease payments is attached hereto
as SCHEDULE 2.5(b).
4.16 REAL PROPERTY. A description of all interests in real property
owned by the Companies (collectively, the "Real Property") is set forth on
SCHEDULE 4.16 and SCHEDULE 4.29(b). Except as set forth on SCHEDULE 4.15(a), the
Companies have good, valid and marketable title to all the Real Property,
subject to Permitted Exceptions.
4.17 EFFECT OF TRANSACTIONS; COMPLIANCE WITH OBLIGATIONS. Except as set
forth on SCHEDULE 4.17, the execution, delivery and performance of this
Agreement by ZNC, the Company and HOP, and the consummation of the transactions
contemplated by the Transaction Documents and the performance of the businesses
of the Companies as now conducted, does not and will not violate any terms of
the articles of incorporation or bylaws of any of the Companies or violate any
judgment, decree or order, or any material contract or obligation of ZNC or any
of the Companies, or any statute, rule or regulation of any federal, state or
local government or agency applicable to ZNC or any of the Companies, or any
material contract to which any employee of any of the Companies is bound.
4.18 LITIGATION. Except as set forth in SCHEDULE 4.18, there is no
litigation, arbitration
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or governmental proceeding or investigation pending or, to the knowledge of ZNC
or the Companies threatened (a) against the Companies, (b) affecting any of the
properties or assets of any of the Companies or (c) against any officer,
director, shareholder or employee of any of the Companies in such capacity or
relating to his prior employment relationships.
4.19 LEGAL COMPLIANCE. Each of the Companies has all material
franchises, permits, licenses and other rights and privileges necessary to
permit it to own its properties and to conduct its business as presently
conducted. Except as set forth on Schedule 4.19, the business and operations of
each of the Companies has been and is being conducted in all material respects
in accordance with all applicable laws, rules and regulations, and none of the
Companies is in material violation of any judgment, law or regulation.
4.20 SUBSIDIARIES; JOINT VENTURES. Except as listed in SCHEDULE 4.20,
the Company does not have any direct or indirect Subsidiary. The Company and HOP
are each wholly-owned by ZNC, and each of the entities listed in SCHEDULE 4.20
is wholly-owned by the Company.
4.21 BROKERAGE. There are no claims for brokerage commissions, finder's
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by ZNC or any of the
Companies. ZNC agrees to indemnify and hold Investor harmless for any such
brokerage commissions, finders fees or similar compensation.
4.22 DISCLOSURE. To the knowledge of ZNC, this Agreement, the Exhibits
and Schedules hereto and the information furnished in writing to Investor, when
taken as a whole, do not contain any untrue statement of material fact or, to
the knowledge of ZNC and the Companies, omit any material fact necessary in
order to make the statements not misleading.
4.23 OWNERSHIP INTERESTS OF INTERESTED PERSONS. Except as set forth in
SCHEDULE 4.23, and except for the ownership of less than 1% of the equity of a
publicly-traded company, no officer, director or member of management of any of
the Companies, or their respective spouses or children, owns directly or
indirectly, on an individual or joint basis, any material interest in, or serves
as an officer or director of, any customer, supplier, any organization that has
a material contract or arrangement with any of the Companies, or any
organization that has a material contract or arrangement with a competitor of
any of the Companies.
4.24 INVESTMENTS IN COMPETITORS. Except for the ownership of less than
1% of the equity of a publicly-traded company, no officer, director or member of
management of any of the Companies owns directly or indirectly any interests or
has any investment in any corporation, business or other person that is a
competitor of any of the Companies.
4.25 ENVIRONMENTAL MATTERS. Neither the Companies nor any of their
respective assets is currently in violation of, or subject to any existing,
pending or to its knowledge threatened investigation or inquiry by any
governmental authority or to any remedial obligations under, any laws or
regulations pertaining to health or the environment (hereinafter sometimes
collectively called "Environmental Laws"), and this representation and warranty
would continue to be true and correct following disclosure to the applicable
governmental authorities of all relevant facts, conditions and circumstances, if
any, pertaining to the assets and operations of the Companies. The assets of the
Companies have never been used by the Companies in a manner that would be in
violation of any of the Environmental Laws. The Companies have obtained all
permits, licenses or similar authorizations to construct, occupy, operate or use
any buildings, improvements, fixtures and equipment owned or leased by the any
of the Companies by reason of any Environmental Laws. None of the assets owned
or leased by the Companies are on any federal or state "Superfund" list or
subject to any environmentally related liens.
4.26 CERTAIN PAYMENTS. Neither the Companies nor any of their
respective directors, officers or employees has paid or caused to be paid,
directly or indirectly, in connection with the business of any of the Companies:
(a) to any government or agency thereof or any agent of any
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supplier or customer any bribe, kick-back or other similar payment; or (b) any
contribution to any political party or candidate (other than from personal funds
of directors, officers or employees not reimbursed by their respective employers
or as otherwise permitted by applicable law).
4.27 GOVERNMENT INQUIRIES. Except as set forth in SCHEDULE 4.27, since
November 26, 1996, there have been no material inspection reports,
questionnaires, inquiries, demands or requests for information received by any
of the Companies, or any material statement, report or other document filed by
any of the Companies with, the federal government or any federal administrative
agency.
4.28 CONSENTS. Except as set forth on SCHEDULE 4.28, no consent,
authorization, approval, permit or license of, or filing with, any governmental
or public body or authority, any lender or lessor or any other person or entity
is required to authorize, or is required in connection with, the execution,
delivery and performance of the Transaction Documents on the part of ZNC, the
Company or HOP.
