AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HOMEUSA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 7251 76-0546715
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
CARY N. VOLLINTINE
CHIEF EXECUTIVE OFFICER
THREE RIVERWAY
SUITE 630
HOUSTON, TEXAS 77056
(713) 965-0520
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
------------------------
COPIES TO:
WILLIAM D. GUTERMUTH RICHARD C. TILGHMAN, JR.
BRACEWELL & PATTERSON, L.L.P. PIPER & MARBURY, L.L.P.
SOUTH TOWER PENNZOIL PLACE 36 SOUTH CHARLES STREET
711 LOUISIANA STREET, SUITE 2900 BALTIMORE, MARYLAND 21201
HOUSTON, TEXAS 77002-2781 (410) 576-1678
(713) 221-1316
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value per
share.............................. $74,750,000 $22,651.52
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION
SEPTEMBER 15, 1997
5,000,000 SHARES
HOMEUSA, INC.
COMMON STOCK
------------------
All of the 5,000,000 shares of Common Stock offered hereby are being
offered by HomeUSA, Inc. Prior to this offering, there has been no public market
for the Common Stock of the Company. It is currently estimated that the initial
public offering price for the Common Stock will be between $ and $ per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Common Stock has been
approved for listing on The New York Stock Exchange under the symbol "HSH"
subject to official notice of issuance.
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 12 HEREOF.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
================================================================================
PRICE UNDERWRITING
TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
- --------------------------------------------------------------------------------
Per Share.................. $ $ $
- --------------------------------------------------------------------------------
Total(2)................... $ $ $
================================================================================
(1) Before deducting expenses of the offering payable by the Company, estimated
at $4,000,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
750,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public as shown above. If such
option is exercised in full, the total Price to Public, Underwriting
Discount and Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
----------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, and if delivered to and accepted by them, subject to the
right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about ,
1997.
BT ALEX. BROWN
BEAR, STEARNS & CO. INC.
MONTGOMERY SECURITIES
SANDERS MORRIS MUNDY
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
HOMEUSA, INC.
THE FOUNDING COMPANIES
The Founding Companies serving the manufactured housing industry are:
<TABLE>
<CAPTION>
NUMBER OF
FOUNDED IN HEADQUARTERS SALES CENTERS
---------- --------------------------------------- -------------
<S> <C> <C> <C>
Universal Housing, Inc. ............. 1975 Jackson, Tennessee 15
Patrick Home Center, Inc. ........... 1966 Corinth, Mississippi 7
McDonald Mobile Homes, Inc. ......... 1987 Tulsa, Oklahoma 9
AAA Homes............................ 1987 Hattiesburg, Mississippi 13
Mobile World, Inc. .................. 1992 San Antonio, Texas 5
First American Homes, Inc. .......... 1981 Dothan, Alabama 4
Cooper's Mobile Homes, Inc. ......... 1973 Wenatchee, Washington 7
Home Folks Housing Center............ 1972 Owensboro, Kentucky 1
WillMax Homes of Colorado............ 1994 Colorado Springs, Colorado 1
</TABLE>
HomeUSA has entered into agreements to acquire nine Founding Companies
simultaneously with the closing of this offering. In 1996, the Founding
Companies, which have been in business an average of 16 years, had pro forma
combined revenues of $192.8 million and served customers in 14 states.
(Photograph of one Founding Company's facility)
(Photograph of certain type of home sold by Founding Companies)
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS AND WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL
INFORMATION FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
(Photograph of one Founding Company facility)
HomeUSA value-added services include:
o Selection of a home from a wide variety of styles and manufacturers
o Site location assistance
o Home financing
o Home owner's and other insurance
o Delivery and installation
o Retailer-installed options (e.g. appliances and furniture)
o Site amenities, (e.g. landscaping, driveways, carports)
o Warranty repairs
THE COMPANY
HomeUSA will be positioned upon completion of this offering to capitalize
on the following:
o Increasing numbers of retirees and young first-time homebuyers
o Population shifts towards areas of the United States where land costs,
zoning ordinances and a short supply of alternative forms of housing
should increase demand for manufactured housing
o Demand for affordable housing
o Credit availability for manufactured home buyers
o Increasing consumer and community acceptance of manufactured homes
HomeUSA was formed in 1996 to become the leading national manufactured
housing retailer by pursuing consolidation of the highly fragmented manufactured
housing retail industry.
The Company's strategy includes:
o Expansion through acquisitions
o Decentralized operations
o Increased operating efficiencies
o Improved floor plan financing
o Maximize manufacturer rebates
o Volume purchasing
o Promote internal growth
o Expand value-added services
o Open new sales centers
o Enhance curb appeal
o National advertising and marketing
(Photographs of certain types of homes sold by Founding Companies)
(Photograph of one Founding Company facility)
(Map of the United States identifying the location of the Founding Companies)
Serving customers in 14 states through a network of 62 sales centers,
HomeUSA provides value-added services for the manufactured home buyer.
(Photograph of a certain type of home sold by Founding Companies)
3
<PAGE>
PROSPECTUS SUMMARY
SIMULTANEOUSLY WITH AND AS A CONDITION TO THE CONSUMMATION OF THE OFFERING
MADE BY THIS PROSPECTUS (THIS "OFFERING"), HOMEUSA, INC. WILL ACQUIRE, IN
SEPARATE MERGER TRANSACTIONS (THE "MERGERS") IN EXCHANGE FOR CASH AND SHARES
OF ITS COMMON STOCK, NINE COMPANIES (EACH A "FOUNDING COMPANY" AND,
COLLECTIVELY, THE "FOUNDING COMPANIES") ENGAGED IN THE RETAIL DISTRIBUTION OF
MANUFACTURED HOMES. UNLESS OTHERWISE INDICATED, ALL REFERENCES TO THE
"COMPANY" HEREIN INCLUDE THE FOUNDING COMPANIES AND OTHER ENTITIES
WHOLLY-OWNED BY HOMEUSA, AND REFERENCES HEREIN TO "HOMEUSA" MEAN HOMEUSA, INC.
PRIOR TO THE CONSUMMATION OF THE MERGERS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE PRO FORMA COMBINED
AND INDIVIDUAL HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, (I) ALL
SHARE, PER SHARE AND FINANCIAL INFORMATION SET FORTH HEREIN (A) HAVE BEEN
ADJUSTED TO GIVE EFFECT TO ALL OF THE MERGERS; (B) ASSUME AN INITIAL PUBLIC
OFFERING PRICE OF $ PER SHARE; AND (C) ASSUME NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION; AND (II) ALL REFERENCES TO COMMON STOCK
INCLUDE BOTH COMMON STOCK, $0.01 PAR VALUE, AND RESTRICTED VOTING COMMON STOCK,
$0.01 PAR VALUE (THE "RESTRICTED COMMON STOCK"), OF THE COMPANY.
THE COMPANY
HomeUSA was founded to become the leading independent national retailer of
manufactured homes by pursuing consolidation of the highly fragmented
manufacturing housing retail industry. The manufactured housing retail industry
generated $14 billion in sales in 1996 and is highly fragmented, with over 6,000
retail sales centers. The vast majority of manufactured housing retailers are
independently-owned private companies operating a single sales center. The
Company believes that most of these retailers have not adopted a professional
sales and marketing approach and do not offer their customers the full range of
available products and services. Because many retailers have limited access to
capital for the modernization and expansion of their businesses and have few
attractive liquidity options, the Company believes that significant
consolidation opportunities exist. The Company believes that it will develop a
competitive advantage by offering manufacturers a substantial and stable
distribution system committed to maintaining high standards of professionalism
in sales and marketing, installation and service.
Upon consummation of this Offering, HomeUSA will acquire the nine Founding
Companies, which have been in business an average of 16 years and had pro forma
combined total revenue of $192.8 million in 1996 and $97.8 million in the first
six months of 1997.
Manufactured housing continues to gain share in the market for new homes.
In 1996, manufactured homes accounted for approximately one-third of the new
single-family homes sold in the United States, up from approximately one-quarter
in 1991. Management attributes this growth to (i) the relatively low cost and
increasing quality of manufactured homes, (ii) broader consumer acceptance of
manufactured housing, (iii) greater availability of financing and (iv) favorable
demographic trends. The average sale price of a new manufactured home in 1996
was $38,400 (exclusive of land), as compared to $124,650 (exclusive of land) for
a new site-built home. Because increases in household incomes in the United
States have failed to keep pace with increases in prices for new site-built
homes, manufactured housing has become the only viable form of new home
ownership for an increasing number of households, particularly first time buyers
and retirees, groups which historically have represented a large percentage of
the purchasers of manufactured homes. As consumer awareness of the quality and
affordability of manufactured housing has grown, demand has shifted toward
larger, multi-section homes, which accounted for more than one-half of the
manufactured homes purchased in 1996. Multi-section homes have attracted a
higher income buyer than single section homes, and in 1996, approximately 40% of
manufactured home purchasers had family incomes above $40,000, as compared to
approximately 27% in 1986. Population shifts toward the South, Southwest and Far
West, where land costs are generally lower, zoning ordinances are less
restrictive and alternative forms of housing are in short supply, should
increase the demand for manufactured homes.
4
<PAGE>
Today's manufactured homes offer customers similar quality to many
site-built homes at a much more affordable price. Manufactured homes are
constructed in a controlled factory environment, utilizing assembly line
techniques, which allow volume purchases of materials and components and more
efficient use of labor. As a result, manufactured homes, which typically range
in size from 900 square feet to 2,500 square feet, are constructed for
approximately one-half the cost per square foot of new site-built homes. The
quality of manufactured homes has increased significantly over the past twenty
years. Manufactured homes offer most of the amenities of, and are generally
built with the same materials as, site-built homes. Many features associated
with new site-built homes are included in manufactured homes, such as central
heating, name brand appliances, carpeting, cabinets, wall coverings and porches.
In addition, optional features include such amenities as walk-in closets,
fireplaces, vaulted ceilings, porches and garages as well as retailer-installed
options such as central air conditioning and furniture packages.
The Company's objective is to become the leading independent national
retailer of manufactured housing. By utilizing professional merchandising
techniques, distribution strength and economies of scale, the Company believes
it will be able to differentiate itself from its smaller, less sophisticated
competitors. The key elements of its business strategy are:
EXPAND THROUGH ACQUISITIONS. The Company believes there are significant
opportunities for consolidation in the manufactured housing retail industry and
plans to pursue an aggressive acquisition program. The key elements of the
Company's acquisition strategy are:
o ENTER NEW GEOGRAPHIC MARKETS. The Company intends to expand
into geographic markets not currently served by the Founding Companies by
selectively acquiring well-established manufactured home retailers that,
like the Founding Companies, are leaders in their regional markets, are
financially stable, have a strong customer base and can serve as
"platforms" for the future growth of the Company. Despite the
fragmentation in the industry, the Company believes there are established
retailers that have gained significant market share in their markets. The
Company anticipates that its platform acquisition candidates will each have
annual revenues of at least $15 million.
o BUILD REGIONAL DENSITY. The Company plans to build regional
density by pursuing acquisitions in markets it already serves as well as
markets served by future acquisitions. The Company believes that building
density in regional markets will allow it to manage inventories more
effectively, improve recruiting, training and retention of sales staffs,
develop regional advertising and marketing programs and manage the resale
of pre-owned homes more effectively. The Company believes that this
strategy will also allow the Company to dedicate sales centers in a
particular market to different types of homes which appeal to customers of
different demographic characteristics.
OPERATE ON DECENTRALIZED BASIS. The Company intends to manage the Founding
Companies and subsequently acquired companies on a decentralized basis, with
local management retaining responsibility for the day-to-day operations of sales
centers, profitability and internal growth of the business.
INCREASE OPERATING EFFICIENCIES. The Company believes that the combination
of the Founding Companies presents significant opportunities to achieve
operating efficiencies, which should continue to improve as the Company grows
both through acquisitions and internally. These opportunities include:
o IMPROVED FLOOR PLAN FINANCING. Based upon discussions with
several potential lenders, the Company believes that it will be able to
obtain floor plan financing on more favorable terms than any of the
Founding Companies could individually obtain. In 1996, the Founding
Companies incurred total interest expense of $4.2 million at a weighted
average interest rate of 10.2%.
o MAXIMIZE REBATES. Several of the Founding Companies do not
currently qualify for the highest volume rebates offered by manufacturers.
