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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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[X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
</TABLE>
ZARING NATIONAL CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A ...
(2) Aggregate number of securities to which transaction applies: N/A ......
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): Estimated
aggregate value of consideration to be received by registrant:
$55,400,000.00. One fiftieth of one percent equals $11,080.00. ........
(4) Proposed maximum aggregate value of transaction: $55,400,000.00 .......
(5) Total fee paid: $11,080.00 ............................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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[ZARING NATIONAL CORPORATION LOGO]
ZARING NATIONAL CORPORATION
11300 CORNELL PARK DRIVE, SUITE 500
CINCINNATI, OHIO 45242
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY , 2001
To the Shareholders of Zaring National Corporation:
A Special Meeting of Shareholders (the "Special Meeting") of Zaring
National Corporation, an Ohio corporation ("Zaring") will be held on January,
, 2001, at 9:00 a.m., at the Queen City Club, 331 East Fourth
Street, Cincinnati, Ohio 45202, for the following purposes:
1. To consider and vote to authorize the sale of substantially all of the
assets of Zaring and certain of its subsidiaries (the "Asset Sale") pursuant to
an Asset Purchase Agreement dated as of December 1, 2000, by and among Zaring,
Zaring Homes, Inc. and Zaring Homes of Indiana, LLC as Sellers and Drees
Preferred Collection, Inc., a wholly owned subsidiary of The Drees Company, as
Purchaser, a copy of which agreement is attached to the accompanying Proxy
Statement as Exhibit A;
2. To consider and vote to adopt the proposed amendment to Article First of
Zaring's Amended Articles of Incorporation to change Zaring's name to First
Cincinnati, Inc. (the "Name Change Amendment"); and
3. To transact such other business as may properly come before the Special
Meeting or any postponements or adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Shareholders of record at the close of
business on December 18, 2000 will be entitled to vote at the meeting or any
postponement or adjournment thereof.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ASSET SALE AND THE NAME
CHANGE AMENDMENT AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE ASSET SALE AND THE
NAME CHANGE AMENDMENT.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date, and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if such shareholder previously signed and
returned a proxy.
By Order of the Board of Directors,
Ronald G. Gratz
Secretary
Cincinnati, Ohio
January , 2001
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TABLE OF CONTENTS
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SUMMARY TERM SHEETS......................................... 1
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS......... 5
THE SPECIAL MEETING......................................... 5
Record Date and Shares Outstanding........................ 5
Voting.................................................... 5
Participants in Retirement Benefit Plan................... 6
Proxy Solicitation........................................ 6
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS................ 6
RISK FACTORS................................................ 7
THE ASSET SALE.............................................. 8
General Overview.......................................... 8
The Sellers............................................... 8
The Purchaser............................................. 8
Reasons for the Asset Sale................................ 8
Background of the Asset Sale.............................. 9
Fairness of the Asset Sale................................ 13
The Purchase Agreement.................................... 13
Acquired Assets........................................ 13
Assumed Liabilities.................................... 15
Purchase Price......................................... 16
Representations and Warranties......................... 17
Acquisition Proposals.................................. 17
Conduct of Business Pending Closing.................... 18
Preparation of Proxy Statement and Shareholder 18
Meeting...............................................
Hart-Scott-Rodino Act.................................. 18
Covenants.............................................. 19
Closing Conditions..................................... 19
Indemnification by Zaring.............................. 21
Termination of the Purchase Agreement.................. 22
Liquidated Damages..................................... 23
Amendment to Purchase Agreement........................ 23
Government Approvals...................................... 23
Other Agreements in Connection With the Asset Sale........ 23
Non-Competition Agreements............................. 23
Warranty Services Agreement............................ 24
Transition Services Agreement.......................... 24
Loan Processing Services Agreement..................... 24
Transfer Agreements for Intellectual Property.......... 24
Employment Agreements.................................. 25
Land Option Contract with First Cincinnati Land LLC.... 25
Model Home Leasing Agreements with First Cincinnati 26
Leasing LLC...........................................
Escrow Agreement....................................... 26
Right of First Offer Agreement......................... 26
Dissenters' Rights........................................ 26
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Accounting Treatment of the Asset Sale.................... 28
Federal Income Tax Consequences of the Asset Sale......... 28
Price Range of Common Shares Preceding Announcement of 28
Asset Sale.............................................
Delisting and Trading of the Common Shares after the Asset 29
Sale...................................................
Operations of Zaring Following the Assets Sale............ 29
Use of Proceeds........................................... 29
Recommendation of the Board............................... 29
Selected Financial Data................................... 30
Unaudited Pro Forma Financial Information................. 35
AMENDMENT TO ZARING'S AMENDED ARTICLES OF INCORPORATION..... 38
Proposed Shareholder Action............................... 38
No Appraisal Rights....................................... 38
Recommendation of the Board............................... 38
OTHER MATTERS............................................... 38
OTHER INFORMATION REGARDING ZARING.......................... 38
Voting Securities and Principal Holders Thereof........... 38
Interests of Certain Persons in Matters to be Acted 39
Upon...................................................
Changes in Control........................................ 39
Shareholder Proposals..................................... 39
Where You Can Find More Information....................... 40
Information Incorporated by Reference..................... 40
Consent of Independent Public Accountants................. 42
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)............... F-1
EXHIBIT A: THE ASSET PURCHASE AGREEMENT..................... A-i
EXHIBIT B: OHIO DISSENTERS' RIGHTS STATUTE.................. B-1
</TABLE>
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SUMMARY TERM SHEET
The following summary term sheet highlights selected information from this
Proxy Statement and may not contain all of the information that is important to
every shareholder. To understand the transactions fully and for a more complete
description of the legal terms of the transactions, shareholders should read
carefully this entire Proxy Statement and the attached documents.
THE ASSET SALE
This section summarizes selected information about the proposed sale of
substantially all of the assets of Zaring National Corporation ("Zaring") and
certain of its subsidiaries (the "Asset Sale") pursuant to an Asset Purchase
Agreement dated December 1, 2000 among Zaring, Zaring Homes, Inc., a wholly
owned subsidiary of Zaring, Zaring Homes of Indiana, LLC, a subsidiary of Zaring
Homes, as Sellers and Drees Preferred Collection, Inc. ("Drees") a wholly owned
subsidiary of The Drees Company, as Purchaser. A copy of the Purchase Agreement
is attached to this Proxy Statement as Exhibit A.
The Parties to the Asset Sale:
ZARING NATIONAL CORPORATION...
11300 Cornell Park Drive
Suite 500
Cincinnati, Ohio 45242
(513) 489-8849 Zaring, through its subsidiaries Zaring Homes,
Inc. and Zaring Homes of Indiana, LLC, is
primarily a regional builder of luxury
site-built homes. Zaring, a holding company,
also derives or has derived revenues through
other subsidiaries from activities including
the retail distribution of manufactured homes,
building of entry-level homes and mortgage
services. See "Other Information Regarding
Zaring -- Where You Can Find More Information"
on page .
DREES PREFERRED COLLECTION,
INC...........................
211 Grandview Drive
Ft. Mitchell, Kentucky 41017
(859) 578-4200 Drees Preferred Collection, Inc. is a wholly
owned subsidiary of The Drees Company formed
for the purpose of the Asset Sale. Drees
Preferred Collection, Inc. has conducted no
business to date. The Drees Company is
headquartered in Greater Cincinnati/Northern
Kentucky and has been in business for over 70
years. The Drees Company has home building
operating divisions in Cincinnati, Dayton,
Cleveland, Raleigh, Washington DC, Austin and
Dallas. See "The Asset Sale -- The Purchaser"
on page .
ACQUIRED ASSETS............... Drees will purchase Sellers' homebuilding
business in Cincinnati, Ohio, Indianapolis,
Indiana, and Nashville, Tennessee, which
constitute substantially all of the Sellers'
assets, and include Sellers' inventory,
leasehold interests, tangible assets, certain
contracts and the "Zaring" name. See "The Asset
Sale -- The Purchase Agreement -- Acquired
Assets" on page .
ASSUMED LIABILITIES........... Drees will be assuming only specifically
identified liabilities of Sellers, including
the following:
- Sellers' liabilities under certain contracts
and facility leases;
- Sellers' liabilities with respect to customer
deposits;
- Accounts payable and other payables of
Sellers' business relating to inventory being
acquired; and
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- Liabilities incurred in the ordinary course
of Sellers' business and not posted to
Sellers' books and records as of the closing
of the Asset Sale.
Drees will not assume Sellers' liabilities
relating to any tort, product liability,
environmental liability, tax or other damage
related to the assets purchased by Drees or
Sellers' business prior to closing and
liabilities relating to any assets not
purchased by Drees. "The Asset Sale -- The
Purchase Agreement -- Assumed Liabilities" on
page .
THE PURCHASE PRICE............ The purchase price for the assets acquired by
Drees will consist of
- cash equal to the book value of the assets
acquired by Drees;
- the assumption of certain liabilities; and
- a cash premium of up to $1,500,000 based on
Sellers' backlog of houses and gross profit
margin.
The cash payment made at closing will be based
on the estimated book value of the assets
acquired by Drees seven days prior to closing.
The payment will be adjusted after closing
based on the closing balance sheet of Zaring as
of the closing date. Five percent of the cash
payment at closing will be paid to an escrow
account. "The Asset Sale -- The Purchase
Agreement -- Purchase Price" on page .
ANTICIPATED CLOSING OF THE
ASSET SALE.................... The closing will occur on the second business
day after the Sellers satisfy, or Drees waives,
all the conditions to Drees' obligation to
close, but not later than January 31, 2001. See
"The Asset Sale -- General Overview" on page
.
CONDITIONS TO CLOSING......... The closing of the Asset Sale is subject to the
following conditions:
- approval by the board of directors of each of
Zaring and Drees;
- Drees obtaining necessary financing;
- Zaring shareholder approval of the Asset
Sale;
- approval by certain lot and land sellers;
- consent of Zaring's lenders;
- a minimum backlog of houses meeting a minimum
weighted average gross profit margin;
- employment of certain Zaring employees after
the Asset Sale; and
- other conditions customary for transactions
of this type.
See "The Asset Sale -- The Purchase
Agreement -- Closing Conditions" on page .
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INDEMNIFICATION............... Sellers have agreed to indemnify Drees for any
losses and expenses resulting from the
following:
- any inaccuracy in or breach of Sellers'
representations and warranties;
- Sellers' failure to fulfil any unwaived
covenant;
- any liability not expressly assumed by Drees;
and
- certain types of litigation.
See "The Asset Sale -- The Purchase
Agreement -- Indemnification" on page .
TERMINATION OF PURCHASE
AGREEMENT..................... The agreement between Drees and Sellers may be
terminated prior to closing as follows:
- by mutual consent of the parties;
- by either party if the other party is in
breach of any representation, warranty or
obligation that is not able to be satisfied
by January 31, 2001;
- by either party if the closing has not
occurred by January 31, 2001 and the
terminating party is not in material breach;
- by either party if a final decision by a
governmental entity prevents the consummation
of the Asset Sale;
- by either party is Zaring shareholder
approval is not obtained;
- by either party if the board of directors of
Zaring has withdrawn its recommendation of
the Asset Sale due to a proposal to acquire
Zaring or its assets that is superior to the
terms proposed by Drees.
See "The Asset Sale -- The Purchase
Agreement -- Termination of the Purchase
Agreement" on page .
GOVERNMENT APPROVALS.......... In addition to compliance with state corporate
law and federal and state securities laws, the
Asset Sale is subject to approval under the
Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended. See "The Asset
Sale -- Government Approvals" on page .
DISSENTERS' APPRAISAL
RIGHTS........................ Voting shareholders of Zaring are entitled to
dissenters' rights under Ohio law in connection
with the Asset Sale upon compliance with the
procedure described under "The Asset
Sale -- Dissenters' Rights" on page . For the
text of the dissenters' rights statute, see
Exhibit B.
ACCOUNTING TREATMENT.......... The Asset Sale will be treated as a sale of
assets and liabilities for accounting purposes.
See "The Asset Sale -- Treatment of the Asset
Sale" on page .
FEDERAL INCOME TAX
CONSEQUENCES.................. The Asset Sale will not result in any federal
income tax consequences to the shareholders,
but the sale will be a taxable transaction
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to Zaring. See "The Asset Sale -- Federal
Income Tax Consequences" on page .
AMENDMENT TO THE AMENDED ARTICLES OF INCORPORATION TO EFFECT NAME CHANGE
This section summarizes selected information about the proposed amendment
to Article First of the Company's Amended Articles of Incorporation to change
the Company's name to First Cincinnati, Inc.
REASON FOR THE NAME CHANGE.... Zaring is required to change its name, because
rights to the use the name "Zaring" will be
sold to Drees as part of the Asset Sale.
IMPLEMENTATION................ The name change will only occur if the Asset
Sale is consummated.
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ZARING NATIONAL CORPORATION
11300 CORNELL PARK DRIVE, SUITE 500
CINCINNATI, OHIO 45242
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY , 2001
THE SPECIAL MEETING
The enclosed proxy is solicited on behalf of the Board of Directors of
Zaring National Corporation ("Zaring") 11300 Cornell Park Drive, Suite 500,
Cincinnati, Ohio 45242 for use in connection with a Special Meeting of the
Shareholders (the "Special Meeting") to be held January , 2001, at 9:00 a.m.,
or at any postponements or adjournments of the Special Meeting. The Special
Meeting will be held at the Queen City Club, 331 East Fourth Street, Cincinnati,
Ohio 45202. This proxy statement is being mailed on or about January , 2001,
to all shareholders entitled to vote at the Special Meeting.
RECORD DATE AND SHARES OUTSTANDING
On December 18, 2000, the record date for the determination of shareholders
entitled to vote at the Special Meeting (the "Record Date"), there were
of Zaring's common shares without par value (the "Common Shares")
outstanding, and each such share is entitled to one vote on each matter coming
before the Special Meeting.
VOTING
The required quorum for the transaction of business at the Special Meeting
is a majority of the Common Shares outstanding on the Record Date, present in
person or by proxy. Zaring's Amended Articles of Incorporation provide for
approval of each of the proposals upon the vote of the holders of a majority of
the Common Shares outstanding. Because the affirmative vote of at least a
majority of all outstanding Common Shares is required for approval of both
proposals, broker non-votes, abstentions, and shares as to which proxy authority
has been withheld all will have the same effect as votes against the two
proposals.
An abstention from voting will be tabulated as a vote withheld, but will be
included in computing the number of Common Shares present for purposes of
determining the presence of a quorum at the Special Meeting. If a broker
indicates on the form of proxy that it does not have discretionary authority as
to certain Common Shares to vote on a particular matter, those Common Shares
will be considered as present but not entitled to vote with respect to that
matter. If a proxy card is signed and returned without specifying choices, the
shares represented thereby will be voted (1) "For" the authorization of the
Asset Sale pursuant to the Purchase Agreement; (2) "For" the adoption of the
proposed amendment to Zaring's Amended Articles of Incorporation; and (3) as
recommended by the individuals named on the proxy card in their discretion with
regard to other matters as may properly come before the Special Meeting.
The members of the proxy committee, whose names are set forth on the
accompanying form of proxy, were named by the Board of Directors of Zaring. A
shareholder giving a proxy in the accompanying form retains the power to revoke
it by making a later appointment or by giving notice of revocation to the proxy
tabulator, The Fifth Third Bank, 38 Fountain Square, Cincinnati, Ohio 45263.
Attendance at the Special Meeting does not in itself revoke the appointment;
however, it may be revoked by giving notice in open meeting. A revocation made
during the Special Meeting will not affect any vote previously taken.
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Zaring's directors and executive officers and their affiliates own greater
than a majority of the outstanding Common Shares of Zaring. The directors and
executive officers have indicated that they will vote in favor of the Asset Sale
and the Name Change Amendment, assuring that such proposals will be approved
regardless of voting by the other shareholders.
PARTICIPANTS IN RETIREMENT BENEFIT PLAN
Separate proxy cards are being submitted to all persons who have Common
Shares allocated to their accounts as participants or beneficiaries under the
Zaring National Corporation Retirement Benefit Plan (the "RBP Plan"). It is
anticipated that a representative of PNC Bank, National Association ("PNC"),
which acts as Trustee for the RBP Plan, will attend the Special Meeting in order
to vote, in accordance with the instructions of the participants or their
beneficiaries, the shares which it holds of record as Trustee and which have
been allocated to the participants' accounts. If a proxy card is signed and
returned without specifying choices, the shares represented thereby will be
voted (1) "For" the authorization of the Asset Sale pursuant to the Purchase
Agreement; (2) "For" the adoption of the proposed amendment to Zaring's Amended
Articles of Incorporation; and (3) as recommended by the individuals named on
the proxy card in their discretion with regard to other matters as may properly
come before the Special Meeting. If no proxy card is received from a participant
or beneficiary, no vote will be cast as to the shares represented thereby as to
the above two proposals. PNC, as Trustee of the RBP Plan, will determine the
vote of the shares held by such plan as to any matters other than the above two
proposals which properly come before the Special Meeting.
Any RBP Plan participant or beneficiary giving a proxy in the accompanying
form retains the power to revoke it by making a later appointment or by giving
notice of revocation to PNC. Under the rules of the RBP Plan, only PNC, as the
Trustee of the plan, can vote the shares allocated to the accounts of
participants, even if such participants or their beneficiaries attend the
Special Meeting in person.
PROXY SOLICITATION
The enclosed proxy is being solicited by Zaring's Board of Directors.
Zaring will bear the costs of solicitation of proxies, including the charges and
expenses of stock brokerage firms, banks, trust companies and others for
forwarding solicitation materials to beneficial owners of shares. In addition to
solicitation by mail, directors, officers and employees of Zaring may solicit
proxies in person or by telephone.
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
This Proxy Statement and the documents incorporated by reference in this
Proxy Statement that are not related to historical results are forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements involve a number of risks and uncertainties. Any forward
looking statements made by Sellers herein and in future reports and statements
are not guarantees of future performance and actual results may differ
materially from those in forward looking statements as a result of various
factors. These forward looking statements involve risks and uncertainties
including but not limited to those referred to under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations;
Cautionary Statements on Forward Looking Information" in Zaring's quarterly
report on Form 10-Q for the Quarter ended September 30, 1998, filed with the
Securities and Exchange Commission ("SEC"). Readers should carefully review
those risk factors and uncertainties in conjunction with reading this Proxy
Statement.
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RISK FACTORS
In addition to the other information included elsewhere in this Proxy
Statement, the following factors should be considered carefully in determining
whether to vote in favor of the proposal to authorize the Asset Sale pursuant to
the Purchase Agreement.
1. UNCERTAINTIES IN CONNECTION WITH THE ASSET SALE
There can be no assurance that the Asset Sale will be consummated. If the
Asset Sale had been closed as of September 30, 2000, the Sellers would have
received a cash payment of $55.4 million, based on the book value of the assets
purchased, and Drees would have assumed liabilities of Sellers in the amount of
$9.2 million. Under certain circumstances, Sellers will receive a cash premium
of up to $1.5 million; however, there can be no assurance that Sellers will
receive any portion of such premium. The cash payment and amount of assumed
liabilities will not be finally determined until after the Closing (as defined
herein) of the Asset Sale. There can be no assurance that the amount of cash
payment and assumption of liabilities at Closing will not vary materially from
such amounts as of September 30, 2000. Such amounts at Closing will be dependent
upon the operations of the Sellers through Closing, general business and
economic conditions, possible delays in the consummation of the Asset Sale and
other factors. See the "Asset Sale -- Use of Proceeds."
2. USE OF PROCEEDS FROM ASSET SALE
The cash payment to Sellers at Closing will be applied against existing
liabilities of Sellers. The amount of Sellers' liabilities at Closing will be
dependent upon the operations of Sellers through Closing, the costs and expenses
of consummating the Asset Sale as set forth in this Proxy Statement, and
liabilities of Zaring that are unknown or contingent at the time of the mailing
of this Proxy Statement that later arise or become fixed in amount and must be
satisfied. If the amount of the cash payment to Sellers from the Asset Sale and
the other assets of Sellers are not sufficient to satisfy on going liabilities
of Sellers, Zaring could be required to restructure to satisfy its creditors or
could be the subject of voluntary or involuntary bankruptcy proceedings. See the
"Asset Sale -- Use of Proceeds".
3. ZARING WOULD INCUR COSTS UNDER CERTAIN CONDITIONS IF IT TERMINATES THE
PURCHASE AGREEMENT
If Zaring terminates the Purchase Agreement because it has received a
Superior Acquisition Proposal (as defined herein), Zaring is obligated under the
Purchase Agreement to pay to Drees a liquidated damages amount equal to $300,000
plus actual out-of-pocket expenses incurred in connection with the Asset Sale,
including legal and accounting fees. See "The Asset Sale -- The Purchase
Agreement -- Liquidated Damages."
4. THE ASSET SALE MAY NOT BE CONSUMMATED
The consummation of the Asset Sale is subject to numerous conditions. Even
if the shareholders vote to authorize the Asset Sale pursuant to the Purchase
Agreement, there can be no assurance that the Asset Sale will be consummated. If
the Asset Sale is not consummated or not timely consummated, Zaring may not be
able to sell its assets on terms as favorable as those provided in the Purchase
Agreement or at all or to restructure existing financing arrangements.
Consequently, adequate cash may not be available to satisfy Sellers' creditors
and to continue operations. See "The Asset Sale - The Purchase
Agreement -- Closing Conditions."
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<PAGE> 12
THE ASSET SALE
GENERAL OVERVIEW
Zaring, Zaring Homes, Inc., a wholly owned subsidiary of Zaring ("Zaring
Homes") and Zaring Homes of Indiana, LLC, a subsidiary of Zaring Homes ("Zaring
Indiana") (each individually, a "Seller" and collectively, "Sellers") and Drees
Preferred Collection, Inc. ("Drees" or "Purchaser"), an Ohio corporation and a
wholly owned subsidiary of The Drees Company, entered into an Asset Purchase
Agreement dated December 1, 2000 (the "Purchase Agreement"). Pursuant to the
terms of the Purchase Agreement, Sellers will sell and Drees will buy
substantially all of Sellers' assets (the "Asset Sale") related to their custom
site-built home construction businesses in the greater metropolitan Cincinnati,
Ohio, Indianapolis, Indiana and Nashville, Tennessee markets (the "Business").
The assets to be purchased by Drees constitute substantially all of the assets
of Zaring.
The closing (the "Closing") of the Asset Sale pursuant to the Purchase
Agreement is to occur on the second business day following the satisfaction by
the Sellers or waiver by Drees of all conditions precedent to Drees' obligation
to consummate the Asset Sale, including shareholder approval pursuant to this
proxy solicitation, and in all events not later than January 31, 2001.
THE SELLERS
Zaring, through its subsidiaries Zaring Homes and Zaring Indiana, is
primarily a regional builder of site-built homes currently operating in the
Cincinnati, Ohio, Indianapolis, Indiana and Nashville, Tennessee markets. Zaring
Homes and Zaring Indiana purchase and develop land and then design, construct
and sell single family detached homes to the luxury/"move-up" market. Zaring, a
holding company, also derives or has derived revenues through other subsidiaries
from activities including the retail distribution of manufactured homes,
building of entry-level homes and mortgage services. Zaring and Zaring Homes are
Ohio corporations and Zaring Indiana is an Indiana limited liability company.
THE PURCHASER
The Purchaser is Drees Preferred Collection, Inc. an Ohio corporation and
wholly owned subsidiary of The Drees Company, formed for the purpose of the
Asset Sale. Drees has conducted no business to date. The Drees Company, a
Kentucky corporation, is headquartered in Greater Cincinnati/Northern Kentucky
and has been in business for over 70 years. The Drees Company has home building
operating divisions in Cincinnati/Northern Kentucky, Dayton, Ohio, Cleveland,
Ohio, Raleigh, North Carolina, Washington DC, Austin, Texas and Dallas, Texas.
REASONS FOR THE ASSET SALE
In 1999, Zaring experienced losses in each of its operating segments and
was unable to comply with certain terms and conditions of its loan covenants
despite revenue growth. Zaring's management developed plans to improve operating
results and available cash flow to fund ongoing operations, including
initiatives to dispose of certain assets to reduce costs in each segment.
From an operational standpoint, the Zaring Homes segment faced increasing
costs and lower profit margins in 1999 and continuing in 2000, leading to losses
in the homebuilding segment. In addition, the Cincinnati market was adversely
impacted by the remediation costs of mold and moisture problems in several
Mason, Ohio subdivisions. In addition, Zaring's other business segments faced
losses. The entry-level home building segment conducted through Hearthside Homes
LLC ("Hearthside Homes") suffered continuing losses until those
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<PAGE> 13
operations were discontinued in 1999. The retail distribution of manufactured
housing segment, operated by HomeMax, Inc. ("HomeMax") sustained losses
throughout 1999 and 2000. Despite the disposition of certain sales centers in
2000, HomeMax experienced on-going operating losses.
In early 2000, Zaring embarked on an asset reduction plan to provide
internally generated funds to be utilized for 2000 operating initiatives. The
plan consisted of, among other steps: selling the remaining assets of Hearthside
Homes and winding up the related operations; selling certain model homes to
entities controlled by Allen G. Zaring III, Chairman of the Board and Chief
Executive Officer of Zaring; reducing the number of market homes per community;
selling certain idle sales villages of HomeMax; deferring certain land
development initiatives; and selling certain other homebuilding operations.
In addition to operational losses in each segment, Zaring faced credit
problems. During 1999, Zaring was unable to comply with certain covenants
included in its credit agreements. The banks initially provided a forbearance
agreement which extended until April 14, 2000. Concurrent with the expiration of
the forbearance agreement, Zaring negotiated an amendment to the syndicated
credit facility with its banks. The amendment shortened the maturity of the
debt, reduced available borrowings under the revolving credit facility and
increased interest rates. The credit agreements continued to be modified
throughout 2000, including amendments required in connection with sales of
assets of Zaring Homes (described below in "The Asset Sale - Background of the
Asset Sale") and further reductions in the commitment amount of the credit
facility imposed by the banks. Throughout 2000, Zaring was unable to meet
certain loan covenants and faced increasing pressure from its lenders. In the
event the banks would not agree to provide covenant waivers or otherwise amend
credit agreements and accelerate payments thereunder, Zaring recognized that it
would encounter great difficulty in meeting demands of banks and would need to
evaluate various forms of financial restructurings, the most severe of which
could include bankruptcy.
In summary, each of Zaring's operating segments experienced losses in 1999,
and Zaring's financial performance worsened in 2000. The increasing pressure
from its lenders, its inability to meet loan covenants, continuing losses of
HomeMax and deteriorated profitability of Hearthside Homes and Zaring Homes led
Zaring to contemplate not only an asset reduction plan aimed at improving cash
flow to fund continuing operations, but also the sale of all or substantially
all of its assets to generate cash to pay its lenders and other creditors.
BACKGROUND OF THE ASSET SALE
In view of the conditions of Zaring as detailed above in "The Asset
Sale -- Reasons for the Asset Sale" the Board of Directors contemplated various
alternatives. Management developed a strategy aimed at improving operating
results and cash flow available to fund ongoing operations. The plan included
initiatives to reduce certain assets, including the discontinuance of the
operations of Hearthside Homes and reduction of the number of market and model
homes in each neighborhood. Zaring also planned to reduce certain operating
costs in each of its segments and modify the terms and conditions of its
existing credit facilities. On February 11, 2000, the Board of Directors adopted
an asset reduction plan, pursuant to which Zaring would close or sell the assets
of the Charlotte, Raleigh and Nashville operating divisions of Zaring Homes and
continue to operate the remaining three operating divisions in Cincinnati,
Indianapolis and Louisville.
Subsequent to Zaring's adoption of the asset reduction plan, on February
25, 2000, Zaring announced that it hired UBS Warburg (formerly known as Warburg
Dillon Read) to evaluate various strategic alternatives, including the sale of
assets contemplated by the asset reduction plan as well as the sale or merger of
Zaring.
During May and June, 2000, Zaring met with several potential suitors
introduced to Zaring by UBS Warburg and explored possible strategic
transactions. These meetings failed to result in any proposal to purchase Zaring
or
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its assets at a purchase price equal to or greater than book value or to
purchase assets of all six of Zaring Homes' markets.
On June 28, 2000, Allen G. Zaring III, Ronald G. Gratz, Chief Financial
Officer of Zaring, Daniel W. Jones, President and Chief Operating Officer of
Zaring, and Douglas C. Hinger, Vice President of Operations and Process Control
of Zaring Homes met with Ralph Drees, Chairman of the Board, David Drees,
President, Mark Williams, Chief Financial Officer, and Larry Herbst, Secretary
and Treasurer of The Drees Company to discuss a potential business transaction.
The initial meeting between Zaring and The Drees Company was followed by the
commencement of due diligence activities.
On June 29, 2000, The Drees Company delivered a non-binding written
proposal to Zaring, outlining the key components of a proposed merger of Zaring
into The Drees Company.
Between July 11 and July 20, 2000, officers of both companies met to
discuss a potential business combination, financial considerations and the
characteristics of Zaring Homes' existing markets.
Under the merger terms under consideration, Allen G. Zaring III would have
received consideration different from the public shareholders of Zaring.
Accordingly, the Board of Directors determined that an independent committee
should be formed to consider the proposed transaction. On July 14, 2000, Allen
G. Zaring III requested that John H. Wyant form an independent committee of the
Board of Directors (the "Independent Committee").
On July 25, 2000, John H. Wyant, Daniel W. Geeding and Murat H. Davidson,
directors of Zaring, met to review the terms of the proposed merger and a
proposed exclusivity agreement with The Drees Company.
From July 24 through July 26, 2000, a series of site visits and meetings
were held in Raleigh, Charlotte and Nashville. Daniel W. Jones, Douglas C.
Hinger, David Drees, Mike Rubery, Vice President of the Southern Division of The
Drees Company, and Greg Schreck, Vice President of Fifth Third Bank, N.A., lead
lender to The Drees Company, met to review operations of those divisions.
On August 8, 2000, Allen G. Zaring III, Ronald G. Gratz, Ralph Drees, David
Drees and Mark Williams met to further discuss the structure of a transaction
and which markets of Zaring Homes would be included or excluded in an
acquisition by The Drees Company, in particular the possible inclusion of the
Nashville division and exclusion of the Louisville division.
On August 11, 2000, Zaring held a telephonic Board of Directors meeting at
which Allen G. Zaring III updated the Board on the status of negotiations with
The Drees Company and the other potential purchasers. Upon the recommendation of
the Independent Committee, the board resolved to pursue a strategic transaction
with The Drees Company and authorized the officers to continue negotiations and
enter into an exclusivity agreement.
On August 17, 2000, Zaring and The Drees Company signed an Exclusive
Negotiation Letter (the "Exclusive Negotiation Letter"), pursuant to which
Zaring agreed to negotiate exclusively with The Drees Company through September
30, 2000. In a press release issued that day, Zaring announced the execution of
the Exclusive Negotiation Letter and that it intended to pursue a merger with
The Drees Company. The parties also contemplated that The Drees Company would
separately acquire the assets of the Raleigh operations from Zaring Homes on or
before September 30, 2000 and, that thereafter, The Drees Company would pursue
the acquisition of Zaring in a merger transaction in which Zaring's public
shareholders would receive cash in an amount based on the September 30, 2000
adjusted book value of Zaring. The parties also contemplated that Zaring Homes'
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homebuilding assets in Louisville and Charlotte would be sold to third parties
prior to the consummation of the merger with The Drees Company.
In the weeks following the announcement of the Exclusive Negotiation
Letter, due diligence proceeded and additional negotiation took place. Various
officers of Zaring met with their counterparts at The Drees Company to discuss
operating issues, financial conditions and tax matters and Zaring management met
with accounting and legal advisors to discuss tax and structuring considerations
of the transaction. In addition, drafts of a merger agreement and ancillary
documents were circulated.
On September 1, 2000, Ronald G. Gratz, Daniel W. Jones, Ralph Drees, David
Drees and Mark Williams met to discuss pre- and post-closing issues of the
proposed transaction, including organizational changes, coordination of
duplicate functions, land development opportunities, future staffing and
employment issues, as well as due diligence matters.