4.29 INVENTORY. The inventory included in the Financial Statements is
valued in accordance with GAAP, with appropriate reserves. Each of the Companies
has sufficient quantities of inventories appropriate, taken as a whole, to
conduct its business consistently with past practices. All of such inventories
are in good, current, standard and merchantable condition and are not obsolete
or defective. Set forth on SCHEDULE 4.29(a) is a listing of new and used homes
(by brand, model and single/double wide) for each home on the Companies' retail
sales centers (excluding display inventory under SCHEDULE 2.6) as of December
31, 1998 and included in the Financial Statements. Set forth on SCHEDULE 4.29(b)
is a listing of retail lots owned by or under contract with the Companies.
4.30 BOOKS OF ACCOUNT. The books of account of each of the Companies
have been kept accurately in the ordinary course of business, the transactions
entered therein represent bona fide transactions and the revenues, expenses,
assets and liabilities of the Companies have been properly recorded in such
books.
4.31 ACCOUNTS RECEIVABLE. The Financial Statements set forth the
accounts receivable of the Companies from sales made as of December 31, 1998,
and the payments and rights to receive payments related thereto. All such
accounts receivable have arisen from bona fide transactions in the ordinary
course of business and are valid and enforceable claims subject to no right of
set-off or counterclaim.
4.32 DISTRIBUTIONS AND REPURCHASES. Since January 1, 1998, no
distribution, payment or dividend of any kind has been declared or paid by any
of the Companies on any of their capital stock. No repurchase of any of the
capital stock of any of the Companies has been approved or effected.
4.33 PRODUCT WARRANTIES. There are no claims against any of the
Companies on account of product warranties or with respect to the manufacture,
sale or rental of defective products and there is no basis for any such claim on
account of defective products heretofore manufactured, sold or rented that is
not fully covered by insurance or the reserves for warranties shown in the
Financial Statements.
4.34 YEAR 2000 COMPLIANCE. The Company has made a detailed inquiry of
its own business and the Subsidiaries with respect to Year 2000 Compliance. The
Companies' information technology systems are in all respects Year 2000
Compliant. Year 2000 Compliance will not cause the Companies to suffer an
adverse change in their business condition (financial or otherwise), operating,
properties or prospects. To the Company's knowledge, the Companies' suppliers
and vendors are or will be Year 2000 Compliant for their own computer
applications.
4.35 COMPLETION OF VILLAGES. As of December 31, 1998, all construction
of the
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Companies fourteen (14) villages as described on SCHEDULE 4.35(i) (the
"Villages") has been completed in all material respects and except as set forth
on SCHEDULE 4.35(ii), the Villages are fully operational or are in a state ready
to be fully operational (e.g., model homes have been set up and furnished,
office has been furnished and fully functional) and all construction payables
and all other obligations of the Companies with respect to the Villages have
been paid in full (the "Village Obligations").
ARTICLE 5.
REPRESENTATIONS OF INVESTOR
Investor represents and warrants to ZNC that the following are true as
of the date hereof and will be true and correct through the Closing Date as if
made on that date:
5.1 AUTHORIZATION. All action on the part of Investor necessary for the
authorization, execution, delivery and performance of the Transaction Documents
by Investor and the performance of all of Investor's obligations hereunder have
been taken. The Transaction Documents executed by Investor are valid and binding
obligations of Investor enforceable according to their terms, except as may be
limited by (a) applicable bankruptcy, insolvency, reorganization or other
similar laws of general application relating to or affecting the enforcement of
creditor rights or the relief of debtors, (b) laws and judicial decisions
regarding indemnification for violations of federal securities laws, and (c) the
availability of specific performance or other equitable remedies. The execution,
delivery and performance of the Transaction Documents have been duly authorized
by all necessary action of Investor.
5.2 STATUS OF INVESTOR. Investor is knowledgeable and experienced in
making venture capital investments, is able to bear the economic risk of loss of
its investment in the Company. Investor is an "accredited investor," as that
term is defined in Rule 501(a) of Regulation D under the Securities Act.
Investor is acting on its own behalf in connection with the investigation and
examination of the Company and its decision to execute these documents.
5.3 SHARES PURCHASED FOR INVESTMENT. Investor agrees that any shares of
Common Stock acquired in accordance with the transactions contemplated by this
Agreement shall be acquired solely for Investor's own account and not as a
nominee or agent for any other person, for investment, and not with a view to,
or for offer or resale in connection with, any distribution thereof within the
meaning of the Securities Act or other applicable securities laws. Investor
understands that if any shares of Common Stock so acquired have not been
registered under the Securities Act or under any applicable blue sky or other
state securities law or regulation (hereinafter collectively referred to as
"blue sky laws"), Investor cannot offer for sale, sell, pledge, transfer or
otherwise dispose of such shares of Common Stock unless such shares of Common
Stock have been registered under the Securities Act and under any applicable
blue sky laws, or unless an exemption from such registration is available with
respect to any such proposed offer, sale, pledge, transfer or other disposition.
Investor agrees that a restrictive legend addressing the foregoing restrictions
on transfer may be placed on certificates representing any shares of Common
Stock so acquired and that transfer of such shares of Common Stock may be
refused by the Company or its transfer agent, if any, if in the opinion of
counsel to the Company any proposed sale or other disposition thereof by
Investor would not be in compliance with the Securities Act or any other
applicable federal securities laws or blue sky laws.
5.4 BROKERAGE. There are no claims for brokerage commissions, finder's
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by Investor. Investor
agrees to indemnify and hold ZNC harmless for any such brokerage commissions,
finders fees or similar compensation.