By combining the sales volumes of the Founding Companies, the Company
expects to qualify for the maximum available manufacturers' volume rebates.
o VOLUME PURCHASING. By combining the sales volumes of the
Founding Companies, the Company believes that it will be able to realize
purchasing economies for retailer-installed options such as air
conditioning and appliances. Retailer-installed options and site amenities
can represent as
5
<PAGE>
much as ten percent of the sale price for a manufactured home. The Company
also believes that it will be able to reduce the total operating expenses
of the Founding Companies and other acquired businesses by centralizing the
Company's general liability and property insurance coverage. The Founding
Companies spent $2.0 million on insurance in 1996.
PROMOTE INTERNAL GROWTH. The Company believes there are opportunities to
increase the sales volume and profitability of the Founding Companies and
subsequently acquired businesses. The key elements of the Company's internal
growth strategy are:
o EXPAND VALUE-ADDED SERVICES PROVIDED. By expanding the range of
value-added services provided to customers, the Company believes it can
increase its sales and profitability, initially in the area of financing
and insurance arranged for customers. The Company believes that it can
expand other value-added services such as providing a full range of
retailer-installed options, assisting in locating home sites for customers
and installing site amenities such as wells, septic systems, carports,
decks, driveways and landscaping.
o OPEN NEW SALES CENTERS. An integral part of the Company's
internal growth strategy is the opening of additional sales centers in
geographic areas served by the Company. The Company will focus primarily on
small to mid-sized communities as well as outlying suburban areas where the
market for manufactured homes is greatest and there is less competition
from site-built housing. The Company anticipates opening approximately 20
new centers in the next 12 to 18 months. The Company has hired a Senior
Vice President of Real Estate and Construction with significant experience
in siting multi-unit retail centers to oversee the site selection and
relocation effort.
o ENHANCE CURB APPEAL. Marketing studies indicate that as many as
two-thirds of all people who visit a manufactured homes sales center do so
because of the center's "curb appeal." Historically, most sales centers
displayed model homes on gravel lots with few site improvements. The
Company intends to enhance curb appeal at its sales centers by utilizing
"residential displays" to feature professional landscaping,
fully-skirted, well-lit and furnished homes, and paved or elevated walkways
to allow direct access into homes.
o DEVELOP SOPHISTICATED MARKETING PROGRAM. The Company believes
that most consumers are unaware of the quality and affordability of
manufactured homes and that there is little manufacturer brand recognition
among consumers. Through the application of targeted marketing techniques
and image advertising, the Company believes it will be able to communicate
better the quality and affordability of manufactured homes to potential
customers. The Company intends to target groups such as newly-married
couples and retirees, primarily through radio, print and direct mail
advertising.
HomeUSA, Inc. was incorporated in Delaware in 1996. Its executive offices
are located at Three Riverway, Suite 630, Houston, Texas 77056, and its
telephone number is (713) 965-0520.
6
<PAGE>
THE OFFERING
Common Stock offered by the
Company............................ 5,000,000 Shares
Common Stock to be outstanding after
the Offering....................... 15,441,887 Shares(1)(2)
Use of Proceeds...................... To pay the cash portion of the purchase
price for the Founding Companies, to repay
expenses incurred in connection with the
organization of HomeUSA and the Offering
and for working capital and future
acquisitions. See "Use of Proceeds."
NYSE symbol.......................... HSH
- ------------
(1) Includes 7,266,944 shares of Common Stock to be issued in connection with
the Mergers, but excludes 1,642,483 shares of Common Stock subject to
options to be granted in connection with this Offering at an exercise price
equal to the initial public offering price. See "Management -- 1997
Long-Term Incentive Plan" and "-- 1997 Non-Employee Directors' Stock
Plan."
(2) Includes 1,718,823 shares of Restricted Common Stock held by Notre Capital
Ventures II, L.L.C. ("Notre"). Each share of Restricted Common Stock is
entitled to 0.25 of one vote on all matters submitted to stockholders.
Restricted Common Stock is convertible into Common Stock under certain
circumstances. See "Description of capital Stock -- Common Stock and
Restricted Common Stock."
RECENT DEVELOPMENTS
During 1996 and 1997, members of the management team and certain
consultants were assembled by Notre to pursue the consolidation of the Founding
Companies. Notre, a consolidator of highly-fragmented industries, provided the
Company with expertise regarding the consolidation process and advanced the
Company the funds needed to pay organizational and Offering expenses. In
connection therewith, during the first, second and third quarters of 1997,
HomeUSA sold an aggregate of 1,331,120 shares of Common Stock to management of
and consultants to the Company for $0.01 per share. As a result, the Company has
recorded non-recurring, non-cash compensation charges of $3.0 million and $5.8
million in the first and second quarters of 1997, respectively, and anticipates
recording a $1.4 million non-recurring non-cash compensation charge in the third
quarter of 1997, representing the difference between the amount paid for the
shares and the estimated fair value of the shares on the date of sale, as if the
Founding Companies were combined (collectively, the "Compensation Charge").
The aggregate consideration to be paid by HomeUSA in the Mergers consists
of approximately $ million in cash and 7,266,944 shares of Common Stock. The
consideration to be paid by HomeUSA for each Founding Company was determined by
negotiations between HomeUSA and representatives of each Founding Company and
was based primarily on the pro forma adjusted net income of each Founding
Company. The purchase price of each of the Founding Companies will be adjusted
to the extent that its Excess Operating Capital is greater or less than zero.
Excess Operating Capital is defined as net working capital minus long-term debt,
as of the effective date of the Mergers. These distributions are referred to
herein as the "Owners' Distributions." For a more detailed description of
these transactions, see "Certain Transactions -- Organization of the Company."
7
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
HomeUSA will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, however, Universal, one of the Founding Companies, has
been identified as the "accounting acquiror." The following table presents
summary pro forma combined financial data for the Company, as adjusted for (i)
the effects of the Mergers, (ii) the effects of certain pro forma adjustments to
the historical financial statements described below, and (iii) the consummation
of this Offering and the application of the net proceeds therefrom. See
"Selected Financial Data," the Unaudited Pro Forma Combined Financial
Statements and the Notes thereto and the historical Financial Statements of the
Founding Companies and the Notes thereto included elsewhere in this Prospectus.
PRO FORMA COMBINED
--------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
------------------- ----------------
STATEMENT OF OPERATIONS DATA(1):
Total revenue(2)................... $192,838 $97,779
Cost of sales...................... 151,200 76,379
Gross profit....................... 41,638 21,400
Selling, general and administrative
expenses(2)...................... 26,505 14,472
Goodwill amortization(3)........... 1,314 657
Operating income................... 13,819 6,271
Interest and other income
(expense), net(2)................ (2,268) (1,226)
Income before income taxes......... 11,551 5,045
Net income(4)(8)................... 6,568 2,869
Net income per share............... $0.48 $0.21
Shares used in computing pro forma
net income per share(5).......... 13,655,554 13,655,554
JUNE 30, 1997
----------------------------
PRO
FORMA
COMBINED AS ADJUSTED(7)
-------- --------------
BALANCE SHEET DATA(6):
Working capital (deficit)(8)....... $(19,743)(9) $
Total assets....................... 116,960
Long-term debt, net of current
maturities(8)..................... 5,192
Stockholders' equity(8)............ 33,320
- ------------
(1) The Pro Forma Combined Statements of Operations Data assume that the Mergers
and the Offering were closed on January 1, 1996 and are not necessarily
indicative of the results the Company would have obtained had these events
actually then occurred or of the Company's future results.
(2) The Pro Forma Combined Statements of Operations Data reflect (i) in revenue,
an aggregate of approximately $7.7 million and $2.3 million for the twelve
months ended December 31, 1996 and the six months ended June 30, 1997,
respectively, in pro forma reductions in revenue for the sales centers of
certain Founding Companies which will not be acquired in the Mergers; (ii)
in selling, general and administrative expenses, an aggregate of
approximately $4.9 million and $0.7 million for the twelve months ended
December 31, 1996 and the six months ended June 30, 1997, respectively, in
pro forma reductions in salary, bonuses and benefits to the owners of the
Founding Companies to which they have agreed prospectively (the
"Compensation Differential"); and (iii) in interest and other income
(expense), net, an aggregate of approximately $1.0 million and $0.4 million
for the twelve months ended December 31, 1996 and the six months ended June
30, 1997, respectively, in pro forma reductions in interest expense of the
Founding Companies as the result of the planned refinancing of the Founding
Companies' existing floor plan financing (the "Interest Differential").
The Pro Forma Combined Statements of Operations Data do not include the
Compensation Charge of $8.7 million for the six months ended June 30, 1997.
(3) Consists of amortization of goodwill to be recorded as a result of the
Mergers computed on the basis described in Notes to the Unaudited Pro Forma
Combined Financial Statements.
(4) Assumes all income is subject to an effective corporate tax rate of 39% and
the non-deductibility of goodwill.
(5) Includes (i) 7,266,944 shares to be issued to owners of the Founding
Companies, (ii) 1,331,120 shares issued to the management of and consultants
to HomeUSA, (iii) 1,843,823 shares issued to Notre and, (iv) 3,213,667 of
the 5,000,000 shares to be sold in the Offering necessary to pay the cash
portion of the Merger consideration and pay expenses of this Offering.
Excludes options to purchase 1,642,483 shares to be granted upon
consummation of this Offering at the initial public offering price.
(6) The Pro Forma Combined Balance Sheet Data assumes that the Mergers were
consummated on June 30, 1997.
(7) Adjusted for the sale of 5,000,000 shares of Common Stock offered hereby and
the application of the net proceeds therefrom. See "Use of Proceeds."
(8) The Founding Companies will make the Owners' Distributions to their
stockholders prior to the Mergers (which would have been $4.4 million as of
June 30, 1997). Additionally, prior to the Mergers, certain of the Founding
Companies will distribute to their stockholders certain real estate and
other assets and associated liabilities having a net book value of $1.1
million (the "Other Assets"). Accordingly, pro forma working capital has
been increased by $0.5 million, pro forma long-term debt has been increased
by $3.8 million, pro forma stockholders' equity has been reduced by $5.4
million at June 30, 1997, pro forma net income has been reduced by $0.1
million for the year ended December 31, 1996 and pro forma net income has
been increased by less than $0.1 million for the six months ended June 30,
1997.
(9) Includes a $ million payable, representing the cash portion of the Merger
consideration and the Owners' Distributions of $4.4 million.
8
<PAGE>
SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
The following table presents summary financial data for each of the
individual Founding Companies for each of their three most recent fiscal years.