On September 15, 2000, Allen G. Zaring III, Ralph Drees and David Drees met
to discuss the structure of the proposed transaction. At that time, the Drees
Company indicated its willingness to proceed with a business transaction, but in
the form of a purchase of assets of Zaring Homes, rather than a merger.
On September 19, 2000, Allen G. Zaring III, Ronald G. Gratz, Ralph Drees,
David Drees and Mark Williams, along with legal counsel for both parties, met to
negotiate the terms on which an asset sale would be acceptable, which assets and
liabilities would be included in the proposed sale, as well as the method of
determining the purchase price.
This meeting was followed by an additional negotiation session among the
parties and their respective legal counsel on September 22, 2000. Commencing on
September 22, 2000, the parties shifted the focus of their negotiations to the
sale of the assets of the Raleigh division. Both parties wished to expedite the
Raleigh asset sale; Zaring, in order to pay the proceeds of the sale to its
lenders and The Drees Company to consolidate the Zaring Homes' Raleigh division
with its own operations in Raleigh. The parties desired to consummate the
Raleigh sale, regardless of the ultimate outcome of the proposed sale of the
Cincinnati, Indianapolis and Nashville divisions of Zaring Homes.
On September 29, 2000, Zaring Homes sold a substantial portion of the
assets of its Louisville division for approximately $6.3 million. The assets of
Zaring Homes Kentucky, LLC, a wholly owned subsidiary of Zaring Homes were sold
to Olympia Homes, LLC, an acquisition company formed by Zaring's Louisville
Market President, Dick Johnsen, and his senior executive management team to
acquire the Louisville division. The transaction included the license of the
right to continue using Zaring's tradename and home plans in the Greater
Louisville marketplace. Also on September 29, 2000, Zaring Homes sold lot
inventory in a Louisville area subdivision to the developer from which Zaring
Homes had purchased the land.
On October 2, 2000, Zaring publicly announced that it entered into an
extension of the Exclusive Negotiation Letter. In the extension, the parties
agreed to continue to negotiate (1) a definitive purchase agreement for the
purchase by The Drees Company of certain assets of Zaring Homes' operations in
Raleigh and (2) revised terms for the purchase by The Drees Company of Zaring
Homes' operations in Cincinnati, Indianapolis and Nashville in the form of a
purchase of assets. The extension of the parties' exclusive negotiation period
extended through October 16, 2000.
On October 4, 2000, officers of Zaring and The Drees Company and the legal
counsel of each party met to negotiate the terms of the sale of assets of the
Raleigh division. On October 12, 2000, the parties met to finalize the purchase
agreement and ancillary documents. On October 13, 2000, The Drees Company
acquired substantially all of the operating assets of Zaring Homes' Raleigh
market for a purchase price of approximately
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$11.0 million, based on the book value of the assets. Drees also licensed the
right to use Zaring's tradename, trademarks, and home plans in Raleigh. The
parties also announced continued negotiation regarding the terms for the
purchase by The Drees Company of Zaring Homes' operations in Cincinnati,
Indianapolis and Nashville. The parties entered into a second extension of their
Exclusive Negotiation Letter, providing for the extension of negotiations
through October 31, 2000.
On October 19, 2000, Ronald G. Gratz, David Drees and Mark Williams, along
with legal counsel for both parties, met to resume negotiations regarding the
sale of assets of the Cincinnati, Indianapolis and Nashville divisions. The
parties discussed which assets and liabilities would be included in the sale as
well as the method of calculating the purchase price and the formula to
determine a purchase price premium.
Due to the change in the structure of the potential business combination
from a merger to an asset sale, the Independent Committee was disbanded.
On November 1, 2000, Zaring announced that the Exclusive Negotiation Letter
had been extended through November 22, 2000.
On November 3 and November 10, 2000, David Drees and Dan Jones met to
discuss land development and employment and personnel matters.
On November 13, 2000, the Board of Directors of Zaring approved plans to
discontinue the operations of the Zaring Homes segment. Zaring had reached
substantial agreement with The Drees Company with regard to the sale the assets
of Zaring Homes' Cincinnati, Indianapolis and Nashville divisions. A detailed
outline of the terms of the proposed transaction was presented to the Board of
Directors. The Board voted unanimously to pursue the transaction and authorized
the officers to proceed with the negotiation of a purchase contract.
On November 13, 2000, St. Lawrence Homes, a privately-owned single family
homebuilder based in Raleigh, North Carolina acquired substantially all of the
real estate assets and assumed the lot purchase contracts of Zaring Homes'
Charlotte division for approximately $3.3 million. St. Lawrence also licensed
the right to continue using Zaring Homes' home plans in certain communities in
Charlotte. The net proceeds of the sales of the assets of the Louisville,
Raleigh and Charlotte divisions were utilized to reduce outstanding debt.
In the last two weeks of November 2000, negotiations continued between The
Drees Company and Zaring regarding the terms of the purchase agreement and
ancillary documents. Officers also met to discuss bank loan issues and
post-transaction employment of current officers and employees.
On November 20, 2000, Murat H. Davidson resigned from the Board of
Directors.
On November 21, 2000, a substantially complete version of the asset
purchase agreement was circulated to the Board of Directors.
On November 22, 2000, the parties entered into an extension of their
Exclusive Negotiation Letter, providing for the extension of negotiations
through December 1, 2000.
On November 27, 2000, Ronald G. Gratz, David Drees and Mark Williams, along
with legal counsel for both parties, met to finalize the purchase agreement and
negotiate the terms of the ancillary documents to the purchase agreement.
On November 29, 2000, Robert N. Sibcy resigned from the Board of Directors.
On November 30, 2000, a revised draft of the asset purchase agreement was
distributed to the Board of Directors.
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On December 1, 2000, at a telephonic meeting called for this purpose, the
Board of Directors approved the sale of assets of the Cincinnati, Indianapolis
and Nashville divisions and authorized the officers to execute the purchase
agreement and to take all necessary action to consummate the transaction. Later
in the day on December 1, 2000, a subsidiary of The Drees Company, Drees
Preferred Collection, Inc., and Sellers executed the Purchase Agreement.
FAIRNESS OF THE ASSET SALE
Zaring considered seeking the opinion of a third party to evaluate the
fairness of the Asset Sale to Zaring and its constituencies. In this situation,
however, Zaring determined that such an opinion was not necessary for the
following reasons:
- Zaring had retained UBS Warburg to identify prospective purchasers of
part or all of the assets or business of Zaring. After an extensive
process contacting potential purchasers and receiving indications of
interest, Zaring was not able to identify prospective purchasers who were
willing to purchase part or all of its assets or business for purchase
prices in excess of the offer from Drees. Additionally, the Board of
Directors of Zaring had reviewed similar transactions and are of the
opinion that the purchase price offered by Drees is fair to Zaring and
its various constituencies.
- The cost to Zaring of engaging a third party to prepare a fairness
opinion would have been cost prohibitive and would have substantially
reduced the amount of net proceeds available to Zaring from the Asset
Sale.
THE PURCHASE AGREEMENT
This Proxy Statement contains a brief summary of the material aspects of
the Asset Sale and of the Purchase Agreement. This summary is qualified in all
respects by the text of the Purchase Agreement, a copy of which is attached to
this Proxy Statement as Exhibit A. Shareholders are advised to read the entire
Purchase Agreement.
ACQUIRED ASSETS
As described in detail in the Purchase Agreement and the schedules attached
thereto, the Asset Sale provides for the sale to Drees of the following assets
of Sellers (the "Acquired Assets"), which constitute substantially all of
Zaring's assets:
- Sellers' inventory of real estate, lots, unimproved land and houses in
various stages of completion (the "Inventory") located in the greater
metropolitan market areas of Cincinnati, Ohio, Indianapolis, Indiana, and
Nashville, Tennessee (the "Business Territory");
- Sellers' leasehold interests in facilities located in Cincinnati,
Indianapolis and Nashville (the "Facility Leases");
- All of Sellers' tangible assets (other than the Inventory) used in the
Business including construction equipment and tools, office equipment,
furniture and fixtures, telecommunications equipment and systems and
computer hardware;
- Ownership of and the right (exclusive, with certain exceptions, in the
United States) to use the "Zaring" name and related trademarks in the
for-sale housing and active adult housing industries and the goodwill
appurtenant thereto;
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<PAGE> 18
- Ownership of and the right (exclusive within the United States of
America) to use Sellers' architectural plans and related materials;
- All assignable permits, licenses and approvals possessed by Sellers or
used in the Business;
- All contracts, agreements, leases and licenses entered into in the
ordinary course of business consistent with past practice that have not
been completed or fully performed at the time of the Closing, including
equipment leases and land purchase agreements; and to the extent
permitted to be assigned or transferred, construction contracts with
customers and computer software licenses (the "Executory Contracts");
- The right to use all books and records, including Sellers' customer lists
and other customer information and supplier, vendor and contractor lists
and related information;
- Sellers' right to receive refunds and/or rebates from future utility
connections in the Business Territory; and
- Sellers' rights as mortgagee under two mortgages.
Sellers have also agreed to cause Zaring Financial Services, a wholly owned
subsidiary of Zaring ("Zaring Financial"), to sell certain assets, including
certain office equipment, furniture and fixtures, and to assign certain
leasehold interests and contracts.
The Acquired Assets will not include the following items, collectively,
"Excluded Assets":
- Any assets of Sellers not used or useable in the Business;
- The cash of the Business, other than customer deposits;
- Zaring's ownership interests in HomeMax and its subsidiaries and in
Hearthside Homes;
- Any contracts to which any Seller is a party, not constituting Executory
Contracts;
- Accounts receivable and other receivables of the Business relating to
houses completed, sold and closed by Sellers prior to Closing;
- Sellers' corporate or limited liability charters, qualifications, minute
books and similar documents and records;
- Zaring Homes' rights as a member of Zaring Indiana;
- Sellers' rights under insurance policies, except to the extent that Drees
may be a beneficiary of title insurance policies on real property
included in Inventory;
- Rights of Sellers in the Purchase Agreement and other agreements entered
into in connection with the Asset Sale;
- Sellers' rights under a promissory note from American Homestar
Corporation;
- Sellers' claims against vendors, subcontractors and other third parties
relating to construction work performed or materials furnished and
incorporated into construction prior to Closing;
- Ownership rights of Sellers or affiliates in the entity now known as
Zaring Realty;
- Zaring Financial loans in process;
- Sellers' claims or rights in tax refunds or tax benefits; and
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- Certain identified excluded houses.
ASSUMED LIABILITIES
Under the Purchase Agreement, Drees will be assuming only specifically
identified liabilities of Zaring, Zaring Homes and Zaring Indiana. Assumed
liabilities will include the following (collectively, the "Assumed
Liabilities"):
- Sellers' liabilities under the Executory Contracts and the Facility
Leases, to the extent such liabilities arise on or after the Closing;
- Sellers' liabilities with respect to customer deposits;
- Other liabilities specifically identified, including two promissory
notes;
- Accounts payable and other payables of the Business relating to Inventory
being acquired under the Purchase Agreement; and
- Liabilities incurred in the ordinary course of Sellers' business and
related to the Business and not posted to Sellers' books and records as
of the Closing.
Under the Purchase Agreement, Drees expressly disclaims liabilities of
Sellers, including but not limited to liabilities, claims or actions alleging or
relating to any tort, product liability, environmental liability, taxes on
Sellers or the Acquired Assets, or breach of contract, or otherwise seeking
damages and relating to the operation of the Acquired Assets or the Business
prior to Closing, and liabilities relating to assets of Sellers not included in
the Acquired Assets.
The liabilities of Sellers which will not be assumed by Drees are referred
to as the "Non-Assumed Liabilities", and include the following:
- Other than with respect to two specified promissory notes, any liability
of Sellers arising from indebtedness for borrowed money or long-term
debt;
- Except to the extent credit for tax liability is given in the proration
of real estate taxes, any liability of Sellers for taxes owed to any
taxing authority;
- Any liability of Sellers for accounts payable and other payables of the
Business relating to houses completed, sold and closed by Sellers prior
to the date of Closing or constituting "reserves to complete" relating to
houses completed, sold and closed by Sellers prior to Closing;
- Any liability of Sellers arising out of or related to past, present or
future litigation involving Sellers as the owners and operators of the
Business or the Acquired Assets prior to Closing;
- Any liability in respect of any contract, agreement, lease or license to
which any of Sellers is a party or beneficiary that is not an Executory
Contract;
- Any liability accruing prior to Closing under any employee benefit plan
of or sponsored by Sellers;
- Except as specifically provided, any liability arising out of the
employment or termination of employment, at or prior to Closing, of any
person employed in the Business;
- Any liability that represents any amounts past due or contractually due
prior to Closing on any Executory Contract;
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- Any liability of the Sellers or any present or former director or officer
of Sellers arising from any claim, action or proceeding, brought by or on
behalf of any present or former holder of any debt or equity security of
Sellers or by a lender to Sellers;
- Any warranty work on houses or other improvements constructed, completed,
sold and closed by Sellers prior to Closing;
- Any intercompany obligations between Sellers or their affiliates; and
- Any other liability of Sellers that is not an Assumed Liability.
PURCHASE PRICE
The purchase price for Acquired Assets will consist of (i) cash in an
amount equal to the Book Value of the Acquired Assets (the "Cash Payment"); (ii)
the assumption of the Assumed Liabilities; and (iii) a cash premium of up to
$1,500,000 based on Sellers' backlog of houses and gross profit margin as
discussed below (collectively, the "Purchase Price"). For purposes of the
Closing, the Cash Payment will be estimated based the value of the Acquired
Assets seven days prior to the Closing. At the Closing, Drees will pay 95% of
the estimated Cash Payment to Sellers and the remaining 5% of the estimated Cash
Payment to an escrow account subject to the terms of an Escrow Agreement
discussed below. The Cash Payment will be adjusted after the Closing based on a
closing balance sheet that will be prepared by Zaring and is subject to approval
by Drees.
Book Value with respect to the Acquired Assets is defined in the Purchase
Agreement as the recorded value of the Acquired Assets (i) net of accumulated
depreciation and amortization as shown on the general ledger of the Sellers on
the date of Closing to be prepared by Sellers in accordance with generally
accepted accounting principles ("GAAP") and (ii) net of the Assumed Liabilities
reflected on the general ledger of Sellers. The Purchase Agreement further
states that Book Value shall not reflect indirect capitalized expenses,
including capitalized interest in excess of certain agreed to percentages
("Indirects"). At September 30, 2000, Book Value of the Acquired Assets was
approximately $55.4 million.
The Purchase Price also will consist of the assumption by Drees of the
Assumed Liabilities. For purposes of the Closing, the value of the Assumed
Liabilities will be estimated seven days prior to the Closing and will be
adjusted after the Closing based upon the closing balance sheet. At September
30, 2000, Assumed Liabilities were approximately $9.2 million.
The Purchase Price can include a cash premium of up to $1,500,000 based on
the number of Sellers' houses under contract in backlog at Closing and the
weighted average gross profit margin, after Indirects, of such houses (the
"Margin"). Sellers will receive no premium if either (i) the number of houses
under contract in Sellers' backlog at the time of Closing is less than 125; or
(ii) the Margin is less than 16.5%. Sellers will receive a premium of $1,000,000
if the Margin is at least 16.5% and the number of houses in Sellers' backlog at
the time of Closing is at least 175 but less than 185. The premium will be
reduced below $1,000,000 by $20,000 for each house under contract in Sellers'
backlog at the time of Closing fewer than 175 but in excess of 125, provided
that the Margin is at least 16.5%. Sellers will receive a premium of $1,500,000
if the number of houses under contract in Sellers' backlog at the time of
Closing is at least 185 and the Margin is at least 16.5%.
A portion of the purchase price will be paid into an escrow account
pursuant to the terms of an Escrow Agreement among Sellers, Drees and The Fifth
Third Bank as the escrow agent. Under the terms of the Escrow Agreement, the
escrow agent may release to Drees all or a portion of the funds in the escrow
account to cover amounts owed to Drees by the Seller under the Purchase
Agreement for indemnification obligations or breaches
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of representations and warranties. The terms of the Escrow Agreement terminate
120 days after the date of the Closing, at which time the escrow agent may
release all of the remaining funds, if any, to Sellers.
REPRESENTATIONS AND WARRANTIES
The Purchase Agreement contains representations and warranties by the
parties customary for transactions of this type. The Purchase Agreement includes
representations and warranties of the Sellers in respect to: (1) organization,
authority and qualification of Sellers; (2) authority, noncontravention and
consents; (3) financial statements; (4) absence of certain changes or events;
(5) absence of litigation; (6) ownership of the Acquired Assets; (7) maintenance
and sufficiency of the Acquired Assets; (8) Executory Contracts; (9) absence of
undisclosed liabilities; (10) compliance with laws; (11) taxes and audits; (12)
employees; (13) environmental violations; (14) environmental condition of
Inventory; (15) no infringements; (16) brokerage and finder fees; (17) no RESPA
violations; (18) warranty work; (19) no cancellation of customer contracts; (20)
no violations of consumer sales practices acts; (21) use of names; (22) eminent
domain; (23) no discrimination; (24) no moratoria; (25) no defective soil
conditions; (26) lot purchase contracts; (27) workmanlike condition and
compliance with codes; (28) no fraudulent conveyances; (29) radon gas; and (30)
real estate taxes associated with agricultural use.
The Purchase Agreement includes representations and warranties of the Drees
in respect to: (1) organization, existence and good standing of Drees; (2)
authority relative to the Purchase Agreement (3) no conflict; (4) required
filings and consents; (5) absence of litigation; (6) financing; and (7)
brokerage and finder fees.
ACQUISITION PROPOSALS
Prior to the Closing, Sellers agree that they will not initiate, solicit or
encourage any inquiries or the making of any proposal with respect to a merger,
acquisition, tender offer, exchange offer, consolidation, sale of assets or
similar transaction involving all or any significant portion of the Acquired
Assets or any equity securities of any of the Sellers (an "Acquisition
Proposal"). Sellers are required to notify Drees immediately if any Seller
receives any such inquiries or proposals.
However, the Purchase Agreement does not prohibit the Board of Directors of
Zaring from furnishing information to or entering into discussions with, an
entity that makes an unsolicited Acquisition Proposal, if, and only to the
extent that: (A) the Zaring board determines in good faith that failure to do so
would breach its duties to Zaring shareholders imposed by Ohio law; (B) Zaring
provides prior written notice to Drees that Zaring is furnishing information to,
or entering into discussions with another entity; and (C) subject to any
confidentiality agreement with such entity, Zaring keeps Drees informed of the
status, but not the terms of any such discussions or negotiations. This
provision of the Purchase Agreement does not (x) permit Zaring to terminate the
Purchase Agreement, except as specifically provided in the termination
provisions; (y) permit Zaring to enter into an agreement with respect to an
Acquisition Proposal during the term of the Purchase Agreement; or (z) affect
any other obligation of Sellers under the Purchase Agreement. However, subject
to the liquidated damages provisions of the Purchase Agreement, the Zaring Board
of Directors may approve and recommend a Superior Acquisition Proposal and, in
connection therewith, withdraw or modify its approval or recommendation of the
Purchase Agreement and the transactions contemplated by the agreement. A
"Superior Acquisition Proposal" means a bona fide Acquisition Proposal made by a
third party which a majority of the members of the Zaring Board of Directors
determines in good faith to be more favorable to Zaring's shareholders from a
financial point of view than the transactions contemplated by the Purchase
Agreement and which the Zaring Board of Directors determines is reasonably
capable of being consummated.
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CONDUCT OF BUSINESS PENDING CLOSING
Prior to the Closing, Sellers are required to conduct their business only
in the usual, regular and ordinary course and in substantially the same manner
as previously conducted, and, irrespective of whether or not in the ordinary
course of Sellers' business, each of Sellers shall:
- Use its reasonable efforts to preserve intact its business organizations
and goodwill and keep available the services of its officers and
employees;
- Update and/or notify Drees of any material operational matters or
material changes in the condition of the Business or in the operation of
its properties;
- Promptly deliver to Drees copies of any report, statement or schedule
filed with the SEC subsequent to December 1, 2000;
- Maintain its books and records in accordance with GAAP consistently
applied and duly and timely file all reports, tax returns and other
documents;
- Not dispose of any material part of the Acquired Assets, except in the
ordinary course of business;
- Not settle any shareholder litigation in connection with the Asset Sale
without Drees' prior written approval;
- Not merge or consolidate with, acquire all or substantially all of the
assets of, or acquire the beneficial ownership of a majority of the
outstanding capital stock or other equity interest in any person or
entity; and
- Not acquire, purchase or otherwise obtain the right to ownership or
possession of additional parcels of real property for development or
other use in the Business.
PREPARATION OF PROXY STATEMENT AND SHAREHOLDER MEETING
The Purchase Agreement requires Zaring to promptly prepare a proxy
statement that includes the recommendation of Zaring's Board of Directors to
vote in favor of the approval and adoption of the Purchase Agreement and in
favor of the Name Change Amendment and to promptly distribute the proxy
statement to Zaring shareholders. Drees is required to cooperate with Zaring in
connection with the preparation of the proxy statement including, but not
limited to, furnishing to Zaring any and all information regarding Drees as may
be required to be disclosed.
The proxy statement and all other filings with the SEC in connection with
the Purchase Agreement are subject to Drees' prior review, comment and approval.
Zaring is required, as promptly as practicable, to duly call and give notice of,
and convene and hold, a meeting of Zaring's shareholders for the purpose of
approving the Purchase Agreement, the Name Change Amendment and the transactions
contemplated by the Purchase Agreement to the extent required by Ohio law.
HART-SCOTT-RODINO ACT
Sellers and Drees are required to promptly file notifications under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"Hart-Scott-Rodino Act") in connection with the transactions contemplated by the
Purchase Agreement and to respond as promptly as practicable to any inquiries
received from the Federal Trade Commission and the Antitrust Division of the
Department of Justice for additional
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information or documentation and to respond as promptly as practicable to all
inquiries and requests received from any state Attorney General or other
governmental authority in connection with antitrust matters.
COVENANTS
Sellers and Drees are required under the Purchase Agreement to cooperate
with one another to determine which filings are required to be made with, and
which consents, approvals, permits or authorizations are required to be obtained
prior to the Closing from governmental or regulatory authorities and any third
parties and to timely make all such filings and timely seek all such consents,
approvals, permits and authorizations. Sellers and Drees must use all reasonable
best efforts to do all things necessary, proper or appropriate effectuate the
transactions contemplated by the Purchase Agreement, including, but not limited
to, obtaining in writing any consents required from third parties, and
furnishing all information required to be included in the proxy statement.
In addition, Drees is required to consider in good faith corporate
guarantees and other support to effect the assignment of certain Executory
Contracts and Facility Leases to Drees and the release of Sellers from their
respective obligations under such agreements.
CLOSING CONDITIONS
Mutual Conditions.
The respective obligations of each party to the Purchase Agreement to
consummate and effect the sale and purchase of the Acquired Assets are subject
to the satisfaction at or prior to Closing of the following conditions:
No temporary restraining order, injunction or other order issued by any
court or other legal restraint or prohibition preventing the consummation of the
sale and purchase of the Acquired Assets shall be in effect; and there shall not
be any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or applicable to the sale and purchase of the Acquired Assets that
makes the consummation of the sale and purchase of the Acquired Assets illegal.
All consents, authorizations, orders and approvals of (or filings or
registrations with) any governmental entity, the absence of which would have a
material adverse effect on any Seller or Drees or on the Acquired Assets or the
Business, specifically including the expiration of the Hart-Scott-Rodino Act
waiting period, shall have been obtained or made, except for filings required to
be made after the Closing.
Drees shall have obtained a letter of credit in the amount of $500,000.
Conditions to Obligations of Purchaser.
The obligations of Drees to consummate and effect the purchase of the
Acquired Assets are subject to the satisfaction, at or prior to Closing, of the
following additional conditions, any of which may be waived, in writing,
exclusively by Drees:
- The representations and warranties of Sellers contained in the Purchase
Agreement shall be true in all material respects at and as of Closing and
Sellers shall have performed and compiled in all material respects with
all agreements and covenants set forth in the Purchase Agreement.
- Sellers shall have delivered all the documents required to be delivered
at Closing.
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<PAGE> 24
- Drees shall, within 45 days from the date of the Purchase Agreement, have
obtained financing at market rates and on terms and conditions reasonably
acceptable to Drees from its lenders sufficient in amount to enable Drees
to consummate the transactions contemplated by the Purchase Agreement.
- Zaring shareholder approval of the Asset Sale pursuant to the Purchase
Agreement and the Name Change Amendment shall have been obtained.
- At least 80% of Sellers' employees in administration, management, sales
and construction shall remain employees of Sellers as of the date of
Closing.
- Each of Daniel W. Jones, Patricia A. Payne, Douglas C. Hinger and David
A. Metz shall have accepted employment with Drees pursuant to employment
agreements mutually agreeable to Drees and such key employee.
- Sellers shall have obtained the consent of their bank lenders to the
transactions contemplated by the Purchase Agreement by no later than
December 31, 2000.
- Sellers shall have obtained the consent to the transactions contemplated
by the Purchase Agreement of certain lot and land sellers and lessors by
no later than December 31, 2000.
- Sellers have at least 100 houses under contract in backlog as of the date
of Closing having an estimated Margin equal to or in excess of 16.5%.
- Sellers shall have complied with the provisions of Article 6 of the
Indiana Uniform Commercial Code covering bulk sales to the extent
applicable to the transactions contemplated by the Purchase Agreement.
- Drees shall have completed its inspection of all model and market homes
in Inventory by December 31, 2000.
Conditions to Obligations of Sellers.
The obligations of Sellers to consummate and effect the Asset Sale shall be
subject to the satisfaction, at or prior to Closing, of the following
conditions, any of which may be waived, in writing, exclusively by Zaring:
- The representations and warranties of Drees contained in the Purchase
Agreement shall be true in all material respects at and as of Closing and
Drees shall have performed and complied in all material respects with all
agreements and covenants set forth in the Purchase Agreement.
- Drees shall have delivered all the documents required to be delivered at
Closing.
- Zaring shareholder approval of the Asset Sale pursuant to the Purchase
Agreement and the Name Change Amendment shall have been obtained.
- Sellers shall have obtained the consent of their bank lenders to the
transactions contemplated by the Purchase Agreement by no later than
December 31, 2000.
- Sellers shall have obtained the consent of certain lot and land sellers
and certain releases of liability no later than December 31, 2000.
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<PAGE> 25
INDEMNIFICATION
Survival of Representations and Warranties.
The representations and warranties of Drees and of Sellers terminate and
expire on the third anniversary of Closing, except for the representations and
warranties of Sellers regarding ownership of the Acquired Assets, absence of
undisclosed liabilities, environmental violations, environmental condition of
Inventory, no infringements, warranty work, no defective soil conditions and
workmanlike conditions and compliance with codes, which representations and
warranties shall survive until the tenth anniversary of Closing. Any
representation or warranty shall survive the time it would otherwise terminate
to the extent that the party claiming indemnification for such breach shall have
delivered to the other party written notice setting forth with reasonable
specificity the basis of such claim prior to the expiration of such time.
Obligation of Sellers to Indemnify.
Sellers shall, jointly and severally, indemnify, reimburse, defend and hold
harmless Drees and its directors, officers, employees, shareholders and
affiliates, and their respective successors and assigns from and against any and
all claims, losses, liabilities, damages, costs and expenses (including
attorneys', accountants', consultants' and experts' fees and expenses) ("Loss")
incurred by any of them based upon, arising out of or otherwise in respect of:
(i) any inaccuracy in or any breach of any representation or warranty of
Sellers; (ii) the nonfulfillment on the part of Sellers of any unwaived covenant
or agreement set forth in the Purchase Agreement which survives Closing; and
(iii) any Non-Assumed Liability of Sellers. In addition, Sellers shall jointly
and severally indemnify Drees from and against any Loss incurred by Drees based
on or otherwise with respect to: (x) litigation initiated by any Zaring
shareholder challenging the transactions contemplated by the Purchase Agreement;
(y) litigation challenging the Asset Sale as a fraudulent transfer or fraudulent
conveyance or similar laws protecting creditors; or (z) litigation in which a
former employee of a Seller who becomes an employee of Drees is a named
defendant and relating to pre-Closing activities of such employee. Any amount
owed Drees as indemnification may be recovered from the funds held by the Escrow
Agent pursuant to the Escrow Agreement to the extent that such funds exist and
are sufficient in amount.
Obligation of Purchaser to Indemnify.
Drees shall indemnify, defend and hold harmless Sellers and their
respective directors, officers, employees, shareholders and affiliates and their
respective successors and assigns from and against any Loss incurred by any of
them based upon, arising out of or otherwise in respect of: (i) any inaccuracy
in or breach of any representation or warranty of Drees; (ii) the nonfulfillment
on the part of Drees of any unwaived covenant or agreement set forth in the
Purchase Agreement which survives Closing; and (iii) the Assumed Liabilities.
Limits on Indemnification.
No party shall have any right to seek indemnification under the Purchase
Agreement: (i) until indemnifiable Losses incurred by such party exceed $100,000
in the aggregate, after insurance or other recoveries and such party shall only
be entitled to be indemnified for Losses in excess of that aggregate amount. The
$100,000 threshold amount, or "basket" does not apply to claims of Drees against
Sellers for indemnification relating to liabilities included in the Assumed
Liabilities that are understated, to assets included in the Acquired Assets that
are overstated or to Losses incurred by Drees in connection with any litigation
initiated by any Zaring shareholder challenging Asset Sale or to Losses incurred
by Drees in connection with any litigation challenging the transactions
contemplated by the Purchase Agreement as a fraudulent transfer or fraudulent
conveyance or similar
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<PAGE> 26
violation of laws protecting creditors generally. In addition, the basket does
not apply to claims of Drees relating to Sellers representations or warranties
with regard to ownership of Acquired Assets, environmental violations,
environmental conditions of Inventory and no infringement, all of which claims,
if valid, will be subject to indemnification on a first dollar,
dollar-for-dollar basis. In addition, the basket does not apply to claims of
Drees against Sellers for indemnification relating to breaches of the
representation and warranty of Sellers regarding defective soil conditions
arising at homes included in Inventory to the extent that any claim is in excess
of $5,000 per house included in Inventory. In no event shall Sellers' aggregate
liability for indemnification exceed the Purchase Price.
TERMINATION OF THE PURCHASE AGREEMENT
The Purchase Agreement may be terminated at any time prior to Closing,
whether before or after the Special Meeting:
(a) By mutual written consent duly authorized by the Sellers and Drees;
(b) By Drees, upon a breach of any representation, warranty, covenant,
obligation or agreement on the part of the Sellers in the Purchase
Agreement, such that the conditions to closing listed above under
"Conditions to Obligations of Purchaser" would be incapable of being
satisfied by January 31, 2001;
(c) By the Sellers, upon a breach of any representation, warranty,
covenant, obligation or agreement on the part of Drees in the Purchase
Agreement such that the conditions to closing listed above under
"Conditions to Obligations of Sellers" would be incapable of being
satisfied by January 31, 2001;
(d) By either Drees or Sellers, if any judgment, injunction, order, decree
or action by a governmental entity preventing the consummation of the
transactions contemplated by the Purchase Agreement becomes final and
nonappealable;
(e) By either Drees or Sellers, if the Closing has not occurred by January
31, 2001; provided, that the party seeking termination under this
provision has not breached in any material respect its obligations
under the Purchase Agreement in any manner that shall have proximately
contributed to failure of the Closing to occur by January 31, 2001. The
Purchase Agreement provides a mechanism to extend the January 31, 2001
termination date if Sellers are not able to mail the proxy statement to
Zaring's shareholders on or before January 5, 2001 due to delays in the
regulatory process within the SEC;
(f) By either Drees or Sellers if, upon a vote at a duly held Special
Meeting or any adjournment thereof, shareholder approval is not been
obtained;
(g) By Sellers, if prior to the tabulation of the votes at the Special
Meeting, the Zaring Board of Directors shall have withdrawn or modified
its approval or recommendation of the transactions contemplated by the
Purchase Agreement in connection with, or approved, recommended or
entered into, a Superior Acquisition Proposal; and
(h) By Drees if: (i) prior to the Special Meeting, the Zaring Board of
Directors shall have withdrawn or modified in any manner adverse to
Drees its approval or recommendation of the transactions contemplated
by the Purchase Agreement in connection with, or approved, recommended
or entered into, any Superior Acquisition Proposal; or (ii) Zaring
shall have entered into a definitive agreement with respect to any
Acquisition Proposal.