5.5 LITIGATION. There is no litigation, arbitration or governmental
proceeding or investigation pending or, to the knowledge of Investor, threatened
in writing against Investor, which conflicts with the rights of ZNC, the Company
or HOP hereunder or the performance of
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Investor's obligations hereunder or have a material adverse effect on Investor's
financial position. Investor is not subject to any judgment, order or decree
which may prevent Investor from conducting its business. Investor is not a party
to any litigation, arbitration, proceeding or investigation pending, or to the
knowledge of Investor threatened, involving any federal, state or local
government or agency which would conflict with, or in any way impact, Investor's
ability to perform its duties hereunder, or have a material adverse effect on
Investor's financial position.
5.6 ORGANIZATION. Investor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. Investor is
not barred or otherwise prevented from doing business in any jurisdiction where
the failure to conduct such business would have a material adverse effect on
Investor.
5.7 EFFECT OF TRANSACTIONS. The execution, delivery and performance of
this Agreement by Investor, and the consummation of the transactions
contemplated by the Transaction Documents, does not and will not violate any
terms of the Articles of Incorporation or Bylaws of Investor or violate any
judgment, decree or order, or any material contract or obligation of Investor,
or any material statute, rule or regulation of any federal, state or local
government or agency applicable to Investor.
5.8 FINANCIAL STATEMENTS. The consolidated balance sheets and the
related statements of income, shareholders' equity and cash flow (including the
notes related thereto) of Investor and its consolidated subsidiaries included in
the forms, documents and reports filed by Investor with the Securities and
Exchange Commission (the "Commission") complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto, have been prepared in
accordance with GAAP applied on a basis consistent with prior periods (except as
otherwise noted therein) and present fairly the consolidated financial position
of Investor and its consolidated subsidiaries as of their respective dates, and
the results of their operations and their cash flow for the periods presented
therein. Investor has not suffered any material adverse change, whether or not
caused by any deliberate act or omission of Investor or any shareholders of
Investor, in its condition (financial or otherwise), operations, assets,
disabilities or business since November 30, 1998.
5.9 POWER. Investor has all required corporate power and authority to
own its properties and to carry on its business as presently conducted. Investor
has all required power and authority to execute and deliver the Transaction
Documents and to carry out the transactions contemplated by the Transaction
Documents.
5.10 CONSENTS. Except as set forth on SCHEDULE 5.10, no consent,
authorization, approval, permit or license of, or filing with, any governmental
or public body or authority, any lender or lessor or any other person or entity
is required to authorize, or is required in connection with, the execution,
delivery and performance of the Transaction Documents on the part of Investor.
5.11 1934 ACT. Investor has furnished or made available to ZNC a true
and complete copy of its definitive proxy statement in connection with the most
recent annual meeting of its shareholders, its annual report and Form 10-K for
the fiscal year ended May 31, 1998, and its Form 10-Q for the quarters ended
August 31, 1998 and November 30, 1998 and any other document dated on or after
the date of its last Form 10-K which Investor filed under the Securities
Exchange Act of 1934, as amended with the Securities and Exchange Commission.
ARTICLE 6.
ZNC'S, THE COMPANY'S AND HOP'S COVENANTS
ZNC, the Company and HOP, jointly and severally, agree that between the
date hereof and the Closing:
6.1 CONSUMMATION OF AGREEMENT. ZNC, the Company and HOP shall use their
best
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efforts to cause the consummation of the transactions contemplated hereby in
accordance with their terms and conditions.
6.2 BUSINESS OPERATIONS. The Company and HOP shall, and ZNC shall cause
the Company and HOP to, operate the businesses of the Companies in the ordinary
course, consistent with past practices and except as contemplated herein, the
Companies shall not: (a) declare, pay or make any dividends or distributions on
their capital stock; (b) enter into any agreement (oral or written) with their
directors, officers or salaried employees except as agreed to by Investor; (c)
increase the compensation of their directors or officers; (d) increase the
compensation of any employee except in the ordinary course of business; (e) make
capital expenditures (or enter into commitments to make capital expenditures) in
excess or $100,000 (either individually or in the aggregate) except for the
planned expenditures to complete construction of the Villages; (f) issue any
capital stock or capital stock equivalents (including options and warrants) to
purchase capital stock; or (g) incur indebtedness or other liabilities other
than in the ordinary course of business and consistent with past practice. ZNC,
the Company and HOP shall use reasonable commercial efforts to preserve the
business of the Companies intact, to retain the present customers and suppliers
so that they will be available to the Companies after the Closing.
6.3 ACCESS. ZNC, the Company and HOP shall permit Investor and its
authorized representatives for any reasonable purpose access to, and make
available for inspection, at all reasonable times, all of the assets and
business of the Companies, including their respective employees (after receiving
written consent from Ronald Gratz, Chief Financial Officer of ZNC), customers,
suppliers, properties contracts, books and records and all other documents and
data and permit Investor and its authorized representatives to inspect and make
copies of all documents, records and information with respect to the affairs of
the Companies as Investor and its representatives may request, all for the sole
purpose of permitting Investor to become familiar with the business and assets
and liabilities of the Companies.
6.4 MATERIAL CHANGE. ZNC shall promptly inform Investor in writing of
any material adverse change in the condition (financial or otherwise),
operations, assets, liabilities, or business prospects of any of the Companies.
Notwithstanding the disclosure to Investor of any such material adverse change,
neither ZNC, the Company nor HOP shall be relieved of any liability for, nor
shall the providing of such information by ZNC, the Company or HOP to Investor
be deemed a waiver by Investor of, the breach of any representation, warranty or
covenant of ZNC, the Company or HOP contained in this Agreement.