Each of the Founding Companies has a fiscal year end of December 31 for the
years presented. Income from operations has not been adjusted for the
anticipated increase in income attributable to the Compensation Differential or
Interest Differential or to take into account increased costs associated with
the Company's new corporate management and with being a public company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Introduction."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Universal:
Total revenue................... $ 48,458 $ 56,245 $ 51,683 $ 25,318 $ 24,703
Operating income................ 2,825 3,073 2,519 1,316 2,040
AAA Homes:
Total revenue................... $ 20,465 $ 27,551 $ 39,196 $ 20,638 $ 18,182
Operating income................ 982 1,482 2,381 1,415 1,085
McDonald:
Total revenue................... $ 20,806 $ 31,034 $ 30,084 $ 14,494 $ 14,845
Operating income................ 1,130 1,442 1,593 1,047 987
Patrick:
Total revenue................... $ 21,431 $ 28,933 $ 29,903 $ 16,090 $ 16,145
Operating income................ 530 739 1,739 807 1,068
Mobile World:
Total revenue................... $ 7,217 $ 11,843 $ 15,948 $ 7,722 $ 8,512
Operating income................ 58 577 663 374 370
First American:
Total revenue................... $ 10,340 $ 10,704 $ 12,438 $ 7,080 $ 6,411
Operating income (loss)......... 210 (41) 246 220 228
Cooper:
Total revenue................... $ 9,070 $ 9,026 $ 9,701 $ 4,357 $ 5,645
Operating income................ 545 474 859 418 282
Home Folks:
Total revenue................... $ 5,786 $ 7,997 $ 8,027 $ 3,438 $ 3,977
Operating income................ 214 294 365 240 235
WillMax:
Total revenue................... $ 144 $ 2,492 $ 3,560 $ 1,299 $ 1,704
Operating income (loss)......... 3 (22) 94 35 116
</TABLE>
9
<PAGE>
THE COMPANY
HomeUSA was founded in 1996 to become the leading independent national
retail distributor of manufactured homes. HomeUSA has entered into agreements to
acquire the Founding Companies simultaneously with, and as a condition to, the
consummation of this Offering. In 1996, the Founding Companies, which have been
in business an average of 16 years, had pro forma combined total revenue of
$192.8 million. For a description of the transactions pursuant to which these
businesses will be acquired, see "Certain Transactions -- Organization of the
Company." The following is a description of the Founding Companies:
UNIVERSAL HOUSING, INC. -- Universal Housing, Inc., Universal Housing of East
Tennessee, Inc. and Shaffer and Webb Insurance Agency, Inc. (together,
"Universal"), headquartered in Jackson, Tennessee, were founded in 1975, 1995
and 1979, respectively. Universal operates 14 sales centers in central and
eastern Tennessee and one sales center in western Virginia. Of the 1,807 homes
sold by Universal in 1996, 76% were manufactured by Fleetwood Enterprises, Inc.
("Fleetwood") and 24% were manufactured by Clayton Homes, Inc. ("Clayton").
Universal had 1996 total revenue of $51.7 million and operating income of $2.5
million, and had 117 employees as of August 31, 1997. Larry T. Shaffer will sign
a five-year employment agreement with Universal to continue his present position
as President of Universal following the consummation of this Offering and will
become a director of the Company.
AAA HOMES -- CSF&T, Inc. (d/b/a AAA Homes), Fordham Insurance Agency, Inc. and
AAA Homes, LLC (together, "AAA Homes"), headquartered in Hattiesburg,
Mississippi, were founded in 1987, 1994 and 1996, respectively, by Gary W.
Fordham and David E. Thompson. AAA Homes operates eight sales centers in
southern Mississippi and five sales centers in eastern Louisiana. Of the 1,306
homes sold by AAA Homes in 1996, 79% were manufactured by Fleetwood and 21% were
manufactured by other manufacturers. AAA Homes had 1996 total revenue of $39.2
million and operating income of $2.4 million, and had 129 employees as of August
31, 1997. Mr. Fordham and Mr. Thompson will each sign a five-year employment
agreement with AAA Homes to continue in their present positions as President and
Chief Operating Officer, respectively, of AAA Homes following consummation of
this Offering and each will become a director of the Company.
MCDONALD MOBILE HOMES, INC. -- McDonald Mobile Homes, Inc. ("McDonald"),
headquartered in Tulsa, Oklahoma, was founded in 1987 by Frank C. McDonald and
operates three sales centers in Oklahoma, seven sales centers in Missouri and
one sales center in each of Arkansas and Kansas. On July 1, 1997, McDonald
transferred two sales centers in Missouri to a former employee. Effective
October 1, 1997, McDonald will transfer one sales center in Missouri to a former
employee. Of the 966 homes sold by McDonald in 1996, 30% were manufactured by
Belmont Homes Inc., 25% were manufactured by Champion Enterprises, Inc.
("Champion"), 10% were manufactured by Liberty Homes Inc. and 35% were
manufactured by other manufacturers. McDonald had 1996 total revenue of $30.1
million and operating income of $1.6 million, and had 92 employees as of August
31, 1997. Mr. McDonald will sign a five-year employment agreement with McDonald
to continue his present position as President of McDonald following the
consummation of this Offering and will become a director of the Company.
PATRICK HOME CENTER, INC. -- Patrick Home Center, Inc. ("Patrick"),
headquartered in Corinth, Mississippi, was founded in 1966 by Harold K. Patrick.
Patrick operates six sales centers in northern Mississippi and one sales center
in Alabama. Effective January 1, 1997, Patrick transferred one sales center in
Tennessee to a former stockholder. Of the 905 homes sold by Patrick in 1996,
68% were manufactured by Fleetwood, 28% were manufactured by Palm Harbor Homes,
Inc. ("Palm Harbor") and 4% were manufactured by other manufacturers. Patrick
had 1996 total revenue of $29.9 million and operating income of $1.7 million,
and had 98 employees as of August 31, 1997. Mr. Patrick will sign a five-year
employment agreement with Patrick to continue his present position as President
of Patrick following the consummation of this Offering and will become a
director of the Company.
MOBILE WORLD, INC. -- Mobile World, Inc. ("Mobile World"), headquartered in
San Antonio, Texas was founded in 1992 by Stanley Poisso. Mobile World operates
five sales centers in central Texas. Of the 446 homes sold by Mobile World in
1996, 56% were manufactured by Fleetwood, 23% were manufactured by
10
<PAGE>
Patriot Homes, Inc. and 21% were manufactured by other manufacturers. Mobile
World had 1996 total revenue of $15.9 million and operating income of $0.7
million, and had 53 employees as of August 31, 1997. Mr. Poisso will sign a
five-year employment agreement with Mobile World to continue in his present
position as President of Mobile World following the consummation of this
Offering and will become a director of the Company.
FIRST AMERICAN HOMES, INC. -- First American Homes, Inc., and its wholly-owned
subsidiary, Hall's Mobile Homes, Inc.; D&S, Inc. and Son Development Corporation
(together, "First American"), headquartered in Dothan, Alabama were founded in
1981, 1985, 1994 and 1993, respectively, by Joseph R. Copeland. First American
operates three sales centers in southern Alabama and one sales center in the
Florida panhandle. Of the 359 homes sold by First American in 1996, 38% were
manufactured by Fleetwood, 37% were manufactured by Champion, 21% were
manufactured by Palm Harbor, and 4% were manufactured by other manufacturers.
First American had 1996 total revenue of $12.4 million and operating income of
$0.2 million, and had 32 employees as of August 31, 1997. Mr. Copeland will sign
a five-year employment agreement with First American to remain in his present
position as President of First American following the consummation of this
Offering.
COOPER'S MOBILE HOMES, INC. -- Cooper's Mobile Homes, Inc. PacWest Management,
Inc. and Home USA, Inc. dba Contemporary Family Homes Center (together,
"Cooper"), headquartered in Wenatchee, Washington, were founded in 1973 and
1996, respectively, by Randle C. Cooper. Cooper operates a total of seven sales
centers in central Washington. All of the 186 homes sold by Cooper in 1996 were
manufactured by Fleetwood. Cooper had 1996 total revenue of $9.7 million and
operating income of $0.9 million, and had 72 employees as of August 31, 1997.
Mr. Cooper will sign a five-year employment agreement with Cooper to continue in
his present position as President of Cooper following the consummation of this
Offering and will become a director of the Company.
HOME FOLKS HOUSING CENTER, INC. -- Home Folks Housing Center, Inc. ("Home
Folks"), headquartered in Owensboro, Kentucky, was founded in 1972 by Richard
Berry. Home Folks operates one sales center in Owensboro, Kentucky. All of the
269 homes sold by Home Folks in 1996 were manufactured by Fleetwood. Home Folks
had 1996 total revenue of $8.0 million and operating income of $0.4 million, and
had 33 employees as of August 31, 1997. Mr. Berry will sign a five-year
employment agreement with Home Folks to continue in his present position as
President of Home Folks following the consummation of this Offering.
WILLMAX HOMES OF COLORADO LLC -- WillMax Homes of Colorado LLC ("WillMax"),
headquartered in Colorado Springs, Colorado, was founded in 1994 by Jack A.
Wensinger and Jeffrey D. Heyman. WillMax operates one sales center in, Colorado.
All of the 74 homes sold by WillMax in 1996 were manufactured by Fleetwood.
WillMax had 1996 total revenue of $3.6 million and operating income of $0.1
million, and had 13 employees as of August 31, 1997.
11
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATING FOUNDING
COMPANIES. HomeUSA was founded in 1996 but has conducted no operations and
generated no sales to date. HomeUSA has entered into definitive agreements to
acquire the Founding Companies simultaneously with, and as a condition to, the
closing of this Offering. The Founding Companies have been operating as separate
independent entities, and there can be no assurance that the Company will be
able to integrate the operations of these businesses successfully or to
institute the necessary systems and procedures, including accounting and
financial reporting systems, to manage the combined enterprise on a profitable
basis and to report the results of operations of the combined entities on a
timely basis. The Company's management group has been assembled only recently,
and there can be no assurance that the management group will be able to manage
the combined entity or to implement effectively the Company's acquisition
program, operating strategy and internal growth strategy. The pro forma combined
historical financial results of the Founding Companies cover periods when the
Founding Companies and HomeUSA were not under common control or management and
may not be indicative of the Company's future financial or operating results.
The inability of the Company to integrate the Founding Companies successfully
would have a material adverse effect on the Company's business, financial
condition and results of operations and would make it unlikely that the
Company's acquisition program will be successful. See "Business -- Business
Strategy" and "Management."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. The Company intends
to grow significantly through the acquisition of manufactured home retail
businesses as well as individual retail sales centers. The Company expects to
face competition for acquisition candidates, particularly from the large
vertically integrated manufacturers of manufactured housing that currently are
active acquirors of retail sales centers as well as any other manufacturers who
adopt an integration strategy in the future. This competition may limit the
number of acquisition opportunities and may lead to higher acquisition prices.
There can be no assurance that the Company will be able to identify, acquire or
manage profitably additional businesses or to integrate successfully any
acquired businesses into the Company without substantial costs, delays or other
operational or financial difficulties. Further, acquisitions involve a number of
special risks, including failure of the acquired business to achieve expected
results, diversion of management's attention, failure to retain key personnel of
the acquired business and risks associated with unanticipated events or
liabilities, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, there can
be no assurance that the businesses acquired in the future will achieve
anticipated net sales and earnings. See "Business -- Business Strategy" and
"Competition."
COMPETITION. The manufactured housing retail industry is highly
competitive and the capital requirements for entry are relatively small, with
inventory financing and customer financing generally available to a prospective
retailer from various lenders. The manufactured housing industry has over 6,000
retail sales centers, approximately ten percent of which are owned by the four
vertically integrated manufacturers. The principal competitive factors for
retail sales are price and terms of customer financing, marketing techniques,
range of products and services, product availability and ability to assist
purchasers in obtaining sites on which to locate purchased homes. The Company is
not able to estimate the total number of competitors in its marketing area, but
believes that minimal barriers to entry have contributed to a significant
increase in the number of new retailers over the past several years. A
continuation of this increase in the number of retailers is likely to lead to
greater competition, reduced profit margins and possibly a decline in home
sales. The vertically integrated manufacturers have greater resources than the
Company in terms of existing dealer networks as well as greater financial
strength. See "Business -- Competition."
DECLINES IN HOME SALES FROM CERTAIN EXISTING SALES CENTERS. A number of
the Company's existing sales centers experienced declines in home sales in 1996
and the first six months of 1997 from the prior
12
<PAGE>
comparable periods. The Company believes that the decline in home sales was
attributable to several factors, including increased competition from centers
opened by competitors within the market area of the affected sales centers,
difficulty in obtaining an adequate supply of manufactured homes from the
Company's major supplier, the loss or reassignment of sales personnel at several
affected sales centers and the opening of additional sales centers by the
Company in the market areas of its existing sales centers. Most of the factors
affecting the decline in home sales are beyond the Company's control. There can
be no assurance that these sales centers will improve or that other of the
Company's sales centers will not experience a similar decline in home sales. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Introduction," "Business -- Industry Overview" and " --
Competition."