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<PAGE> 27
LIQUIDATED DAMAGES
In the event that the Purchase Agreement is terminated, Zaring will be
obligated in certain circumstances to pay Drees a fee (the "Purchaser Liquidated
Damages Amount") equal to $300,000 plus all of Drees' actual out-of-pocket
expenses, including legal and accounting fees, incurred in connection with the
transaction contemplated by the Purchase Agreement. The circumstances under
which Zaring will be obligated to pay the Liquidated Damages Amount include:
- Termination of the Purchase Agreement by Drees as a result of the
Sellers' breach of any representation, warranty, covenant, obligation or
agreement and such a breach would be incapable of being satisfied by
January 31, 2001;
- Failure of Zaring to obtain shareholder authorization of the Purchase
Agreement; and
- Withdrawal or modification of recommendation the Purchase Agreement by
Zaring's Board of Directors in connection with a Superior Acquisition
Proposal.
Drees is obligated to pay Zaring a fee (the "Sellers Liquidated Damages
Amount") equal to $300,000 plus all of Sellers' actual out-of-pocket expenses,
including legal and accounting fees, incurred in connection with the transaction
contemplated by the Purchase Agreement if the Sellers terminate the Purchase
Agreement as a result of Drees' breach of any representation, warranty,
covenant, obligation or agreement and such a breach would be incapable of being
satisfied by January 31, 2001.
AMENDMENT TO PURCHASE AGREEMENT
At any time prior to Closing, Sellers and Drees may amend the Purchase
Agreement, extend the time for performance of any obligation of the other party
or waive any inaccuracies in representations and warranties.
GOVERNMENT APPROVALS
In addition to compliance with applicable state corporate law and federal
and state securities laws, the Asset Sale is subject to approval under the
Hart-Scott-Rodino Act. The Hart-Scott-Rodino Act prevents the completion of
transactions until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and the appropriate waiting period expires or is terminated. On December 13,
2000, the required information and materials were filed with the Antitrust
Division of the Department of Justice and the Federal Trade Commission.
The Antitrust Division of the Department of Justice or the Federal Trade
Commission may challenge the Asset Sale on antitrust grounds either before or
after expiration of the waiting period. Other persons could take action under
the antitrust laws, to enjoin the Asset Sale. Additionally, at any time before
or after the completion of the Asset Sale or the expiration of the waiting
period, any state could take action under the antitrust laws.
OTHER AGREEMENTS IN CONNECTION WITH THE ASSET SALE
NON-COMPETITION AGREEMENTS
In connection with the Asset Sale, Drees will enter into certain
non-competition agreements and covenants with each of Sellers, Allen G. Zaring
III, and his two sons, Allen G. Zaring IV and Mark B. Zaring. Pursuant to the
Non-Competition Covenant, Sellers will agree to certain competition restrictions
for a period of five years after the Closing, which restrictions include (i)
engaging in the business of constructing, marketing and/or selling for-sale
housing units or active adult housing units anywhere within the United States of
America, (ii) soliciting
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former employees of Seller who become employed by Drees in connection with the
Asset Sale, (iii) using or permitting others to use architectural plans and
related materials conveyed to Drees in connection with for-sale housing and
active adult housing; and (iv) using the "Zaring" name in connection with
for-sale housing and active adult housing. The competition restrictions of the
Non-Competition Covenant will be subject to certain exclusions, including the
completion of subdivisions in Raleigh and Louisville; the construction,
assembly, marketing and sales of "manufactured" or "modular" housing, including
sale of lots for such housing, through HomeMax; ownership of less than 5% of the
outstanding stock of a publicly-traded company; marketing and sale of certain
identified excluded houses; and certain land development activities.
Drees also will enter into a Non-Competition Covenant with Allen G. Zaring
III, Allen G. Zaring IV and Mark B. Zaring. This Non-Competition Covenant will
be subject to the same competition restrictions as set forth above. The
competition restrictions will apply to Allen G. Zaring III for a period of five
years from the Closing and to Allen G. Zaring IV and Mark B. Zaring for a period
of three years from the Closing. The Non-Competition Covenant among Drees, Allen
G. Zaring III, Allen G. Zaring IV and Mark B. Zaring will also be subject to the
same exclusions from the competition restrictions discussed above. However, in
addition to those exclusions from the competition restrictions, this
Non-Competition Covenant provides for certain other exclusions, including (i) an
allowance for the Zaring family to build an aggregate of 36 houses per year for
the respective terms of the Non-Competition Covenants, (ii) certain activities
related to marketing, consulting and acting as a real estate broker, and (iii)
ownership in certain entities.
WARRANTY SERVICES AGREEMENT
Zaring and Drees will enter into a Warranty Services Agreement pursuant to
which Drees, as an independent contractor, will perform warranty work on behalf
of Zaring in the Indianapolis, Indiana and Nashville, Tennessee markets. This
Warranty Services Agreement will apply to houses constructed, sold and closed by
Zaring prior to the Closing. At Closing, Zaring will prefund an amount of money
that the parties estimate will cover the warranty work. Drees will draw from
this prefunded amount to pay the cost of time and materials directly employed or
utilized in the performance of the warranty work, which will be done in
accordance with the terms of Zaring's warranty. Zaring, on its own behalf or
through third parties, will continue to perform warranty work in the Cincinnati
market after the Closing.
TRANSITION SERVICES AGREEMENT
Zaring and Drees will enter into a Transition Services Agreement pursuant
to which Drees, on an independent contractor basis, will provide Zaring with
data processing services and use of facility space during a transition period
after the Closing.
LOAN PROCESSING SERVICES AGREEMENT
Zaring Financial and an affiliate of Drees anticipate entering into an
arrangement pursuant to which the Drees affiliate will provide Zaring Financial
loan processing, underwriting, loan closing and shipping services for loans
remaining in the Zaring Financial pipeline.
TRANSFER AGREEMENTS FOR INTELLECTUAL PROPERTY
Pursuant to a Trademark Transfer Agreement and a Copyright Transfer
Agreement to be executed at Closing, Sellers will sell, assign, transfer and
convey to Drees certain of Sellers' trademarks, service marks, trade names,
logos, copyrights and registrations or registration applications for any of the
forgoing. Pursuant to these
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agreements, Sellers also will transfer its right, title and interest as a
licensor in license agreements whereby Zaring granted certain trademark licenses
to Olympia Homes, LLC and certain copyright licenses to each of Olympia Homes,
LLC and St. Lawrence Homes, Inc. Each of these transfer agreements will contain
a provision for a limited license back permitting Sellers to use, on a limited
basis, the intellectual property conveyed to Drees under these transfer
agreements.
EMPLOYMENT AGREEMENTS
At Closing, Drees expects to enter into employment agreements with each of
Daniel W. Jones, the President and Chief Operating Officer of Zaring, Douglas C.
Hinger, Vice President of Operations and Process Control of Zaring Homes,
Patricia A. Payne, Senior Vice President, Marketing and Sales of Zaring Homes
and David E. Metz, Executive Vice President of Zaring Homes (the "Drees
Employment Agreements"). The terms of the Drees Employment Agreements have been
agreed to by the parties and will have a term of two years during which the
employee will be entitled to receive specified compensation and benefits
provided that the employee meets his or her obligations under the agreement. The
Drees Employment Agreements also provide for payment of a lump sum severance
payment in an amount equal to 15 months salary if the employee is terminated for
reasons other than cause within two years of Closing.
The Drees Employment Agreements will replace similar agreements in effect
between Zaring and each of the aforementioned employees (the "Zaring Employment
Agreements"). Each of the Zaring Employment Agreements have been amended to
revise certain provisions, including provisions related to severance pay and
non-competition. If the Closing of the Asset Sale pursuant to the Purchase
Agreement does not occur during the first calendar quarter of 2001, each of the
amendments will become null and void, and the Zaring Employment Agreements will
be restored. The terms of any of the Zaring Employment Agreements also will be
restored if, on or before closing, Drees does not enter into an employment
agreement substantially similar to the Drees Employment Agreement with any of
the aforementioned employees.
LAND OPTION CONTRACT WITH FIRST CINCINNATI LAND LLC
To provide additional liquidity and financing to Zaring, Allen G. Zaring
III executed agreements to fund long-term capital to Zaring and its subsidiaries
through entities controlled by him and other family members, including First
Cincinnati Land LLC ("Land LLC").
Pursuant to a three-year land option contract between Land LLC and Zaring
Homes, Zaring Homes agreed to purchase the land at a purchase price equal to the
original cost to Land LLC plus a premium of 15%. This land option contract
required Zaring Homes to make monthly payments equal to Land LLC's cost of carry
(interest, real estate taxes, sewer and water). In connection with the land
option contract, Zaring Homes entered into an irrevocable letter of credit in
the amount of $1.5 million to secure its performance, which amount represents
approximately 15% of the remaining purchase price of the land.
The existing arrangements between Land LLC and Zaring Homes will be
terminated at Closing, and Land LLC will enter into a new agreement with Drees.
The new agreement, entitled Option to Purchase Real Estate, will grant Drees an
option to purchase real estate from Land LLC during an option period commencing
on the date of the Closing. During the term of this option agreement, Drees will
pay a total annual amount equal to the purchase price of the real estate times
an interest rate equal to the Libor Rate plus 2 1/4%. In addition, Drees will be
responsible for the payment of utilities and other assessments during the term
of the option agreement. Drees could also be subject to the payment of an
additional amount of money at termination or expiration of this option
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agreement if certain conditions have not been met, and an irrevocable letter of
credit will be provided secure the obligations of Drees.
MODEL HOME LEASING AGREEMENTS WITH FIRST CINCINNATI LEASING LLC
In addition to the financing arrangements through Land LLC, Allen G. Zaring
III entered into sale and lease-back agreements through the following entities
owned by him: First Cincinnati Leasing LLC ("Leasing LLC"), First Cincinnati
Leasing 99 LLC ("Leasing 99 LLC") and First Cincinnati Leasing 2000 LLC
("Leasing 2000 LLC").
The existing model home leasing agreements between Zaring Homes and each of
the leasing companies set forth above will terminate as of Closing, and Drees
will enter in to new direct model home leases with those leasing companies. The
new leases under a Master Model Home Lease Agreement provide that each of
Leasing LLC, Leasing 99 LLC and Leasing 2000 LLC will lease model homes to Drees
on a net basis, wherein Drees will be responsible for taxes, insurance,
maintenance and other assessments. Under the Master Model Home Lease Agreement,
Drees will pay an annual base rent equal to the purchase price of the model
homes times the greater of: (i) 12%, (ii) the prime interest rate plus 1%, and
(iii) the 30-day LIBOR rate plus 4%. This rent amount will be payable in monthly
payments equal to 1/12 of the annual base rent.
ESCROW AGREEMENT
A portion of the purchase price will be placed in an escrow account
pursuant to the terms of an Escrow Agreement among Sellers, Drees and The Fifth
Third Bank as escrow agent. The terms of the Escrow Agreement have been
summarized in the section entitled "The Asset Sale -- The Purchase
Agreement -- Purchase Price" above.
RIGHT OF FIRST OFFER AGREEMENT
In connection with the Asset Sale, each of Sellers and Drees will grant
certain rights of first offer pursuant to a Right of First Offer Agreement.
Under this agreement, Sellers and Allen G. Zaring III, Allen G. Zaring IV and
Mark B. Zaring (together, the "Zaring Parties") will grant to Drees a right of
first offer to purchase lots or parcels owned by Sellers. Sellers have agreed to
give a notice to Drees when Sellers intend to sell a lot or parcel, and Drees
will have 30 days from the date of the notice to buy the lot or parcel on the
terms set forth in the notice. If Drees does not respond to the notice within 30
days, Sellers may sell the lot or parcel to another party on substantially the
same terms as those set forth in the notice. The term of the obligations of the
Zaring Parties coincide with the term applicable to each of the respective
Zaring Parties under its Non-Compete Covenant.
Drees will give a right of first opportunity to Sellers under the agreement
with respect to the development of lots. Pursuant to this agreement, Drees will
grant a right of first opportunity to the Zaring Parties to develop land in
markets in which Drees is engaged in the home-building business, excluding, with
certain exceptions, the greater metropolitan Cincinnati market.
DISSENTERS' RIGHTS
THE FOLLOWING SUMMARY OF SHAREHOLDERS' DISSENTERS' RIGHTS DOES NOT PURPORT
TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTION 1701.85
OF THE OHIO REVISED CODE, A COPY OF WHICH IS ATTACHED HERETO AS EXHIBIT B.
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Any shareholder who is entitled to vote on the Asset Sale and whose Common
Shares are not voted in favor of the Asset Sale is entitled, if the Asset Sale
is consummated, to be paid the fair cash value of such shares held of record by
him or her on the Record Date. To be entitled to such payment, such shareholder
must serve a written demand therefor upon Zaring at 11300 Cornell Park Drive,
Suite 500, Cincinnati, Ohio 45242, on or before the tenth day after the taking
of the vote authorizing the Asset Sale and must otherwise comply with Section
1701.85 of the Ohio Revised Code. Zaring will not inform the shareholders of the
expiration of such ten-day period. A vote in favor of the Asset Sale constitutes
a waiver of dissenters' rights. Failure to vote does not constitute a waiver of
dissenters' rights. A form of proxy that is returned signed but unmarked as to
choice with respect to the Asset Sale will, as indicated thereon, be voted FOR
the authorization of the Asset Sale, and therefore also will result in a loss of
dissenters rights. Any written demand must specify the shareholder's name and
address, the number of Common Shares held by him or her on the Record Date and
the amount claimed as the fair cash value of his or her Common Shares. Voting
against, or a direction on the accompanying proxy to vote against, the Asset
Sale will not itself constitute a written demand, as required by Section
1701.85.
If Zaring sends to the dissenting shareholder, at the address specified in
his or her demand, a request for the certificates representing the Common Shares
as to which the dissenting shareholder seeks relief, the dissenting shareholder
must, within fifteen days from the date of the sending of his request, deliver
to Zaring the certificates requested, in order that Zaring may endorse thereon a
legend to the effect that demand for the fair cash value of such shares has been
made. Such request by Zaring is not an admission that the dissenting shareholder
is entitled to relief under Section 1701.85. Zaring will promptly return such
endorsed certificates to the dissenting shareholder. Failure on the part of the
dissenting shareholder to deliver such certificates terminates his or her rights
as a dissenting shareholder, at the option of Zaring, exercised by written
notice sent to the dissenting shareholder within twenty days after the lapse of
the fifteen-day period above mentioned, unless a court for good cause shown
otherwise directs.
If Common Shares represented by a certificate on which such a legend has
been endorsed are transferred, each new certificate issued therefor must bear a
similar legend, together with the name of the original dissenting holder of such
shares. A transferee of Common Shares so endorsed will acquire only such rights
in Zaring as the original dissenting holder of such shares had immediately after
the service of a demand for payment of the fair cash value of such shares.
If Zaring and any dissenting shareholder cannot agree on the fair cash
value of his or her Common Shares, either may, within three months after service
of the demand by the shareholder, file a complaint in the Court of Common Pleas
of Hamilton County, Ohio for a determination of the fair cash value of his or
her Common Shares. If the court determines the shareholder is entitled to be
paid the fair cash value of his or her Common Shares, it may appoint one or more
appraisers to recommend a decision on the amount of the fair cash value. The
court thereupon shall make a finding as to the fair cash value of the Common
Shares and shall render judgment against Zaring for the payment of it, with
interest at such rate and from such date as the court considers equitable. Fair
cash value is the amount that a willing seller, under no compulsion to sell,
would be willing to accept, and which a willing buyer, under no compulsion to
sell, would be willing to accept, and which a willing buyer, under no compulsion
to purchase, would be willing to pay, but in no event in excess of the sum
specified in the shareholder's demand. Fair cash value is determined as of the
day prior to that on which the vote was taken and excludes any appreciation or
depreciation resulting from the proposed Asset Sale.
The right of any shareholder to be paid the fair cash value of his or her
Common Shares will terminate if: (i) for any reason, the Asset Sale is not
consummated; (ii) the dissenting shareholder fails: (a) to serve an appropriate
timely written demand upon Zaring; (b) to timely surrender his or her
certificates for an endorsement thereon of a legend to the effect that demand
for the fair cash value of such shares has been made, after an
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appropriate request by Zaring; or (c) to comply otherwise with Section 1701.85;
(iii) the demand is withdrawn by the dissenting shareholder, with the consent of
the Zaring Board; or (iv) Zaring and the dissenting shareholder shall not have
come to an agreement as to the fair cash value of the Common Shares and neither
shall have filed a complaint in the Court of Common Pleas of Hamilton County as
described above.
From the making of the shareholder's demand until the termination of
dissenters' rights arising from the demand or the purchase of Common Shares by
Zaring, all the rights accruing from such shares, including dividend and voting
rights, shall be suspended. If the right to receive fair cash value as a
dissenter is terminated other than by the purchase of the Common Shares by
Zaring, all shareholders rights with respect to the Common Shares shall be
restored to the shareholder.
ACCOUNTING TREATMENT OF THE ASSET SALE
The Asset Sale will be reflected on Zaring's financial statements as a sale
of assets and certain liabilities for accounting purposes, with a gain or loss
recognized in the year in which the Asset Sale is consummated in the amount of
the difference between the purchase price and the aggregate net book value of
the assets sold to Drees.
FEDERAL INCOME TAX CONSEQUENCES OF THE ASSET SALE
The following summary of the material federal income tax consequences of
the Asset Sale is not intended to be tax advice to any person, nor is it binding
upon the Internal Revenue Service. In addition, no information is provided
herein with respect to the tax consequences of the Asset Sale under applicable
state, local, or foreign tax laws.
Zaring will recognize gain or loss from the Asset Sale in an amount equal
to the difference between the amount realized by Zaring from the Asset Sale and
Zaring's adjusted tax basis in the assets sold. The amount realized by Zaring
from the Asset Sale will equal the sum of (a) the money received by Zaring from
Drees, (b) the amount of the liabilities assumed by Drees, and (c) the aggregate
amount of liabilities to which the sold assets are subject, if any. Zaring will
be subject to federal income tax on any gain it recognizes from the Asset Sale.
It is expected that the Purchase Price of the Acquired Assets will approximate
the net book value of the Acquired Assets.
PRICE RANGE OF COMMON SHARES PRECEDING ANNOUNCEMENT OF ASSET SALE
The Asset Sale was publicly announced by Zaring on December 1, 2000. The
high and low sale prices are shown below for Zaring's Common Shares on November
30, 2000, the last trading day before the announcement.
<TABLE>
<CAPTION>
COMMON SHARES
-----------------
HIGH LOW
---- ---
<S> <C> <C>
$ 0.625 $0.1875
</TABLE>
DELISTING AND TRADING OF THE COMMON SHARES AFTER THE ASSET SALE
On December 1, 2000, Zaring received a letter from the Associate Director
of Nasdaq Listing Qualifications indicating that Zaring no longer complied with
the minimum quantitative requirements of eligibility for the listing of its
shares on The Nasdaq SmallCap Market. Zaring was given until December 15, 2000
to file a plan to achieve and sustain compliance with all The Nasdaq SmallCap
Market listing requirements. Zaring does not intend to file such a plan as
requested and anticipates that its shares will subsequently be delisted from The
Nasdaq SmallCap Market. Zaring expects that its shares will be traded on the
over-the-counter electronic bulletin boards. As a
28
<PAGE> 33
consequence of such delisting, an investor would likely find it more difficult
to dispose of, or obtain quotations as to the price of, the Common Shares.
Delisting of the Common Shares may result in lower prices for these securities
than would otherwise prevail.
OPERATIONS OF ZARING FOLLOWING THE ASSET SALE
Following the Asset Sale, Zaring will no longer engage in luxury site-built
home building. Its assets remaining will include its interest in HomeMax and
certain lots and land positions in Raleigh and Charlotte, North Carolina and
Louisville, Kentucky. Zaring anticipates continuing operating losses, primarily
from its interest in HomeMax, and will undertake to restructure or sell the
operations of that subsidiary. In the event of an inability to take such action,
Zaring may not be able to satisfy obligators owed to its creditors and may be
the subject of voluntary or involuntary bankruptcy.
USE OF PROCEEDS
If the Asset Sale had been consummated as of September 30, 2000, Zaring
would have received a cash payment of $55.4 million. The actual amount received
after Closing may be materially different. After September 30, 2000, Zaring sold
its Raleigh operations to The Drees Company for $11.0 million and its Charlotte
operations to St. Lawrence Homes for $3.3 million. Accordingly, the pro forma
proceeds to Zaring as of September 30, 2000 were $69.7 million including the
cash payment in connection with the Asset Sale. Such proceeds at September 30,
2000 would have been used as follows:
<TABLE>
<CAPTION>
MILLIONS
--------
<S> <C> <C>
- Revolving Credit Facility, payable to PNC Bank (51.3)
- Term loan payable to PNC Bank (2.2)
- Other term notes payable to banks (1.3)
- Accounts payable, accrued expenses and other liabilities
including demands from the bank to fund Zaring Homes
guarantee of the Zaring National Corporation debt (13.0)
- Transaction costs including severance (1.9)
</TABLE>
The use of the proceeds does not include the potential $1.5 million premium
payment. There is no assurance Sellers will receive any of the premium payment.
After the Asset Sale, Zaring will continue to have bank and ordinary
operational liabilities and obligations owed to subordinated debt holders, which
liabilities and obligations totaled $40.9 million as of September 30, 2000.
RECOMMENDATION OF THE BOARD
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE PROPOSAL TO AUTHORIZE THE ASSET SALE PURSUANT TO THE PURCHASE
AGREEMENT.
29
<PAGE> 34
SELECTED FINANCIAL DATA
Zaring has plans to discontinue the operations of its Zaring Homes,
Hearthside Homes and Zaring Financial Services segments and will ultimately no
longer be required to consolidate the results of the limited liability companies
controlled by Allen G. Zaring III (the "Majority Shareholder LLCs").
Accordingly, the results of operations include the results of the Zaring Homes,
Hearthside Homes, Zaring Financial Services and Majority Shareholder LLC
segments as discontinued operations.
The following tables set forth Selected Financial Data for the continuing
operations of Zaring as well as financial data related to the discontinued
operations of Zaring Homes, Hearthside Homes, Zaring Financial Services and the
Majority Shareholder LLCs. This information should be read in conjunction with
the financial statements of Zaring and Management's Discussion and Analysis of
the Financial Condition and Results of Operations, each included in the Form 8-K
filed on December 15, 2000. The financial statements of Zaring have been
prepared on a going-concern basis, which contemplates realization of assets and
liquidation of liabilities in the ordinary course of business. As a result of
the factors noted elsewhere in this Proxy Statement, among others, there are no
assurances that Zaring can continue as a going concern.
30
<PAGE> 35
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
BALANCE SHEET DATA
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total Assets............................. $70,201 $69,670 $53,765 $48,681 $44,311
Net Assets of Discontinued Operations.... $20,598 $21,719 $30,918 $48,681 $44,311
Notes Payable............................ $24,855 $22,082 $ -- $ -- $ --
Subordinated Debt........................ $ 9,000 $ -- $ -- $ -- $ --
Total Liabilities........................ $43,158 $26,887 $ 3,035 $ -- $ --
Shareholders' Equity..................... $27,043 $42,783 $50,730 $48,681 $44,311
</TABLE>
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net Revenues(1)........................... $ 20,551 $12,411 $8,209 $ -- $ --
Cost Of Sales............................. 19,451 10,724 6,920 -- --
Asset Impairment.......................... 753 5,674 -- -- --
Interest.................................. 3,255 2,598 312 -- --
Selling, General and Administrative
Expenses................................ 16,274 14,830 5,183 1,269 1,392
-------- ------- ------ ------- -------
Operating Loss............................ (19,182) (21,415) (4,206) (1,269) (1,392)
Other Income (Expense).................... 78 112 -- -- --
-------- ------- ------ ------- -------
Loss Before Minority Interest and Income
Taxes................................... (19,104) (21,303) (4,206) (1,269) (1,392)
Minority Interest......................... 2,406 263 76 -- --
-------- ------- ------ ------- -------
Loss from Continuing Operations Before
Income Taxes............................ (16,698) (21,040) (4,130) (1,269) (1,392)
Benefit For Income Taxes.................. (2,688) (8,184) (1,615) (485) (539)
-------- ------- ------ ------- -------
Loss from Continuing Operations........... (14,010) (12,856) (2,515) (784) (853)
Net Income (Loss) from Discontinued
Operations.............................. (1,730) 6,490 4,567 5,611 5,133
-------- ------- ------ ------- -------
Net Income (Loss)......................... $(15,740) $(6,366) $2,052 $ 4,827 $ 4,280
-------- ------- ------ ------- -------
Loss Per Share From Continuing
Operations.............................. $ (3.05) $ (2.71) $(0.53) $ (0.16) $ (0.18)
Earnings (Loss) Per Share From
Discontinued Operations................. (0.38) 1.37 0.96 1.17 1.06
-------- ------- ------ ------- -------
Earnings (Loss) Per Share................. $ (3.43) $ (1.34) $ 0.43 $ 1.01 $ 0.88
-------- ------- ------ ------- -------
Weighted Average Shares Outstanding....... 4,591 4,737 4,781 4,779 4,850
-------- ------- ------ ------- -------
</TABLE>
31
<PAGE> 36
SELECTED OPERATING DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------ ---- ----
<S> <C> <C> <C> <C> <C>
RETAIL DISTRIBUTION
MANUFACTURED HOMES
Operating Data (Units):
New Orders(2).................................. 390 366 180 -- --
Closings(1).................................... 356 239 208 -- --
Backlog(3)(5).................................. 201 167 40 -- --
Average Revenue Per Closing...................... $ 58 $ 52 $ 41 -- --
Sales Value Of Backlog........................... $15,801 $10,889 $2,365 -- --
</TABLE>
SELECTED QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1999 1999 1999 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenues(1)..................................... $ 5,479 $4,858 $5,641 $ 4,573
Cost Of Sales....................................... 6,027 4,495 5,039 3,890
Asset Impairment.................................... 753 -- -- --
Interest............................................ 886 672 721 976
Selling, General and Administrative Expenses........ 4,791 4,220 3,708 3,555
-------- ------ ------ -------
Operating Loss...................................... (6,978) (4,529) (3,827) (3,848)
Other Income (Expense).............................. (4) 27 36 19
-------- ------ ------ -------
Loss Before Minority Interest and Income Taxes...... (6,982) (4,502) (3,791) (3,829)
Minority Interest................................... 1,191 616 542 57
-------- ------ ------ -------
Loss From Continuing Operations Before Income
Taxes............................................. (5,791) (3,886) (3,249) (3,772)
Provision (Benefit) For Income Taxes................ 445 (838) (856) (1,439)
-------- ------ ------ -------
Loss from Continuing Operations..................... (6,236) (3,048) (2,393) (2,333)
Income (Loss) from Discontinued Operations:
Loss of entry level home segment, net of tax...... (3,537) (304) (428) (261)
Income (loss) of luxury site built home segment,
net of tax..................................... (3,465) 3,348 2,738 228
Income (loss) of financial services segment, net
of tax......................................... (98) 30 (16) 35
-------- ------ ------ -------
Net Income (Loss)................................... $(13,336) $ 26 $ (99) $(2,331)
-------- ------ ------ -------
Loss Per Share From Continuing Operations........... $ (1.36) $(0.66) $(0.52) $ (0.51)
Earnings (Loss) Per Share From Discontinued
Operations........................................ (1.54) 0.67 0.50 --
-------- ------ ------ -------
Earnings (Loss) Per Share........................... $ (2.90) $ 0.01 $(0.02) $ (0.51)
-------- ------ ------ -------
Weighted Average Shares Outstanding................. 4,591 4,591 4,591 4,591
-------- ------ ------ -------
</TABLE>
32
<PAGE> 37
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1998 1998 1998 1998
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenues(1)..................................... $ 4,892 $4,542 $2,047 930
Cost Of Sales....................................... 4,255 3,837 1,845 787
Asset Impairment.................................... 5,674 -- -- --
Interest............................................ 811 1,074 469 244
Selling, General and Administrative Expenses........ 4,993 3,654 3,493 2,690
-------- ------ ------ -------
Operating Loss...................................... (10,841) (4,023) (3,760) (2,791)
Other Income (Expense).............................. (135) 70 116 61
-------- ------ ------ -------
Loss Before Minority Interest and Income Taxes...... (10,976) (3,953) (3,644) (2,730)
Minority Interest................................... 20 60 102 81
-------- ------ ------ -------
Loss From Continuing Operations Before Income
Taxes............................................. (10,956) (3,893) (3,542) (2,649)
Benefit For Income Taxes............................ (4,137) (1,550) (1,415) (1,082)
-------- ------ ------ -------
Loss from Continuing Operations..................... (6,819) (2,343) (2,127) (1,537)
Income (Loss) from Discontinued Operations:
Income (Loss) of entry level home segment, net of
tax............................................... (66) (7) (166) 20
Income (loss) of luxury site built home segment,
net of tax..................................... 1,112 2,913 2,252 435
Income (loss) of financial services segment, net
of tax......................................... (3) -- -- --
-------- ------ ------ -------
Net Income (Loss)................................... $ (5,776) $ 563 $ (41) $(1,112)
-------- ------ ------ -------
Loss Per Share From Continuing Operations........... $ (1.46) $(0.49) $(0.45) $ (0.32)
Earnings Per Share From Discontinued Operations..... 0.22 0.61 0.44 0.09
-------- ------ ------ -------
Earnings (Loss) Per Share........................... $ (1.24) $ 0.12 $(0.01) $ (0.23)
-------- ------ ------ -------
Weighted Average Shares Outstanding................. 4,655 4,752 4,765 4,776
-------- ------ ------ -------
</TABLE>
33
<PAGE> 38
SELECTED OPERATING DATA
(UNITS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1999 1999 1999 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
RETAIL DISTRIBUTION MANUFACTURED HOMES
New Orders(2)........................................ 96 106 64 124
Closings(1).......................................... 94 83 102 77
Backlog(3)........................................... 201 199 176 214
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1998 1998 1998 1998
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
RETAIL DISTRIBUTION MANUFACTURED HOMES
New Orders(2)........................................ 76 127 90 73
Closings(1).......................................... 97 82 41 19
Backlog(3)........................................... 167 188 143 94
</TABLE>
---------------
(1) Revenue from a sale is recognized upon the closing of the sale.
(2) New orders represent total new home orders received during the period, net
of cancellations.
(3) Backlog includes new orders that have not yet closed.
34
<PAGE> 39
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information gives pro forma effect to:
- The sale of the net assets of the Seller's homebuilding businesses in
Cincinnati, Ohio, Indianapolis, Indiana and Nashville, Tennessee as
contemplated in the Purchase Agreement as well as certain of the
homebuilding assets of the homebuilding divisions located in Raleigh and
Charlotte, North Carolina, all as if the sales had occurred as of
September 30, 2000, December 31, 1999 and December 31, 1998,
- The purchase price of the assets is anticipated to approximate the net
book value of the assets net of the assumption of certain applicable
liabilities,
- Proceeds received are anticipated to be used to satisfy liabilities of
the discontinued homebuilding businesses.