6.5 APPROVALS OF THIRD PARTIES. ZNC, the Company and HOP shall use
their best efforts to secure, as soon as practicable after the date hereof, all
necessary approvals and consents of third parties to the consummation of the
transactions contemplated hereby.
6.6 NO NEGOTIATION WITH OTHERS. Neither ZNC, the Company nor HOP shall
solicit or participate in negotiations with (and ZNC, the Company and HOP shall
use their best efforts to prevent any affiliate, shareholder, director, officer,
employee or other representative or agent of ZNC or the Companies from
negotiating with, soliciting or participating in negotiations with) any person,
entity of organization with respect to any proposal for a business combination,
acquisition or purchase involving any of the assets or capital stock of any of
the Companies or any transaction inconsistent with those contemplated hereby.
6.7 AMENDMENT OF SCHEDULES. The Company, ZNC and HOP shall amend the
Schedules attached hereto by providing written notice of such amendment to
Investor at least five business days before the Closing Date (the "Schedule
Amendment"). Any such notice shall clearly state that it is being delivered
pursuant to this Section 6.7 and that it is a Schedule Amendment.
ARTICLE 7.
INVESTOR'S COVENANTS
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Investor agrees that between the date hereof and the Closing:
7.1 CONSUMMATION OF AGREEMENT. Investor shall use its best efforts to
cause the consummation of the transactions contemplated hereby in accordance
with their terms and conditions.
7.2 APPROVALS OF THIRD PARTIES. Investor shall use its best efforts to
secure, as soon as practicable after the date hereof, all necessary approvals
and consents of third parties to the consummation of the transactions
contemplated hereby.
7.3 MATERIAL CHANGE. Investor shall promptly inform ZNC in writing of
any material adverse change in the condition (financial or otherwise),
operations, assets, liabilities, or business prospects of Investor.
Notwithstanding the disclosure to ZNC of any such material adverse change,
Investor shall not be relieved of any liability for, nor shall the providing of
such information by Investor to ZNC be deemed a waiver by ZNC of, the breach of
any representation, warranty or covenant of Investor contained in this
Agreement.
ARTICLE 8.
INDEMNIFICATION
8.1 INDEMNIFICATION BY ZNC. Subject to the terms and conditions of this
Article 8, ZNC agrees to indemnify, defend and hold Investor and its directors,
officers, agents, attorneys and affiliates harmless from and against all losses,
claims, obligations, demands, assessments, penalties, liabilities, costs,
damages, attorneys' fees and expenses (collectively, "Damages"), asserted
against or incurred by such indemnitees by reason of or resulting from: (a) a
breach of any representation, warranty or covenant of ZNC, the Company or HOP
contained herein, in any exhibit, schedule, certificate or financial statement
delivered hereunder, or in any Transaction Document; (b) any investigation,
testing or remediation work on, or permits required for, the properties of the
Companies which is necessary or advisable under or pursuant to Environmental
Laws arising out of conditions occurring after acquisition of such property by
the Companies and prior to the Closing Date (it being specifically agreed that
ZNC shall be responsible for all Damages pertaining to the matters set forth on
SCHEDULE 8.1); (c) except as provided for in the Financial Statements, any
liabilities, contingent or otherwise (known or unknown and asserted or
unasserted) of any of the Companies arising out of transactions effected or
events occurring on or prior to the Closing Date; (d) except as provided for in
the Financial Statements, all taxes of the Companies for periods occurring on or
prior to the Closing Date; (e) except as provided for in the Financial
Statements, any legal actions relating to any acts or occurrences which happened
prior to the Closing on or prior to the Closing Date. In addition, ZNC shall
indemnify and hold harmless the above indemnities for all Damages in connection
with (i) the termination of the Company Option Plan and Repurchase Plan as
provided in Section 10.5 below (including, without limitation, payments made to
repurchase options issued under the Company Option Plan) or (ii) any material
adverse change contained in any Schedule Amendment, which material adverse
change was not known by ZNC, the Company or HOP prior to the date of this
Agreement.
8.2 INDEMNIFICATION BY INVESTOR. Subject to the terms and conditions of
this Article 8, Investor hereby agrees to indemnify, defend and hold ZNC and its
directors, officers, agents, attorneys and affiliates harmless from and against
all Damages asserted against or incurred by any of such indemnitees by reason of
or resulting from a breach of any representation, warranty or covenant of
Investor contained herein or in any exhibit, schedule or certificate delivered
hereunder, or in any Transaction Document.
8.3 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS.
(a) Except as provided in (b) below, neither ZNC nor Investor shall
be liable for Damages in an amount exceeding $8 million (the "Maximum Amount").
(b) Neither ZNC nor Investor shall be liable for indemnification
under Article
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8 until the aggregate amount of Damages incurred by the other party exceeds One
Hundred Thousand Dollars ($100,000) (the "Threshold Amount"); provided, however,
that if the Damages exceed the Threshold Amount, then such indemnifying party's
obligation under this Article 8 shall be the difference between the Maximum
Amount of the Damages and the Threshold Amount; and provided further, however,
that the Threshold Amount shall not apply to the Damages in excess of $10,000
arising out of the matters set forth in SCHEDULE 4.8(f); and provided further,
however, that neither the Maximum Amount nor the Threshold Amount shall apply to
the matters set forth in the last sentence of SECTION 8.1 above.