RISKS RELATED TO OPERATING AND INTERNAL GROWTH STRATEGIES. A key element
of the Company's strategy is to increase the profitability and sales volume of
the Founding Companies and any subsequently acquired businesses. Although the
Company intends to implement this strategy by various means, there can be no
assurance that the Company will be able to do so successfully. A key component
of the Company's strategy is to operate the Founding Companies and subsequently
acquired businesses on a decentralized basis, with local management retaining
responsibility for day-to-day operations of sales centers, profitability and the
internal growth of the business. If proper overall business controls are not
implemented, this decentralized operating strategy could result in inconsistent
operating and financial practices at the Founding Companies and subsequently
acquired businesses and the Company's overall profitability could be adversely
affected. The Company's ability to increase the sales of the Founding Companies
and any subsequently acquired businesses will be affected by various factors,
including the Company's ability to expand the range of products and value-added
services offered by each Founding Company and any subsequently acquired
businesses, competitive pressure in the Company's market areas, the availability
of manufactured homes, the Company's ability to attract and retain management
and sales personnel at each sales center and the Company's ability to open new
retail centers successfully in existing and new markets. Many of these factors
are beyond the control of the Company, and there can be no assurance that the
Company's strategies will be successful or that it will be able to generate cash
flow sufficient to fund its operations and to support internal growth. See
"Business -- Strategy."
AVAILABILITY OF PRODUCT; ABSENCE OF LONG-TERM CONTRACTS. As an independent
retailer of manufactured homes, the Company purchases homes for resale from a
number of manufacturers. The Company has no franchise agreements or long-term
supply contracts with these manufacturers which would assure the Company a
continued supply of homes to sell in the future. The Company's agreements with
manufacturers do not give the Company any priority right to homes manufactured
by these manufacturers and also are generally terminable at will by either party
upon short notice. While there are many manufacturers in the marketplace, there
can be no assurance that the Company will continue to be able to obtain an
adequate supply of homes. It is generally not economical to transport
manufactured homes more than 250 miles from a particular plant. As a result,
each of the Company's retail sales centers is dependent for its supply of homes
on only a few manufacturer's plants. Therefore, a shut-down or capacity problem
at a particular plant may adversely affect the Company's home sales and
profitability. During 1996 and the first half of 1997, several of the Founding
Companies experienced difficulties in obtaining an adequate supply of homes from
Fleetwood which led to lost sales and reduced profitability during those
periods. In 1996, approximately 60% of the homes sold by the Company were
manufactured by Fleetwood. See "Business -- Product Sourcing." In addition,
some of the Founding Companies sell both new and pre-owned manufactured homes.
Pre-owned homes are typically purchased, taken in trade or taken on consignment
from national retail finance companies. The Company has no contractual assurance
that these pre-owned homes will be available to the Company in the future. See
"Business -- Product Sourcing."
AVAILABILITY OF SITES FOR MANUFACTURED HOMES. Approximately 60% of
manufactured housing is located on purchaser-owned property, with the balance
located in parks where the homeowners rent the lot upon which the home is
located. For prospective purchasers without access to available land, siting
assistance is a necessity. In many markets, particularly those in proximity to
larger cities, there is a shortage of subdivision lots or communities on which
to site manufactured homes. Retailers who can provide
13
<PAGE>
prospective customers with a site for their home have a significant advantage
over their competitors who do not have similar access to home sites. Several of
the Founding Company owners currently own and/or manage manufactured housing
communities and subdivisions. The Company intends to establish a relationship
with the owners that would provide purchasers of manufactured homes from the
Company with access to these lots on a preferential basis. In selected
geographic markets, the Company intends to seek sales arrangements with
developers or owners of communities in order to provide an adequate supply of
home sites for customers. The Company may consider the acquisition, development,
or management of subdivisions or communities in the future. There can be no
assurance, however, that an adequate supply of home sites will be available,
that the Company will be able to enter into favorable arrangements with land
developers or owners or that the Company can sucessfully pursue the acquisition,
development or management of manufactured housing communities or subdivisions.
The failure of the Company to provide a sufficient number of home sites for
prospective customers could have a material adverse effect on its business and
results of operations. See "Business -- Value-Added Services Provided."
CYCLICAL NATURE OF MANUFACTURED HOUSING INDUSTRY; VARIABILITY OF OPERATING
RESULTS. The manufactured housing industry is highly cyclical and is affected
by many of the same national and regional economic and demographic factors that
affect demand in the housing industry generally. These factors include
inflation, the cost and availability of raw materials for manufacturing homes,
interest rates, the availability of financing, the availability of alternative
housing, national and regional employment trends, consumer confidence,
availability of manufactured home sites and general economic conditions.
Manufactured homes compete with a variety of other forms of housing,
particularly new and existing site-built homes and rental apartments, and any
decline in the cost of site-built housing or apartment rents is likely to reduce
demand for manufactured housing. See "Business -- Industry Overview." The
Company has experienced and expects to continue to experience significant
variability in home sales and net income as a result of seasonality in the
Company's business. The manufactured housing industry and the Company's home
sales are historically seasonal in nature, with adverse weather typically
affecting customer shopping habits, sales and sitings in the first and fourth
quarters of the year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RETENTION OF SALES PERSONNEL. The process of selling a manufactured home
typically takes several months from the initial contact with a prospective
purchaser to the consummation of the sale. Salespeople are trained to develop
personal relationships with prospective customers. As a result, the retention of
sales people is important to the Company's ability to sell homes. As the number
of sales centers within the Company's market areas increases, the Company can
expect increased competition for experienced salespeople. When the Company is
required to replace an experienced salesperson, it may take an extended period
of time for a new salesperson to reach expected levels of productivity. To the
extent the Company experiences significant turnover of sales personnel or is
otherwise unable to attract and retain a sufficient number of experienced
salespeople, the Company may be unable to increase home sales at existing sales
centers and may experience declines in net sales and profitability. See
"Business -- Retail Operations."
AVAILABILITY OF CUSTOMER FINANCING. Nearly all of the Company's customers
finance the purchase of their manufactured homes. Accordingly, the Company's
sales are dependent to a significant extent on the availability and
affordability of customer financing. The availability of this financing and the
interest rates and other costs associated with it are dependent upon the
creditworthiness of the customer, the lending practices of various lenders,
secondary market availability, government policies and economic conditions, all
of which are beyond the control of the Company. Interest rates for manufactured
home loans are generally higher, and the terms of those loans are generally
shorter, than for site-built home mortgages, and there are fewer lending
institutions that finance manufactured homes. There can be no assurance that
retail customer financing in general will continue to be available at affordable
rates or that the Company will be able to continue its relationships with
lending institutions in order to assist customers in obtaining financing. See
"Business -- Value-Added Services Provided."
RISKS RELATED TO ACQUISITION FINANCING. The timing, size and success of
the Company's acquisition efforts and the associated capital commitments cannot
be readily predicted. The Company currently intends
14
<PAGE>
to finance future acquisitions by using shares of its Common Stock for all or a
substantial portion of the consideration to be paid. If the Common Stock does
not maintain a sufficient market value, or if potential acquisition candidates
are otherwise unwilling to accept Common Stock as part of the consideration for
the sale of their businesses, the Company may be required to utilize more of its
cash resources, if available, in order to initiate and maintain its acquisition
program. After payment of Merger and Offering expenses and the cash portion of
the purchase price for the Founding Companies, the Company will have
approximately $ million of net proceeds remaining for future acquisitions
and working capital. If the Company does not have sufficient cash resources, its
growth could be limited unless it is able to obtain additional capital through
debt or equity financings. The Company intends to seek a commitment for a line
of credit of $ million for acquisitions. However, there can be no assurance
that the Company will be able to obtain the additional financing it may need for
its acquisition program on terms that the Company deems acceptable. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Combined Liquidity and Capital Resources."
AVAILABILITY AND COST OF FLOOR PLAN FINANCING. The Founding Companies
currently finance their purchases of manufactured homes for inventory through
"floor plan" credit facilities with several national financial institutions.
These financial institutions advance funds for the purchase of inventory and
maintain a security interest in the home until it is sold. Upon consummation of
this Offering, the Company intends to refinance the Founding Companies' existing
floor plan loans. While the Company believes new floor plan financing will be
available as needed to allow the Company to accomplish its growth strategy,
there can be no assurance that this availability will continue or that, if
available, this financing will be on terms favorable to the Company. The
availability of additional credit, applicable interest rates and other costs of
financing are factors beyond the control of the Company but will have a
substantial influence on the Company's ability to expand its retail sales
network. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Combined Liquidity and Capital Resources."
REGULATION. The production, sale and financing of manufactured homes are
affected by various federal, state and local laws and regulations. These include
comprehensive national construction standards established by the Department of
Housing and Urban Development ("HUD"), regulations prescribed by the United
States Consumer Product Safety Commission governing certain components of
manufactured homes, laws relating to the transportation and placement of
manufactured homes and laws governing the description and substance of product
warranties. Changes in these regulations could increase the cost of manufactured
homes, which could adversely affect consumer demand with a resulting decline in
the Company's sales and profitability. Further, because the Company arranges
financing for purchasers of manufactured homes, it is required to be licensed in
certain states in which it arranges financing and is subject to a number of
federal laws that deal with consumer credit practices, such as truth-in-lending,
disclosure requirements and non-discrimination. In addition, because the Company
sells insurance products, it is subject to various state insurance laws and
regulations which govern allowable charges and other insurance sales practices
and require the Company to have insurance broker's licenses. The Company's
failure to comply with applicable consumer finance or insurance laws and
regulations could result in substantial fines, the possible loss of these
licenses or litigation by government agencies or affected customers, any of
which may have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Regulation."
RELIANCE ON KEY PERSONNEL. The Company will be highly dependent on the
continuing efforts of its executive officers and the senior management of the
Founding Companies, and the Company likely will depend on the senior management
of any significant business it acquires in the future. The business or prospects
of the Company could be affected adversely if any of these persons does not
continue in his management role until the Company is able to attract and retain
qualified replacements. See "Management."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. Following consummation of
the Mergers and this Offering, the Company's executive officers and directors,
former stockholders of the Founding Companies and entities affiliated with them
will beneficially own 10,441,887 shares of Common Stock,
15
<PAGE>
representing approximately 67.6% of the outstanding shares of Common Stock
(64.5% if the Underwriters' over-allotment option is exercised in full). Notre,
executive officers and directors and consultants to HomeUSA will own 3,174,943
shares, representing 20.6% of the outstanding shares of Common Stock, for which
they paid $0.01 per share, resulting in a value of approximately $ million.
Of these shares, 1,718,823 shares are Restricted Common Stock, which are
entitled to elect one member of the Company's Board of Directors and to 0.25 of
one vote for each share held on all other matters on which they are entitled to
vote. Holders of Restricted Common Stock are not entitled to vote on the
election of any other directors. The Company's executive officers and directors,
former stockholders of the Founding Companies and Notre will control in the
aggregate 64.7% of the votes of all shares of Common Stock, and, if acting in
concert, will be able to control the Company's affairs, elect the entire Board
of Directors and control the outcome of any matter submitted to a vote of
stockholders. See "Principal Stockholders."
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES OF FOUNDING
COMPANIES. Of the net proceeds of this Offering, $ million, or % will be
paid as the cash portion of the purchase price for the Founding Companies.
Certain of the Founding Companies have incurred indebtedness which has been
personally guaranteed by their stockholders or by entities controlled by its
stockholders. Some of the recipients of these funds will become directors of the
Company or holders of more than 5% of the Common Stock. At June 30, 1997, the
aggregate amount of indebtedness of these Founding Companies that was subject to
personal guarantees was approximately $44.1 million. The Company intends to use
the net proceeds from this Offering, together with borrowings available from the
Company's revolving credit facility to repay or refinance substantially all of
the indebtedness of the Founding Companies. Additionally, Notre has agreed to
advance to HomeUSA until consummation of the Mergers and the Offering such funds
as are necessary to effect the Mergers and this Offering and will be reimbursed
from the proceeds of this Offering for these advances. As of June 30, 1997,
Notre had advanced the Company $0.1 million for such expenses. See "Use of
Proceeds" and "Certain Transactions."