The pro forma financial information presented is essentially unchanged from the
historical balance sheets and results from continuing operations previously
reported given management's plans to use all of the proceeds from the sale of
these assets to repay obligations of its homebuilding segment, as well as the
recognition as of September 30, 2000 of the estimated costs to discontinue this
segment. Accordingly, the resulting net assets of discontinued operations
ultimately would represent cash or remaining net assets to be sold which, once
converted to cash, would be available to fund non-homebuilding obligations as of
the end of each of the periods presented without giving effect to changes in
actual activities of continuing operations subsequent to September 30, 2000 or
differences in actual results as compared to the pro forma assumptions relative
to the discontinued operations, as applicable.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------
2000 1999 1998
------------- ------- -------
<S> <C> <C> <C>
Cash and cash equivalents.................................. $11,876 $ 7,102 $14,133
Receivables:
Related parties.......................................... 237 828 67
Note from American Homestar Corporation.................. 2,941 4,400 --
Manufactured housing rebates and other................... 639 124 531
Inventories:
Retail distribution manufactured homes................... 6,641 6,147 2,457
Model homes.............................................. 6,501 6,556 5,911
Finished lots............................................ -- -- 379
Property and equipment, net................................ 625 954 832
HomeMax sales villages, net................................ 3,062 9,352 12,687
Investments in and advances to unconsolidated joint
ventures................................................. -- -- 201
Future tax benefit and estimated refunds................... 1,381 10,856 6,053
Cash surrender value of life insurance and other assets.... 3,824 3,284 4,700
Net assets discontinued operations......................... 3,300 20,598 21,719
------- ------- -------
$41,027 $70,201 $69,670
======= ======= =======
</TABLE>
35
<PAGE> 40
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------
2000 1999 1998
------------- ------- -------
<S> <C> <C> <C>
LIABILITIES:
Manufactured housing floor plan facility................. $10,532 $ 9,855 $ 7,082
Term notes payable....................................... 14,280 15,000 15,000
Accounts payable......................................... 1,330 2,083 1,995
Accrued liabilities...................................... 3,202 3,539 2,218
Customer deposits........................................ 815 1,150 592
Deferred gains........................................... 1,765 1,765 --
------- ------- -------
Total liabilities before subordinated debt and
minority interest................................... 31,924 33,392 26,887
Subordinated debt.......................................... 9,000 9,000 --
Minority interest in consolidated entities................. (1,494) 766 --
COMMITMENTS AND CONTINGENCIES
Shareholders' equity:
Preferred shares, no par value, 2,000,000 shares
authorized, none issued or outstanding................ -- -- --
Common shares, no par value, 18,000,000 shares
authorized, 4,591,389 issued and outstanding at
September 30, 2000, 4,591,488 issued and outstanding
at December 31, 1999 and 1998......................... 24,957 24,957 24,957
Additional paid-in capital............................... 4,286 4,286 4,286
Retained earnings (deficit).............................. (27,646) (2,200) 13,540
------- ------- -------
Total shareholders' equity............................ 1,597 27,043 42,783
------- ------- -------
$41,027 $70,201 $69,670
======= ======= =======
</TABLE>
36
<PAGE> 41
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------
2000 1999 1998
------------- ---------- ----------
<S> <C> <C> <C>
NET REVENUES.......................................... $ 30,800 $ 20,551 $ 12,411
---------- ---------- ----------
EXPENSES:
Cost of sales retail distribution manufactured
homes............................................ 26,231 19,451 10,724
Asset impairment.................................... 6,300 753 5,674
Interest............................................ 2,774 3,255 2,598
Selling............................................. 2,506 3,544 3,080
General and administrative.......................... 9,205 12,730 11,750
---------- ---------- ----------
Total expenses................................... 47,016 39,733 33,826
---------- ---------- ----------
Operating loss................................... (16,216) (19,182) (21,415)
INCOME FROM UNCONSOLIDATED JOINT VENTURES............. -- 51 242
OTHER INCOME (EXPENSE), NET........................... 409 27 (130)
---------- ---------- ----------
Loss from continuing operations before minority
interest and provision (benefit) for income
taxes.......................................... (15,807) (19,104) (21,303)
Minority interest in consolidated entities............ 2,310 2,406 263
---------- ---------- ----------
Loss from continuing operations before provision
(benefit) for income taxes..................... (13,497) (16,698) (21,040)
PROVISION (BENEFIT) FOR INCOME TAXES.................. 3,789 (2,688) (8,184)
---------- ---------- ----------
Net loss from continuing operations.............. $ (17,286) $ (14,010) $ (12,856)
========== ========== ==========
Basic diluted earnings (loss) per common share from
continuing operations............................... $ (3.77) $ (3.05) $ (2.71)
========== ========== ==========
Weighted average shares outstanding................... 4,591,427 4,591,488 4,737,220
========== ========== ==========
</TABLE>
37
<PAGE> 42
AMENDMENT TO ZARING'S AMENDED ARTICLES OF INCORPORATION
PROPOSED SHAREHOLDER ACTION
The shareholders will also be asked at the Special Meeting to approve the
adoption of an amendment to Article First of Zaring's Amended Articles of
Incorporation to change Zaring's name to First Cincinnati, Inc. The terms of the
Purchase Agreement require Zaring to change its name because the rights to use
the name "Zaring" are to be sold to Drees as part of the Asset Sale. This
proposal, if approved by the shareholders, will be implemented only if the Asset
Sale is approved and consummated and will be effected by the filing of Articles
of Amendment to Zaring's Amended Articles of Incorporation with the Secretary of
State of the State of Ohio.
Zaring's Board of Directors unanimously approved the proposed Name Change
Amendment on December 18, 2000, subject to the approval of the shareholders at
the Special Meeting, to change Zaring's name to First Cincinnati, Inc.
To accomplish this name change, the Board of Directors proposes that
Article First of the Amended Articles of Incorporation be amended to read as
follows:
FIRST: THE NAME OF THE CORPORATION IS FIRST CINCINNATI, INC.
Pursuant to Zaring's Amended Articles of Incorporation and in accordance
with Ohio law, approval by the holders of a majority of the Common Shares is
required to approve the Name Change Amendment.
NO APPRAISAL RIGHTS
Under Ohio law, shareholders are not entitled to dissenters' or appraisal
rights with respect to the Name Change Amendment.
RECOMMENDATION OF THE BOARD
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE PROPOSAL TO APPROVE THE NAME CHANGE AMENDMENT.
OTHER MATTERS
Zaring knows of no other matters to be submitted at the meeting. If any
other matters properly come before the meeting, the proxy holders will vote the
shares they represent as the Board of directors may recommend.
OTHER INFORMATION REGARDING ZARING
The following additional information about Zaring is provided as required
by Regulation and Schedule 14A of the General Rules and Regulations under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act").
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth information, as of December 18, 2000, with
respect to (a) each person known by the Board of Directors of Zaring to be the
beneficial owner of more than 5% of Zaring's outstanding Common
38
<PAGE> 43
Shares, (b) the directors of Zaring, (c) the executive officers of Zaring, and
(d) all directors and executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
SHAREHOLDER BENEFICIAL OWNERSHIP OF CLASS
----------- -------------------- --------
<S> <C> <C>
</TABLE>
---------------
* Percent of class is less than 1%.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
The transaction involves the sale of assets by Sellers; as a result, such
transaction will not result in any proceeds distributed to shareholders of
Zaring. However, certain officers, directors, employees and greater than 10%
beneficial owners have interests in the transactions reflected in the agreements
described below.
Allen G. Zaring III, Allen G. Zaring IV and Mark B. Zaring have agreed to
enter into a Non-Competition Covenant with Drees, which generally prohibits each
of them from engaging in the for-sale homebuilding business, but permits certain
limited homebuilding activities. See "The Asset Sale -- Other Agreements in
Connection with the Asset Sale -- Non-Competition Agreements."
It is anticipated that certain officers of Zaring and Zaring Homes will
enter into employment agreements with Drees at Closing. See "The Asset
Sale -- Other Agreements in Connection with the Asset Sale -- Employment
Agreements."
At Closing, Drees and Land LLC, an entity controlled by Allen G. Zaring
III, will enter into an Option to Purchase Real Estate; and Drees and each of
Leasing LLC, Leasing 99 LLC and Leasing 2000 LLC, all entities controlled by
Allen G. Zaring III, will enter into a Master Model Home Lease Agreement. See
"The Asset Sale -- Other Agreements in Connection with the Asset Sale -- Land
Option Contract with First Cincinnati Land LLC and Model Home Leasing Agreements
with First Cincinnati Leasing LLC."
Pursuant to a Right of First Offer Agreement to be executed at Closing,
Allen G. Zaring III, Allen G. Zaring IV and Mark B. Zaring will grant to Drees a
right of first offer to purchase certain lots or parcels. See "The Asset
Sale -- Other Agreements in Connection with the Asset Sale -- Right of First
Offer Agreement."
CHANGES IN CONTROL
Other than the above-described transactions and the proposed Asset Sale,
Zaring is not aware of any arrangement or plan by, with, or among any party or
parties that would result in a change in control of Zaring or whereby one or
more persons would act in concert with respect to any matter affecting Zaring.
SHAREHOLDER PROPOSALS
Proposals of security holders intended by such holders to be presented at
the next annual meeting of shareholders of Zaring must be received by Zaring no
later than December 29, 2000 for inclusion in Zaring's proxy statement and proxy
relating to that meeting. A shareholder proposal submitted outside the processes
of
39
<PAGE> 44
Rule 14a-8 will be considered untimely if submitted to Zaring after March 14,
2001. As to any such proposal submitted for consideration at the 2001 Annual
Meeting, Zaring's management will use its discretionary voting authority when
the proposal is raised at the annual meeting. Proposals should be sent to Ronald
G. Gratz, Secretary, Zaring National Corporation, 11300 Cornell Park Drive,
Suite 500, Cincinnati, Ohio 45242.
WHERE YOU CAN FIND MORE INFORMATION
Zaring is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
filed by Zaring may be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the SEC located at 75 Park Place, New York, New York
10007 and 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
most of the documents filed by Zaring with the SEC are available through the
SEC's Electronic Data Gathering and Retrieval System ("EDGAR") at the SEC's
Internet site at http://www.sec.gov.
Zaring furnishes shareholders with annual reports containing consolidated
financial statements audited by independent certified public accountants.
Zaring's 1999 Annual Report, which integrated information from Zaring's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999, was sent to
shareholders on or about April 14, 2000.
Shareholders should rely only on the information contained in this Proxy
Statement. No person is authorized to give any information or to make any
representations other than the information or representations contained herein
and, if given or made, such information or representations should not be relied
upon as having been authorized. This Proxy Statement does not constitute the
solicitation of a proxy in any jurisdiction where, or to any person to whom, it
is unlawful to make such a solicitation. This Proxy Statement is dated January
, 2001. Shareholders should not assume that the information contained in
this Proxy Statement is accurate as of any later date, and the mailing and
delivery of this Proxy Statement shall not, under any circumstances, create any
implication to the contrary.
INFORMATION INCORPORATED BY REFERENCE
Zaring's Annual Report on Form 10-K for the fiscal year ended December 31,
1999, Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000, June
30, 2000 and September 30, 2000 and Current Reports on Forms 8-K filed with the
SEC on March 24, 2000, July 31, 2000 and December 15, 2000 (which includes
restated financial statements for all applicable periods, which give effect to
the discontinuance of Zaring Homes and Zaring Financial) are hereby incorporated
by reference into this Proxy Statement. All documents filed by Zaring with the
SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Proxy Statement and prior to the completion of the vote at the
Special Meeting shall be deemed to be incorporated by reference into this Proxy
Statement and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement to the extent that a statement contained herein or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement.
40
<PAGE> 45
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN
EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE
HEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY SHAREHOLDER,
TO WHOM THIS PROXY STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO
ZARING NATIONAL CORPORATION, 11300 CORNELL PARK DRIVE, SUITE 500, CINCINNATI,
OHIO 45242-1825, TELEPHONE (513) 489-8849. IN ORDER TO ASSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BEFORE JANUARY , 2001.
41
<PAGE> 46
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Proxy Statement of our report dated December 15, 2000 on
the historical consolidated financial statements of Zaring National Corporation
and subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1999 as included in the Form 8-K
filed with the SEC on December 15, 2000. Our report dated March 27, 2000
incorporated by reference into the Company's previously filed Registration
Statements File No. 33-85588 and File No. 333-22679 is no longer appropriate
since restated financial statements have been presented giving effect to the
discontinuance of certain of its operations. It should be noted that we have not
audited any financial statements of the Company subsequent to December 31, 1999
or performed any audit procedures subsequent to the date of our report.
/s/ Arthur Andersen LLP,
December 18, 2000
42
<PAGE> 47
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
2000 1999 1998
------------- -------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
CASH (Note 2)............................................. $ -- $ -- $ --
RECEIVABLES (Note 2):
Related parties...................................... 38 16 15
Receivables from title companies, insurance and
other.............................................. 981 3,402 1,446
INVENTORIES (Note 2):
Residential housing completed or under
construction....................................... 38,717 72,543 37,605
Land, development costs and finished lots............ 43,816 49,090 41,737
PROPERTY AND EQUIPMENT, net (Note 2).................... 4,870 6,199 6,634
OTHER ASSETS (Note 2)................................... 1,116 1,027 824
------- -------- -------
$89,538 $132,277 $88,261
======= ======== =======
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
Revolving credit facility (Note 3)................... $51,250 $ 61,250 $44,500
Term notes payable (Note 3).......................... 6,315 10,188 11,121
Accounts payable..................................... 13,654 26,971 12,080
Other accrued liabilities (Note 2)................... 9,504 12,691 4,037
Customer deposits.................................... 5,163 6,851 2,667
------- -------- -------
Total liabilities............................... 85,886 117,951 74,405
------- -------- -------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 8)
SHAREHOLDER'S EQUITY (Notes 1 and 3):
Preferred shares, no par value, 2,000,000 shares
authorized, none issued or outstanding............. -- -- --
Common shares, no par value, 18,000,000 shares
authorized, 1,000 issued and outstanding........... 1 1 1
Retained earnings.................................... 3,651 14,325 13,855
------- -------- -------
3,652 14,326 13,856
------- -------- -------
$89,538 $132,277 $88,261
======= ======== =======
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these balance sheets.
F-1
<PAGE> 48
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIODS ENDED SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 AND 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------
2000 1999 1998
------------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
NET REVENUES............................................. $234,961 $284,602 $241,599
COST OF SALES............................................ 199,893 237,792 199,867
INCREMENTAL WARRANTY PROVISION (Note 2).................. -- 2,806 --
-------- -------- --------
Gross profit................................... 35,068 44,004 41,732
-------- -------- --------
OPERATING EXPENSES:
Interest (Note 2)...................................... 4,435 2,698 2,479
Selling................................................ 17,597 22,024 16,248
General and administrative............................. 13,039 14,856 12,008
-------- -------- --------
Total operating expenses....................... 35,071 39,578 30,735
-------- -------- --------
Income (loss) from operations.................. (3) 4,426 10,997
PROVISION FOR DISCONTINUED OPERATIONS.................... (3,000) -- --
OTHER INCOME (EXPENSE)................................... (794) 82 (14)
-------- -------- --------
Income (loss) before provision for income
taxes........................................ (3,797) 4,508 10,983
PROVISION FOR INCOME TAXES (Note 4)...................... 4,252 1,659 4,271
-------- -------- --------
Net income (loss).............................. $ (8,049) $ 2,849 $ 6,712
======== ======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-2
<PAGE> 49
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)
FOR THE PERIODS ENDED SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON SHARES
-------------- RETAINED
UNITS $'S EARNINGS TOTAL
------ ---- -------- --------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997.............................. 1,000 $ 1 $ 30,950 $ 30,951
Distributions to Parent (Note 2)........................ -- -- (23,807) (23,807)
Net income.............................................. -- -- 6,712 6,712
----- --- -------- --------
BALANCE, DECEMBER 31, 1998.............................. 1,000 1 13,855 13,856
Distributions to Parent (Note 2)........................ -- -- (2,379) (2,379)
Net income.............................................. -- -- 2,849 2,849
----- --- -------- --------
BALANCE, DECEMBER 31, 1999.............................. 1,000 1 14,325 14,326
Distributions to Parent (Note 2)........................ -- -- (2,625) (2,625)
Net income (loss)....................................... -- -- (8,049) (8,049)
----- --- -------- --------
BALANCE, SEPTEMBER 30, 2000............................. 1,000 $ 1 $ 3,651 $ 3,652
===== === ======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-3
<PAGE> 50
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE PERIODS ENDED SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 AND 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ------------------------
2000 1999 1998
------------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $ (8,049) $ 2,849 $ 6,712
Adjustments to reconcile net income to cash used for
operating activities:
Depreciation and amortization..................... 2,602 3,329 2,315
Changes in assets and liabilities:
Receivables......................................... 2,399 (1,957) (1,105)
Inventories......................................... 39,100 (42,291) 22,353
Other assets........................................ (639) (906) (432)
Accounts payable and other accrued liabilities...... (16,504) 23,545 4,187
Customer deposits................................... (1,688) 4,184 679
-------- -------- --------
Net cash provided by (used in) operating
activities................................... 17,221 (11,247) 34,709
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.................... (1,058) (2,253) (4,439)
Proceeds from the sale of property and equipment....... 335 62 85
-------- -------- --------
Net cash used in investing activities.......... (723) (2,191) (4,354)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable............................ 11,000 55,774 80,283
Repayments on notes payable............................ (24,873) (39,957) (86,831)
Distributions to parent................................ (2,625) (2,379) (23,807)
-------- -------- --------
Net cash provided by (used in) financing
activities................................... (16,498) 13,438 (30,355)
-------- -------- --------
INCREASE IN CASH......................................... -- -- --
CASH, BEGINNING OF PERIOD................................ -- -- --
-------- -------- --------
CASH, END OF PERIOD...................................... $ -- $ -- $ --
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest............... $ 4,555 $ 3,385 $ 2,857
======== ======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
F-4
<PAGE> 51
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED)
SEPTEMBER 30, 2000, DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION --
The accompanying consolidated financial statements consist of Zaring Homes,
Inc. (an Ohio corporation) and its wholly-owned subsidiaries, Zaring Homes
Kentucky, LLC and Zaring Home of Indiana LLC (collectively the Company).
The Company is a wholly-owned subsidiary of Zaring National Corporation
(the Parent). The Parent has no significant operations other than its
investment in the Company and its other subsidiaries, Homemax, Inc.,
Hearthside, L.L.C. and Zaring Financial Services, LLC as well as limited
general and administrative functions.
The Company's principal business is the designing, constructing, marketing
and selling of single-family homes and the acquisition and development of
land for sale as residential lots in the midwest and southeast United
States. Zaring Homes, Inc. commenced operations in Cincinnati, Ohio in 1964
and in Nashville, Tennessee in 1986. During the three year period ended
December 31, 1996, operations commenced in Louisville, Kentucky and
Charlotte, North Carolina (1996 cities) and in Raleigh/Durham, North
Carolina and Indianapolis, Indiana (1994 cities).
On May 8, 1997, the Company's Board of Directors authorized, and the
shareholders approved, a plan to restructure the corporate organization of
the Company. The restructuring resulted in the then current holders of the
Company's common shares converting their shares into shares of the Parent.
The Company then became a wholly-owned subsidiary of the Parent.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
(a) CASH -- The Company's cash accounts are included in the cash balances
of the Parent. Interim cash receipts and disbursements are included
in intercompany transfers which ultimately are included as a
component of net contributions or distributions in the accompanying
consolidated financial statements.
(b) RECEIVABLES FROM TITLE COMPANIES, INSURANCE AND OTHER -- Title
companies, insurance and other receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------
2000 1999 1998
------------- ------ ------
<S> <C> <C> <C>
Receivables from title companies........... $ -- $1,904 $ 894
Insurance (Note 2(j))...................... 568 1,000 --
Other...................................... 413 498 552
---- ------ ------
$981 $3,402 $1,446
==== ====== ======
</TABLE>
(c) INVENTORIES -- Inventories are stated at the lower of cost or market.
Costs include acquisition, land development, direct and indirect
production costs, land deposits, interest, taxes and certain other
carrying costs related to development and construction activities.
Market represents estimates based on
F-5
<PAGE> 52
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
SEPTEMBER 30, 2000, DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
management's present plans and intentions of sale prices less
development and disposition costs, assuming that disposition occurs in
the normal course of business.
The following table summarizes the components of residential housing
inventory:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------
2000 1999 1998
------------- ------- -------
<S> <C> <C> <C>
Residential housing under a contract of
sale................................... $31,037 $47,113 $21,257
Residential housing under construction... 7,203 19,187 11,108
Model homes.............................. 477 6,243 5,240
------- ------- -------
$38,717 $72,543 $37,605
======= ======= =======
</TABLE>
(d) CAPITALIZED INTEREST -- Interest is capitalized on land in the
process of development and residential housing construction costs
during the development and construction period. The following table
summarizes the activity with respect to capitalized interest:
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ----------------
2000 1999 1998
------------- ------ ------
<S> <C> <C> <C>
Capitalized interest, beginning of
period................................... $2,259 $1,803 $1,678
Interest incurred.......................... 3,606 3,154 2,604
Interest expensed.......................... (4,435) (2,698) (2,479)
------ ------ ------
Capitalized interest, end of period........ $1,430 $2,259 $1,803
====== ====== ======
</TABLE>
Interest costs are allocated to the Company by the Parent based on
assets deployed and existing notes. For purposes of these financial
statements interest reported is intended to approximate actual
interest costs of the Company. In addition, no allocation of Corporate
general and administrative costs have been reflected as these costs
would continue independent of the discontinuance of the Company (Note
9). Corporate expenses not allocated to subsidiaries approximated
$3,646, $4,586 and $3,915 as of September 30, 2000 and December 31,
1999 and 1998, respectively.
(e) PROPERTY AND EQUIPMENT -- Property and equipment are recorded at cost
and depreciated over the estimated useful lives of the assets using
accelerated and straight-line methods. The estimated useful lives of
the various classes of assets are as follows:
<TABLE>
<S> <C>
Office furniture and equipment.............................. 5-7 years
Model home furniture and accessories........................ 2-5 years
Leasehold improvements...................................... 5-15 years
</TABLE>
F-6
<PAGE> 53
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
SEPTEMBER 30, 2000, DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------
2000 1999 1998
------------- ------ ------
<S> <C> <C> <C>
Office furniture and equipment............. $5,358 $5,516 $5,012
Model home furniture and accessories....... 3,271 5,855 4,971
Leasehold improvements..................... 1,691 1,661 1,615
------ ------ ------
10,320 13,032 11,598
Less: accumulated depreciation and
amortization............................. (5,450) (6,833) (4,964)
------ ------ ------
$4,870 $6,199 $6,634
====== ====== ======
</TABLE>
(f) OTHER ASSETS -- Other assets of the Company include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------
2000 1999 1998
------------- ------ ----
<S> <C> <C> <C>
Prepaid insurance............................ $ 280 $ 58 $ --
Prepaid commissions.......................... 451 417 6
Architectural plans, net..................... 285 382 473
Other........................................ 100 170 345
------ ------ ----
$1,116 $1,027 $824
====== ====== ====
</TABLE>
(g) ACCRUED LIABILITIES -- Accrued liabilities consists of the following
as of December 31:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
2000 1999 1998
------------- ------- ------
<S> <C> <C> <C>
Estimate to complete closed homes (Note
2(m))................................... $1,592 $ 5,192 $1,191
Incremental warranty provision (Note
2(j))................................... 484 3,806 --
Discontinued operations provision......... 3,000 -- --
Other..................................... 4,428 3,693 2,846
------ ------- ------
$9,504 $12,691 $4,037
====== ======= ======
</TABLE>
(h) REVENUE AND COST RECOGNITION -- Revenues and costs of sales are
recognized upon closing the sale, at which time title is transferred
to the purchaser.
(i) SERVICE AND WARRANTY LIABILITIES -- Service and warranty costs are
estimated and provided for at the time of closing on a home. Warranty
expense, exclusive of an incremental warranty provision, approximated
$1,410 for the nine months ended September 30, 2000 and $3,182 and
$1,485 for the years ended December 31, 1999 and 1998, respectively.
F-7
<PAGE> 54
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
SEPTEMBER 30, 2000, DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
(j) INCREMENTAL WARRANTY PROVISION -- During 1999, the Company became
aware of certain moisture and mold related issues in certain of its
luxury site-built home communities in Mason, Ohio. The Company has
vigorously pursued various remediation initiatives in an effort to
address the various homeowner concerns. As of December 31, 1999 and
through September 30, 2000, the Company estimated the cost of
remediation approximates $3.8 million. Certain of the costs
associated with the remediation efforts are subject to recovery
through the Company's insurance. To date, the Company's primary
carrier has accepted certain coverage, however, the excess insurance
carrier has to date denied coverage. The Company continues to
vigorously pursue its rights under its insurance policies. In the
opinion of management and legal counsel it is remote that insurance
recoveries will be less than $1,0 million. Through September 30, 2000
the Company received insurance proceeds of approximately $432.
Adjustments to the estimated costs of remediation as well as the
related minimum insurance recoveries will be recorded in the periods
in which the facts and circumstances which warrant such adjustments
become known. Through September 30, 2000, the Company incurred costs
of approximately $3.3 million related to the remediation efforts.
As of September 30, 2000, of the total estimated remediation cost of
$3.8 million, the Company has contractually agreed to remediation
costs of approximately $2.9 million with certain homeowners in the
communities. In March 2000, a purported class actions suit was filed
by a homeowner which claimed compensatory damages of more than $25,
treble and punitive damages and other costs. The Company intends to
vigorously defend this matter. However, given the preliminary nature
of this case, the uncertainty relative to the potential costs of
remediation and the uncertainties relative to the scope of insurance
coverage available, the Company is currently uncertain as to the
magnitude of the potential uninsured liability associated with the
case.
(k) ADVERTISING -- The Company expenses the costs of advertising as
incurred. Advertising expense approximated $2,149 for the nine months
ended September 30, 2000 and $2,785 and $1,339 for the years ended
December 31, 1999 and 1998, respectively.
(l) SFAS 123 "ACCOUNTING FOR STOCK-BASED COMPENSATION" -- The Company has
elected to account for the cost of its stock options utilizing the
intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25 (APB 25) as allowed by Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (SFAS 123). Accordingly, no compensation cost has been
recognized for stock options as substantially all stock options were
granted at prices that approximated fair market value, as defined by
the plans, at the measurement date. The pro forma disclosures
required by SFAS 123 are presented in Note 7.
(m) USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
F-8
<PAGE> 55
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
SEPTEMBER 30, 2000, DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
Actual results could differ from those estimates. Certain significant
estimates include warranty, incremental warranty, insurance coverage and
estimated costs to complete closed homes.
(n) NEW PRONOUNCEMENTS -- In June 1998, the FASB issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This statement
established accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments
imbedded in other contracts) be recorded on the balance sheet as
either an asset or liability measured at its fair value. This
statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. SFAS 133, as amended is effective for fiscal years
beginning after June 15, 2000. Upon adoption of this statement, the
Company anticipates no impact on its reported consolidated financial
position, results of operations, cash flows or related disclosures.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulleting No. 101, "Revenue Recognition in Financial
Statements" (SAB 101). SAB 101 interprets and expands upon existing
guidance regarding revenue recognition. The implementation of SAB 101
is required no later than the fourth quarter of 2000. The Company
does not expect SAB 101 to have a material impact on revenue
recognition.
(3) NOTES PAYABLE --
The Company has a syndicated credit facility with PNC Bank acting as agent.
This facility consists of a revolving credit facility, including amounts
available for letters of credit, as defined in the agreement.
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------
2000 1999 1998
------------- ------- -------
<S> <C> <C> <C>
Revolving Credit Facility, payable to PNC
Bank, as agent, $67.5 million and $72.5
million available at September 30, 2000
and December 31, 1999, respectively,
borrowings outstanding at September 30,
2000, December 31, 1999 and December 31,
1998 are at 11.5%, 8.76% and 7.88%,
respectively, expiring in March 2001..... $51,250 $61,250 $44,500
======= ======= =======
</TABLE>
F-9
<PAGE> 56
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
SEPTEMBER 30, 2000, DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------
2000 1999 1998
------------- ------- -------
<S> <C> <C> <C>
Term Loans, payable to PNC Bank, as agent,
borrowings outstanding at September 30,
2000, December 31, 1999 and December 31,
1998 are at 11.5%, 8.76% and 7.88%,
respectively, payable in quarterly
installments of $750 through March
2001..................................... $ 2,250 $ 4,500 $ 6,750
Other Term Notes, payable to banks,
interest at 7.95%, payable in quarterly
installments of $437 through March
2001..................................... 1,311 2,739 4,371
Other Term Notes interest at 7.0% to 12.0%,
principal installments of $72 due January
2002, $2,425 due April 2003 and $692 due
April 2005, secured by certain land...... 2,754 2,949 --
------- ------- -------
$ 6,315 $10,188 $11,121
======= ======= =======
</TABLE>
During 1999 and subsequent to yearend the Company was unable to comply with
certain covenants included in its credit agreements. The banks initially
provided forbearance agreement which extended to April 14, 2000. Concurrent
with the expiration of the forbearance agreement, the Company negotiated a
third amendment to the loan agreements with its banks. The amendment to the
syndicated credit facility includes the following modifications:
- The maturity date of the facilities were revised to March 31, 2001.
- Maximum available borrowings under the revolving credit facility of $72.5
million as of March 31, 2000 were reduced by $5.0 million on July 2,
2000, $5.0 million on October 1, 2000 and an additional $10.0 million on
October 13, 2000.
- Interest rates were adjusted to prime plus 1% through August 31, 2000,
with an increase to prime plus 2% if borrowings under the revolving
credit facility exceed $40.0 million on September 1, 2000, an increase to
prime plus 3% if revolver borrowings exceed $25.0 million on November 1,
2000 and prime plus 4% if revolver borrowings exceed $5.0 million on
January 1, 2000. Default rates, if applicable, will be 3% above the
interest rate in effect.
- The third amendment revises preexisting provisions which required, amount
others, that the Company maintain certain minimum levels of tangible net
worth and cash flows from operations to certain fixed charges as well as
limiting the Company's ratio of debt to equity, all as defined per the
terms of the
F-10
<PAGE> 57
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
SEPTEMBER 30, 2000, DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
agreement. The amendment also established limitations on the number of
market and model homes maintained in inventory, land acquisition and
deviations from expected cash flows (as defined).
- Waivers for loan violations occurring prior to April 14, 2000.
The Company was not in compliance with certain of the terms and conditions
of certain of its credit agreements at September 30, 2000. Management
intends to discuss the potential covenant violations with its lenders and
secure waivers or otherwise amend the agreements to enable compliance
through at least the date of the expected sale to The Drees Company (Drees)
(see Note 9). In addition, management is of the opinion that its present
cash balances, amounts available from its credit agreements and amounts
generated from its asset reduction plans will provide adequate funds for
its future operations through the date of the sale to Drees provided such a
sale occurs no later than the first quarter of 2001. However, there can be
no assurance that the banks will provide waivers or otherwise amend the
credit agreements or continue to provide financing to the Company. In the
event the banks do not agree to provide waivers or otherwise amend the
credit agreements and accelerate payments due per the agreements, the
Company will encounter great difficulty in meeting the demands of the banks
and will need to evaluate various forms of financial reorganization, the
most severe of which could include bankruptcy.
As of November 1, 2000 borrowings under the revolving credit facility were
approximately $39.3 million, accordingly interest rates were adjusted to
prime plus 3.0%. Further, as of December 11, 2000, management believes
borrowings under the revolving credit facility will exceed $5.0 million on
January 1, 2001. If borrowings exceed $5.0 million on January 1, 2000,
interest rates will be adjusted to prime plus 4.0% through the maturity of
the facility.
The carrying value of the revolving credit facilities and term loans
approximate fair market values as these notes are priced at current market
rates. The fair market value of the Company's other fixed rate notes
payable as of December 31, 1999 and 1998 approximated $5,723 and $4,452,
respectively. The fair market values of these securities was estimated by
discounting the expected cash flows at the rates currently offered to the
Company for debt of the same remaining maturities.
Schedule maturities of notes payable are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
<S> <C>
2000........................................................ $ 4,865
2001........................................................ 63,624
2002........................................................ 72
2003........................................................ 2,185
2004........................................................ --
Thereafter.................................................. 692
-------
$71,438
=======
</TABLE>
F-11
<PAGE> 58
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
SEPTEMBER 30, 2000, DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
The Company is contingently liable under letters of credit of approximately
$5.4 million issued as a result of lot and land acquisition and development
activities through September 30, 2000.