8.4 CONDITIONS OF INDEMNIFICATION. The respective obligations and
liabilities of ZNC and Investor (the "indemnifying party") to the other (the
"party to be indemnified") under Sections 8.1 and 8.2 with respect to claims
resulting from the assertion of liability by third parties shall be subject to
the following terms and conditions:
(a) Within 20 days (or such earlier time as might be required to
avoid prejudicing the indemnifying party's position) after receipt of notice of
commencement of any action evidenced by service of process or other legal
pleading, the party to be indemnified shall give the indemnifying party written
notice thereof together with a copy of such claim, process or other legal
pleading, and the indemnifying party shall have the right to undertake the
defense thereof by representatives of its own choosing and at its own expense;
provided that the party to be indemnified may participate in the defense with
counsel of its own choice, the fees and expenses of which counsel shall be paid
by the party to be indemnified unless (i) the indemnifying party has agreed to
pay such fees and expenses, (ii) the indemnifying party has failed to assume the
defense of such action or (iii) the named parties to any such action (including
any impleaded parties) include both the indemnifying party and the party to be
indemnified and the party to be indemnified has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the indemnifying party (in which case, if
the party to be indemnified informs the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the party to be indemnified, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for the party to be indemnified, which firm shall be designated in writing
by the party to be indemnified).
(b) In the event that the indemnifying party, by the 30th day after
receipt of notice of any such claim (or, if earlier, by the 10th day preceding
the day on which an answer or other pleading must be served in order to prevent
judgment by default in favor of the person asserting such claim), does not elect
to defend against such claim, the party to be indemnified will (upon further
notice to the indemnifying party) have the right to undertake the defense,
compromise or settlement of such claim on behalf of and for the account and risk
of the indemnifying party and at the indemnifying party's expense, subject to
the right of the indemnifying party to assume the defense of such claims at any
time prior to settlement, compromise or final determination thereof.
(c) Notwithstanding the foregoing, the indemnifying party shall not
settle any claim without the consent of the party to be indemnified unless such
settlement involves only the payment of money and the claimant provides to the
party to be indemnified a release from all liability in respect of such claim.
If the settlement of the claim involves more than the payment of money, the
indemnifying party shall not settle the claim without the prior consent of the
party to be indemnified.
(d) The party to be indemnified and the indemnifying party will
each cooperate with all reasonable requests of the other.
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(e) Any claim shall be net of the receipt of any insurance proceeds
paid to a Party under any policy or policies of insurance covering the loss
giving rise to the claim. Each Party will use reasonable efforts to collect any
such insurance and will account to the other Party therefor. Each Party agrees
to respond promptly to any inquiry by the other Party as to the status of any
such insurance payment.
8.5 WAIVER. No waiver by any party of any default or breach by another
party of any representation, warranty, covenant or condition contained in this
Agreement, any exhibit or any document, instrument or certificate contemplated
hereby shall be deemed to be a waiver of any subsequent default or breach by
such party of the same or any other representation, warranty, covenant or
condition. No act, delay, omission or course of dealing on the part of any party
in exercising any right, power or remedy under this Agreement or at law or in
equity shall operate as a waiver thereof or otherwise prejudice any of such
party's rights, powers and remedies. All remedies, whether at law or in equity,
shall be cumulative and the election of any one or more shall not constitute a
waiver of the right to pursue other available remedies.
8.6 REMEDIES EXCLUSIVE. The remedies provided in this Article 8 shall
be the exclusive remedies available to the parties, except in the case of fraud.
8.7 OFFSET. Any and all amounts owing or to be paid by any Party to any
other Party, hereunder or otherwise, shall be subject to offset and reduction
PRO TANTO by any amounts ("Offset Amounts") that have been determined by a court
of competent jurisdiction or by settlement of the Parties or by agreement of the
Parties to be owing at any time by such other Party to such Party in respect of
any failure or breach of any representation, warranty or covenant of such other
Party under or in connection with the Transaction Documents with such Party or
any transaction contemplated hereby or thereby.
8.8 INDEMNIFICATION, COSTS, EXPENSES AND LEGAL FEES. Each Party that is
shown to have breached the Transaction Documents hereby agrees to pay the costs
and expenses (including reasonable attorneys' fees and expenses) incurred by any
other Party in successfully (i) enforcing any of the terms of this Agreement
against such breaching Party or (ii) proving that another Party breached any of
the terms of this Agreement.
8.9 SPECIFIC PERFORMANCE. The Parties acknowledge that a refusal by a
Party to consummate the transactions contemplated hereby will cause irreparable
harm to the other Parties, for which there may be no adequate remedy at law and
for which the ascertainment of damages would be difficult. Therefore, a Party
shall be entitled, in addition to, and without having to prove the inadequacy
of, other remedies at law, to specific performance of this Agreement, as well as
injunctive relief (without being required to post bond or other security).
8.10 INSURANCE AND WARRANTIES. With respect to Damages that may be
subject to insurance recovery or manufacturer's warranty, Article 8 shall not be
enforced against the indemnifying party until the party to be indemnified has
first made a claim for Damages against the appropriate insurer or manufacturer.
Notwithstanding the foregoing, the party to be indemnified may (a) give notice
of such possible claim immediately and (b) pursue indemnification against the
indemnifying party under this Article 8 upon the earlier of (i) rejection of
such claim; or (ii) the passage of nine months from the date such claim was
submitted if no resolution has been reached with the insurer or manufacturer.
The indemnifying party shall be entitled to an assignment of the rights against
such insurer or manufacturer upon payment of such indemnification claim up to
the amount so indemnified.