NO PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE. Prior to this
Offering, there has been no public market for the Common Stock. Therefore, the
initial public offering price for the Common Stock will be determined by
negotiation between the Company and the Representatives of the Underwriters and
may bear no relationship to the price at which the Common Stock will trade after
the Offering. See "Underwriting" for the factors to be considered in
determining the initial public offering price. The Common Stock has been
approved for quotation on The New York Stock Exchange, subject to official
notice of issuance. However, there can be no assurance that an active trading
market will develop subsequent to this Offering or, if developed, that it will
be sustained. After this Offering, the market price of the Common Stock may be
subject to significant fluctuations in response to numerous factors, including
the timing of any acquisitions by the Company, variations in the Company's
annual or quarterly financial results or those of its competitors, changes by
financial research analysts in their estimates of the future earnings of the
Company, conditions in the economy in general or in the Company's industry in
particular, unfavorable publicity or changes in applicable laws and regulations
(or judicial or administrative interpretations thereof) affecting the Company or
the manufactured housing industry. From time to time, the stock market
experiences significant price and volume volatility, which may affect the market
price of the Common Stock for reasons unrelated to the Company's performance.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK. Upon consummation of the Mergers and this Offering, 15,441,887 shares of
Common Stock will be outstanding. The 5,000,000 shares sold in this Offering
(other than any shares purchased by affiliates of the Company) will be freely
tradable. The remaining outstanding shares may be resold publicly only following
their registration under the Securities Act of 1933, as amended (the
"Securities Act"), or pursuant to an available exemption from registration
(such as provided by Rule 144 following a one year holding period for previously
unregistered shares). The holders of these remaining shares have certain rights
to have their shares registered in the future under the Securities Act, but may
not exercise such rights, and have agreed with the Company that they will not
sell, transfer or otherwise dispose of any of their shares, for one year
following the consummation of this Offering. On completion of this Offering, the
Company also will have outstanding options to purchase up to a total of
1,642,483 shares of Common Stock. The Company intends to register all
16
<PAGE>
the shares subject to these options under the Securities Act for public resale.
The Company also intends to register 10,000,000 additional shares of Common
Stock under the Securities Act within 90 days after completion of this Offering
for issuance in connection with future acquisitions. These shares generally will
be freely tradeable after their issuance by persons not affiliated with the
Company unless the Company contractually restricts their resale. Sales, or the
availability for sale of, substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the future ability of
the Company to raise equity capital and complete any additional acquisitions for
Common Stock. See "Shares Eligible for Future Sale."
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. HomeUSA's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") authorizes the Board of Directors to issue, without stockholder
approval, one or more series of preferred stock having such preferences, powers
and relative, participating, optional and other rights (including preferences
over the Common Stock respecting dividends, distributions and voting rights) as
the Board of Directors may determine. The issuance of this "blank-check"
preferred stock could render more difficult or discourage an attempt to obtain
control of the Company by means of a tender offer, merger, proxy contest or
otherwise. In addition, the Certificate of Incorporation provides for a
classified Board of Directors, which may also have the effect of inhibiting or
delaying a change in control of the Company. Certain provisions of the Delaware
General Corporation Law may also discourage takeover attempts that have not been
approved by the Board of Directors. See "Description of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of Common Stock in this
Offering will experience immediate, substantial dilution in the net tangible
book value of their stock of $ per share and may experience further dilution
in that value from issuances of Common Stock in connection with future
acquisitions. See "Dilution."
FORWARD-LOOKING STATEMENTS. There are a number of statements in this
Prospectus which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such matters
as the Company's strategy for internal growth and improved profitability,
additional capital expenditures (including the amount and nature thereof),
acquisitions of assets and businesses, industry trends and other such matters.
These statements are based on certain assumptions and analyses made by the
Company in light of its perception of historical trends, current business and
economic conditions and expected future developments as well as other factors it
believes are reasonable or appropriate. However, whether actual results and
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, including the Risk Factors
discussed in this Prospectus; general economic, market or business conditions;
the business opportunities (or lack thereof) that may be presented to and
pursued by the Company; changes in laws or regulations and other factors, most
of which are beyond the control of the Company. Consequently, there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effects on the Company or its business or
operations.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,000,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
commissions and estimated Offering and Merger expenses, are estimated to be
$ million ($ million if the Underwriters' over-allotment option is
exercised in full).
Of the net proceeds, $ million will be used to pay the cash portion of
the purchase price for the Founding Companies, some of which will be paid to
persons who will become directors of the Company or will become holders of more
than 5% of the Common Stock. In addition, $1.2 million of the net proceeds will
be used to pay the portion of the $4.4 million Owners' Distributions which would
not have been funded through the Founding Companies' existing cash balances had
the distribution been made as of June 30, 1997.
The remaining net proceeds from this Offering, which are estimated to be
approximately $ million, will be used, together with borrowings available
from the Company's revolving credit facility discussed below, to repay the $1.5
million of the long-term debt of the Founding Companies and for working capital
and acquisitions. The Founding Companies also had approximately $43 million of
floor plan financing as of June 30, 1997 which will be refinanced from the
revolving credit facility. The Company currently has no binding or non-binding
agreements to effect any future acquisitions.
The Company intends to obtain a revolving credit facility, consisting of
$ million for floor plan financing and $ million for working capital and
acquisitions. This revolving credit facility is expected to be available upon
consummation of the Offering, and the Company intends to refinance all of the
Founding Companies' floor plan debt. The floor plan portion of the credit
facility may be used only to finance the purchase of manufactured homes, and
borrowings may not exceed the total purchase price of the homes financed. The
entire credit facility is expected to bear interest at % above LIBOR. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Combined."
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions and, therefore, does not anticipate paying any cash dividends on
its Common Stock for the foreseeable future. In addition, in the event the
Company is successful in obtaining one or more lines of credit, it is likely
that the Company's facility will include restrictions on the ability of the
Company to pay cash dividends without the consent of the lender.
Prior to the Mergers, certain of the Founding Companies will make Owners'
Distributions to their stockholders (which would have been $4.4 million as of
June 30, 1997) and distributions of the Other Assets in the net amount of $1.1
million.
18
<PAGE>
CAPITALIZATION
The following table sets forth the current maturities of long-term
obligations and capitalization at June 30, 1997 (i) on a pro forma combined
basis to give effect to the Mergers, the Owners' Distributions and the
distribution of the Other Assets; and (ii) pro forma combined, as adjusted to
give effect to the Mergers, the Owners' Distributions, the distribution of the
Other Assets, this Offering and the application of a portion of the estimated
net proceeds therefrom. This table should be read in conjunction with the
Company's Unaudited Pro Forma Combined Financial Statements and the Notes
thereto included elsewhere in this Prospectus.
JUNE 30, 1997
--------------------------
PRO FORMA
COMBINED AS ADJUSTED
--------- -----------
(IN THOUSANDS OF DOLLARS)
Current maturities of long-term
obligations(1)........................ $25,495(2) $ --
========= ===========
Long-term debt, less current
maturities(1)......................... $ 5,192 $ --
Stockholders' equity:
Preferred Stock: $0.01 par value,
5,000,000 shares authorized; none
issued or outstanding............ -- --
Common Stock: $0.01 par value,
50,000,000 shares authorized;
10,441,887 issued and outstanding
pro forma combined; and
15,441,887 shares issued and
outstanding, pro forma as
adjusted(3)...................... 104
Additional paid-in capital......... 32,479
Retained earnings.................. 737
--------- -----------
Total stockholders' equity.... 33,320
--------- -----------
Total capitalization..... $38,512 $
========= ===========
- ------------
(1) For a description of the Company's long-term obligations, see Notes to the
Company's Unaudited Pro Forma Combined Financial Statements and Notes to the
Founding Companies' Financial Statements.
(2) Includes $ million payable to the owners of the Founding Companies,
which represents the cash portion of the Merger consideration to be paid
from a portion of the net proceeds of this Offering.
(3) Excludes 1,642,483 shares of Common Stock subject to options to be granted
upon consummation of this Offering with an exercise price equal to the
initial public offering price. See "Management -- 1997 Long-Term Incentive
Plan" and "-- 1997 Non-Employee Directors' Stock Plan."
19
<PAGE>
DILUTION
The deficit in pro forma net tangible book value of the Company at June 30,
1997 was approximately $19.2 million, or $1.84 per share of Common Stock. The
deficit in net tangible book value per share represents the amount of the
Company's stockholders' equity, less intangible assets, divided by the number of
shares of Common Stock issued and outstanding after giving effect to the
Mergers. Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in the
Offering and the pro forma net tangible book value per share of Common Stock
immediately after completion of the Offering. After giving effect to the sale of
5,000,000 shares of Common Stock by the Company in the Offering and the
application of the estimated net proceeds therefrom, the pro forma net tangible
book value of the Company as of June 30, 1997 would have been $ million, or
$ per share. This represents an immediate increase in pro forma net tangible
book value of $ per share to stockholders as of June 30, 1997, and an
immediate dilution in pro forma net tangible book value of $ per share to
purchasers of Common Stock in the Offering. The following table illustrates the
dilution per share:
Assumed initial public offering price per share.... $
Pro forma deficit in net tangible
book value per share before the
Offering......................... $ (1.84)
Increase in pro forma net tangible
book value per share attributable
to new investors..................
Pro forma net tangible book value per share after
the Offering.....................................
Dilution per share to new investors................
The following table sets forth, on a pro forma basis to give effect to the
Mergers as of June 30, 1997, the number of shares of Common Stock purchased from
the Company, the aggregate cash consideration paid and the average price per
share paid to the Company:
SHARES PURCHASED TOTAL AVERAGE
---------------------- CONSIDERATION(1) PRICE
NUMBER PERCENT AMOUNT PER SHARE
------------ ------- ---------------- ---------
Existing stockholders. 10,441,887 67.6% $ (18,697,000) $ (1.79)
New investors......... 5,000,000 32.4
------------ ------- ----------------
Total............ 15,441,887 100.0% $
============ ================
- ------------
(1) Total consideration paid by existing stockholders represents the combined
stockholders' equity of the Founding Companies before this Offering, reduced
to reflect: (i) the cash portion of the consideration payable to the
stockholders of the Founding Companies in connection with the Mergers; (ii)
Owners' Distributions of $4.4 million; and (iii) the distribution of the
Other Assets having a net book value of $1.1 million.
20
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
HomeUSA will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, Universal has been identified as the "accounting
acquiror." The following selected financial data for Universal as of December
31, 1995 and 1996 and for the years ended December 31, 1994, 1995 and 1996 have
been derived from audited financial statements of Universal included elsewhere
in this Prospectus. The selected historical financial data as of December 31,
1992, 1993 and 1994 and June 30, 1997 and for the year ended December 31, 1992
and 1993 and for the six months ended June 30, 1996 and 1997 have been derived
from unaudited financial statements of Universal, which have been prepared on
the same basis as the audited financial statements and, in the opinion of
Universal, reflect all adjustments consisting of normal recurring adjustments,
necessary for a fair presentation of such data. The selected unaudited pro forma
combined financial data present data for the Company, adjusted for (i) the
effects of the Mergers, (ii) the effects of certain pro forma adjustments to the
historical financial statements described below and (iii) the consummation of
this Offering and the application of the net proceeds therefrom. See the
Unaudited Pro Forma Combined Financial Statements and the Notes thereto and the
historical Financial Statements of HomeUSA and certain of the Founding Companies
and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
UNIVERSAL
Total revenues................... $ 30,118 $ 39,108 $ 48,458 $ 56,245 $ 51,683 $ 25,318 $24,703
Cost of sales.................... 23,865 30,716 37,844 43,041 39,820 19,768 19,208
Gross profit..................... 6,253 8,392 10,614 13,204 11,863 5,550 5,495
Selling, general and
administrative
expenses....................... 4,812 6,350 7,789 10,131 9,344 4,234 3,455
Operating income................. 1,441 2,042 2,825 3,073 2,519 1,316 2,040
Other income (expense), net...... (193) 38 (170) 62 12 (38) (56)
Income before income taxes....... 1,248 2,080 2,655 3,135 2,531 1,278 1,984
Net income....................... 1,244 2,078 2,517 2,954 2,400 1,217 1,876
PRO FORMA COMBINED(1):
Total revenues(2)............................................. $192,838 $97,779
Cost of sales................................................. 151,200 76,379
Gross profit.................................................. 41,638 21,400
Selling, general and administrative expenses(2)............... 26,505 14,472
Goodwill amortization(3)...................................... 1,314 657
Operating income.............................................. 13,819 6,271
Interest and other income (expense), net(2)................... (2,268) (1,226)
Income before income taxes.................................... 11,551 5,045
Net income(2)(4).............................................. 6,568 2,869
Net income per share.......................................... $ 0.48 $ 0.21
Shares used in computing pro forma net income per share(5).... 13,655,554 13,655,554
BALANCE SHEET DATA (AT END OF PERIOD):
UNIVERSAL
Working capital.................. $ 3,574 $ 5,430 $ 8,216 $ 10,198 $ 9,339 $ 1,285
Total assets..................... 8,407 11,486 12,759 14,455 19,329 12,993
Long-term debt, less current
maturities..................... 60 30 -- -- -- --
Stockholders' equity............. 3,794 5,717 8,619 10,759 10,109 2,116
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
21
<PAGE>
- ------------
(1) The Pro Forma Combined Statements of Operations Data assume that the Mergers
and the Offering were closed on January 1, 1996 and are not necessarily
indicative of the results the Company would have obtained had these events
actually then occurred or of the Company's future results.