In February 1998, the Parent entered into a $15 million Credit Agreement
with the Provident Bank for the working capital needs of HomeMax and
subsidiaries. Interest is at the Prime Rate plus 1.0%. The note is payable
in three annual installments of $1.47 million commencing March 15, 2000,
with the entire balance payable at the earlier of September 15, 2002 or 90
days following the sale of Home Max. The Company guarantees $10.0 million
of this note.
(4) INCOME TAXES --
The Parent accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). This statement requires deferred tax recognition for all temporary
differences in accordance with the liability method and requires
adjustments of future tax benefits and deferred tax liabilities for enacted
changes in tax laws and rates. Principal differences relate to warranty,
depreciation and other currently nondeductible items.
The Company does not file separate tax returns, rather it is included in
the Parent's consolidated tax return. The Company has entered into a tax
sharing agreement (the Agreement) with the Parent whereby the "separate
return" method is used to allocate tax expense to members of the group
included in the consolidated tax return. The Company has no deferred tax
assets or liabilities as the Agreement stipulates that payments be made to
or received from the Parent based on the tax liability (credit) calculated
as if the Company filed a separate tax return. SFAS 109 requires that
differences between the calculated tax expense (credit) and payments made
to or received from the Parent be treated as capital transactions.
During September 2000, the Parent recorded a tax valuation allowance of
which $4.4 million was allocated to the Company. The recognition of the
valuation allowance is primarily attributable to the fact that deferred tax
assets previously recorded on the Parent's consolidated balance sheet will
only be realized through prospective taxable income and there are
substantial uncertainties relative to the prospects of realizing such
taxable income.
The following summarizes the provision for income taxes:
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ----------------
2000 1999 1998
------------- ------ ------
<S> <C> <C> <C>
Currently payable............................ $4,895 $3,376 $5,021
Due to (from) parent......................... (643) (1,717) (750)
------ ------ ------
$4,252 $1,659 $4,271
====== ====== ======
</TABLE>
F-12
<PAGE> 59
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
SEPTEMBER 30, 2000, DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
The following is a reconciliation between the statutory federal income tax
rate and the provision for income tax:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
NINE MONTHS ------------------------------
ENDED 1999 1998
SEPTEMBER 30, ------------- --------------
2000 AMOUNT RATE AMOUNT RATE
--------------- ------ ---- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Computed provision for federal
income taxes at the statutory
rate.......................... (1,291) (34.0%) $1,533 34.0% $3,734 34.0%
State and local income taxes,
net of federal income tax
benefit....................... -- -- 180 4.0 439 4.0
Other, including a tax valuation
allowance of $5.5 million in
2000.......................... 5,543 145.0 (54) (1.2) 98 0.9
------ ------ ------ ---- ------ -----
$4,252 111.0% $1,659 36.8% $4,271 38.9%
====== ====== ====== ==== ====== =====
</TABLE>
(5) RETIREMENT PLAN --
Eligible Company employees participate in a defined contribution plan
established by the Parent. The plan provides for voluntary contributions by
the Company's employees up to a specified maximum percentage of gross pay.
Company contributions are discretionary. Company contributions accrued and
expensed approximated $481 for the nine months ended September 30, 2000 and
$733 and $553 for the years ended December 31, 1999 and 1998, respectively.
(6) RELATED PARTY TRANSACTIONS --
During 1999, First Cincinnati Leasing 99, LLC (Leasing 99 LLC), a company
owned by Allen G. Zaring, III, a principal shareholder of the Parent,
purchased from and subsequently leased back to Zaring Homes approximately
$3.2 million of model homes. During 1998, First Cincinnati Leasing LLC
(Leasing LLC), a Company owned by Allen G. Zaring, III, purchased from and
subsequently leased back to Zaring Homes approximately $11.0 million of
model homes. During the lease terms, Zaring Homes pays Leasing LLC and
Leasing 99 LLC monthly rent equal to the greater of the prime interest rate
of LIBOR plus 1.5% applied to the aggregate sales prices of the respective
models and related taxes, insurance, maintenance and homeowners fees, as
applicable.
Also in 1998, First Cincinnati Land LLC (Land LLC), a company owned by
Allen G. Zaring, III and his sons, purchased approximately $4.3 million of
undeveloped land from Zaring Homes. In 1999 and 1998 Land LLC purchased
approximately $4.1 million and $1.5 million, respectively of undeveloped
land from unrelated parties. Zaring Homes has options for up to three years
to purchase the land for Land LLC's original cost plus 15%. Interim monthly
option payments to Land LLC approximate its carrying costs (interest, real
estate taxes, sewer and water). To secure its performance of the option
contract, Zaring Homes
F-13
<PAGE> 60
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
SEPTEMBER 30, 2000, DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
provided a $1.3 million irrevocable letter of credit. In 1999, Zaring Homes
purchased $1.2 million of undeveloped land from Land LLC.
Other related party activities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------
2000 1999 1998
------------- ------ ------
<S> <C> <C> <C>
Sales of residential homes to management and
other related parties, including $1,081, $554
and $1,680 related to employees who were
relocated during the nine months ended
September 30, 2000 and for the years ended
December 31, 1999 and 1998, respectively..... $1,793 $2,722 $3,393
====== ====== ======
Receivable from Allen G. Zaring III............ $ -- $ 16 $ 15
====== ====== ======
</TABLE>
(7) STOCK OPTION PLANS --
Eligible Company employees participate in stock option plans (the Plans)
established by the Parent. Had compensation cost for these plans been
determined consistent with SFAS 123, the Company's net income would have
been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Net income
As reported.............................................. $2,849 $6,712
Pro forma................................................ $2,673 $5,386
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1997:
<TABLE>
<S> <C>
Dividend yield.............................................. 0%
Expected volatility......................................... 36%
Risk-free interest rate..................................... 6.5%
Expected lives.............................................. 10 years
</TABLE>
The Parent may grant options for up to 893,000 shares under the Plans.
Company employees have been granted options on 629,567 shares through
December 31, 1999. The option exercise prices approximate the stock's
market price on the date of grant. Of the options granted, 91,700 will vest
subject to the Company's annual performance and conformity with certain
other performance criteria. These options expire ten years
F-14
<PAGE> 61
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
SEPTEMBER 30, 2000, DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
from grant date. Another 60,000 of the options vest in three annual
installments beginning in 1998 and expire in ten years and 72,243 vest in
2000 and expire in ten years. The remaining options vest at their grant
date and expire ten years from date of grant. The weighted average fair
value of option shares granted to Company employees during the year ended
December 31, 1999 was $5.86.
(8) COMMITMENTS AND CONTINGENCIES --
(a) LOT PURCHASES -- In addition to land under development, the Company has
commitments to purchase residential lots from various outside parties
as follows:
<TABLE>
<CAPTION>
NUMBER OF LOTS AMOUNT
-------------- -------
<S> <C> <C>
Years Ended December 31,
2000...................................... 237 $11,560
2001...................................... 287 12,652
2002...................................... 144 6,003
2003...................................... 116 4,840
2004...................................... 111 4,615
Thereafter................................ 76 3,040
--- -------
971 $42,710
=== =======
</TABLE>
As further discussed in Note 9, on September 29, 2000, October 13, 2000
and November 13, 2000 the Parent sold certain of the net assets of the
Company's Louisville, Raleigh and Charlotte divisions, respectively to
third party purchasers and on December 1, 2000 the Company entered into
an agreement with Drees whereby a Drees subsidiary will acquire
substantially all of the remaining assets of the Company. Certain of
these commitments have been or will be transferred to the purchasers of
the assets of the Company. The Company is in the process of negotiating
the termination of commitments with the owners of the lots. As of
December 15, 2000 these commitments approximate 151 lots totaling $8.1
million.
(b) LITIGATION -- The Company is subject to various claims, lawsuits and
administrative proceedings arising in the ordinary course of business
with respect to real estate, environmental zoning and other matters,
which seek remedies or damages. The Company believes that any liability
that may finally be determined will not have a material effect on its
financial position or results of operations.
During 1999, the Company became aware of certain moisture and mold
related issues in certain of its luxury site-built home communities in
Mason, Ohio. The Company has vigorously pursued various remediation
initiatives in an effort to address the various homeowner concerns. As
of December 31, 1999 and through September 30, 2000, the Company
estimated the cost of remediation approximates $3.8 million. Certain of
the costs associated with the remediation efforts are subject to
recovery through the Company's insurance. To date, the Company's
primary carrier has accepted certain coverage, however, the excess
insurance carrier has to date denied coverage. The Company continues to
F-15
<PAGE> 62
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
SEPTEMBER 30, 2000, DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
vigorously pursue its rights under its insurance policies. In the
opinion of management and legal counsel it is remote that insurance
recoveries will be less than $1.0 million. Through September 30, 2000
the Company received insurance proceeds of approximately $432.
Adjustments to the estimated costs of remediation as well as the
related minimum insurance recoveries will be recorded in the periods in
which the facts and circumstances which warrant such adjustments become
known. Through September 30, 2000, the Company incurred costs of
approximately $3.3 million related to the remediation efforts.
As of September 30, 2000, of the total estimated remediation cost of
$3.8 million, the Company has contractually agreed to remediation costs
of approximately $2.9 million with certain homeowners in the
communities. In March 2000, a purported class actions suit was filed by
a homeowner which claimed compensatory damages of more than $25, treble
and punitive damages and other costs. The Company intends to vigorously
defend this matter. However, given the preliminary nature of this case,
the uncertainty relative to the potential costs of remediation and the
uncertainties relative to the scope of insurance coverage available,
the Company is currently uncertain as to the magnitude of the potential
uninsured liability associated with the case.
(c) OPERATING LEASES -- The Company is obligated under noncancellable
operating lease agreements for office space. Rental expense under these
agreements was $1,318 for the nine months ended September 30, 2000 and
$1,545 and $1,322 for the years ended December 31, 1999 and 1998,
respectively. Future minimum lease payments under these operating lease
agreements are as follows:
<TABLE>
<S> <C> <C>
Years Ended December 31,
2000....................................................... $1,141
2001....................................................... 1,096
2002....................................................... 856
2003....................................................... 779
2004....................................................... 622
Thereafter................................................. 2,592
------
$7,086
======
</TABLE>
As further discussed in Note 9, under terms of the purchase agreements
with Drees, Olympia Homes and St. Lawrence Homes, the facility and
equipment leases of the Company will be assumed by Drees, Olympia Homes,
and St. Lawrence Homes, as appropriate.
(9) SUBSEQUENT EVENTS --
On November 13, 2000, the Board of Directors of the Parent approved plans to
discontinue the operations of the Zaring Homes subsidiary. On December 1,
2000, the Company entered into an agreement with Drees whereby a Drees
subsidiary will purchase substantially all of the site-built homebuilding
assets of Zaring Homes in its Cincinnati, Nashville and Indianapolis markets
at book value, as defined. Under the terms of the agreement, Drees will
obtain Zaring Homes' tradenames, trademarks and home plans in these markets.
F-16
<PAGE> 63
ZARING HOMES, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF ZARING NATIONAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) (CONTINUED)
SEPTEMBER 30, 2000, DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------
Zaring Homes will retain warranty responsibility for all homes closed prior
to the sale to Drees. The Parent expects to close on the sale to Drees in
the first quarter of 2001.
On September 29, 2000 the Parent sold certain of the net assets of the Zaring
Homes Louisville division to Olympia Homes LLC for approximately $6.3 million
resulting in a loss of $824.
On October 13, 2000, the Parent sold certain of the operating assets of the
Zaring Homes Raleigh division to Drees at book value, approximately $11.0
million.
On November 13, 2000, St. Lawrence Homes acquired substantially all of the real
estate assets and assumed the lot purchase contracts of the Zaring Homes
Charlotte division at book value, approximately $3.3 million. All Zaring Homes
under contract of sale in Charlotte will be completed and warranted by Zaring
Homes.
The Parent expects to close on the sale of the net assets of the Cincinnati,
Nashville and Indianapolis divisions within the next twelve months. In the event
the sale to Drees does not materialize, the Parent will aggressively pursue
other purchasers for these three divisions.
For the period ended September 30, 2000, the net loss includes the write down of
assets to estimated realizable value and a provision for anticipated closing
costs and operating losses until disposal aggregating approximately $3.0
million.
At September 30, 2000 the Company was not in compliance with certain of the
terms and conditions of certain of its credit agreements. Management intends to
discuss the covenant violations with its lenders and secure waivers or otherwise
amend the agreements to enable compliance at least through the date of the
expected sale to Drees (see Note 5).
F-17
<PAGE> 64
EXHIBIT A
ASSET PURCHASE AGREEMENT
BY AND AMONG
ZARING NATIONAL CORPORATION,
ZARING HOMES OF INDIANA, LLC
AND
ZARING HOMES, INC.,
AS SELLERS,
AND
DREES PREFERRED COLLECTION, INC.,
AS PURCHASER
DATED AS OF DECEMBER 1, 2000
<PAGE> 65
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1. PURCHASE AND SALE OF THE ACQUIRED ASSETS................... A-1
1.1. Purchase and Sale of the Acquired Assets.................... A-1
1.2. Assumption of the Assumed Liabilities....................... A-3
1.3. Purchase Price.............................................. A-5
1.4. Tax Prorations.............................................. A-7
1.5. Allocation of Purchase Price................................ A-7
ARTICLE 2. THE CLOSING................................................ A-8
2.1. Closing..................................................... A-8
2.2. Closing Deliveries by Sellers............................... A-8
2.3. Closing Deliveries by Purchaser............................. A-10
2.4. Further Assurances.......................................... A-11
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF SELLERS.................. A-11
3.1. Organization, Authority and Qualification of Sellers........ A-11
3.2. Authority; Noncontravention; Consents....................... A-11
3.3. Financial Statements........................................ A-12
3.4. Absence of Certain Changes or Events........................ A-12
3.5. Absence of Litigation....................................... A-13
3.6. Ownership of Acquired Assets................................ A-13
3.7. Maintenance; Sufficiency of the Acquired Assets............. A-13
3.8. Executory Contracts......................................... A-13
3.9. Absence of Undisclosed Liabilities.......................... A-14
3.10. Compliance With Laws........................................ A-14
3.11. Taxes and Audits............................................ A-14
3.12. Employees................................................... A-14
3.13. Environmental Violations.................................... A-15
3.14. Environmental Condition of Inventory........................ A-15
3.15. No Infringements............................................ A-15
3.16. Brokerage and Finder Fees................................... A-15
3.17. No RESPA Violations......................................... A-16
3.18. Warranty Work............................................... A-16
3.19. No Cancellation............................................. A-16
3.20. No Violations Of Consumer Acts.............................. A-16
3.21. Use of Names................................................ A-16
3.22. Eminent Domain.............................................. A-16
3.23. No Discrimination........................................... A-16
3.24. No Moratoria................................................ A-16
3.25. No Defective Soil Conditions................................ A-17
3.26. Lot Purchase Contracts...................................... A-17
3.27. Workmanlike Condition; Compliance with Codes................ A-17
3.28. No Fraudulent Conveyances................................... A-17
3.29. Radon Gas................................................... A-17
3.30. Real Estate Taxes Associated with Agricultural Use.......... A-17
</TABLE>
i
<PAGE> 66
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER................ A-18
4.1. Organization, Existence and Good Standing of Purchaser...... A-18
4.2. Authority Relative to This Agreement........................ A-18
4.3. No Conflict................................................. A-18
4.4. Required Filings and Consents............................... A-19
4.5. Absence of Litigation....................................... A-19
4.6. Financing................................................... A-19
4.7. Brokerage and Finder Fees................................... A-19
ARTICLE 5. COVENANTS.................................................. A-19
5.1. Acquisition Proposals....................................... A-19
5.2. Conduct of Sellers' Business Pending Closing................ A-21
5.3. Other Actions............................................... A-22
ARTICLE 6. ADDITIONAL AGREEMENTS...................................... A-22
6.1. Preparation of Proxy Statement; Shareholder Meeting......... A-22
6.2. HSR Act..................................................... A-22
6.3. Access to Information; Confidentiality...................... A-23
6.4. Compliance with Laws........................................ A-23
6.5. Best Efforts; Notification.................................. A-23
6.6. Public Announcements........................................ A-24
ARTICLE 7. CONDITIONS TO CLOSING...................................... A-24
7.1. Mutual Conditions........................................... A-24
7.2. Conditions to Obligations of Purchaser...................... A-25
7.3. Conditions to Obligations of Sellers........................ A-26
ARTICLE 8. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS; INDEMNIFICATION................................ A-26
8.1. Survival.................................................... A-26
8.2. Obligation of Sellers to Indemnify.......................... A-27
8.3. Obligation of Purchaser to Indemnify........................ A-27
Notice and Opportunity to Defend Against Third Party
8.4. Claims...................................................... A-28
8.5. Limits on Indemnification................................... A-28
ARTICLE 9. TERMINATION, AMENDMENT AND WAIVER.......................... A-29
9.1. Termination................................................. A-29
9.2. Certain Fees and Expenses................................... A-30
9.3. Effect of Termination....................................... A-31
9.4. Amendment; Extension; Waiver................................ A-31
ARTICLE 10. MISCELLANEOUS............................................. A-31
10.1. Expenses.................................................... A-31
10.2. Notices..................................................... A-31
10.3. Certain Definitions......................................... A-32
10.4. Headings.................................................... A-33
10.5. Severability................................................ A-33
10.6. Entire Agreement............................................ A-33
10.7. Assignment.................................................. A-34
</TABLE>
ii
<PAGE> 67
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
10.8. Parties in Interest......................................... A-34
Failure or Indulgence Not Waiver; Remedies Cumulative;
10.9. Specific Performance........................................ A-34
10.10. Governing Law; Venue; Waiver of Trial by Jury............... A-34
10.11. Arbitration................................................. A-35
10.12. Counterparts................................................ A-35
10.13. Rules of Construction....................................... A-35
10.14. Records..................................................... A-36
10.15. Leased Property............................................. A-36
10.16. Replacement Letters of Credits/Deposits..................... A-36
10.17. Employment Matters.......................................... A-36
</TABLE>
SCHEDULES
<TABLE>
<S> <C> <C>
1.1(a) -- Inventory
1.1(c) -- Facility Leases
1.1(d) -- Tangible Assets (Other than Inventory and Work in Progress)
1.1(e) -- Trademark Transfer Agreement
1.1(f) -- Copyright Transfer Agreement
1.1(i) -- Executory Contracts
1.2 -- Other Assumed Liabilities
1.3(a) -- Book Value Application Methodology
1.3(b)(ii) -- Escrow Agreement
1.5 -- Purchase Price Allocation Schedule
2.2(5) -- Legal Opinion of Sellers' Counsel
2.2(8) -- Required Consents to Assignment of Executory Contracts
2.2(16) -- Non-Competition Agreements
2.2(17) -- Master Model Home Lease Agreement
2.2(18) -- Transition Services Agreement; [First Equity/ZFS] Agreement
2.2(19) -- Warranty Services Agreement
2.2(20) -- First Offer Agreement
2.2(21) -- Land Purchase Agreement
2.3(10) -- Legal Opinion of Purchaser's Counsel
2.5 -- Permitted Title Defects for Inventory Property
3.1-3.30 -- Seller Disclosure Schedule
5.2 -- Permitted Exceptions to Ordinary Course of Sellers' Business
5.2(j) -- Lot Purchase Contracts Under Negotiation
7.2(f) -- Employment Categories for 80% Test
7.2(g) -- Key Employees
7.2(i) -- Required Consents of Lot and Land Sellers/Lessors
7.3(f) -- Seller's Required Consents
10.16 -- Replacement Letters of Credit, etc.
</TABLE>
iii
<PAGE> 68
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made as of December 1, 2000
among ZARING NATIONAL CORPORATION, an Ohio corporation ("Zaring"), ZARING HOMES
OF INDIANA, LLC, an Indiana limited liability company ("Zaring LLC"), ZARING
HOMES, INC., an Ohio corporation ("Zaring Homes") (Zaring, Zaring LLC and Zaring
Homes each a "Seller"; collectively, "Sellers"), and DREES PREFERRED COLLECTION,
INC., an Ohio corporation ("Purchaser").
RECITALS:
WHEREAS, Sellers operate custom site-built home construction businesses in
the greater metropolitan Cincinnati, Ohio, Indianapolis, Indiana and Nashville,
Tennessee markets (the "Business"); and,
WHEREAS, Sellers have determined that it is in their best interests and in
the best interests of Sellers' shareholders or members, as the case may be, to
sell, transfer, convey and assign to Purchaser, and Purchaser has determined
that it is in its best interests to purchase and acquire from Sellers, certain
of the assets used or useable primarily in the conduct of the Business, all on
the terms and conditions contained hereinafter;
NOW, THEREFORE, in consideration of the premises, and the mutual covenants
and agreements contained hereinafter, the parties hereto, intending to be
legally bound, do hereby agree as follows:
ARTICLE 1.
PURCHASE AND SALE OF THE ACQUIRED ASSETS
1.1. Purchase and Sale of the Acquired Assets.
At the Closing (as hereinafter defined), and subject to and upon the terms
and conditions of this Agreement, Sellers shall sell, transfer, convey and
assign to Purchaser, and Purchaser shall purchase and acquire from Sellers,
those assets, tangible, intangible and mixed, used or useable primarily in the
Business described in this Section 1.1 (collectively, the "Acquired Assets").
The Acquired Assets shall include:
(a) Sellers' inventory of real estate, lots, unimproved land and
houses in various stages of completion located in the greater metropolitan
Cincinnati, Ohio, Indianapolis, Indiana and Nashville, Tennessee market
areas (the "Business Territory") (the "Inventory"), all as described on
Schedule 1.1(a) attached hereto and incorporated herein;
(b) Sellers' construction work in progress located within the Business
Territory to the extent that such construction work in progress relates to
Acquired Assets ("Work in Progress");
(c) Sellers' leasehold interest (or the leasehold interest of Seller's
affiliate Zaring Financial Services ("ZFS"), which interest Sellers shall
cause ZFS to transfer to Purchaser) in and to the facilities described in
greater detail on Schedule 1.1(c) attached hereto and incorporated herein
(the "Facility Leases");
(d) all of Sellers' tangible assets (other than the Inventory and the
Work in Progress) used or usable primarily in the Business, including
(without limitation) construction equipment and tools, office equipment,
furniture and fixtures, telecommunications equipment and systems and
computer
A-1
<PAGE> 69
hardware and also certain office equipment, furniture and fixtures used by
ZFS that Sellers shall cause to be transferred to Purchaser, all as
described on Schedule 1.1(d) attached hereto and incorporated herein;
(e) ownership of, and the right (exclusive, with certain specified
exceptions, within the United States of America) to use, the "Zaring" name
and related trademarks in the for-sale housing and active adult housing
industries and the goodwill appurtenant thereto, all pursuant to the
Trademark Transfer Agreement in the form attached hereto and incorporated
herein as Schedule 1.1(e) (the "Trademark Transfer Agreement");
(f) ownership of, and the right (exclusive, with certain specified
exceptions, within the United States of America) to use, Sellers'
architectural plans and related materials, all pursuant to the Copyright
Transfer Agreement in the form attached hereto and incorporated herein to
Schedule 1.1(f) (the "Copyright Transfer Agreement");
(g) Seller's rights to the telephone numbers (including cell phone
numbers) and facsimile numbers used or useable primarily in the Business
Territory;
(h) to the extent permitted to be assigned or transferred by
applicable law, all permits, licenses and approvals possessed by Sellers
and used or usable in the conduct of the Business;
(i) all contracts, agreements, leases, licenses and other
understandings to which Sellers (or any of them) is party relating to the
Business and entered into in the ordinary course of Sellers' business
consistent with past practice (both as to frequency and quantity)
("Ordinary Course of Sellers' Business") that have not been completed or
fully performed at the time of the Closing, including Sellers' construction
contracts with customers, (to the extent permitted to be assigned or
transferred) computer software licenses, (to the extent permitted to be
assigned or transferred) equipment leases and land purchase agreements and
also certain equipment leases and other contracts to which ZFS is a party
and which Sellers shall cause ZFS to transfer to Purchaser, all as
described on Schedule 1.1(i) attached hereto and incorporated herein (the
"Executory Contracts");
(j) the right to use, subject to Section 10.14 hereof, all books and
records, wherever located, that relate to the Business or to the Acquired
Assets, including (without limitation) all Sellers' customer lists and
other customer information and all Sellers' supplier, vendor and contractor
lists and related information;
(k) Sellers' right to receive refunds and/or rebates resulting from
future utility connections in the Business Territory ("Refunds/Rebates");
and
(l) Sellers' rights as mortgagee under the Real Estate Mortgage dated
May 30, 2000 made by Merrimac Corporation as mortgagor and encumbering
certain real property located in Hamilton County, Indiana and under the
Mortgage dated August 23, 1999 made by the Marina I Limited Partnership as
mortgagor and encumbering certain real property located in Hamilton County,
Indiana (collectively, the "Two Mortgages").
The Acquired Assets shall not include any assets not listed above in
clauses (a) through (l), inclusive, and shall expressly exclude the following:
(i) any assets of Sellers not used or useable primarily in the Business
(including, without limitations, certain parcels of real property located in the
metropolitan Louisville, Kentucky, Raleigh, North Carolina and Charlotte, North
Carolina markets); (ii) other than the Customer Deposits, the cash or cash
equivalents of the Business; (iii) Sellers' ownership interests in
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Homemax, Inc. and its subsidiaries or in Hearthside Homes, LLC; (iv) any
contracts, agreements, leases, licenses and other understandings to which
Sellers are a party and not constituting Executory Contracts included in the
Acquired Assets; (v) accounts receivable and other receivables of the Business
relating to houses completed, sold and closed by Sellers prior to the date of
Closing; (vi) the corporate or limited liability company charters,
qualifications to do business as a foreign corporation or limited liability
company, arrangements with registered agents relating to foreign qualifications,
taxpayer and other identification numbers, seals, minute books, stock transfer
books, blank stock certificates and other documents relating to the
organization, maintenance and existence of any Seller or affiliate as a
corporation or limited liability company; (vii) all Sellers' rights as members
of Zaring LLC; (viii) all Sellers' rights under its policies of insurance,
including any split dollar life insurance policies and related agreements
(except to the extent that Purchaser may be a beneficiary of title insurance
policies on real property included in the Inventory, which rights as a
beneficiary shall be included in the Acquired Assets); (ix) any of the rights of
Sellers under this Agreement or under any other agreement entered into by
Sellers and Purchaser in connection with the transactions contemplated by this
Agreement; (x) Sellers' rights under the promissory note from American Homestar
Corporation; (xi) Sellers' claims against vendors, subcontractors and other
third parties relating to construction work performed or materials furnished and
incorporated into construction prior to the Closing; (xii) any ownership rights
of Sellers or affiliates thereof in and to the entity now known as "Zaring
Realty"; (xiv) any ZFS loans in process; (xv) any claims or rights of Sellers to
tax refunds or other tax benefits; and, (xvi) the Excluded Houses (as defined
below) (collectively, the "Excluded Assets").
1.2. Assumption of the Assumed Liabilities.
(a) At the Closing, and subject to and upon the terms and conditions of the
Agreement, Purchaser shall assume and become responsible for the following
liabilities of Sellers (and no other liabilities): (i) Sellers' liabilities
under the Executory Contracts and under the Facility Leases to the extent that
such liabilities first arise or accrue on or after the date of the Closing; (ii)
Sellers' liabilities relating to the Customer Deposits; (iii) those liabilities
specifically listed on Schedule 1.2 attached hereto and incorporated herein
(including the Conrad/Cool Springs and Yankee Trace, Lot No. 33 promissory notes
(the "Two Notes")); (iv) accounts payable and other payables of the Business
relating to the Inventory or to the Work in Progress being acquired pursuant to
this Agreement; and (v) liabilities not specifically excluded under Section
1.2(d) and incurred in the Ordinary Course of Sellers' Business and related to
the Business and not posted to Sellers' books and records as of the Closing
(collectively, the "Assumed Liabilities").
EXCEPTING ONLY THE ASSUMED LIABILITIES PURCHASER HEREBY ASSUMES NO LIABILITIES
OF SELLERS (INCLUDING, WITHOUT LIMITATION, LIABILITIES, CLAIMS OR ACTIONS
ALLEGING OR RELATING TO ANY TORT, PRODUCT LIABILITY, ENVIRONMENTAL LIABILITY,
TAXES ON SELLERS OR THE ACQUIRED ASSETS, OR BREACH OF CONTRACT OR OTHERWISE
SEEKING DAMAGES AND RELATING TO THE OPERATION OF THE ACQUIRED ASSETS OR THE
BUSINESS PRIOR TO THE CLOSING DATE (AS DEFINED HEREINAFTER), AND LIABILITIES
RELATING TO ASSETS OF SELLERS NOT INCLUDED IN THE ACQUIRED ASSETS (THE
LIABILITIES OF SELLERS WHICH ARE NOT ASSUMED BY PURCHASER PURSUANT TO THIS
AGREEMENT ARE HEREINAFTER COLLECTIVELY REFERRED TO AS THE "NON-ASSUMED
LIABILITIES")).
(b) Purchaser shall be solely liable for the prompt and full payment or
discharge of the Assumed Liabilities and also for any liability arising from, or
in connection with the ownership of the Acquired Assets acquired by Purchaser
after the consummation of the transactions contemplated hereby, including,
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without limitation, any such liabilities arising by reason of any violation or
claimed violation by Purchaser, by acts or events or omissions arising or
occurring after the Closing Date, of any federal, state or local law, rule,
regulation, ordinance or any requirement of any government authority
(collectively, the "Purchaser's Post-Closing Liabilities").
(c) Sellers shall be solely liable (on a joint and several basis, as
between Sellers and Purchaser) for the prompt and full payment or discharge of
the Non-Assumed Liabilities and also for any liability not constituting an
Assumed Liability arising from, or in connection with the ownership of the
Acquired Assets prior to consummation of the transactions contemplated hereby,
including, without limitation, any such liabilities arising by reason of any
violation or claimed violation by Sellers, by acts or omissions arising or
occurring prior to the Closing Date, of any federal, state or local law, rule,
regulation, ordinance or any requirement of any governmental authority.
(d) Without limiting the generality of Sections 1.2(a) and 1.2(c) and
notwithstanding any other provision hereof, each of the following is a
Non-Assumed Liability of Sellers that Purchaser does not assume:
(i) other than with respect to the Two Notes, any liability of Sellers
arising from indebtedness for borrowed money or long-term debt of Sellers;
(ii) except to the extent credit for Tax liability is given in the
proration of real estate Taxes hereunder, any liability of Sellers for
Taxes owed to any taxing authority (including, without limitation, any
transfer, sales or conveyance Taxes and fees incurred in connection with
the transaction contemplated hereby);
(iii) any liability of Sellers for accounts payable and other payables
of the Business relating to houses completed, sold and closed by Sellers
prior to the date of Closing or constituting "reserves to complete"
relating to houses completed, sold and closed by Sellers prior to the date
of Closing;
(iv) any liability of Sellers arising out of or related to past,
present or future litigation involving Sellers as the owners and operators
of the Business or the Acquired Assets prior to the Closing Date, whether
or not the relevant cause of action accrues or arises before the Closing
Date, including liability relating to claims of allegedly defective work
performed by or on behalf of Sellers on houses included in the Inventory or
in Work in Progress;
(v) any liability in respect of any contract, agreement, lease,
license or other understanding to which Sellers (or either of them) are
parties or beneficiaries that is not an Executory Contract included in the
Acquired Assets;
(vi) any liability accruing prior to the Closing Date under any
employee benefit plan of or sponsored by Sellers;
(vii) except as provided in Section 10.17 below, any liability arising
out of the employment or termination of employment, in either case at or
prior to the Closing Date, of any person employed in the Business,
including, without limitation, any liability for accrued vacation pay for
Sellers' employees and any liability for severance pay for Sellers'
employees who are not employed by Purchaser on the Closing Date;
(viii) any liability that represents any amounts past due or
contractually due prior to the Closing Date on any Executory Contract that
is included in the Acquired Assets;
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(ix) any liability of the Sellers or any present or former director or
officer of Sellers arising from any claim, action or proceeding, including,
without limitation, any derivative action, brought by or on behalf of any
present or former holder of any debt or equity security of Sellers or by a
lender to Sellers, including, without limitation, any liability arising
from any indemnification, reimbursement or advance in connection therewith;
(x) any warranty work on houses or other improvements constructed,
completed, sold and closed by Sellers prior to the Closing Date;
(xi) any intercompany obligations between Sellers or their affiliates;
and,
(xii) any other liability of Sellers that is not an Assumed Liability.