8.11 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained herein shall survive the Closing and all statements
contained in any certificate, exhibit or other instrument delivered by or on
behalf of ZNC, the Company or Investor pursuant to this Agreement shall be
deemed to have been representations and warranties by ZNC, the Company or
Investor, as the case may be, and, notwithstanding any provision in this
Agreement to the contrary, shall survive the Closing for a period of eighteen
months from the Closing Date; provided, however, that the representations
contained in (a) Section 4.14 above shall survive
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until the expiration of the applicable statute of limitations, and (b) Section
4.25 above shall survive the Closing for a period of three years from the
Closing Date. Notwithstanding the above, if prior to any expiration date the
indemnifying party shall have been notified of a claim for indemnity hereunder
and such claim shall not have been finally resolved or disposed of at such date,
any representation or warranty that is the basis for such claim shall continue
to survive as to such claim and shall remain a basis for indemnity, to the
extent of such claim only, until such claim is finally resolved or disposed of.
ARTICLE 9.
TERMINATION
9.1 TERMINATION. This Agreement may be terminated:
(a) At any time prior to the Closing Date by mutual agreement of
ZNC and Investor.
(b) At any time prior to the Closing Date by Investor if any
representation or warranty of ZNC, the Company or HOP contained in this
Agreement or in any certificate or other document executed and delivered by ZNC,
the Company or HOP pursuant to this Agreement is untrue when made or if ZNC, the
Company or HOP fails to comply in any material respect with any covenant
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within five days after written notice.
(c) At any time prior to the Closing Date by ZNC if any
representation or warranty of Investor contained in this Agreement or in any
certificate or other document executed and delivered by Investor pursuant to
this Agreement is untrue when made or if Investor fails to comply in any
material respect with any covenant contained herein, and any such
misrepresentation, noncompliance or breach is not cured, waived or eliminated
within five days after written notice.
(d) By either Investor or ZNC if the Closing has not occurred by
the Closing Date.
In the event this Agreement is terminated pursuant to subparagraph (b), (c) or
(d) above, Investor and ZNC shall each be entitled to pursue, exercise and
enforce any and all remedies, rights, powers and privileges available at law or
in equity. In the event of a termination of this Agreement under the provisions
of this Article, a Party not then in material breach of this Agreement shall
stand fully released and discharged of any and all obligations under this
Agreement.
Notwithstanding any termination, this Agreement remains in full force
and effect as to the deliveries made at signing (as provided in SECTION 2.11
above) such that the representations, warranties and indemnification provided
herein apply to such deliveries and actions taken at signing.
ARTICLE 10.
POST-CLOSING COVENANTS
10.1 Within thirty-five days following the Closing Date, ZNC shall
provide to Investor evidence that, at the end of the thirty day period
immediately following the Closing Date, the cash balance of the Company equals
$250,000, plus cash receipts of the Company during such thirty day period
(excluding amounts received under the Company Note or the Working Capital
Notes), less cash disbursements made during such thirty day period (with all
disbursements being paid when due and on a timely basis), less net losses during
such thirty day period, plus depreciation and amortization for such thirty day
period. If such amount is less than $250,000, ZNC shall promptly (within five
days) pay an amount equal to the difference to the Company and, if such amount
is greater than $250,000, the Company shall promptly (within five days) pay an
amount equal to the difference to ZNC.
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<PAGE> 28
10.2 At anytime after Closing upon the request of AHC, ZNC shall
convert each of the Companies into a limited liability company by the date
requested by AHC, which date shall be no sooner than 30 days after such request.
10.3 Until such time as ZNC no longer owns the majority of the
outstanding shares of Common Stock of the Company, ZNC shall provide the
Companies and their employees with the Employee Benefit Plans as set forth on
SCHEDULE 4.9(a) or, in the event those Employee Benefit Plans are no longer
offered to ZNC employees, with the same Employee Benefit Plans that are provided
to ZNC's employees.
10.4 Until such time as ZNC no longer owns the majority of the
outstanding shares of Common Stock of the Company, ZNC shall provide the
Companies with the insurance coverage set forth in SCHEDULE 4.12, or such other
coverage as ZNC purchases to insure ZNC and its other subsidiaries.
10.5 In addition, within sixty (60) days following the Closing, AHC and
ZNC shall cause the Board of Directors of the Company to: (i) terminate the 1998
Stock Option Plan of the Company (the "Company Option Plan"); and (ii)
repurchase and terminate all options issued under the Company Option Plan (the
"Repurchase Plan").
ARTICLE 11.
GENERAL
11.1 AMENDMENTS. This Agreement may not be amended, except in a written
document signed by ZNC, the Company and Investor.
11.2 HEADINGS. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
11.3 GOVERNING LAW. THIS AGREEMENT IS TO BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE
CHOICE OF LAW PROVISIONS THEREOF.
11.4 NOTICES AND DEMANDS. Any notice or demand which is permitted or
required hereunder will be deemed to have been sufficiently received (except as
otherwise provided herein) (a) upon receipt when personally delivered, (b) or
one (1) day after sent by one-day overnight delivery providing confirmation or
receipt of delivery, or (c) three (3) days after being sent by certified or
registered mail, postage and charges prepaid, return receipt requested to the
addresses listed on SCHEDULE 11.4 attached hereto, or at any other address
designated by any party hereto to all other parties hereto in writing.
11.5 SEVERABILITY. If any provision of this Agreement is held invalid
under applicable law, such provision will be ineffective to the extent of such
invalidity, and such invalid provision will be modified to the extent necessary
to make it valid and enforceable. Any such invalidity will not invalidate the
remainder of this Agreement.
11.6 EXPENSES. Each Party will bear its own fees for counsel and
accountants and other expenses relating to the transactions contemplated herein
(including any broker's or finder's fees); provided, however, that ZNC shall
bear all the fees and expenses incurred by the Companies (other than the Audit
which will be an expense of the Companies as such expenses are accrued or
provided for in the December 31, 1998 consolidated balance sheet of the
Companies, such that the Companies shall not incur any fees or expenses in
connection with or related to this Agreement or the transactions contemplated
herein.