(2) The Pro Forma Combined Statements of Operations Data reflect (i) in revenue,
an aggregate of approximately $7.7 million and $2.3 million for the twelve
months ended December 31, 1996 and the six months ended June 30, 1997,
respectively, in pro forma reductions in revenue for the sales centers of
certain Founding Companies which will not be acquired in the Mergers; (ii)
in selling, general and administrative expenses, an aggregate of
approximately $4.9 million and $0.7 million for the twelve months ended
December 31, 1996 and the six months ended June 30, 1997, respectively, in
pro forma reductions in salary, bonuses and benefits to the owners of the
Founding Companies to which they have agreed prospectively (the
"Compensation Differential"); and (iii) in interest and other income
(expense), net, an aggregate of approximately $1.0 million and $0.4 million
for the twelve months ended December 31, 1996 and the six months ended June
30, 1997, respectively, in pro forma reductions in interest expense of the
Founding Companies as the result of the planned refinancing of the Founding
Companies' existing floor plan financing (the "Interest Differential").
The Pro Forma Combined Statement of Operations Data do not include the
Compensation Charge of $8.7 million for the six months ended June 30, 1997.
(3) Consists of amortization of goodwill to be recorded as a result of the
Mergers computed on the basis described in Notes to the Unaudited Pro Forma
Combined Financial Statements.
(4) Assumes all income is subject to an effective corporate tax rate of 39%, and
the non-deductibility of goodwill.
(5) Includes (i) 7,266,944 shares to be issued to owners of the Founding
Companies, (ii) 1,331,120 shares issued to the management of and consultants
to HomeUSA, (iii) 1,843,823 shares issued to Notre and, (iv) 3,213,667 of
the 5,000,000 shares to be sold in the Offering necessary to pay the cash
portion of the Merger consideration and to pay expenses of this Offering.
Excludes options to purchase 1,642,483 shares to be granted upon
consummation of this Offering, at the initial public offering price.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the Founding Companies' Financial Statements and related
Notes thereto appearing elsewhere in this Prospectus.
INTRODUCTION
The Company's revenues are derived from the retail sale of new and
pre-owned manufactured homes, loan origination fees, insurance commissions, as
well as construction-related revenue and repair and maintenance revenue.
Pre-owned homes accounted for approximately 4% of the Company's total revenues
in 1996. Consistent with industry trends, the Founding Companies have
experienced a shift in demand toward larger, multi-section manufactured homes.
Excluding sales of pre-owned homes, multi-section homes accounted for 62% of the
Company's revenue from home sales in the first half of 1997, up from 57% in
1994.
The Founding Companies have operated throughout the periods presented as
privately-owned entities, and their results of operations reflect varying tax
structures (including S corporations, C corporations or LLCs), which have
influenced the historical level of owners' compensation. Accordingly, selling,
general and administrative expenses as a percentage of revenue may not be
comparable among the individual Founding Companies. The owners of the Founding
Companies have contractually agreed to certain reductions in their compensation
and benefits in connection with the Mergers. The Compensation Differential for
1996 and for the six months ended June 30, 1997 of $4.9 million and $0.7
million, respectively, has been reflected as a pro forma adjustment in the
Unaudited Pro Forma Combined Statements of Operations presented elsewhere in
this Prospectus.
The Company intends to enter into a credit facility, a portion of which
will be used to refinance the Founding Companies' existing floor plan financing
upon consummation of this Offering, which is expected to result in interest
savings. The Interest Differential for 1996 and for the six months ended June
30, 1997 of $1.0 million and $0.4 million, respectively, has been reflected as a
pro forma adjustment in the Unaudited Pro Forma Combined Statements of
Operations presented elsewhere in this Prospectus. The Company also anticipates
that following the Mergers, it will realize benefits from (i) higher loan
origination and participation fees and insurance commissions, (ii) higher volume
rebates from manufacturers and discounts from volume purchases on
retailer-installed options and (iii) centralizing general liability and property
insurance coverage and consolidation of some administrative functions. It is
anticipated that these benefits will be offset by costs related to the Company's
new corporate management and costs attributable to being a public company.
However, because these costs cannot be accurately quantified at this time, they
have not been included in the pro forma financial information included herein.
In 1997, the Company sold an aggregate of 1,331,120 shares of Common Stock
to management and consultants of the Company for $0.01 per share. Accordingly,
the Company has recorded a Compensation Charge of $3.0 million and $5.8 million
in the first and second quarters of 1997, respectively, and anticipates a third
quarter 1997 compensation charge of $1.4 million, representing the difference
between the amount paid for the shares and the estimated fair value of the
shares on the date of sale as if the Founding Companies were combined.
The Mergers will be accounted for using the purchase method of accounting.
Universal has been designated as the "accounting acquiror" in the Mergers.
Accordingly, the excess of the fair value of the merger consideration paid of
$52.5 million over the fair value of the net assets acquired by Universal from
the other Founding Companies will be recorded as "goodwill." This goodwill
will be amortized over its estimated useful life of 40 years as a non-cash
charge to operating income. The pro forma effect of this amortization expense,
which is not deductible for tax purposes, is expected to be approximately $1.3
million per year. The amount of goodwill to be recorded and the related
amortization expense will depend in part on the actual Offering price. See
"Certain Transactions -- Organization of the Company."
23
<PAGE>
A brief description of the accounting classifications used to present the
results of operations of the Founding Companies is as follows.
HOME SALES. Home sales consist of sales of new and pre-owned manufactured
homes, retailer-installed options and set-up and delivery charges payable by
home buyers. Home sales are recorded for financial reporting purposes upon
passage of title, or, in the case of credit sales (which represent the majority
of the Company's retail sales), upon execution of the loan documentation and
receipt of a down payment. Construction-related revenue is recognized if
performed by the Founding Company or if the Founding Company acts as a general
contractor for the project. Revenue from home sales excludes any sales or use
taxes collected.
OTHER REVENUE. Other revenue includes loan origination fees, insurance
commissions, repair and maintenance revenue, commissions on consignment sales of
pre-owned homes and construction revenue not related to the construction of site
amenities.
COST OF SALES. Cost of sales consists of the cost of manufactured homes,
less any manufacturer rebates realized, as well as the cost of
retailer-installed options, set-up and delivery and site amenities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include sales commissions, owners' compensation and
other administrative costs. Sales personnel are compensated primarily on a
commission basis.
INTEREST AND OTHER (INCOME) EXPENSE, NET. Interest and other (income)
expense, net consists principally of floor plan financing costs, as the Founding
Companies do not have significant amounts of long-term debt.
SEASONALITY AND CYCLICALITY
The Company has experienced and expects to continue to experience
significant variability in sales and net income as a result of seasonality in
the Company's business. The manufactured housing industry and the Company's
sales are historically seasonal in nature. Because sales centers are outdoors,
sales are higher in the second and third quarters when the weather is more
favorable. The manufactured housing industry also is highly cyclical and
affected by many of the same national and regional economic and demographic
factors that affect demand in the housing industry generally.
COMBINED RESULTS OF OPERATIONS
The combined results of operations of the Founding Companies for the
periods presented do not represent combined results of operations presented in
accordance with generally accepted accounting principles, but are only a
summation of the home sales, other revenue, cost of sales, selling, general and
administrative expenses and interest and other expense, net of the individual
Founding Companies on a historical basis. The combined results also exclude the
effect of pro forma adjustments and may not be comparable to, and may not be
indicative of, the Company's post-combination results of operations because (i)
the Founding Companies were not under common control or management during the
periods presented; (ii) the Founding Companies used different tax structures
during the periods presented; (iii) the Company will incur incremental cost
related to its new corporate management and costs attributable to being a public
company; (iv) the Company will use the purchase method of accounting to record
the Mergers, resulting in the recording of goodwill which will be amortized over
40 years; and (v) the combined data do not reflect the Compensation Differential
or Interest Differential and potential benefits the Company expects to realize
when operating as a combined entity.
24
<PAGE>
The following table sets forth the selected combined statement of
operations data of the Founding Companies on a historical basis and such results
as a percentage of total revenue, together with selected operating data for the
periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF COMBINED
OPERATIONS DATA:
Revenue:
Home sales........... $ 141,465 98.4% $ 183,168 98.6% $ 196,886 98.2% $ 99,036 98.6%
Other revenue........ 2,252 1.6 2,685 1.4 3,654 1.8 1,400 1.4
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenue...... 143,717 100.0 185,853 100.0 200,540 100.0 100,436 100.0
Cost of sales.......... 113,945 79.3 147,175 79.2 157,046 78.3 79,328 79.0
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit........... 29,772 20.7 38,678 20.8 43,494 21.7 21,108 21.0
Selling, general and
administrative
expenses............. 23,275 16.2 30,762 16.6 33,035 16.5 15,236 15.2
--------- --------- --------- --------- --------- --------- --------- ---------
Income from
operations........... 6,497 4.5 7,916 4.2 10,459 5.2 5,872 5.8
Interest and other
expense, net......... 1,836 1.3 2,868 1.5 3,505 1.7 1,800 1.8
--------- --------- --------- --------- --------- --------- --------- ---------
Income before income
taxes................ $ 4,661 3.2% $ 5,048 2.7% $ 6,954 3.5% $ 4,072 4.0%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997
--------------------
STATEMENT OF COMBINED
OPERATIONS DATA:
Revenue:
Home sales........... $ 98,106 98.0%
Other revenue........ 2,018 2.0
--------- ---------
Total revenue...... 100,124 100.0
Cost of sales.......... 78,254 78.2
--------- ---------
Gross profit........... 21,870 21.8
Selling, general and
administrative
expenses............. 15,459 15.4
--------- ---------
Income from
operations........... 6,411 6.4
Interest and other
expense, net......... 1,782 1.8
--------- ---------
Income before income
taxes................ $ 4,629 4.6%
========= =========
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Period end sales centers.............. 45 50 59 55 65
Homes sold............................ 5,345 6,157 6,318 3,256 3,102
Multi-section home sales.............. 54% 56% 56% 53% 60%
Average home sale price............... $ 26,467 $ 29,750 $ 31,163 $ 30,416 $ 31,627
</TABLE>
COMBINED RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1996
HOME SALES. Combined home sales decreased $0.9 million, or 0.9%, from
$99.0 million for the six months ended June 30, 1996 to $98.1 million for the
six months ended June 30, 1997. Home sales were affected in the first six months
of 1997 by (i) the addition of nine sales centers and repositioning of two sales
centers subsequent to June 30, 1996, which contributed $8.7 million in
incremental home sales, (ii) a decline of $11.2 million in home sales at sales
centers open all of both periods, (iii) the full period effect of five sales
centers opened in the first half of 1996, which contributed $3.3 million in
incremental home sales and (iv) the transfer of one of Patrick's sales centers
to a former shareholder in January 1997, which reduced home sales by $1.7
million in the first half of 1997 . The decline in home sales from centers open
all of both periods was principally attributable to the Founding Companies'
operations in Mississippi and Alabama at AAA Homes, Patrick and First American.