NOTWITHSTANDING ANY PROVISION HEREIN TO THE CONTRARY, PURCHASER SHALL NOT
ASSUME OR BECOME LIABLE IN ANY MANNER FOR ANY LIABILITY OR OBLIGATION OF SELLERS
OTHER THAN THE ASSUMED LIABILITIES, AND SELLERS SHALL REMAIN SOLELY RESPONSIBLE
FOR ANY AND ALL LIABILITIES AND OBLIGATIONS OF SELLERS OTHER THAN THE ASSUMED
LIABILITIES.
1.3. Purchase Price.
(a) The purchase price for Acquired Assets shall consist of: (i) cash in
the amount equal to the Book Value (as defined below) of the Acquired Assets
(the "Cash Payment"); plus (ii) a cash premium, if any, of up to One Million
Five Hundred Thousand Dollars ($1,500,000) based on Sellers' backlog of houses
under contract at the time of Closing and the weighted average gross profit
margins after Indirects (as defined below) of the houses in backlog, all as
defined below (the "Premium"); plus (iii) the assumption by Purchaser of the
Assumed Liabilities (collectively, the "Purchase Price").
"Book Value" shall mean, with respect to the Acquired Assets, the recorded
value of the Acquired Assets net of accumulated depreciation and amortization as
shown on the general ledger of Sellers on the date of Closing and net of the
Assumed Liabilities reflected on the general ledger of Sellers as of the date of
Closing to be prepared by Zaring in accordance with generally accepted
accounting principles, consistently applied ("GAAP") (the "Closing Balance
Sheet"). Notwithstanding any provision of this Agreement to the contrary, in no
event shall Book Value include capitalized expenses, including capitalized
interest (collectively, "Indirects") with respect to "Zaring Homes" and "Design
Gallery" Inventory, at rates greater than the rates applied to work in process
and land/lot inventory as presented in Zaring's September 30, 2000 Form 10-Q,
which were 10.149% and 2.11% respectively; provided, however, capitalized
interest will be calculated and applied in a consistent manner at actual
interest rates, but in no case will the interest rates used in the capitalized
interest calculation exceed nine and 5/10 percent (9.5%). The applicable
application methodology is depicted on Schedule 1.3(a) attached hereto.
"Premium" shall equal zero (0) if either: (x) the number of houses under
contract in Sellers' backlog at the time of Closing is less than one hundred
twenty five (125); or (y) the weighted average gross profit margin, after
Indirects, of the houses under contract in backlog (the "Margin") is less than
sixteen and 50/100 percent (16.50%). The Premium shall equal One Million Dollars
($1,000,000) if the Margin is equal to or in excess of sixteen and 50/100
percent (16.50%) and the number of houses under contract in Sellers' backlog at
the time of Closing is one hundred seventy five (175) or more but less than one
hundred eighty five (185). The Premium shall be reduced below One Million
Dollars ($1,000,000) by Twenty Thousand Dollars ($20,000) per house for each
house under contract in Sellers' backlog at the time of Closing fewer than one
hundred seventy five (175), but in excess of one hundred twenty five (125),
assuming that the
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Margin is equal to or in excess of sixteen and 50/100 percent (16.50%). As an
illustration only and for the avoidance of doubt, assuming that the Margin is
equal to or in excess of sixteen and 50/100 percent (16.50%) and that there are
one hundred sixty (160) houses under contract in Sellers' backlog at the time of
Closing, the Premium would be Seven Hundred Thousand Dollars ($700,000). The
Premium shall be One Million Five Hundred Thousand Dollars ($1,500,000) if (but
only if ) the number of houses under contract in Sellers' backlog at the time of
Closing is equal to or exceeds one hundred eighty five (185) and the Margin is
equal to or in excess of sixteen and 50/100 percent (16.50%).
On or prior to the fifteenth (15th) business day after the Closing, Zaring
shall prepare the Closing Balance Sheet and deliver a copy of the same,
designated as such in writing by the chief financial officer of Zaring, to
Purchaser along with a statement detailing Zaring's calculation of the Cash
Payment on a basis consistent with the calculation of the Estimated Cash Payment
(as defined below) (the "Purchase Price Statement"), which Purchase Price
Statement shall be certified by such chief financial officer as having been
prepared in accordance with GAAP and the provisions of this Agreement. Disputes
between Sellers and Purchaser with respect to the calculation of the Cash
Payment shall be resolved pursuant to Section 1.3(d) hereof.
(b) The Cash Payment component of the Purchase Price is payable as follows:
(i) at the Closing, Purchaser shall pay to the order of Sellers by
wire transfer of immediately available funds, in accordance with written
instructions provided by Sellers, ninety-five percent (95%) of the
Estimated Cash Payment based on the recorded value of the Acquired Assets
net of accumulated depreciation and amortization as shown on the general
ledger of Sellers as of seven (7) days before Closing and net of the
Assumed Liabilities as of seven (7) days before Closing (the "Estimated
Cash Payment");
(ii) at the Closing, Purchaser shall pay five percent (5%) of the
Estimated Cash Payment into escrow, to be held by The Fifth Third Bank, as
escrow agent ("Escrow Agent"), pursuant to the terms of the Escrow
Agreement in the form attached hereto and incorporated herein as Schedule
1.3(b)(ii) (the "Escrow Agreement");
(iii) within ten (10) business days of Zaring's delivery of a Purchase
Price Statement indicating that the Cash Payment exceeds the Estimated Cash
Payment, Purchaser shall, unless Purchaser shall have objected to Zaring's
calculation of the Cash Payment: (x) pay ninety-five percent (95%) of the
difference between the Cash Payment and the Estimated Cash Payment paid
pursuant to Sections 1.3(b)(i) and 1.3(b)(ii) to Sellers and (y) pay five
percent (5%) of that difference to the Escrow Agent to be held in escrow
pursuant to the Escrow Agreement.
(c) Within ten (10) business days of Zaring's delivery of a Purchase Price
Statement indicating that the Estimated Cash Payment exceeds the Cash Payment,
Sellers shall repay to Purchaser ninety five percent (95%) of the excess of the
Estimated Cash Payment paid pursuant to Sections 1.3(b)(i) and 1.3(b)(ii) over
the Cash Payment and the Escrow Agent shall pay to Purchaser five percent (5%)
of that amount.
(d) Purchaser shall have ten (10) business days following its receipt of
the Purchase Price statement to notify Sellers in writing of Purchaser's
objection to the calculation set forth in the Purchase Price statement of the
Cash Payment. During this period, Sellers shall provide Purchaser and its
accountants with access to the relevant books and records and other information
in Sellers' possession relevant to the preparation of the Purchase Price
Statement. If Purchaser and Sellers cannot agree on the Cash Payment within
thirty (30) days of the date that Purchaser delivers written notice of its
objections to Sellers, then, upon the
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request of either Purchaser or Sellers, a mutually acceptable independent "Big
Five" accounting firm (the "Accountants") shall be retained to resolve the
issues in dispute. Sellers and Purchaser shall furnish, or cause to be
furnished, to the Accountants all information the Accountants shall reasonably
request for purposes of making the determination of the Cash Payment. Sellers
and Purchaser shall cause the Accountants to act promptly to resolve the issues
in dispute. The determination by the Accountants of the Cash Payment shall be
delivered simultaneously to Sellers and Purchaser and shall be final, binding
and conclusive on Sellers and Purchaser and the fees and expenses of the
Accountants shall be borne equally (i.e., on a 50/50 basis) by Sellers and
Purchaser. Upon final determination of the Cash Payment and finalization of the
Purchase Price statement (by agreement of Sellers and Purchaser or by the
Accountants), the party owing funds to the other party pursuant thereto shall
make the required payment within ten (10) business days by wire transfer of
immediately available funds.
(e) The Premium, if any, shall be paid by Purchaser in cash by wire
transfer of immediately available funds on the date that is the ninety first
(91st) day after the Closing Date if (but only if) eighty percent (80%) of the
net open contracts for the purchase of homes in existence on the Closing Date
shall have closed with Margins equal to or in excess of sixteen and 50/100
percent (16.50%) (the "80% Condition") on or before the ninety first (91st) day
after the Closing Date. If the 80% Condition has not been met on or before the
ninety first (91st) day after the Closing Date, the Premium, if any, shall be
paid promptly after the date the 80% Condition has been met. If, at the time the
80% Condition is met, it is determined that the actual number of the houses
under contract in Seller's backlog at the time of Closing that actually have
closed plus the number of remaining net open contracts (the "Actual Number") is
less than the number in Seller's backlog at the time of Closing, the Premium
paid will be based on the Actual Number. Any dispute among the parties with
respect to the Premium or the amount thereof shall be settled by the Accountants
pursuant to the procedures set forth in Section 1.3(d) above.
1.4. Tax Prorations.
(a) Real estate Taxes and assessments against or with respect to any parcel
of real estate included in the Inventory and/or the Work in Progress shall be
prorated as of the Closing (with Tax prorations between Sellers and their
customers to be consistent with Tax prorations between Sellers and Purchaser).
Sellers shall deliver to Purchaser the aggregate amount of such prorated Taxes
and assessments at the Closing or, at Sellers' option, the Purchase Price shall
be reduced or increased, on a dollar-for-dollar basis, by the aggregate amount
of such prorated Taxes and assessments. Any such reduction or increase to the
Purchase Price shall be effected by a reduction or increase in the Estimated
Cash Payment.
(b) Operating expenses incurred in the Ordinary Course of Sellers' Business
and related to the Business not posted to Sellers' books and records as of the
Closing (including unpaid charges or assessments due prior to Closing with
respect to homeowner associations) and the bill or invoice for which pertains
both to periods prior to the Closing and to periods on and after the Closing
shall be prorated between Sellers and Purchaser consistent with the principle
that Sellers shall be responsible for all such pre-Closing operating expenses
and Purchaser shall be responsible for all such operating expenses arising on
and after the Closing.
1.5. Allocation of Purchase Price.
The Purchase Price shall be allocated among the Acquired Assets for all
purposes (including Securities and Exchange Commission ("SEC") financial
reporting, financial accounting and Tax purposes) in accordance with Schedule
1.5 to be agreed upon by Purchaser and Sellers and attached hereto and
incorporated herein on or before the Closing Date.
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ARTICLE 2.
THE CLOSING
2.1. Closing.
Unless this Agreement shall have been terminated and the transactions
herein contemplated shall have been abandoned pursuant to Section 9.1, and
subject to the satisfaction or waiver (where applicable) of the conditions set
forth in ARTICLE 7, the closing of the sale and purchase of the Acquired Assets
contemplated by this Agreement (the "Closing") will take place at the offices of
Aronoff Rosen & Hunt, L.P.A., 2400 Firstar Tower, 425 Walnut Street, Cincinnati,
Ohio 45202, at 10:00 a.m., local time, on the second business day after all
conditions precedent to Closing have been satisfied or waived, unless another
date, time or place is agreed to in writing by Sellers and Purchaser, but in no
event after January 31, 2001 (the "Closing Date").
2.2. Closing Deliveries by Sellers.
At the Closing, Sellers shall deliver or cause to be delivered to Purchaser
(collectively, the "Seller Deliverables"):
(1) An executed receipt of payment from Purchaser of ninety-five
percent (95%) of the Estimated Cash Payment;
(2) A certificate as to the good standing of the appropriate Seller or
Sellers in the States of Ohio, Kentucky, Indiana and Tennessee, together
with copies of the Articles of Incorporation or Organization of each
Seller, as amended, certified by the Secretary of State of the jurisdiction
of incorporation or organization.
(3) A copy of the resolutions of the Board of Directors or Board of
Managers of each Seller, certified by the Secretary or Assistant Secretary
or other authorized person of such Seller, approving and authorizing the
execution, delivery and performance of this Agreement and consummation of
the transactions contemplated hereby;
(4) A copy of the Regulations or Operating Agreement of each Seller,
certified by the Secretary, Assistant Secretary or other authorized person
of such Seller as of the Closing Date;
(5) A favorable opinion of Sellers' counsel, dated as of the Closing
Date, in the form of Schedule 2.2(5) attached hereto;
(6) The Escrow Agreement, duly executed by Sellers;
(7) A bill of sale, in the form and substance reasonably satisfactory
to Purchaser and Sellers, executed by Sellers evidencing the transfer of
title to the Acquired Assets, free and clear of any Liens (as defined
hereinafter) other than Permitted Liens (as defined hereinafter) to
Purchaser.
(8) Valid assignments to Purchaser of all of the Executory Contracts,
such assignments to require no payment by Purchaser for the assignment,
along with the consents that are required for the assignment of the
Executory Contracts, listed on Schedule 2.2(8) and obtainable prior to the
Closing, all in form and substance reasonably satisfactory to Purchaser and
Sellers, together with an estoppel certificate for each of the Facility
Leases, all in a form and substance reasonably satisfactory to Purchaser
with no change in rent or other terms, except in accordance with the terms
of such lease;
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(9) All consents (other than relating to Executory Contracts) required
to permit confirmation of the transactions contemplated by this Agreement,
in form and substance reasonably satisfactory to Purchaser and Sellers;
(10) Duly executed termination statements under the Uniform Commercial
Code and duly executed releases of mortgages and deeds of trust, which,
when filed with the appropriate governmental authorities, will terminate
all financing statements or other Liens on the Acquired Assets except the
Permitted Liens;
(11) For each parcel of owned real estate: (i) a duly executed
recordable General Warranty Deed (except that Sellers may deliver a Special
or Limited Warranty Deed if the Seller acquired the particular parcel or
owned real estate by such a deed and Sellers do not have title insurance
with respect to such parcel) conveying title to the property to Purchaser
in a form reasonably acceptable to Purchaser and Sellers; (ii) an affidavit
contemplated by the Foreign Investment in the Real Property Tax Act that no
Seller is a "foreign person" as defined thereby; and (iii) an owner's
affidavit acceptable in form and substance to the title company, Purchaser
and Sellers;
(12) All certificates of title or origin (or like documents), properly
executed by Sellers, with respect to any vehicles or other equipment
included in the Acquired Assets for which a certificate of title origin is
required in order to transfer title;
(13) Such other documents, bills of sale, assignments and other
instruments of transfer or conveyance, properly executed by Sellers, as may
be necessary to effect the sale, assignment, transfer, conveyance and
delivery (or to evidence such sale, assignment, transfer, conveyance and
delivery) of the Acquired Assets to Purchaser or as reasonably requested by
Purchaser or its title company and also tax clearance certificates or other
similar documentation with respect to Sellers from the States of Ohio,
Kentucky, Indiana and Tennessee;
(14) The Trademark Transfer Agreement, duly executed by Sellers;
(15) The Copyright Transfer Agreement, duly executed by Sellers;
(16) The Non-Competition Agreements, duly executed by Sellers, Allen
G. Zaring III, Allen G. Zaring IV and Mark Zaring in the forms attached
hereto and incorporated herein as Schedule 2.2(16) (the "Non-Competition
Agreements");
(17) The Master Model Home Lease Agreement, duly executed by First
Cincinnati Leasing LLC and First Cincinnati Leasing 2000 LLC, in the form
attached hereto and incorporated herein as Schedule 2.2(17) (the "Master
Model Home Lease Agreement");
(18) The Transition Services Agreement, duly executed by Sellers, in
the form attached hereto and incorporated herein as Schedule 2.2(18) (the
"Transition Services Agreement");
(19) A copy of the Warranty Services Agreement, duly executed by
Sellers, in the form attached hereto and incorporated herein as Schedule
2.2(19) (the "Warranty Services Agreement"), and funds, in cash or by
offset against the Estimated Cash Payment at Closing, in the amount of the
"Warranty Reserve Fund" under the Warranty Services Agreement;
(20) The Right of First Offer Agreement, duly executed by Sellers, in
the form attached hereto and incorporated herein as Schedule 2.2(20) (the
"First Offer Agreement");
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(21) The First Cincinnati Land Purchase Agreement, duly executed by
First Cincinnati Land LLC, in the form attached hereto and incorporated
herein as Schedule 2.2(21) (the "Land Purchase Agreement"); and,
(22) Evidence of Sellers' compliance with Article 6 of the Indiana
Uniform Commercial Code, if applicable.
Notwithstanding the foregoing, none of the Seller Deliverables will contain
warranties, representations, indemnifications or other terms different from the
warranties, representations, indemnifications and other terms set forth in this
Agreement.
2.3. Closing Deliveries by Purchaser.
At the Closing, Purchaser shall deliver to Sellers (collectively, the
"Purchaser Deliverables"):
(1) Ninety-five percent (95%) of the Estimated Cash Payment in cash in
United States dollars by wire transfer of immediately available funds to
the account(s) designated by Sellers;
(2) Five percent (5%) of the Estimated Cash Payment in cash in United
States dollars to the Escrow Agent;
(3) Certificates as to the good standing of Purchaser in the States of
Ohio, Indiana, Kentucky and Tennessee, together with copies of the Articles
of Incorporation of Purchaser, as amended, certified by the Secretary of
State of the State of Ohio;
(4) Duly executed documents evidencing the assumption by Purchaser of
Assumed Liabilities in form and substance reasonably satisfactory to
Purchaser and Sellers;
(5) Resolutions of the Board of Directors of Purchaser, certified by
the Secretary or Assistant Secretary of Purchaser, approving and
authorizing the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby;
(6) Duly executed copies of such of the Seller Deliverables as are
required to be executed by Purchaser in connection with the Closing;
(7) The Escrow Agreement, duly executed by Purchaser;
(8) The Trademark Transfer Agreement, duly executed by Purchaser;
(9) The Copyright Transfer Agreement, duly executed by Purchaser;
(10) The Non-Competition Agreement, duly executed by Purchaser;
(11) A favorable opinion of Purchaser's counsel, dated as of the
Closing Date, in the form of Schedule 2.3(10) attached hereto;
(12) The Master Model Home Lease Agreement, duly executed by
Purchaser;
(13) The Transition Services Agreement, duly executed by Purchaser;
(14) The Warranty Services Agreement, duly executed by Purchaser;
(15) The First Offer Agreement, duly executed by Purchaser;
(16) The Land Purchase Agreement, duly executed by Purchaser; and,
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(17) The replacement letters of credit, development/insurance bonds
and/or deposits set forth on Schedule 10.16 that are required to be
replaced at Closing.
2.4. Further Assurances.
On the Closing Date and from time to time thereafter, each party hereto
will execute such further documents, instruments, deeds, bills of sale,
assignments and assurances and take such further actions as may reasonably be
requested by one or more of the other parties hereto to vest in Purchaser all
right, title to and interest in and to the Acquired Assets, to evidence and
effectuate the assumption by Purchaser of the Assumed Liabilities and otherwise
to effect the purposes of this Agreement, as the case may be.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby jointly and severally represent and warrant to Purchaser
that, except as set forth in the written disclosure schedule delivered on or
prior to the date hereof by Zaring to Purchaser (the "Seller Disclosure
Schedule"):
3.1. Organization, Authority and Qualification of Sellers.
Each Seller is a corporation or limited liability company duly organized,
validly existing and in good standing under the laws of the state of its
incorporation or organization and has all necessary corporate and other power
and authority to own the Acquired Assets, to carry on the Business, to enter
into this Agreement, to carry out its obligations hereunder and to consummate
the transactions contemplated hereby. Each of Zaring and Zaring Homes is duly
qualified to do business in and is in good standing under the laws of the States
of Kentucky and Tennessee. Zaring LLC is duly qualified to do business in and is
in good standing under the laws of the State of Indiana.
3.2. Authority; Noncontravention; Consents.
(a) Each of the Sellers has the requisite power and authority to enter into
this Agreement and, subject to the affirmative vote of holders of at least a
majority of the outstanding common stock of Zaring entitled to vote thereon to
approve the transactions hereby contemplated ("Zaring Shareholder Approval"), to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement by the Sellers and the consummation by the Sellers of
the transactions contemplated by this Agreement have been duly authorized by all
necessary action on the part of the Sellers, subject to Zaring Shareholder
Approval. Each of this Agreement and the other ancillary agreements,
certificates, instrument of conveyance and other documents executed and
delivered by Sellers in connection with this Agreement (collectively, the
"Seller Transaction Documents") has been duly executed and delivered by each
Seller and (assuming the due authorization, execution and delivery by Purchaser)
constitutes a valid and binding obligation of the Sellers, enforceable against
each Seller in accordance with its respective terms, except to the extent that
its enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or by general equitable principles (regardless of whether such
enforceability is considered in a proceeding at equity or of law).
(b) Except as set forth in Schedule 3.2 of the Seller Disclosure Schedule,
the execution and delivery of this Agreement by the Sellers do not, and the
consummation of the transactions contemplated by this Agreement by the Sellers
and compliance by the Sellers with the provisions of this Agreement will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under,
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or give rise to a right of termination, cancellation or acceleration of any
material obligation or to loss of a material benefit under, or result in the
creation of any Lien (as defined hereinafter) upon any of the properties or
assets of the Sellers under: (i) the Articles of Incorporation or Organization
or Regulations or Operating Agreement, in each case as amended or supplemented
to the date of this Agreement; (ii) any loan or credit agreement, note, bond,
mortgage, indenture, reciprocal easement agreement, lease or other agreement,
instrument, permit, concession, franchise or license to which Sellers are a
party or their respective properties or assets are bound; or (iii) subject to
the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation (collectively, "Laws") applicable to the Sellers or their respective
properties or assets, other than, in the case of clause (ii) or (iii), any such
conflicts, violations, defaults, rights, loss or Liens that individually or in
the aggregate would not: (x) have a material adverse effect on the assets,
liabilities, business, results of operations or prospects of Sellers, taken as a
whole ("Zaring Material Adverse Effect"); or (y) prevent the consummation of the
transactions contemplated by this Agreement. Except as set forth on Schedule 3.2
of the Seller Disclosure Schedule, no consent, approval, order or authorization
of, or registration, declaration or filing with, any federal, state or local
government or any court, administrative or regulatory agency or commission or
other governmental authority or agency, domestic or foreign (a "Governmental
Entity"), is required by or with respect to the Sellers in connection with the
execution and delivery of this Agreement by the Sellers or the consummation by
the Sellers of the transactions contemplated by this Agreement, except for: (i)
the filing with the Securities and Exchange Commission ("SEC") of materials
relating to the transactions contemplated by this Agreement including, but not
limited to, the Proxy Statement (as defined in Section 6.1); (ii) the pre-merger
notification of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended ("HSR Act"); and (iii) such other consents, approvals, orders,
authorizations, registrations, declarations and filings: (A) as are set forth in
Schedule 3.2 of the Seller Disclosure Schedule; or (B) as are contemplated by
Section 2.2(22); or (C) which, if not obtained or made, would not prevent or
delay in any material respect the consummation of any of the transactions
contemplated by this Agreement or otherwise prevent the Sellers from performing
their obligations under this Agreement in any material respect or have,
individually or in the aggregate, a Zaring Material Adverse Effect.
3.3. Financial Statements.
Except as noted in Section 3.3 of the Seller Disclosure Schedule, the
unaudited balance sheet of the Acquired Assets and Assumed Liabilities as of
October 31, 2000 and the income statement and statement of cash flows for the
period ending October 31, 2000 (including any related notes thereto) attached
hereto and incorporated herein as Schedule 3.3 (the "Interim Financial
Statements") have been prepared in accordance with United States generally
accepted accounting principles, consistently applied ("GAAP"). The Interim
Financial Statements fairly and accurately present in all material respects the
financial condition and results of operations of the Business as of the date
thereof and for the period specified therein. None of the Interim Financial
Statements fails to list any liability required under GAAP to be set forth on a
balance sheet, understates in any material respect the amount of any of the
Assumed Liabilities or overstates in any material respect the value of any of
the Acquired Assets.
3.4. Absence of Certain Changes or Events.
Since January 1, 2000, Sellers have not, relating to the Acquired Assets or
the Assumed Liabilities: (a) materially changed their accounting methods,
principles or practices; (b) revalued in any material respect any of the
Acquired Assets, other than in the Ordinary Course of Sellers' Business; or (c)
taken any action or caused any event or agreed to take any action or to cause
any event that would have required the
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consent of Purchaser pursuant to Section 5.2 had Sellers taken such action or
caused such event to occur after the date of this Agreement.
3.5. Absence of Litigation.
There is: (a) no claim, action, suit, proceeding or investigation pending
or, to the knowledge of Zaring, threatened against any Seller or the Acquired
Assets before any Governmental Entity; or (b) no outstanding judgment, order
writ, injunction or decree of any Governmental Entity to which any Seller or any
of the Acquired Assets is subject, except in the case of clauses (a) and (b)
above, such as could not reasonably be expected to prevent or materially delay
consummation of the transactions contemplated hereby or otherwise prevent or
materially delay any Seller from performing its obligations under this
Agreement.
3.6. Ownership of Acquired Assets.
Sellers have good and valid title to, the right to use or a valid leasehold
interest in each of the Acquired Assets, free and clear of all liens, security
interests, restrictions, claims and encumbrances ("Liens"), other than: (i)
Liens for Taxes or governmental assessments, charges or claims not yet due or
payable; (ii) mechanics', carriers' workmen's, repairmen's, warehouse,
landlords' materialmen's, other like Liens and other Liens imposed by applicable
law, rule or regulation arising or incurred in the Ordinary Course of Sellers'
Business for sums that are not yet due or payable; (iii) easements,
right-of-way, restrictions or minor defects or irregularities in title or other
Liens that do not materially impair the continued use and operation of the
Acquired Assets to which they relate as currently used and operated; (iv) Liens
under existing mortgages or deeds of trust or financing agreements that will be
discharged prior to the Closing or from the proceeds Sellers receive from
Purchaser at Closing; and (v) Liens related to the Two Notes (clauses (i)
through (v) collectively, the "Permitted Liens").
3.7. Maintenance; Sufficiency of the Acquired Assets.
The tangible personal property assets included in the Acquired Assets,
taken as a whole, have been maintained in accordance with good maintenance
policies and practices and are in all material respects in good working order
and repair and will be in good working order and repair as of the Closing. The
Acquired Assets include all properties and assets that Sellers have used to
operate the Business as it is currently conducted by Sellers.
3.8. Executory Contracts.
Each Executory Contract is in full force and effect, and is a legally
binding and enforceable obligation in accordance with its terms by or against
Sellers, except as may be limited by bankruptcy, reorganization, insolvency,
moratorium or other laws affecting creditors generally. No event has occurred
which constitutes or, with the giving of notice or passage of time or both,
would constitute a default by Sellers or, to the knowledge of Zaring, by any
other party to any of the Executory Contracts. At the Closing, Sellers will
deliver to Purchaser correct and complete copies (or originals, in the case of
Sellers' construction contracts with customers) of each Executory Contract and
all amendments thereto and modifications thereof. All of the Executory Contracts
are either: freely assignable to Purchaser without the consent of any person or
entity who is not a party to this Agreement; or, for those Executory Contracts
that are not freely assignable, Sellers shall assign all of the proceeds to
Purchaser and (subject to the provisions of Sections 6.5 and 10.15 hereof) will
take all steps needed to assure that Purchaser obtains the benefit of said
Executory Contract. No Seller is in violation of, or in default under, any of
the Executory Contracts. All other parties obligated under the Executory
Contracts are, to the knowledge of Zaring, in full compliance in all material
respects
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with the terms thereof and no notice of default or termination with respect to
any of the Executory Contracts has been given to Sellers.
3.9. Absence of Undisclosed Liabilities.
No Seller is obligated for, nor are any of the Acquired Assets subject to,
any liabilities or obligations, absolute or contingent (including unpaid charges
or assessments due prior to Closing with respect to homeowner associations),
except those incurred in the Ordinary Course of Sellers' Business and shown on
the Interim Financial Statements or on Section 3.9 of the Seller Disclosure
Schedule. To the knowledge of Zaring, there are no facts in existence which
might serve as a basis, in whole or in part, for any material liabilities or
obligations for which Purchaser may become liable (other than the Assumed
Liabilities) not disclosed on the Interim Financial Statements or on Section 3.9
of the Seller Disclosure Schedule.
3.10. Compliance With Laws.
To the knowledge of Zaring, Sellers have complied with all laws,
regulations, rules, orders, judgments, decrees, or other requirements imposed by
any Governmental Entity applicable to the Acquired Assets and/or the operation
of the Business other than non-compliance that would not materially adversely
affect the prospects or operations of the Business or the Acquired Assets. All
houses and other improvements constructed by Sellers in connection with the
Business do not exist or operate in violation of any federal, state or local
code, law, regulation or ordinance, including but not limited to those
regulating zoning, city planning, building, construction, fire safety,
environmental protection or similar matters or in violation of any subdivision
agreements or subdivision restrictions. Sellers have obtained a certificate of
occupancy for each residence constructed and closed by them in the Business
Territory prior to the Closing or, if not, the residence meets all standards and
requirements to obtain a certificate of occupancy. Sellers have not received any
notice or citation for non-compliance in the course of the Business from any
Governmental Entity. Sellers have no knowledge of any condition or event which,
after notice or lapse of time, or both, would constitute a material
non-compliance with any of the foregoing.
3.11. Taxes and Audits.
Sellers have filed all income, franchise, sales, personal property and
other Tax returns and reports of every nature required to be filed by them, and
each has paid in full or made adequate provision for the payment of all Taxes
(including penalties and interest). No Seller has knowledge of any unassessed
Tax deficiency threatened against Sellers, the Acquired Assets or the operation
of the Business. Sellers are not delinquent in the payment of any tax,
assessment, or governmental charge specifically relating to the Acquired Assets,
have not requested any extension of time within which to file any tax returns or
reports which have not since been filed, and no deficiencies for any tax,
assessment, or governmental charge have been claimed, proposed, or assessed by
any taxing authority, except as set forth on Section 3.11 of the Seller
Disclosure Schedule.
3.12. Employees.
There are no labor or collective bargaining agreements relating to the
Business to which any of Sellers is a party or by which any of Sellers is bound.
To the best of Zaring's knowledge, there is currently no attempt to form a
collective bargaining unit in the Business Territory. Except as set forth on
Section 3.12 of the Seller Disclosure Schedule, no Seller is a party to any
employment, deferred compensation, bonus, or incentive agreements, plans or
contracts relating to employees of the Business. Except as set forth on Section
3.12 of the Seller Disclosure Schedule, all of Sellers' employees in the
Business are at-will
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employees. No Seller is aware that any employee listed on Section 3.12 of the
Seller Disclosure Schedule has any plans to refuse to be employed by Purchaser
following the Closing.
3.13. Environmental Violations.
Sellers have not generated, handled, treated, stored, disposed of or
processed any hazardous wastes, any hazardous substances or any toxic substances
in the Business Territory and Sellers are and have been in compliance in all
material respects with all laws, rules and regulations relating to environmental
pollution as such laws, rules and regulations apply to or affect the Business or
the Acquired Assets.