11.7 PUBLICITY AND DISCLOSURES. Each Party shall keep this Agreement
and its terms confidential, and shall make no press release or public
disclosure, either written or oral, regarding
24
<PAGE> 29
the transactions contemplated by this Agreement without the prior knowledge and
consent of the other Parties hereto; provided that the foregoing shall not
prohibit any disclosure (i) by press release, filing or otherwise that is
required by law (including, without limitation, federal securities laws),
regulation or court or administrative order, (ii) to advisors, financiers or
lenders of any Party or to any Party's directors, officers, employees and
representatives involved in the transactions contemplated herein or (iii) by
Investor in connection with obtaining financing for the transactions
contemplated by this Agreement and conducting an examination of the operations
and assets of the Companies. In addition, the Parties agree not to purchase or
sell any common stock of Investor or ZNC until two (2) business days after a
public announcement of the transactions contemplated herein has been made by
Investor and ZNC.
11.8 ENTIRE AGREEMENT. This Agreement and the Schedules and Exhibits to
this Agreement constitute the entire agreement of the Parties with respect to
the subject matter hereof and supersede all prior agreements and understanding,
both written and oral, among the Parties, or any of them, with respect to the
subject matter hereof; provided, however, that the Confidentiality Agreement,
dated November 16, 1998, by and between ZNC and Investor shall remain in full
force and effort.
11.9 ASSIGNMENT. Neither this Agreement nor any right or obligation
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto, except
as permitted therein or by Investor to a wholly-owned subsidiary of Investor
during the one-year period following the Closing and thereafter to any 80% or
more owned subsidiary of Investor, which must remain an 80% or more owned
subsidiary of Investor throughout the term of any obligation under this
Agreement and/or the Transaction Documents, provided that AHC guarantees full
payment and performance by such subsidiary.
11.10 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the Parties. Neither this Agreement
nor any other agreement contemplated hereby shall be deemed to confer upon any
person not a Party any rights or remedies hereunder or thereunder.
11.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be taken to be an original; but such
counterparts will together constitute one document.
[The remainder of this page is left blank intentionally.]
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<PAGE> 30
The undersigned have executed this Agreement as of the date first
written above.
ZARING NATIONAL CORPORATION
By:
------------------------------------------
Title:
----------------------------------------
HOMEMAX, INC.
By:
------------------------------------------
Title:
----------------------------------------
HOMEMAX OPERATING PROPERTIES, L.L.C.
By:
------------------------------------------
Title:
----------------------------------------
AMERICAN HOMESTAR CORPORATION
By:
------------------------------------------
Laurence A. Dawson, Jr., President
<PAGE> 31
EXHIBIT A
DEFINITIONS
As used in the Agreement, the following terms shall have the corresponding
meaning. All references to Sections in this EXHIBIT A shall refer to Section
numbers in the Agreement.
"Audit" shall have the meaning set forth in Section 2.1(a).
"Call" shall have the meaning set forth in Section 2.1.
"Cash Compensation" shall mean wages, salaries, bonuses (discretionary
and formula) and other compensation paid or payable in cash.
"Closing" shall have the meaning set forth in Section 3.1.
"Closing Date" shall have the meaning set forth in Section 3.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commitments" shall mean the agreements, contracts, arrangements and
commitments described in Section 4.11.
"Common Stock" shall mean the common stock, par value $.01 per share,
of the Company.
"Companies" shall mean HOP and the Company and all of its subsidiaries,
which subsidiaries are listed on SCHEDULE I to this EXHIBIT A.
"Companies Auditors" shall have the meaning set forth in Section
2.1(b).
"Company Note" shall have the meaning set forth in Section 2.2.
"Company Option Plan" shall have the meaning set forth in Section 10.5.
"Compensation Plans" shall mean compensation plans, arrangements and
practices of the Companies.
"Controlled Group" shall mean a controlled group (within the meaning of
Section 412(n)(6)(B) of the Code) in which any of the Companies is a member.
"Damages" shall have the meaning set forth in Section 8.1.
"Employee Benefit Plans" shall mean employee benefit plans within
Section 3(3) of ERISA.
"Employee Policies and Procedures" shall mean all employee manuals,
policies, procedures and work related rules that apply to employees of the
Companies.
"Environmental Laws" shall have the meaning set forth in Section 4.25.
"Estimate" shall have the meaning set forth in Section 2.1(b).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Financial Statements" shall mean (i) the consolidated audited balance
sheet, statement of operations and statements of cash flow of the Companies as
of December 31, 1997, and (ii) the
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consolidated unaudited statements of operations and statements of cash flow of
the Companies for the 10-month period ended October 31, 1998 or, if the Audit is
reviewed and accepted prior to Closing, the consolidated audited balance sheet,
statement of operations and statements of cash flow of the Companies as of
December 31, 1998.
"GAAP" shall mean generally accepted accounting principles.
"HOP Interests" shall mean the Company Interests (as defined in the HOP
Operating Agreement).
"HOP Operating Agreement" shall mean the Limited Liability Company
Agreement of HOP, the form of which is attached hereto as EXHIBIT M.
"Investor's Auditors" shall have the meaning set forth in Section
2.1(b).
"Investor Common Stock" shall have the meaning set forth in Section
2.3.
"Investor Note" shall have the meaning set forth in Section 2.1(a).
"Investor Shares" shall have the meaning set forth in Section 2.1(a).
"Management Agreement" shall have the meaning set forth in Section 2.7.