These Founding Companies attribute the decline in home sales from sales centers
open all of both periods to increased competition from a significant number of
new entrants, continuing lack of timely product availability from these Founding
Companies' primary supplier (including the effect of a flood in June 1997 at a
manufacturing plant serving certain of these Founding Companies' Mississippi
sales centers), higher than average rainfall in the South during the first
quarter of 1997 and turnover and reassignment among these Founding Companies'
sales and sales center management personnel. Home sales increased at Cooper,
Mobile World, Home Folks and WillMax.
OTHER REVENUE. Other revenue increased $0.6 million, or 44.1%, from $1.4
million for the six months ended June 30, 1996 to $2.0 million for the six
months ended June 30, 1997, due primarily to an increase in finance and
insurance revenue at AAA Homes and McDonald.
25
<PAGE>
GROSS PROFIT. Combined gross profit increased $0.8 million, or 3.6%, from
$21.1 million for the six months ended June 30, 1996, to $21.9 million for the
six months ended June 30, 1997, due primarily to an increase of $0.4 million at
Patrick as well as smaller increases at McDonald, WillMax and Cooper. As a
percentage of combined total revenue, combined gross margin increased from 21.0%
in the six months ended June 30, 1996 to 21.8% in the six months ended June 30,
1997 due to improved pricing policies and an increase in finance and insurance
revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses increased $0.3 million, or 1.5%, from $15.2 million
for the six months ended June 30, 1996 to $15.8 million for the six months ended
June 30, 1997, due primarily to an increase in sales and administrative
personnel to staff nine sales centers opened or acquired by AAA Homes, McDonald,
Patrick and Cooper. As a percentage of combined total revenue, combined selling,
general and administrative expenses increased from 15.2% in the six months ended
June 30, 1996 to 15.4% in the six months ended June 30, 1997.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net remained
constant at $1.8 million for the six month periods ended June 30, 1996 and 1997.
COMBINED RESULTS FOR 1996 COMPARED TO 1995
HOME SALES. Combined home sales increased $13.7 million, or 7.5%, from
$183.2 million in 1995 to $196.9 million in 1996. Home sales were affected in
1996 by (i) the addition of nine and repositioning of two sales centers which
contributed $10.8 million to home sales, (ii) a decline of $6.3 million in home
sales at sales centers open all of both periods and (iii) the full year effect
of six sales centers opened in 1995, which contributed $9.2 million in
incremental home sales in 1996. The decline in home sales from sales centers
open all of both periods was principally attributable to Universal, Patrick,
McDonald and Mobile World. During 1996, product allotments were imposed on
Universal by its principal supplier, and consequently, Universal was unable to
procure adequate supplies of multi-section homes to meet demand in its market
areas. McDonald, Patrick and Mobile World attribute the decline in sales from
centers open all of both periods to increased competition from a significant
number of new entrants and, in the case of Patrick, lack of timely product
availability from the Company's primary supplier. Home sales increased at AAA
Homes, First American and WillMax.
OTHER REVENUE. Other revenue increased $1.0 million, or 36.1%, from $2.7
million in 1995 to $3.7 million in 1996, primarily due to higher finance and
insurance revenue at several of the Founding Companies.
GROSS PROFIT. Combined gross profit increased $4.8 million, or 12.5%, from
$38.7 million in 1995 to $43.5 million in 1996, due primarily to increases of
$2.7 million at AAA Homes, $1.1 million at Mobile World and $0.8 million at
Patrick. As a percentage of combined total revenue, combined gross margin
increased from 20.8% in 1995 to 21.7% in 1996, due to higher finance and
insurance revenue and improved pricing policies at several of the Founding
Companies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses increased $2.2 million, or 7.4%, from $30.8 million
in 1995 to $33.0 million in 1996, due primarily to higher sales commissions and
to an increase in sales and administrative personnel to staff additional sales
centers. As a percentage of combined total revenue, combined selling, general
and administrative expenses decreased from 16.6% in 1995 to 16.5% in 1996.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.6 million, or 22.2%, from $2.9 million for 1995 to $3.5 million for 1996 as a
result of higher floor plan financing costs associated with higher average
inventory levels at most of the Founding Companies.
COMBINED RESULTS FOR 1995 COMPARED TO 1994
HOME SALES. Combined home sales increased $41.7 million, or 29.5%, from
$141.5 million in 1994 to $183.2 million in 1995. Home sales were affected in
1995 by (i) the addition of five sales centers in 1995, which contributed $7.7
million to home sales, (ii) a $26.2 million increase in home sales at sales
centers opened all of both periods, (iii) the closing of two sales centers in
1995, which reduced home sales by $1.0
26
<PAGE>
million and (iv) the full year effect of four sales centers opened in 1994 which
contributed $8.8 million in incremental home sales in 1995. The increase in home
sales from centers open all of both periods occurred primarily at Patrick,
Universal, McDonald, Mobile World and AAA Homes.
OTHER REVENUE. Other revenue increased $0.4 million, or 19.2%, from $2.3
million in 1994 to $2.7 million in 1995.
GROSS PROFIT. Combined gross profit increased $8.9 million, or 29.9%, from
$29.8 million in 1994 to $38.7 million in 1995, due primarily to higher home
sales at seven of the Founding Companies. As a percentage of total revenue,
combined gross margin increased from 20.7% in 1994 to 20.8% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses increased $7.5 million, or 32.2%, from $23.3 million
in 1994 to $30.8 million in 1995, due primarily to higher sales commissions and
to an increase in sales and administrative personnel to staff five new sales
centers. As a percentage of combined total revenue, combined selling, general
and administrative expenses increased from 16.2% in 1994 to 16.6% in 1995.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$1.1 million, or 56.2%, from $1.8 million for 1994 to $2.9 million for 1995 as a
result of higher floor plan financing costs associated with higher average
inventory levels.
COMBINED LIQUIDITY AND CAPITAL RESOURCES
On a combined basis, the Founding Companies generated $6.7 million of net
cash from operating activities for the six months ended June 30, 1997. Net cash
used in investing activities was $1.2 million, primarily to open new sales
centers and purchase sales centers. Net cash used in financing activities was
$9.8 million and consisted primarily of S corporation distributions to
shareholders of Universal. At June 30, 1997, the combined Founding Companies had
working capital of $4.8 million and total long term debt of $2.7 million.
On a combined basis, the Founding Companies generated $11.6 million of net
cash from operating activities during 1996. Net cash used in investing
activities was $2.7 million, primarily to open new sales centers. Net cash used
in financing activities was $3.9 million and consisted of S corporation
distributions to shareholders of $3.4 million and payments on debt of $0.5
million. At December 31, 1996, the combined Founding Companies had working
capital of $11.3 million and total long-term debt of $2.3 million.
Prior to the Mergers, certain Founding Companies will make Owners'
Distributions. The pro forma combined financial statements as of June 30, 1997
included elsewhere in this Prospectus, reflect pro forma adjustments for the
estimated amount of these Owners' Distributions had they occurred in their
entirety as of June 30, 1997. These pro forma adjustments reflect $4.4 million
of Owners' Distributions.
The Company intends to pursue an aggressive acquisition program. The
Company expects to fund future acquisitions through the issuance of additional
Common Stock, borrowings under the proposed credit facility discussed in the
following paragraph, and cash flow from operations. The Company anticipates that
its cash flow from operations will provide cash in excess of the Company's
normal working capital needs, debt service requirements and planned capital
expenditures for the forseeable future.
The Company intends to enter into a revolving line of credit with several
financial institutions. The facility will be used for working capital,
acquisitions, capital expenditures and floor plan financing. The floor plan
portion of the credit facility may be used only to finance the purchase of
manufactured homes, and borrowings may not exceed the total purchase price of
the homes financed. The entire credit facility is expected to bear interest at
%. The credit facility will likely require the Company to comply with various
loan covenants including (i) maintenance of certain financial ratios, (ii)
restrictions on additional indebtedness, and (iii) restrictions on liens,
guarantees, advances and dividends, and be subject to customary drawing
conditions and the consummation of the Offering.
27
<PAGE>
UNIVERSAL RESULTS OF OPERATIONS
Universal, headquartered in Jackson, Tennessee, was founded in 1975 and
operates 14 sales centers in central and eastern Tennessee and one sales center
in western Virginia.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Home sales.......................... $ 48,232 99.5% $ 56,039 99.6% $ 51,330 99.3% $ 25,217 99.6%
Other revenue....................... 226 0.5 206 0.4 353 0.7 101 0.4
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenue..................... 48,458 100.0 56,245 100.0 51,683 100.0 25,318 100.0
Cost of sales......................... 37,844 78.1 43,041 76.5 39,820 77.0 19,768 78.1
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit.......................... 10,614 21.9 13,204 23.5 11,863 23.0 5,550 21.9
Selling, general and administrative
expenses............................ 7,789 16.1 10,131 18.0 9,344 18.1 4,234 16.7
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations................ 2,825 5.8 3,073 5.5 2,519 4.9 1,316 5.2
Interest and other (income) expense,
net................................. 170 0.3 (62) (0.1) (12) 0.0 38 0.2
--------- --------- --------- --------- --------- --------- --------- ---------
Income before income taxes............ $ 2,655 5.5% $ 3,135 5.6% $ 2,531 4.9% $ 1,278 5.0%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997
--------------------
STATEMENT OF OPERATIONS DATA:
Revenue:
Home sales.......................... $ 24,607 99.6%
Other revenue....................... 96 0.4
--------- ---------
Total revenue..................... 24,703 100.0
Cost of sales......................... 19,208 77.8
--------- ---------
Gross profit.......................... 5,495 22.2
Selling, general and administrative
expenses............................ 3,455 14.0
--------- ---------
Income from operations................ 2,040 8.2
Interest and other (income) expense,
net................................. 56 0.2
--------- ---------
Income before income taxes............ $ 1,984 8.0%
========= =========
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Period end sales centers.............. 14 15 15 15 15
Homes sold............................ 1,997 2,060 1,807 916 873
Multi-section home sales.............. 52% 56% 62% 57% 68%
Average home sale price............... $ 24,152 $ 27,203 $ 28,406 $ 27,529 $ 28,187
</TABLE>
UNIVERSAL RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1996
HOME SALES. Home sales decreased $0.6 million, or 2.4%, from $25.2 million
for the six months ended June 30, 1996 to $24.6 million for the six months ended
June 30, 1997, primarily as a result of a 5% decrease in homes sold, partially
offset by a 2% increase in the average price per home. Management attributes the
decrease in homes sold primarily to a lack of timely product delivery from a
principal supplier, as well as increased competition in Universal's market
areas. The 2% increase in the average price per home was due to an increase in
multi-section homes sold as a percentage of total homes sold.
OTHER REVENUE. Other revenue remained constant at $0.1 million for the six
months ended June 30, 1996 and for the six months ended June 30, 1997.
GROSS PROFIT. Gross profit decreased $0.1 million, or 1.0%, from $5.6
million for the six months ended June 30, 1996 to $5.5 million for the six
months ended June 30, 1997. As a percentage of total revenue, gross margin
increased from 21.9% in the six months ended June 30, 1996 to 22.2% in the six
months ended June 30, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.7 million, or 18.4%, from $4.2 million for
the six months ended June 30, 1996 to $3.5 million for the six months ended June
30, 1997, due to a reduction in owner's compensation and, to a lesser extent,
lower sales commissions. As a percentage of total revenue, selling, general and
administrative expenses decreased from 16.7% in the six months ended June 30,
1996 to 14.0% in the six months ended June 30, 1997.
28
<PAGE>
INTEREST AND OTHER (INCOME) EXPENSE, NET. Interest and other (income)
expense, net remained constant at less than $0.1 million in both six month
periods. Although floor plan interest expense increased, Universal maintained a
substantial cash balance during most of both periods which generated interest
income sufficient to offset floor plan financing interest.