3.14. Environmental Condition of Inventory.
To the best of Zaring's knowledge, all the Inventory and Work in Progress
being sold hereunder is free from any and all hazardous substances and wastes,
asbestos, lead, underground storage tanks and PCB's. All of the Inventory and
Work in Progress being sold hereunder is free from wetlands or, to the extent
that any wetlands are present, all governmental permits and approvals have been
obtained or are not required. Except as set forth on Section 3.14 of the Seller
Disclosure Schedule, prior to purchasing any real estate included in the
Inventory, Sellers have completed or caused to be completed a Phase I
environmental study by a reliable and competent environmental engineer and the
results of each such study have indicated for each and every parcel of real
estate included in the Inventory, that said real estate is free from any and all
hazardous substances, wastes, asbestos, lead, unsafe or dangerous levels of
radon gas, underground storage tanks, PCB's and wetlands. At the Closing,
Sellers shall deliver to Purchaser the original of each such Phase I study, and
Sellers shall deliver copies of each such study to Purchaser within ten (10)
days of the execution of this Agreement. In addition, within ten (10) days of
execution of this Agreement, Sellers shall deliver to Purchaser copies of all
materials in their possession concerning any wetlands associated with any of the
Inventory. All operations and activities upon, and use and occupancy of the real
estate now owned by any of Sellers is, and the real estate previously owned by
any of Sellers was, in all material respects in compliance with all governmental
regulations relating to the generation, handling, manufacturing, treatment,
storage, use, transportation, spillage, leakage, dumping, discharge, or disposal
(whether accidental or intentional), of any toxic or hazardous substances,
materials or wastes, and no person has engaged in or permitted any dumping,
discharge, disposal, spillage, or leakage (whether legal or illegal, accidental
or intentional), of any hazardous material at, on, in, or about, any of said
real estate or relating to the protection and preservation of endangered
species. To the knowledge of Zaring, there is no proceeding or inquiry by any
governmental authority with respect to any of the matters set forth in this
Section 3.14.
3.15. No Infringements.
Sellers have not received notice that the conduct of the Business as now
carried on or as previously carried on violates or infringes on any patent,
plan, blueprint or any right belonging to any person, firm, corporation or
entity. None of the architectural plans utilized by Sellers in the Business
violates or infringes upon any copyright, plan, blueprint or other right
belonging to any person, firm, corporation or entity.
3.16. Brokerage and Finder Fees
Sellers shall be solely responsible for any and all brokerage fees, finders
fees or commissions with respect to the execution of this Agreement and/or the
transactions hereby contemplated due to brokers, finders or others engaged or
retained by Sellers, including (without limitation) any fees payable to UBS
Warburg, Dillon Read.
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3.17. No RESPA Violations.
To the knowledge of Zaring, Sellers have with respect to the Business
complied with all provisions of RESPA and all rules and regulations promulgated
thereunder.
3.18. Warranty Work.
Except for warranty work on houses completed, sold and closed by Sellers in
the Business Territory within one (1) year prior to the Closing Date and except
as set forth in Section 3.18 of the Seller Disclosure Schedule, to the knowledge
of Zaring each of Sellers has completely performed all of its obligations under
each and every home-sale contract which it has closed in the Business Territory
prior to the Closing Date and none of the Sellers has any further obligations to
any purchaser of a house or any assignee thereof which closed in the Business
Territory prior to the Closing Date.
3.19. No Cancellation.
To the knowledge of Zaring, no customer party to a construction contract
with Sellers included in the Acquired Assets has canceled or intends to cancel
such contract, except for those listed on Section 3.19 of the Seller Disclosure
Schedule.
3.20. No Violations Of Consumer Acts.
To the knowledge of Zaring, in connection with the marketing or sale of any
of its properties in the Business Territory, no Seller has committed any
deceptive or unconscionable act or practice in violation of any consumer sales
practices act or regulation promulgated thereunder.
3.21. Use of Names.
Each Seller is the sole and exclusive owner of its respective name in the
Business Territory. No Seller has infringed upon any patents, trademarks,
copyrights, service marks or trade names registered to or used by others, nor
has any Seller received any notice alleging any such infringement.
3.22. Eminent Domain
None of the real estate currently owned by Sellers and included in the
Acquired Assets is subject to, nor has any Seller received any notice from any
Governmental Entity concerning or threatening condemnation proceedings or the
taking of said real estate, or any portion thereof, by eminent domain.
3.23. No Discrimination.
Except as set forth in Section 3.23 of the Seller Disclosure Schedule, no
Sellers nor any employee of Sellers working in the Business has committed any
unfair labor practices nor have Sellers or the employees of Sellers working in
the Business discriminated against any employee or any other person whether or
not an employee, based on that employee's or person's age, race, creed, color,
sex, religion, handicap, or disability, and none of Sellers has received any
complaints or notices from any employee, other persons, or any governmental
authority alleging any such act. No Seller has permitted a hostile environment
to exist at any of its offices or construction sites located in the Business
Territory.
3.24. No Moratoria.
There does not exist, nor to the best knowledge of Zaring is there
threatened, any moratoria in any area in which Sellers' Inventory or Work in
Progress is currently located that would prevent or delay Purchaser
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from obtaining any utility service, building permit, certificate of occupancy,
subdivision approval, or any other approval or service needed to efficiently
carry out the business of Purchaser.
3.25. No Defective Soil Conditions.
Except as listed on Section 3.25 of the Seller Disclosure Schedule, to the
knowledge of Zaring, there are no defects or conditions of the soil which will
materially adversely affect the construction of houses on any Inventory or Work
in Progress currently owned by Sellers nor on any real estate previously sold by
Sellers in the Business Territory, and the soil conditions of each such tract of
real estate, whether now owned or previously sold, will support the improvements
located thereon or proposed to be located thereon for the foreseeable life of
said improvements, without the need for unusual excavations, fill, footings or
other installations.
3.26. Lot Purchase Contracts
Each Seller is current in meeting all of its lot pickup obligations under
all of its lot purchase agreements included in the Acquired Assets.
3.27. Workmanlike Condition; Compliance with Codes.
All houses and other improvements constructed by Sellers in the Business
Territory during the two (2) year period immediately prior to the Closing have,
to the knowledge of Zaring, been constructed in a good and workmanlike manner,
using good and quality materials and in a manner that complied in all material
respects with all applicable codes and safety regulations.
3.28. No Fraudulent Conveyances.
The consummation of the transactions contemplated by this Agreement,
including but not limited to the conveyance of the Acquired Assets, will not
result in either Seller becoming insolvent, either in the sense of not being
able to pay and discharge its debts and other obligations in the ordinary course
as they become due or in the sense of having net assets that, in the aggregate,
are exceeded in amount by that Seller's net liabilities. The conveyance by
Sellers of the Acquired Assets to Purchaser will not constitute a fraudulent
conveyance or transfer. Sellers acknowledge that the Purchase Price being paid
by Purchaser is fair and adequate consideration and reasonably equivalent value
for the Acquired Assets.
3.29. Radon Gas.
To the knowledge of Zaring, no house included in the Inventory now
contains, nor does any house sold by Sellers during the five-year period prior
to the Closing Date contain, any high levels and/or dangerous levels of radon
gas.
3.30. Real Estate Taxes Associated with Agricultural Use.
None of the real estate included in the Inventory and/or the Work in
Progress is subject to a future increase in real estate Taxes or the collection
of past due Taxes resulting from the conversion of said real estate from
agricultural uses to another use.
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ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Sellers and agrees that:
4.1. Organization, Existence and Good Standing of Purchaser.
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Ohio. Purchaser has all necessary
corporate and other power and authority to own its properties and assets and to
carry on its business as presently conducted. Purchaser is qualified to do
business and is in good standing in each jurisdiction where the nature or
character of the property owned, leased or operated by it or the nature of the
business transacted by it makes such qualification necessary, except where the
failure to be so qualified or be in good standing has not and is not reasonably
likely to, either individually or in the aggregate, prevent, impair or
materially delay the ability of Purchaser to consummate any of the purchase of
the Acquired Assets, including the assumption of the Assumed Liabilities, or the
other transactions contemplated hereby.
4.2. Authority Relative to This Agreement.
Purchaser has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Purchaser and the consummation by Purchaser of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action, and no other corporate proceedings are necessary to
authorize this Agreement or to consummate the transactions so contemplated. Each
of this Agreement and the other ancillary agreements, certificates, instruments
of conveyance and other documents executed and delivered by Purchaser in
connection with this Agreement (collectively, the "Purchaser Transaction
Documents") has been duly and validly executed and delivered by Purchaser and
(assuming the due authorization, execution and delivery by Sellers) constitutes
the legal, valid and binding obligation of Purchaser, enforceable against
Purchaser in accordance with its respective terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4.3. No Conflict.
Assuming that all filings, permits, authorizations, consents and approvals
have been duly made or obtained as contemplated by Section 4.4 and assuming that
Purchaser has, on the Closing Date, sufficient capital on hand and/or written
financing commitments of third parties pursuant to Section 4.6 hereof, the
execution and delivery of this Agreement and the Purchaser Transaction Documents
and the consummation by Purchaser of the purchase of the Acquired Assets,
including the assumption of the Assumed Liabilities, and the other transactions
contemplated hereby by Purchaser will not: (a) violate any provision of the
Articles of Incorporation or Bylaws of Purchaser; (b) violate any statute, rule,
regulation, order or decree of any public body or authority or other
Governmental Entity by which Purchaser or any of its properties or assets may be
bound; or (c) result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default under, any license, franchise,
permit, indenture, agreement or other instrument to which Purchaser is a party,
or by which Purchaser or any of its properties or assets may be bound, excluding
from the foregoing clauses (b) and (c) violations, breaches and defaults that,
either individually or in the aggregate, would not either prevent, impair or
materially delay the consummation of
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the purchase of the Acquired Assets, including the assumption of the Assumed
Liabilities, or the other transactions contemplated hereby.
4.4. Required Filings and Consents.
No filing or registration with, or authorization, consent or approval of,
or notification to any Governmental Entity is required by Purchaser in
connection with the execution and delivery of this Agreement and the Purchaser
Transaction Documents by Purchaser or the consummation by Purchaser of the
purchase of the Acquired Assets, including the assumption of the Assumed
Liabilities, or the other transactions contemplated hereby, except such
consents, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made, either individually or in the
aggregate, would not either prevent, impair or materially delay the ability of
Purchaser to consummate any of the purchase of the Acquired Assets, including
the assumption of the Assumed Liabilities, or the other transactions
contemplated hereby.
4.5. Absence of Litigation.
There is: (a) no claim, action, suit, proceeding or investigation pending
or, to the knowledge of Purchaser, threatened against Purchaser or any
properties, assets or rights of Purchaser before any Governmental Entity; and
(b) no outstanding judgment, order, writ, injunction or decree of any
Governmental Entity to which Purchaser or any of its properties, assets or
rights was or is a party or subject, except in the case of clauses (a) and (b)
above, such as could not reasonably be expected to prevent, impair or materially
delay consummation of the purchase of the Acquired Assets, including the
assumption of the Assumed Liabilities, or the other transactions contemplated
hereby, or otherwise prevent, impair or materially delay Purchaser from
performing any of its obligations under this Agreement.
4.6. Financing.
By the Closing Date, Purchaser will have sufficient capital on hand and/or
written financing commitments of third parties to enable Purchaser to pay on the
Closing Date and thereafter, as applicable (subject to the terms and conditions
of this Agreement), the Cash Payment in cash without any delay for any reason
and to make all other necessary payments of fees and expenses required to be
paid by Purchaser in connection with the transactions contemplated by this
Agreement.
4.7. Brokerage and Finder Fees.
Purchaser shall be solely responsible for any and all brokerage fees,
finders fees or commissions with respect to the execution of this Agreement
and/or the transactions hereby contemplated due to brokers, finders or others
engaged or retained by Purchaser.
ARTICLE 5.
COVENANTS
5.1. Acquisition Proposals.
After the date of this Agreement and prior to the Closing, Sellers jointly
and severally agree that:
(a) none of the Sellers shall initiate, solicit or encourage, directly
or indirectly, any inquiries or the making or implementation of any
proposal or offer (including, without limitation, any proposal or offer to
its shareholders) with respect to a merger, acquisition, tender offer,
exchange offer,
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consolidation, sale of assets or similar transaction involving all or any
significant portion of the Acquired Assets or any equity securities of any
of the Sellers, other than the transactions contemplated by this Agreement
and dispositions of the Excluded Assets (or any of them) (any such proposal
or offer being hereinafter referred to as an "Acquisition Proposal") or
engage in any negotiations concerning or provide any confidential
information or data to, or have any discussions with, any person relating
to an Acquisition Proposal, or otherwise facilitate any effort or attempt
to make or implement an Acquisition Proposal;
(b) it will use its best efforts not to permit any of its officers,
managers, employees, agents or financial advisors to engage in any of the
activities described in Section 5.1(a);
(c) it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing and will take the necessary
steps to inform the individuals or entities referred to in Section 5.1(b)
of the obligations undertaken in this Section 5.1; and
(d) it will notify Purchaser immediately if any Seller receives any
such inquiries or proposals, or any requests for such information, or if
any such negotiations or discussions are sought to be initiated or
continued with it; provided, however, that nothing contained in this
Section 5.1 shall prohibit Zaring Board of Directors from: (i) furnishing
information to or entering into discussions or negotiations with, any
person or entity that makes an unsolicited Acquisition Proposal, if, and
only to the extent that: (A) the Zaring Board of Directors determines in
good faith that failure to do so would breach its duties to Zaring
shareholders imposed by Ohio law; (B) prior to furnishing such information
to, or entering into discussions or negotiations with, such person or
entity, Zaring provides written notice to Purchaser to the effect that it
is furnishing information to, or entering into discussions with, such
person or entity; and (C) subject to any confidentiality agreement with
such person or entity (which Zaring determined in good faith was required
to be executed in order for the Zaring Board of Directors to comply with
its duties to Zaring shareholders imposed by Ohio law), Zaring keeps
Purchaser informed of the status (not the terms) of any such discussions or
negotiations; and (ii) to the extent applicable, complying with Rule 14e-2
or Rule 14d-9 promulgated under the Exchange Act with regard to an
Acquisition Proposal. Nothing in this Section 5.1 shall: (x) permit Zaring
to terminate this Agreement (except as specifically provided in Article 9
hereof); (y) permit Zaring to enter into an agreement with respect to an
Acquisition Proposal during the term of this Agreement (it being agreed
that during the term of this Agreement, Zaring shall not enter into an
agreement with any person that provides for, or in any way facilitates, an
Acquisition Proposal (other than a confidentiality agreement in customary
form executed as provided above)); or (z) affect any other obligation of
Sellers under this Agreement; provided, however, that, subject to the
provisions of Section 9.2, the Zaring Board of Directors may approve and
recommend a Superior Acquisition Proposal and, in connection therewith,
withdraw or modify its approval or recommendation of this Agreement and the
transactions contemplated hereby. As used herein, "Superior Acquisition
Proposal" means a bona fide Acquisition Proposal made by a third party
which a majority of the members of the Zaring Board of Directors determines
in good faith to be more favorable to Zaring's shareholders from a
financial point of view than the transactions contemplated by this
Agreement and which the Zaring Board of Directors determines is reasonably
capable of being consummated.
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5.2. Conduct of Sellers' Business Pending Closing.
Prior to the Closing, except as: (i) contemplated by this Agreement; (ii)
set forth in Schedule 5.2 attached hereto and incorporated herein, or (iii)
consented to in writing by Purchaser, Sellers shall conduct their business only
in the usual, regular and ordinary course and in substantially the same manner
as heretofore conducted, and, irrespective of whether or not in the Ordinary
Course of Sellers' Business, Sellers shall:
(a) use its reasonable efforts to preserve intact its business
organizations and goodwill and keep available the services of its officers
and employees;
(b) confer on a regular basis with one or more representatives of
Purchaser to report operational matters of materiality and, subject to
Section 5.1, any proposals to engage in material transactions not otherwise
expressly permitted under Section 5.2;
(c) promptly notify Purchaser of any material emergency or other
material change in the condition (financial or otherwise), business,
properties, assets (including, without limitation, the Acquired Assets),
liabilities, or the normal course of its businesses or in the operation of
its properties, or of any material governmental complaints, investigations
or hearings (or communications indicating that the same may be
contemplated);
(d) promptly deliver to Purchaser true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of
this Agreement;
(e) maintain its books and records in accordance with GAAP
consistently applied and not change in any material manner any of its
methods, principles or practices of accounting in effect at January 1,
2000, except as may be required by the SEC, applicable law or GAAP;
(f) duly and timely file all reports, tax returns and other documents
required to be filed with federal, state, local and other authorities,
subject to extensions permitted by law, provided Sellers notifies Purchaser
that it is availing itself of such extensions;
(g) not sell, lease, mortgage, subject to Lien or otherwise dispose of
any material part of the Acquired Assets, individually or in the aggregate,
except for sales, leases or mortgages of the Acquired Assets in the
Ordinary Course of Sellers' Business;
(h) not settle any shareholder derivative or class action claims
arising out of or in connection with any of the transactions contemplated
by this Agreement without the prior written approval of Purchaser, which
approval shall not be unreasonably withheld or denied (it being understood
that it is the intent of the parties to avoid, to the extent practicable,
the termination of this Agreement pursuant to this Article 9 hereof);
(i) not directly or indirectly or through a subsidiary, merge or
consolidate with, acquire all or substantially all of the assets of, or
acquire the beneficial ownership of a majority of the outstanding capital
stock or other equity interest in any person or entity; and,
(j) except for purchases required under contracts in effect on the
date hereof, not acquire, purchase or otherwise obtain the right to
ownership or possession of additional parcels of real property for
development or other use in the Business provided, however, that Sellers
may, with Purchaser's prior written consent, acquire, purchase or otherwise
obtain the right to ownership or possession of
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additional parcels of real property under contracts currently under
negotiation and listed on Schedule 5.2(j) attached hereto and incorporated
herein.
5.3. Other Actions.
Each of Sellers, on the one hand, and Purchaser, on the other hand, shall
not take, any action that would result in: (i) any of the representations and
warranties of such party set forth in this Agreement that are qualified as to
materiality becoming untrue; (ii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect; or (iii)
except as contemplated by Section 5.1, any of the conditions to the transactions
contemplated hereby set forth in Article 7 not being satisfied.
ARTICLE 6.
ADDITIONAL AGREEMENTS
6.1. Preparation of Proxy Statement; Shareholder Meeting.
(a) Promptly following the date of this Agreement, Zaring shall prepare a
proxy statement (the "Proxy Statement") required to be distributed to holders of
Zaring common stock in connection with the transactions contemplated by this
Agreement and include therein the recommendation of Zaring's Board of Directors
that the shareholders of Zaring vote in favor of the approval and adoption of
this Agreement and in favor of an amendment to Zaring's Articles of
Incorporation to change the corporate name of Zaring to First Cincinnati, Inc.
("Name Change Amendment"); provided, however, that Zaring's Board of Directors
may fail to make or may withdraw or modify such recommendation, if, in
accordance with Section 5.1, Zaring's Board of Directors recommends a Superior
Proposal. Zaring shall use its reasonable best efforts to obtain and furnish the
information required to be included by it in the Proxy Statement and, after
consultation with Purchaser, respond promptly to any comments made by the SEC
with respect to the Proxy Statement and any preliminary version thereof.
Purchaser will cooperate with Zaring in connection with the preparation of the
Proxy Statement including, but not limited to, furnishing to Zaring any and all
information regarding Purchaser as may be required to be disclosed therein.
Zaring will use reasonable best efforts to cause the Proxy Statement to be
mailed to Zaring's shareholders as promptly as practicable.
(b) All filings with the SEC and all mailings to Zaring's shareholders in
connection with the transactions contemplated by this Agreement, including the
Proxy Statement, shall be subject to the prior review, comment and approval of
Purchaser (and such approval shall not be unreasonably withheld or delayed).
(c) Zaring shall, as promptly as practicable following the date of this
Agreement and in consultation with Purchaser, duly call and give notice of, and,
provided that this Agreement has not been terminated, convene and hold, a
meeting of Zaring's shareholders for the purpose of approving this Agreement,
the Name Change Amendment and the transactions contemplated by this Agreement to
the extent required by Ohio Law (the "Zaring Shareholders' Meeting"). Zaring
will use reasonable best efforts to hold such meeting as soon as practicable
after the date hereof.
6.2. HSR Act.
As promptly as practicable after the date of this Agreement, Zaring, Zaring
LLC, Zaring Homes and Purchaser shall file notifications under the HSR Act in
connection with the transactions contemplated hereby and respond as promptly as
practicable to any inquiries received from the Federal Trade Commission (the
"FTC") and the Antitrust Division of the Department of Justice (the "Antitrust
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Division") for additional information or documentation and respond as promptly
as practicable to all inquiries and requests received from any State Attorney
General or other governmental authority in connection with antitrust matters.
6.3. Access to Information; Confidentiality.
(a) Upon reasonable notice and subject to restrictions contained in
confidentiality agreements to which such party is subject, each Seller shall
afford to the officers, employees, accountants, counsel and other
representatives of Purchaser reasonable access during such company's normal
business hours, during the period to the earlier of the termination of this
Agreement or the Closing, to the Acquired Assets and its books and records
relating to the Acquired Assets, the Business and the Assumed Liabilities and,
during such period, each Seller shall furnish promptly to Purchaser all
reasonably available information concerning the Acquired Assets, the Business
and the Assumed Liabilities as Purchaser may reasonably request.
(b) Each Seller shall make available to Purchaser the appropriate
individuals (including attorneys, accountants and other professionals) for
discussion relating to the Acquired Assets, the Business and the Assumed
Liabilities as Purchaser may reasonably request. Purchaser shall keep all
information obtained under this Section 6.3 confidential in accordance with the
terms of the confidentiality letter dated March 17, 2000 (the "Confidentiality
Letter") between Purchaser and Zaring.
6.4. Compliance with Laws.
Each of Sellers and Purchaser will duly comply with all applicable laws
required to be complied with by it to perform its obligations under this
Agreement and consummate the transactions contemplated hereby.
6.5. Best Efforts; Notification.
(a) Subject to the terms and conditions herein provided, Sellers and
Purchaser shall: (i) use all reasonable best efforts to cooperate with one
another in (A) determining which filings are required to be made prior to the
Closing with, and which consents, approvals, permits or authorizations are
required to be obtained prior to the Closing, from governmental or regulatory
authorities of the United States, the several states and foreign jurisdictions
and any third parties in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated by such
agreements and (B) timely making all such filings and timely seeking all such
consents, approvals, permits and authorizations; (ii) use all reasonable best
efforts to obtain in writing any consents required from third parties to
effectuate the transactions contemplated by this Agreement, such consents to be
in form reasonably satisfactory to Sellers and Purchaser, and to obtain the
release of Sellers under contracts to be assigned to Purchaser hereunder,
including Purchaser's good faith consideration of corporate guarantees and other
support for Purchaser's assumed obligations under such assigned contracts; and
(iii) use all reasonable best efforts to take, or cause to be taken, all other
action and do, or cause to be done, all other things necessary, proper or
appropriate to consummate and make effective the transactions contemplated by
this Agreement, including, but not limited to, furnishing all information
required to be included in the Proxy Statement. If, at any time after the
Closing, any further action is necessary, or desirable to carry out the purpose
of this Agreement, the proper officers of Sellers and Purchaser shall take all
such necessary action.
(b) Zaring shall give prompt notice to Purchaser, and Purchaser shall give
prompt notice to Zaring: (i) if any representation or warranty made by it or its
affiliates contained in this Agreement that is qualified as to materiality
becomes untrue or inaccurate in any respect or any such representation or
warranty that is
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not so qualified becomes untrue or inaccurate in any respect; or (ii) of the
failure by it or its affiliates to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement; provided, however, that no such notification shall
affect the representations, warranties, covenants or agreement of the parties or
the conditions to the obligations of the parties under this Agreement.
6.6. Public Announcements.
Purchaser and Sellers shall consult with each other before issuing any
press release with respect to the sale and purchase of the Assets or this
Agreement and shall not issue any such press release or make any such public
statement without the prior consent of the other party, which shall not be
unreasonably withheld or delayed; provided, however, that a party may, without
the prior consent of the other party, issue such press release or make such
public statement as may upon the advice of counsel be required by law or the
rules and regulations of the NASDAQ if it has used all commercially reasonable
efforts to consult with the other party.
ARTICLE 7.
CONDITIONS TO CLOSING
7.1. Mutual Conditions.
The respective obligations of each party to this Agreement to consummate
and effect the sale and purchase of the Acquired Assets shall be subject to the
satisfaction at or prior to the Closing Date of the following conditions:
7.1.1. No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the sale and purchase of the
Acquired Assets shall be in effect; and there shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or applicable to the sale and purchase of the Acquired Assets that makes
the consummation of the sale and purchase of the Acquired Assets illegal.
7.1.2. Consents. All consents, authorizations, orders and approvals of
(or filings or registrations with) any Governmental Entity, the absence of
which would have a material adverse effect on any Seller or Purchaser or on
the Acquired Assets or the Business, specifically including the expiration
of the HSR Act waiting period, shall have been obtained or made, except for
filings required to be made after the Closing.
7.1.3. Completion of Scheduled Agreements/Documents; Letter of
Credit. Within ten (10) business days after execution of this Agreement,
all Schedules not completed and accepted on the date of execution by
Purchaser and Sellers (acceptance being evidenced only by initialing on the
first and last page of each such Schedule) shall have been completed and
accepted by Purchaser and Sellers, acceptance not to be unreasonably
withheld or delayed. Also within ten (10) business days after execution of
this Agreement, Purchaser shall have obtained from a financial institution
reasonably acceptable to Sellers a letter of credit in the amount of Five
Hundred Thousand Dollars ($500,000) (the "Section 7.1.3 Letter of Credit").
Purchaser shall be the beneficiary of the Section 7.1.3 Letter of Credit.
The full Section 7.1.3 Letter of Credit amount shall automatically be drawn
by Purchaser on January 31, 2001 unless Purchaser and Sellers shall have
provided the Section 7.1.3 Letter of Credit
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bank with a joint written statement directing that financial institution
not to fund the Section 7.1.3 Letter of Credit.
7.2. Conditions to Obligations of Purchaser.
The obligations of Purchaser to consummate and effect the purchase of the
Acquired Assets shall be subject to the satisfaction, at or prior to the Closing
Date, of the following additional conditions, any of which may be waived, in
writing, exclusively by Purchaser:
(a) The representations and warranties of Sellers contained herein
shall be true in all material respects at and as of the Closing Date with
the same effect as if made at and as of the Closing Date (except to the
extent such representation or warranty specifically related to an earlier
date, in which case such representation or warranty shall be true in all
respects as of such earlier date) and Sellers shall have performed and
compiled in all material respects with all agreements and covenants set
forth in this Agreement to be performed or complied with by them on or
prior to the Closing Date.
(b) Purchaser shall have been furnished with a certificate, executed
by a duly authorized officer of Zaring, dated as of the Closing Date,
certifying as to the fulfillment of the conditions in paragraph (a).
(c) Sellers shall have delivered all the Seller Deliverables.
(d) Purchaser shall, within forty five (45) days from the date of this
Agreement, have obtained financing at market rates and on terms and
conditions reasonably acceptable to Purchaser from its lenders sufficient
in amount to enable Purchaser to consummate the transactions contemplated
by this Agreement.
(e) Zaring Shareholder Approval shall have been obtained as
contemplated by Section 6.1, which approval shall include authorization of
the Name Change Amendment.
(f) At least eighty percent (80%) of Sellers' employees in each of the
categories set forth on Schedule 7.2(f) attached hereto and incorporated
herein shall remain employees of Sellers as of the date of Closing.
(g) The four (4) key employees listed on Schedule 7.2(g) attached
hereto and incorporated herein shall, within seven (7) business days after
execution of this Agreement, have accepted employment with Purchaser
pursuant to employment agreements or other documents mutually agreeable to
Purchaser and such key employee.
(h) Sellers shall have obtained the consent of their bank lenders to
the transactions contemplated by this Agreement by no later than December
31, 2000.
(i) Sellers shall have obtained the consent to the transactions
contemplated by this Agreement of the lot and land sellers and lessees
listed on Schedule 7.2(i) attached hereto and incorporated herein by no
later than December 31, 2000.
(j) Sellers have at least one hundred (100) houses under contract in
backlog as of the date of Closing having an estimated Margin equal to or in
excess of sixteen and 50/100 percent (16.50%).
(k) Sellers shall have complied with the provisions of Article 6 of
the Indiana Uniform Commercial Code to the extent applicable to the
transactions contemplated by this Agreement.
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(l) Purchaser shall have, by December 31, 2000, completed its
inspection of all market or model houses in Inventory and shall have
determined whether to exercise its right (hereby granted by Sellers) to
exclude from the Acquired Assets any market or model houses in Inventory
with an excavation date earlier than August 1, 2000, which possess major
structural defects, or an apparent susceptibility to excess moisture
accumulation ("Excluded Houses") (it being understood that Sellers shall,
notwithstanding any contrary provisions in the Copyright Transfer
Agreement, Trademark Transfer Agreement and Non-Competition Agreements,
have the right to market and sell the Excluded Houses after the Closing).
7.3. Conditions to Obligations of Sellers.
The obligations of Sellers to consummate and effect the sale of the Assets
shall be subject to the satisfaction, at or prior to the Closing Date, of the
following conditions, any of which may be waived, in writing, exclusively by
Zaring:
(a) The representations and warranties of Purchaser contained herein
shall be true in all material respects at and as of the Closing Date with
the same effect as if made at and as of the Closing Date (except to the
extent such representation or warranty specifically relates to an earlier
date, in which case such representation or warranty shall be true in all
respects as of such earlier date) and Purchaser shall have performed and
complied in all material respects with all agreements and covenants set
forth in this Agreement to be performed or complied with by it on or prior
to the Closing Date.
(b) Sellers shall have been furnished with a certificate, executed by
duly authorized officers of Purchaser, dated the Closing Date, certifying
as to the fulfillment of the conditions in paragraph (a).
(c) Purchaser shall have delivered all the Purchaser Deliverables.
(d) Zaring Shareholder Approval shall have been obtained as
contemplated by Section 6.1.
(e) Sellers shall have obtained the consent of their bank lenders to
the transactions contemplated by this Agreement by no later than December
31, 2000.
(f) Sellers shall have obtained the consent of the parties set forth
on Schedule 7.3(f) attached hereto and incorporated herein (and releases
from such parties of contractual obligations or liabilities) to the
transactions contemplated by this Agreement no later than December 31,
2000.
ARTICLE 8.
SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS;
INDEMNIFICATION
8.1. Survival.
(a) Notwithstanding any right of Purchaser to investigate the affairs of
the Business and the condition of the Acquired Assets, Purchaser has the right
to rely upon the representations, warranties, covenants and agreements of
Sellers contained in this Agreement. The representations and warranties of
Sellers set forth in ARTICLE 3 and of Purchaser set forth in ARTICLE 4 shall
terminate and expire on the third anniversary of the Closing Date; provided,
however, that the representations and warranties of Sellers in Sections 3.6,
3.9, 3.13, 3.14, 3.15, 3.18, 3.25 and 3.27 shall survive until the tenth
anniversary of the Closing Date. Notice with respect to any claim in respect of
any inaccuracy in or breach of any representation or warranty shall be in
writing and shall be given to the party against which such claim is asserted.
Any representation or warranty shall survive the time it would otherwise
terminate pursuant to this Section 8.1 to the extent
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that the party claiming indemnification for such breach shall have delivered to
the other party written notice setting forth with reasonable specificity the
basis of such claim prior to the expiration of such time pursuant to this
Section 8.1; provided, that after the delivery of any such notice, the party
claiming indemnification shall expeditiously pursue the resolution of such
claim.
(b) All covenants and agreements made by the parties to this Agreement
which contemplate performance following the Closing Date shall survive the
Closing Date. All other covenants and agreements shall not survive the Closing
Date and shall terminate as of the Closing.
8.2. Obligation of Sellers to Indemnify.
Subject to the limitations set forth in Sections 8.1 and 8.5, Sellers
shall, jointly and severally, indemnify, reimburse, defend and hold harmless
Purchaser and its directors, officers, employees, shareholders and affiliates,
and their respective successors and assigns, from and against any and all
claims, losses, liabilities, damages, costs and expenses (including attorneys',
accountants', consultants' and experts' fees and expenses) ("Loss") incurred by
any of them based upon, arising out of or otherwise in respect of: (i) any
inaccuracy in or any breach of any representation or warranty of Sellers (after
taking into account the exceptions to such representations and warranties which
are set forth in the Seller Disclosure Schedule related to such representations
and warranties); (ii) the nonfulfillment on the part of Sellers of any unwaived
covenant or agreement set forth in this Agreement which survives the Closing
Date in accordance with Section 8.1; and (iii) any Non-Assumed Liability of
Sellers. Any amount owed Purchaser as indemnification under this Section 8.2 may
be recovered from the funds held by the Escrow Agent pursuant to the Escrow
Agreement to the extent that such funds exist and are sufficient in amount.