"Net Book Value" shall mean the Total Assets minus the Total
Liabilities of the Companies after excluding from Total Liabilities the Total
Intercompany Financing Transactions and any outstanding part of the Company
Note. For example Net Book Value as of October 31, 1998, would be as calculated
in SCHEDULE II to this EXHIBIT A.
"Noncompetition Agreement" shall have the meaning set forth in Section
2.8.
"Offset amounts" shall have the meaning set forth in Section 8.7.
"Operating Leases" shall have the meaning set forth in Section 2.5.
"Operating Leases Assignment and Assumption Agreement" shall mean that
certain Operating Leases and Assignment Agreement, by and between the Company
and HOP, the form of which is attached hereto as EXHIBIT N.
"Option Agreement" shall have the meaning set forth in Section 2.3.
"Outstanding Common Stock" shall mean the issued and outstanding Common
Stock.
"Outstanding HOP Interests" shall mean the issued and outstanding HOP
Interests.
"Party" shall mean each party to this Agreement, and "Parties" shall
mean collectively all of such parties.
"Permitted Exceptions" shall have the meaning set forth in Section
4.15.
"Previous FMV" shall have the meaning set forth in Section 2.5.
"Proprietary Rights" shall mean (i) all trade-marks, trade-names,
service marks and other trade designations, registrations and applications
therefor, and all patents, copyrights and applications currently owned, in whole
or in part, by any of the Companies with respect to its business, and all
licenses, royalties, assignments and other similar agreements relating to the
foregoing to which any of the Companies is a party; and (ii) all agreements
relating to
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technology, know-how or processes that any of the Companies is licensed or
authorized to use by others, or which it licenses or authorizes others to use.
"Purchase Price" shall have the meaning set forth in Section 2.1(a).
"Put" shall have the meaning set forth in Section 2.1.
"Put/Call Period" shall have the meaning set forth in Section 2.1.
"Put Notice Date" shall have the meaning set forth in Section 2.1.
"Registration Rights Agreement" shall have the meaning set forth in
Section 2.10.
"Repurchase Plan" shall have the meaning set forth in Section 10.5.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securityholders Agreement" shall have the meaning set forth in Section
2.9.
"Shareholders Agreement" shall have the meaning set forth Section 2.9.
"Subsidiary" shall mean any corporation, partnership, joint venture or
other legal entity of which the Company or a subsidiary of the Company owns,
directly or indirectly, an equity interest in.
"Sublease Agreement" shall mean that certain Sublease Agreement by and
between the Company and HOP, substantially in the form of EXHIBIT O attached
hereto.
"Third-Party Auditors" shall have the meaning set forth in Section
2.1(c).
"Threshold Amount" shall have the meaning set forth in Section 8.3.
"Total Assets" shall mean all tangible and intangible assets of the
Company required to be reflected on its balance sheet in accordance with GAAP.
"Total Intercompany Financing Transactions" shall have the meaning used
in the internal financial statements of the Companies and shall include all
amounts owed by the Companies to ZNC.
"Total Liabilities" shall mean all liabilities of the Company required
to be reflected on its balance sheet in accordance with GAAP.
"Transaction Documents" shall mean this Agreement and all other
documents, instruments and agreements contemplated by the transactions contained
in this Agreement including, but not limited to, the Management Agreement, the
Noncompetition Agreement, the Company Note, the Investor Note, the Working
Capital Notes, the Securityholders Agreement, the Registration Rights Agreement,
the Option Agreement and the HOP Operating Agreement.
"Underlying Assets" shall have the meaning set forth in Section 2.5.
"Underlying Shares" shall have the meaning set forth in Section 10.1.
"Villages" shall have the meaning set forth in Section 3.2(h).
"Working Capital Note Amount" shall have the meaning set forth in
Section 2.4.
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<PAGE> 34
"Working Capital Notes" shall have the meaning set forth in Section
2.4.
"Year 2000 Compliance" means, with respect to the Companies'
information technology, the information technology is designed to be used prior
to, during and after the calendar year 2000 A.D., and the information technology
used during each such time period will accurately receive, provide and process
date/time data (including, but not limited to, calculating, comparing and
sequencing) from, into and between the 20th and 21st centuries, including the
years 1999 and 2000, and leap-year calculations and will not malfunction, cease
to function, or provide invalid or incorrect results as a result of date/time
data, to the extent that other information technology, used in combination with
the information technology being acquired, properly exchanges date/time data
with it.
"ZNC Interest" shall have the meaning set forth in Section 2.1.
"ZNC Note" shall have the meaning set forth in section 2.12.
A-4
<PAGE> 35
SCHEDULE I TO
EXHIBIT A
SUBSIDIARIES
HomeMax, Inc.
HomeMax North Carolina, Inc.
HomeMax South Carolina, Inc.
HomeMax Tennessee, Inc.
HomeMax Kentucky, LLC
HomeMax Indiana, LLC
HomeMax Ohio, Inc.
HM Properties, Inc.
HM Services, Inc.
A-5
<PAGE> 36
SCHEDULE II TO
EXHIBIT A
Representative Calculation of "Net Book Value"
of HomeMax on Consolidated Basis as of 10/31/98
based upon the attached HomeMax balance
sheet, 10/31/98, by legal entity
<TABLE>
<S> <C>
Total Assets $26,412,465
Less Total Liabilities (23,558,673)
2,853,792
Plus Intercompany Financing Transactions:
- Provision for Taxes (3,474,000)
- PNC Disbursement Account (706,096)
- Intercompany Payables 296,562
- Intercompany Notes 16,927,713
Total Intercompany Financing Transactions 13,044,179
Net Book Value $15,897,971
</TABLE>
A-6