In addition, subject to the limitations set forth in Section 8.5, Sellers
shall, jointly and severally, to the fullest extent permitted by law, indemnify,
reimburse, defend and hold harmless Purchaser and its directors, officers,
employees, shareholders and affiliates, and their respective successors and
assigns, from and against any Loss incurred by any of them based upon, arising
out of or otherwise with respect to: (x) litigation initiated by any Zaring
shareholder challenging the transactions contemplated by this Agreement other
than litigation based on information in the Proxy Statement that was supplied by
Purchaser or based on Purchaser's bad faith, gross negligence or willful
misconduct; (y) litigation challenging the transactions contemplated by this
Agreement as a fraudulent transfer or fraudulent conveyance or similar violation
of laws protecting creditors generally; or (z) litigation in which any former
employee of any Seller who becomes an employee of Purchaser is a named defendant
and relating to pre-Closing activities of such employee within the scope of that
employee's employment with such Seller; provided, that Purchaser shall permit
any such named defendant employee to cooperate with and assist Sellers in a
reasonable manner in the defense of such litigation (i.e., in a manner that does
not materially detract from the performance of that employee's duties to
Purchaser).
8.3. Obligation of Purchaser to Indemnify.
Subject to the limitations set forth in Sections 8.1 and 8.5, Purchaser
shall indemnify, defend and hold harmless Sellers and their respective
directors, officers, employees, shareholders and affiliates and their respective
successors and assigns from and against any Loss incurred by any of them based
upon, arising out of or otherwise in respect of: (i) any inaccuracy in or breach
of any representation or warranty of Purchaser; (ii) the nonfulfillment on the
part of Purchaser of any unwaived covenant or agreement set forth in this
Agreement which survives the Closing Date in accordance with Section 8.1; and
(iii) the Assumed Liabilities.
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8.4. Notice and Opportunity to Defend Against Third Party Claims.
(a) Promptly after receipt from any third party by either party hereto (the
"Indemnitee") of a notice of any demand, claim or circumstance that, immediately
or with the lapse of time, would give rise to a claim or the commencement (or
threatened commencement) of any action, proceeding or investigation (an
"Asserted Liability") that may result in a Loss for which indemnification may be
sought hereunder, the Indemnitee shall give written notice thereof (the "Claims
Notice") to the party obligated to provide indemnification pursuant to Sections
8.2 or 8.3 (the "Indemnifying Party"), provided, however, that a failure to give
such notice shall not prejudice the Indemnitee's right to indemnification
hereunder except to the extent that the Indemnifying Party is actually
prejudiced thereby. The Claims Notice shall describe the Asserted Liability in
reasonable detail, and shall indicate the amount (estimated, if necessary) of
the Loss that has been or may be suffered by the Indemnitee.
(b) The Indemnifying Party may elect to compromise or defend, at its own
expense and by its own counsel, any Asserted Liability. It is of the essence of
this Agreement that Seller shall have the opportunity to control the
administration and defense of any Asserted Liability for which the Seller is the
Indemnifying Party. If the Indemnifying Party elects to compromise or defend
such Asserted Liability, it shall, within thirty (30) business days following
its receipt of the Claims Notice (or sooner, if the nature of the Asserted
Liability so requires) notify the Indemnitee of its intent to do so and the
Indemnitee shall cooperate at the expense of the Indemnifying Party, in the
compromise of or defense against, such Asserted Liability. If the Indemnifying
Party elects not to compromise or defend the Asserted Liability, fails to notify
the Indemnitee of its election as herein provided or contests its obligation to
provide indemnification under this Agreement, the Indemnitee may pay, compromise
or defend such Asserted Liability. Notwithstanding the foregoing, neither the
Indemnifying Party nor the Indemnitee may settle or compromise any claim without
the consent of the other party, provided, however, that such consent to
settlement or compromise shall not be unreasonably withheld. In any event, the
Indemnitee and the Indemnifying Party may participate, at their own expense, in
the defense of such Asserted Liability. If the Indemnifying Party chooses to
defend any claim, the Indemnitee shall make available to the Indemnifying Party
any books, records or other documents within its control that are necessary or
appropriate for such defense.
8.5. Limits on Indemnification.
No party shall have any right to seek indemnification under this Agreement:
(i) until Losses which would otherwise be indemnifiable hereunder incurred by
such party (including Losses incurred by all other indemnitees affiliated with
or related to such party) exceed One Hundred Thousand Dollars ($100,000)in the
aggregate, after insurance or other recoveries and such party (including such
affiliated or related persons) shall only be entitled to be indemnified for
Losses in excess of such aggregate amount; (ii) for punitive, special or
consequential damages (except where punitive, special or consequential damages
are payable to a third party in connection with a third party claim subject to
indemnification hereunder); or (iii) in respect of Losses to the extent such
Losses result from or arise out of actions taken by Indemnitee or an affiliate,
employee, representative or agent thereof after the Closing. After the Closing,
the remedies provided by this ARTICLE 8 shall be the sole and exclusive remedy
for the parties to this Agreement with respect to any dispute arising from, or
related to, this Agreement; provided, however, that Purchaser shall have, in
addition to such remedy, distinct and separate enforcement rights and remedies
under the Non-Competition Agreements. The "basket" in Section 8.5(i) above shall
not be applicable to claims of Purchaser against Sellers for indemnification
relating to liabilities included in the Assumed Liabilities that are
understated, to assets included in the Acquired Assets that are overstated or to
Losses incurred by Purchaser in connection with any litigation initiated by any
Zaring shareholder challenging the transactions
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contemplated by this Agreement or to Losses incurred by Purchaser in connection
with any litigation challenging the transactions contemplated by this Agreement
as a fraudulent transfer or fraudulent conveyance or similar violation of laws
protecting creditors generally or any litigation against former employees of any
Seller who become employees of Purchaser, as described in Section 8.2(z) above
or to Sections 3.6, 3.13, 3.14 and 3.15, all of which claims, if valid, shall be
subject to indemnification on a first dollar, dollar-for-dollar basis. In
addition, the "basket" in Section 8.5(i) above shall not be applicable to claims
of Purchaser against Sellers for indemnification relating to breaches of Section
3.25 arising at homes included in Work in Progress to the extent that any claim
is in excess of Five Thousand Dollars ($5,000) per house included in Work in
Progress, i.e., Sellers shall pay on a first dollar, dollar-for-dollar basis
claims to the extent that they are in excess of Five Thousand Dollars ($5,000)
per house relating to breaches of Section 3.25 arising at houses included in
Work in Progress. In no event shall Sellers' aggregate liability for
indemnification under this ARTICLE 8 exceed the Purchase Price.
ARTICLE 9.
TERMINATION, AMENDMENT AND WAIVER
9.1. Termination.
This Agreement may be terminated at any time prior to Closing, whether
before or after Zaring Shareholder Approval have been obtained:
(a) by mutual written consent duly authorized by the Sellers and
Purchaser;
(b) by Purchaser, upon a breach of any representation, warranty,
covenant, obligation or agreement on the part of the Sellers set forth in
this Agreement, in either case such that the conditions set forth in
Section 7.2(a) or Section 7.2(b), as the case may be, would be incapable of
being satisfied by January 31, 2001 (or as otherwise extended pursuant to
the second proviso to Section 9.1(e));
(c) by the Sellers, upon a breach of any representation, warranty,
covenant, obligation or agreement on the part of Purchaser set forth in
this Agreement, in either case such that the conditions set forth in
Section 7.3(a) or Section 7.3(b), as the case may be, would be incapable of
being satisfied by January 31, 2001 (or as otherwise extended pursuant to
the second proviso to Section 9.1(e));
(d) by either Purchaser or the Sellers, if any judgment, injunction,
order, decree or action by any Governmental Entity of competent authority
preventing the consummation of the transactions contemplated by this
Agreement shall have become final and nonappealable;
(e) by either Purchaser or the Sellers, if the transactions
contemplated by this Agreement shall not have been consummated before
January 31, 2001 as such date may be extended to the Extension Date as
provided below; provided, that in the case of termination pursuant to this
Section 9.1(e), the terminating party shall not have breached in any
material respect its obligations under this Agreement in any manner that
shall have proximately contributed to the occurrence of the failure
referred to in this Section; and, provided, further, that Sellers shall
notify Purchaser in writing by no later than January 5, 2001 if Sellers
are, notwithstanding full compliance with Section 6.1 hereof, not able to
mail the Proxy Statement to Zaring's shareholders on or before January 5,
2001 and thereby request that Purchaser consent to an extension of the
termination date from January 31, 2001 to a date that is thirty (30) days
after a date that Sellers represent to Purchaser in such notice and request
is the day the Proxy Statement will be mailed ("Extension Date"), which
consent may be granted or withheld by
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Purchaser in its sole discretion by means of a writing delivered within
three (3) days after Purchaser's receipt of Sellers' notice. If Purchaser
so consents, the January 31, 2001 termination date set forth above shall be
extended to the Extension Date;
(f) by either Purchaser or the Sellers if, upon a vote at a duly held
the Zaring Shareholders' Meeting or any adjournment thereof, Zaring
Shareholder Approval shall not have been obtained as contemplated by
Section 6.1;
(g) by the Sellers, if prior to the conclusion of the tabulation of
the votes with respect to the transactions contemplated by this Agreement
at the Zaring Shareholders' Meeting, the Zaring Board of Directors shall
have withdrawn or modified its approval or recommendation of the
transactions contemplated by this Agreement or this Agreement in connection
with, or approved, recommended or entered into, a Superior Acquisition
Proposal; and
(h) by Purchaser if: (i) prior to the Zaring Shareholders Meeting, the
Zaring Board of Directors shall have withdrawn or modified in any manner
adverse to Purchaser its approval or recommendation of the transactions
contemplated by this Agreement in connection with, or approved, recommended
or entered into, any Superior Acquisition Proposal; or (ii) Zaring shall
have entered into a definitive agreement with respect to any Acquisition
Proposal.
9.2. Certain Fees and Expenses.
If this Agreement shall be terminated pursuant to Sections 9.1(b), 9.1(f),
9.1(g) or 9.1(h), then Sellers will pay Purchaser (provided Sellers were not
entitled to terminate this Agreement pursuant to Section 9.1(c) at the time of
such termination) a fee equal to the Purchaser Liquidated Damages Amount (as
defined below).
If this Agreement shall be terminated pursuant to Section 9.1(c), then
Purchaser will pay Sellers (provided Purchaser was not entitled to terminate
this Agreement pursuant to Section 9.1(b) at the time of such termination), an
amount equal to the Sellers Liquidated Damages Amount (as defined below).
Sellers and Purchaser agree that actual damages accruing from a termination
of the Agreement pursuant to the subsections of Section 9.1 with respect to
which the provisions of Section 9.2 provide for the payment of damages are
incapable of precise estimation and would be difficult to prove, that the
payment to Purchaser or Sellers, as applicable, of the Purchaser Liquidated
Damages Amount or Sellers Liquidated Damages Amount shall constitute liquidated
damages, that the rights to the Purchaser Liquidated Damages Amount or Sellers
Liquidated Damages Amount stipulated in this Section 9.2 bear a reasonable
relationship to the potential injury likely to be sustained in the event of such
a termination and that such stipulated rights to liquidated damages are intended
by the parties to provide just compensation in the event of such a termination
and are not intended to compel performance or to constitute a penalty for
nonperformance. Payment of the Purchaser Liquidated Damages Amount by Sellers
shall terminate all of Purchaser's rights and remedies at law or in equity
against Sellers in respect of a termination of this Agreement pursuant to the
subsections of Section 9.1 with respect to which the provisions of Section 9.2
provide for the payment of damages. Payment of the Sellers Liquidated Damages
Amount by Purchaser shall terminate all of Sellers' rights and remedies at law
or in equity against Purchaser in respect of a termination of this Agreement
pursuant to Section 9.1(c). The Purchaser Liquidated Damages Amount shall be
paid by Sellers to Purchaser, or Sellers Liquidated Damages Amount, shall be
paid by Purchaser to Sellers, in immediately available funds within fifteen (15)
days after the date of the event giving rise to the obligation to make such
payment occurred.
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The "Purchaser Liquidated Damages Amount" payable to Purchaser by Sellers
shall be Three Hundred Thousand Dollars ($300,000), plus the amount of
Purchaser's reasonable accounting, attorneys' and other out-of-pocket
transaction fees and expenses.
The "Sellers Liquidated Damages Amount" payable to Sellers by Purchaser
shall be Three Hundred Thousand Dollars ($300,000), plus the amount of Sellers'
reasonable accounting, attorneys' and other out-of-pocket transaction fees and
expenses.
9.3. Effect of Termination.
In the event of termination of this Agreement as provided in Section 9.1,
this Agreement shall forthwith become null and void and have no force or effect
upon delivery of written notice of the terminating party to the other party
hereto, and such termination shall be without any liability or obligation on the
part of any party, its affiliates, directors, officers, agents or stockholders,
except as set forth in Section 9.2 or ARTICLE 8; provided that the provisions of
this Section 9.3, of this ARTICLE 9 and of Sections 10.1, 10.2, 10.6, 10.7,
10.10 and 10.11 shall remain in full force and effect and survive any
termination of this Agreement. It is understood that for the purposes of this
Section 9.3 and of Section 9.4, "party" shall mean Sellers, on the one hand, and
Purchaser, on the other hand.
9.4. Amendment; Extension; Waiver.
At any time prior to the Closing, the parties hereto may: (i) amend this
Agreement; (ii) extend the time for the performance of any of the obligations or
other acts of the other party hereto; (iii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto; and (iv) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such amendment, extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of the parties hereto or, in the case of any extension or waiver, by the
party having such right to waive or extend as set forth in this Section 9.4.
Delay in exercising any right under this Agreement shall not constitute a waiver
of such right.
ARTICLE 10.
MISCELLANEOUS
10.1. Expenses.
Except as provided in Section 9.2, each of Sellers and Purchaser shall pay
all costs and expenses incurred by it or them in connection with this Agreement
and the transactions contemplated hereby, whether or not the sale and purchase
of the Acquired Assets is consummated. Purchaser shall pay the filing fee
required under the HSR Act. Effective until the third anniversary of the Closing
Date, Zaring shall maintain its existing directors and officers liability
insurance policy or, at its option, shall acquire a "tail" policy for the risks
covered by such existing policy through the Closing Date.
10.2. Notices.
All notices and other communications given or made pursuant hereto shall be
in writing and shall be deemed to have been duly given or made if and when
delivered personally or by commercial delivery service to the parties at the
following addresses or sent by electronic transmission, with confirmation
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received, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
(a) If to Purchaser, to:
DREES PREFERRED COLLECTION, INC.
c/o THE DREES COMPANY
211 Grandview Drive
Ft. Mitchell, Kentucky
Attention: David G. Drees, President
with required copies (which shall not constitute notice) to:
ARONOFF, ROSEN & HUNT
Firstar Tower -- 24th Floor
425 Walnut Street
Cincinnati, Ohio 45202
Attention: Stephen R. Hunt, Esq.
and
KEATING, MUETHING & KLEKAMP, P.L.L.
1400 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Attention: Edward E. Steiner, Esq.
(b) If to Seller, to:
ZARING NATIONAL CORPORATION
11300 Cornell Park Drive
Cincinnati, Ohio 45242
Attention: Ronald G. Gratz, Vice President and Chief Financial Officer
with a required copy (which shall not constitute notice) to:
FROST BROWN TODD LLC
2500 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45202
Attention: E. Richard Oberschmidt, Esq.
10.3. Certain Definitions.
For purposes of this Agreement, the term:
(a) "affiliate" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person; including, without limitation,
any partnership, limited liability company or joint venture in which the
first mentioned person (either alone, or through or together with any other
subsidiary) has, directly or indirectly, an interest of 10% or more;
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(b) "business day" means any day other than a day on which banks in
Cincinnati, Ohio are required or authorized to be closed;
(c) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock,
as trustee or executor, by contract or credit arrangement or otherwise;
(d) "knowledge of Zaring" means actual knowledge after due inquiry of
senior management of Zaring, Zaring LLC or Zaring Homes;
(e) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization, other
entity or group;
(f) "Tax" or "Taxes" means taxes, fees, levies, duties, tariffs,
imposts and governmental impositions or charges of any kind, in the nature
of taxes, payable to any federal state, local or foreign taxing authority,
including, without limitation: ,(i) income, franchise, profits, gross
receipts, ad valorem, net worth, value added, sales, use, service, real or
personal property, special assessments, capital stock, license, payroll,
withholding, employment, social security, workers' compensation,
unemployment compensation, utility, severance, production, excise, stamp,
occupation, premiums, windfall profits, transfer and gains taxes; and (ii)
interest, penalties, additional taxes and additions to tax imposed with
respect thereto; and,
(g) "Tax Returns" means returns, reports, and information statements
with respect to Taxes required to be filed with the Internal Revenue
Service or any other taxing authority, domestic or foreign, including,
without limitation, consolidated, combined and unitary tax returns.
Unless otherwise indicated, when a reference in this Agreement is made to a
Section, Article, paragraph or clause, such reference shall be to a Section or
Article, or a paragraph or clause within such Section or paragraph, of this
Agreement. Unless otherwise indicated, the words "include," "includes" and
"including," when used herein, shall be deemed in each case to be followed by
the words "without limitation."
10.4. Headings.
The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.5. Severability.
If any term or other provision of this Agreement or the application
thereof, becomes or is declared by a court of competent jurisdiction to be
invalid, illegal or incapable of being enforced, all other terms and provisions
of this Agreement shall nevertheless remain in full force and the application of
such term or provision to other persons or circumstances will be interpreted so
as to reasonably effect the intent of the parties hereto. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto agree to replace such term or provision
with a valid, legal and enforceable term or provision that will achieve, to the
extent possible, the economic, business and other purposes of such invalid,
illegal or unenforceable term or provision.
10.6. Entire Agreement.
This Agreement constitutes the entire agreement and supersedes all prior
and contemporaneous agreements and undertakings (other than the Confidentiality
Letter), both written and oral, among the
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parties with respect to the subject matter hereof. This Agreement may not be
amended, modified or supplemented except by means of a writing executed by each
of the parties hereto.
10.7. Assignment.
This Agreement may not be assigned by Sellers or Purchaser, by operation of
law or otherwise, without the prior written consent of the other parties hereto
except that Purchaser may assign its rights under this Agreement to a wholly
owned subsidiary entity without Sellers' consent but no such assignment shall
relieve Purchaser of any of its obligations hereunder.
10.8. Parties in Interest.
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto and its permitted assigns, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including, without limitation, by way of subrogation.
10.9. Failure or Indulgence Not Waiver; Remedies Cumulative; Specific
Performance.
No failure or delay on the part of any party hereto in the exercise of any
right hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available, except as otherwise provided herein. The parties
hereto agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
10.10. Governing Law; Venue; Waiver of Trial by Jury.
This Agreement shall be governed by, and construed in accordance with, the
internal substantive laws of the State of Ohio, without giving effect to any
choice or conflict of law provisions, principles or rules (whether of the State
of Ohio or any other jurisdiction) that would cause the application of any laws
of any jurisdiction other than the State of Ohio.
All suits, actions or proceedings seeking interim or provisional relief
hereunder pursuant to Section 10.11(d) shall be heard and determined in any
state or federal court of competent jurisdiction sitting in Hamilton County,
Ohio and each of the parties hereto hereby irrevocably submits to the exclusive
jurisdiction of such courts in any such suit, action or proceeding and further
irrevocably waives, to the extent it may effectively due so, the defense of an
inconvenient forum to the maintenance of any such suit, action or proceeding and
any objection to any such suit, action or proceeding whether on grounds of
venue, residence or domicile. The parties irrevocably waive any right to trial
by jury in any such suit, action or proceeding.
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10.11. Arbitration.
The parties hereto hereby irrevocably and unconditionally agree that:
(a) Any controversy or claim arising out of or relating to this
Agreement or any agreements or instruments relating hereto or delivered in
connection herewith, including (but not limited to) a claim based on or
arising from an alleged tort, shall at the request of any party be
determined by arbitration in accordance with Ohio's statutory arbitration
procedures and under the auspices of the Commercial Arbitration Rules of
the American Arbitration Association. Judgment upon the award rendered by
the arbitrators may be entered by any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of
a provisional or ancillary remedy with respect to the Non-Competition
Agreement or otherwise shall not constitute a waiver of the right of any
party, including the claimant, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.
(b) The party requesting arbitration (the "Claimant") shall promptly
select one (1) arbitrator, and the other party to such arbitration (the
"Respondent") shall also promptly select one (1) arbitrator. The arbitrator
selected by the Claimant and the arbitrator selected by Respondent shall,
with ten (10) days of their appointment, select a third neutral arbitrator.
In the event that they are unable to do so, the parties or their attorneys
may request the American Arbitration Association to appoint the third
neutral arbitrator. Prior to the commencement of hearings, each of the
arbitrators appointed shall provide an oath or undertaking of impartiality.
(c) The place of arbitration shall be Cincinnati, Ohio.
(d) Any party may apply to the arbitrators seeking injunctive relief
until the arbitration award is rendered or the controversy is otherwise
resolved. Any party also may, without waiving any remedy under this
Agreement, seek from any court having jurisdiction any interim or
provisional relief that is necessary to protect the rights or property of
that party, pending the establishment of the arbitral tribunal (or pending
the arbitral tribunal's determination of the merits of the controversy).
(e) Consistent with the expedited nature of arbitration, each party
will, upon the written request of the other party, promptly provide the
other with copies of documents relevant to the issues raised by any claim
or counterclaim. Any dispute regarding discovery or the relevance or scope
thereof, shall be determined by the arbitrators, which determination shall
be conclusive. All discovery shall be completed within sixty (60) days
following the appointment of the arbitrators.
10.12. Counterparts.
This Agreement may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
10.13. Rules of Construction.
The parties hereto agree that they have each been represented by counsel
during the negotiation and execution of this Agreement and the other documents
executed and delivered in connection herewith and, therefore, waive the
application of any law, regulation, holding or rule of construction providing
that ambiguities in an agreement or other document will be construed against the
party drafting such agreement or document.
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10.14. Records.
After the Closing, Sellers and Purchaser shall make available to the other
on reasonable request such books and records of that party as may be appropriate
for use in connection with their respective Tax returns, including any review
thereof, and for any other reasonable purpose. Such books and records shall be
retained for a period of six (6) years; provided, however, that after three (3)
years any portion of such books and records may be destroyed in whole or in
part, by the party in possession thereof upon thirty (30) days' notice to the
other party, unless the party to whom such notice is given shall object, in
which event the party in possession shall either continue to retain such records
or the objecting party shall be given such records in lieu of destruction
thereof.
10.15. Leased Property.
Without limiting the generality of Section 2.4, after the Closing, Sellers
and Purchaser each agree to take any and all further action reasonably necessary
or desirable to: (i) obtain all consents necessary to substitute Purchaser as
the "lessee" under all personal property leases included in the Acquired Assets;
(ii) allow Purchaser to assume all of Sellers' obligations with respect to such
personal property leased pursuant to such agreements; and (iii) determine the
amount payable by Purchaser to Sellers with respect to all such personal
property and agreements before the consents and assumptions described above can
be obtained. Sellers and Purchaser further each agree to use their respective
reasonable best efforts to obtain the release of Sellers under such personal
property leases, including good faith consideration of corporate guarantees and
other support for Purchaser's assumed obligations under such personal property
leases.
10.16. Replacement Letters of Credits/Deposits.
Without limiting the generality of Section 2.4, at the time of the Closing
Purchaser shall take all actions reasonably necessary to replace those letters
of credit, development/insurance bonds and/or deposits set forth on Schedule
10.16 attached hereto and incorporated herein relating to the Land Purchase
Agreement and other lot purchase contracts included in the Acquired Assets or to
Work in Progress.
10.17. Employment Matters.
As to the persons employed in the Business prior to the Closing Date to
whom Purchaser on or about the Closing Date offers employment and who accept
such offer of employment, Purchaser shall assume the accrued vacation pay
liability (as recorded on Sellers' books) for such persons and receive a credit
therefor in the computation of the Purchase Price. Any such persons employed by
Purchaser shall be employed on Purchaser's general terms and conditions of
employment or pursuant to a written employment agreement, as the case may be.
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IN WITNESS WHEREOF, Sellers and Purchaser have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
ZARING NATIONAL CORPORATION
By:
----------------------------------
Ronald G. Gratz
Vice President and Chief Financial
Officer
ZARING HOMES OF INDIANA, LLC
By: ZARING HOMES, INC.,
Its Authorized Member
By:
----------------------------------
Ronald G. Gratz
Vice President and Chief Financial
Officer
ZARING HOMES, INC.
By:
----------------------------------
Ronald G. Gratz
Vice President and Chief Financial
Officer
DREES PREFERRED COLLECTION, INC.
By:
----------------------------------
David G. Drees
President
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EXHIBIT B
CHAPTER 1701: GENERAL CORPORATION LAW
ORC ANN. 1701.85 (BALDWIN'S 1994)
1701.85 QUALIFICATIONS OF AND PROCEDURES FOR DISSENTING SHAREHOLDERS
(A) (1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation
as to which he seeks relief as of the date on which the agreement of merger was
adopted by the directors of that corporation. Within twenty days after he has
been sent the notice provided in section 1701.80 or 1701.801 of the Revised
Code, the dissenting shareholder shall deliver to the corporation a written
demand for payment with the same information as that provided for in division
(A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each name of the original
dissenting holder of such shares. Upon receiving a demand for payment from a
dissenting shareholder who is the record holder of uncertificated securities,
the corporation shall make an appropriate notation of the demand for payment in
its shareholder records. If uncertificated shares for which payment has been
demanded are to be transferred, any new
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certificate issued for the shares shall bear the legend required for
certificated securities as provided in this paragraph. A transferee of the
shares so endorsed, or of uncertificated securities where such notation has been
made, acquires only such rights in the corporation as the original dissenting
holder of such shares had immediately after the service of a demand for payment
of the fair cash value of the shares. A request under this paragraph by the
corporation is not an admission by the corporation that the shareholder is
entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505. of the
Revised Code. If, during the pendency of any proceeding instituted under this
section, a suit or proceeding is or has been instituted to enjoin or otherwise
to prevent the carrying out of the action as to which the shareholder has
dissented, the proceeding instituted under this section shall be stayed until
the final determination of the other suit or proceeding. Unless any provision in
division (D) of this section is applicable, the fair cash value of the shares
that is agreed upon by the parties or fixed under this section shall be paid
within thirty days after the date of final determination of such value under
this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the
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shareholders was taken and, in the case of a merger pursuant to section 1701.80
or 1701.801 of the Revised Code, fair cash value as to shareholders of a
constituent subsidiary corporation shall be determined as of the day before the
adoption of the agreement of merger by the directors of the particular
subsidiary corporation. The fair cash value of a share for the purposes of this
section is the amount that a willing seller who is under no compulsion to sell
would be willing to accept and that a willing buyer who is under no compulsion
to purchase would be willing to pay, but in no event shall the fair cash value
of a share exceed the amount specified in the demand of the particular
shareholder. In computing such fair cash value, any appreciation or depreciation
in market value resulting from the proposal submitted to the directors or to the
shareholders shall be excluded.
(D) (1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section, unless
the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally enjoined or
prevented from carrying it out, or the shareholders rescind their
adoption of the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent of
the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the
shareholder nor the corporation has filed or joined in a complaint
under division (B) of this section within the period provided in that
division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership of the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or is paid in money upon
shares of such class or any dividend, distribution, or interest is paid in money
upon any securities issued in extinguishment of or in substitution for such
shares, an amount equal to the dividend, distribution, or interest which, except
for the suspension, would have been payable upon such shares or securities,
shall be paid to the holder of record as a credit upon the fair cash value of
the shares. If the right to receive fair cash value is terminated other than by
the purchase of the shares by the corporation, all rights of the holder shall be
restored and all distributions which, except for the suspension, would have been
made shall be made to the holder of record of the shares at the time of
termination.
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ZARING NATIONAL CORPORATION PROXY -
SPECIAL MEETING OF SHAREHOLDERS, JANUARY ____, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder appoints Allen G. Zaring, III, John R.
Brooks and John H. Wyant and each of them, as attorneys, with full power of
substitution, to vote all shares in Zaring National Corporation ("Zaring") that
the undersigned is entitled to vote at the special meeting of Zaring's
shareholders to be held on January ______, 2001, at 9:00 A.M. at the Queen City
Club, 331 East Fourth Street, Cincinnati, Ohio 45202 and at any adjournment
thereof, upon the matters indicated below and fully described in Zaring's proxy
statement dated on or about January ____, 2001 as well as upon any other matter
properly coming before the meeting.
Please mark vote in box, using dark ink only, in the following manner: /X/
1. To authorize the sale of substantially all of the assets of Zaring
and certain of its subsidiaries (the "Asset Sale") pursuant to an Asset Purchase
Agreement dated as of December 1, 2000, by and among Zaring, Zaring Homes, Inc.
and Zaring Homes of Indiana, LLC as Sellers and Drees Preferred Collection, Inc.
as Purchaser.
/ / For / / Against / / Abstain
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL.
2. To adopt the proposed amendment to Article First of Zaring's Amended
Articles of Incorporation to change Zaring's name to First Cincinnati, Inc. (the
"Name Change Amendment").
/ / For / / Against / / Abstain
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL.
3. In their discretion, to act upon such other matters as may properly
come before the special meeting.
The shares represented by this proxy will be voted as directed or, if
no direction is specified, will be voted FOR the Asset Sale and FOR the Name
Change Amendment.
Please sign name(s) exactly
as printed hereon. In
signing as attorney,
administrator, executor,
guardian or trustee, please
give title as such.
Date: ____________________, 2001
________________________________
Signature
________________________________
Signature if held jointly
Votes must be indicated (X)
in Black or Blue ink.
PLEASE MARK, SIGN AND
RETURN THIS PROXY CARD
PROMPTLY, USING THE
ENVELOPE PROVIDED.
<PAGE> 109
ZARING NATIONAL CORPORATION
PROXY INSTRUCTION - SPECIAL MEETING OF SHAREHOLDERS, JANUARY ___, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEE OF THE
ZARING NATIONAL CORPORATION RETIREMENT BENEFIT PLAN
The undersigned shareholder instructs PNC Bank, National Association
("PNC"), as Trustee for the Zaring National Corporation Retirement Benefit Plan
(the "RBP Plan"), to vote all shares in Zaring National Corporation ("Zaring")
that are held in the RBP Plan and as to which the undersigned has the right
under the policies of the RBP Plan to instruct the vote at the special meeting
of Zaring's shareholders to be held on January ______, 2001, at 9:00 A.M. at the
Queen City Club, 331 East Fourth Street, Cincinnati, Ohio 45202 and at any
adjournment thereof, upon the matters indicated below and fully described in the
Company's proxy statement dated on or about January _____, 2001.
Please mark vote in box, using dark ink only, in the following manner: /X/
1. To authorize the sale of substantially all of the assets of Zaring
and certain of its subsidiaries (the "Asset Sale") pursuant to an Asset Purchase
Agreement dated as of December 1, 2000, by and among Zaring, Zaring Homes, Inc.
and Zaring Homes of Indiana, LLC as Sellers and Drees Preferred Collection, Inc.
as Purchaser.
/ / For / / Against / / Abstain
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL.
2. To adopt the proposed amendment to Article First of Zaring's Amended
Articles of Incorporation to change Zaring's name to First Cincinnati, Inc. (the
"Name Change Amendment").
/ / For / / Against / / Abstain
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL.
The shares represented by this proxy will be voted as directed or, if
this proxy is signed and returned to PNC but no direction is specified, will be
voted FOR the Asset Sale and FOR the Name Change Amendment.
Please sign name(s) exactly as printed hereon.
Date:______________________, 2001
_________________________________
Signature
Votes must be indicated (X)
in Black or Blue ink.
PLEASE MARK, SIGN AND
RETURN THIS PROXY CARD
PROMPTLY TO PNC, USING THE
ENVELOPE PROVIDED.