UNIVERSAL RESULTS FOR 1996 COMPARED TO 1995
HOME SALES. Home sales decreased $4.7 million, or 8.4%, from $56.0 million
in 1995 to $51.3 million in 1996, resulting primarily from a 14% decline in
homes sold at centers open all of both periods, partially offset by a 4%
increase in the average price per home. Management attributes the decrease in
homes sold to the lack of timely product delivery from a principal manufacturer,
and to a lesser extent, increased competition in Universal's market area. During
1996, product allotments were imposed on Universal by its principal supplier,
and consequently, Universal was unable to procure adequate supplies of
multi-section homes to meet demand in its market areas. The 4% increase in the
average price per home was due to the increase in multi-section homes sold as a
percentage of total homes sold.
OTHER REVENUE. Other revenue increased $0.2 million, or 71.4%, from $0.2
million in 1995 to $0.4 million in 1996.
GROSS PROFIT. Gross profit decreased $1.3 million, or 10.2%, from $13.2
million in 1995 to $11.9 million in 1996. As a percentage of total revenue,
gross margin decreased from 23.5% in 1995 to 23.0% in 1996. This decrease was
due to higher costs associated with delivery of multi-section homes and certain
inventory sold at lower margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.8 million, or 7.8%, from $10.1 million in
1995 to $9.3 million in 1996, due primarily to lower sales commissions. As a
percentage of total revenue, selling, general and administrative expenses
increased slightly from 18.0% in 1995 to 18.1% in 1996.
INTEREST AND OTHER (INCOME), EXPENSE, NET. Interest and other (income)
expense, net remained constant at less than $0.1 million in both periods.
UNIVERSAL RESULTS FOR 1995 COMPARED TO 1994
HOME SALES. Home sales increased $7.8 million, or 16.2%, from $48.2
million in 1994 to $56.0 million in 1995. The increase in net sales resulted
from the opening of one sales center in May 1995, which contributed $1.7 million
of the increase, and an increase in sales at centers open all of both periods,
which contributed $6.1 million of the increase. The increase in sales at centers
open all of both periods resulted primarily from a 12% increase in the average
price per home, attributable to an increase in multi-section homes sold as a
percentage of total homes sold, and a manufacturer's price increase which was
passed through to customers by Universal.
OTHER REVENUE. Other revenue remained constant at $0.2 million in 1995 and
1994.
GROSS PROFIT. Gross profit increased $2.6 million, or 24.4%, from $10.6
million in 1994 to $13.2 million in 1995. As a percentage of total revenue,
gross margin increased from 21.9% in 1994 to 23.5% in 1995, primarily due to an
increase in the percentage of sales of higher margin multi-section homes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $2.3 million, or 30.1%, from $7.8 million in
1994 to $10.1 million in 1995, primarily as a result of increased owner's
compensation as well as higher sales commissions. As a percentage of total
revenue, selling, general and administrative expenses increased from 16.1% in
1994 to 18.0% in 1995.
INTEREST AND OTHER (INCOME) EXPENSE, NET. Interest and other (income)
expense, net improved by $0.3 million from $0.2 million of expense in 1994 to
$0.1 million of income in 1995, primarily due to management's decision to
finance inventory out of working capital in 1995.
29
<PAGE>
UNIVERSAL LIQUIDITY AND CAPITAL RESOURCES
Universal generated $4.9 million of net cash from operating activities for
the six months ended June 30, 1997. Net cash used in investing activities was
$0.1 million, principally for purchases of property and equipment. Net cash used
in financing activities was $9.9 million and consisted primarily of S
corporation distributions to shareholders. At June 30, 1997, Universal had
working capital of $1.3 million and no long-term debt.
Universal generated $9.2 million of net cash from operating activities
during 1996. Net cash used in investing activities was $0.3 million, principally
for purchases of property and equipment. Net cash used in financing activities
was $3.0 million and consisted primarily of S corporation distributions to
shareholders. At December 31, 1996, Universal had working capital of $9.3
million and no long-term debt.
AAA HOMES RESULTS OF OPERATIONS
AAA Homes, headquartered in Hattiesburg, Mississippi, was founded in 1987
and operates eight sales centers in southern Mississippi and five sales centers
in eastern Louisiana.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Home sales........... $ 20,159 98.5% $ 27,166 98.6% $ 38,584 98.4% $ 20,386 98.8%
Other revenue........ 306 1.5 385 1.4 612 1.6 252 1.2
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenue...... 20,465 100.0 27,551 100.0 39,196 100.0 20,638 100.0
Cost of sales.......... 16,113 78.7 21,604 78.4 30,543 77.9 16,420 79.6
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit........... 4,352 21.3 5,947 21.6 8,653 22.1 4,218 20.4
Selling, general and
administrative
expenses............. 3,370 16.5 4,465 16.2 6,272 16.0 2,803 13.6
--------- --------- --------- --------- --------- --------- --------- ---------
Income from
operations........... 982 4.8 1,482 5.4 2,381 6.1 1,415 6.8
Interest and other
expense, net......... 382 1.9 627 2.3 950 2.4 461 2.2
--------- --------- --------- --------- --------- --------- --------- ---------
Income before income
taxes................ $ 600 2.9% $ 855 3.1% $ 1,431 3.7% $ 954 4.6%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997
--------------------
STATEMENT OF OPERATIONS
DATA:
Revenue:
Home sales........... 17,494 96.2%
Other revenue........ 688 3.8
--------- ---------
Total revenue...... 18,182 100.0
Cost of sales.......... 13,943 76.7
--------- ---------
Gross profit........... 4,239 23.3
Selling, general and
administrative
expenses............. 3,154 17.3
--------- ---------
Income from
operations........... 1,085 6.0
Interest and other
expense, net......... 394 2.2
--------- ---------
Income before income
taxes................ $ 691 3.8%
========= =========
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Period end sales centers.............. 7 8 10 10 13
Homes sold............................ 828 979 1,306 703 618
Multi-section home sales.............. 33% 33% 36% 34% 33%
Average home sale price............... $ 24,347 $ 27,749 $ 29,544 $ 28,999 $ 28,307
</TABLE>
AAA HOMES RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1996
HOME SALES. Home sales decreased $2.9 million, or 14.2%, from $20.4
million for the six months ended June 30, 1996 to $17.5 million for the six
months ended June 30, 1997. The decrease in home sales resulted from a $5.6
million decline in sales at centers open all of both periods, offset by $1.4
million of home sales from three sales centers purchased in the second quarter
of 1997, and the full year effect of two sales centers opened in April and May
1996, which contributed $1.3 million in incremental home sales in the first half
of 1997. Management attributes the decline in the number of homes sold at
centers open all of both periods to turnover and performance issues with sales
personnel, problems in securing a timely supply
30
<PAGE>
of product from its principal supplier (including a June 1997 flood at a
manufacturing plant serving AAA Homes), higher than average rainfall in
Mississippi and increased competition from other retailers in AAA Homes' market
area in the first half of 1997.
OTHER REVENUE. Other revenue increased $0.4 million, or 173.0%, from $0.3
million in the six months ended June 30, 1996, to $0.7 million for the six
months ended June 30, 1997. This increase was primarily attributable to higher
finance and insurance revenue, resulting from the addition of seven finance and
insurance managers at seven of AAA Homes' sales centers.
GROSS PROFIT. Gross profit remained constant at $4.2 million for the six
months ended June 30, 1996 and for the six months ended June 30, 1997. As a
percentage of total revenue, gross margin increased from 20.4% in the six months
ended June 30, 1996 to 23.3% in the six months ended June 30, 1997, due to
increased finance and insurance revenue, improved pricing policies and sales of
homes with higher margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.4 million, or 12.5%, from $2.8 million for
the six months ended June 30, 1996 to $3.2 million for the six months ended June
30, 1997, primarily as the result of the hiring of seven finance and insurance
managers. As a percentage of total revenue, selling, general and administrative
expenses increased from 13.6% in the six months ended June 30, 1996 to 17.3% in
the six months ended June 30, 1997.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net decreased
$0.1 million, or 14.5%, from $0.5 million for the first six months of 1996 to
$0.4 million for the first six months of 1997, as a result of lower floor plan
financing costs associated with lower average inventory levels.
AAA HOMES RESULTS FOR 1996 COMPARED TO 1995
HOME SALES. Home sales increased $11.4 million, or 42.0%, from $27.2
million in 1995 to $38.6 million in 1996. The increase in home sales resulted
from the opening of two sales centers in 1996, which contributed $2.8 million of
the increase, an increase in sales at centers open all of both periods, which
contributed $3.7 million to the increase, and the full year effect of a sales
center opened in October 1995, which contributed $4.9 million in incremental
home sales. The increase in sales from centers open all of both periods resulted
from a 10% increase in the number of homes sold in 1996 and a 4% increase in the
average price per home, consistent with an increase in the percentage of higher
priced multi-section homes sold.
OTHER REVENUE. Other revenue increased $0.2 million, or 59.0%, from $0.4
million in 1995 to $0.6 million in 1996.
GROSS PROFIT. Gross profit increased $2.8 million, or 45.5%, from $5.9
million in 1995 to $8.7 million in 1996. As a percentage of total revenue, gross
margin increased from 21.6% in 1995 to 22.1% in 1996, reflecting higher finance
and insurance revenues in the latter half of 1996, improved pricing policies and
sales of homes with higher margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.8 million, or 40.5%, from $4.5 million in
1995 to $6.3 million in 1996, due primarily to higher sales commissions and
costs associated with two new sales centers. As a percentage of total revenue,
selling, general and administrative expenses decreased from 16.2% in 1995 to
16.0% in 1996.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.4 million, or 51.5%, from $0.6 million for 1995 to $1.0 million in 1996, as a
result of higher floor plan financing costs associated with higher average
inventory levels.
AAA HOMES RESULTS FOR 1995 COMPARED TO 1994
HOME SALES. Home sales increased $7.0 million, or 34.8%, from $20.2
million in 1994 to $27.2 million in 1995. The increase in home sales resulted
from the opening of one sales center in October 1995, which contributed $0.5
million of the increase, higher sales at centers open all of both periods, which
contributed $3.7 million of the increase, and the full year effect of a sales
center opened in November 1994, which contributed $2.8 million in incremental
home sales. The increase in sales at existing sales centers
31
<PAGE>
resulted from a 3% increase in the number of homes sold in 1995 and a 16%
increase in the average sale price per home, which resulted from AAA Homes
passing through a manufacturer's price increase.
GROSS PROFIT. Gross profit increased $1.5 million, or 36.6%, from $4.4
million in 1994 to $5.9 million in 1995. As a percentage of total revenue, gross
margin increased from 21.3% in 1994 to 21.6% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.1 million, or 32.5%, from $3.4 million in
1994 to $4.5 million in 1995, primarily due to higher sales commissions. As a
percentage of total revenue, selling, general and administrative expenses
decreased from 16.5% in 1994 to 16.2% in 1995.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.2 million, or 64.1%, from $0.4 million for 1994 to $0.6 million in 1995, as a
result of higher floor plan financing costs associated with higher average
inventory levels.
AAA HOMES LIQUIDITY AND CAPITAL RESOURCES
AAA Homes used $0.1 million of net cash in operating activities for the six
months ended June 30, 1997. Net cash used in investing activities was $0.2
million, principally for purchases of sales centers. Net cash generated from
financing activities was $0.2 million. At June 30, 1997, AAA Homes had working
capital of $1.2 million and $0.5 million of long-term debt.
AAA Homes generated $0.4 million of net cash from operating activities in
1996. Net cash used in investing activities was $0.5 million, principally for
purchases of property and equipment. Net cash used in financing activities was
negligible. At December 31, 1996, AAA Homes had working capital of $0.7 million
and $0.1 million of long-term debt.
MCDONALD RESULTS OF OPERATIONS
McDonald, headquartered in Tulsa, Oklahoma, was founded in 1987 and
operates three sales centers in Oklahoma, seven sales centers in Missouri and
one sales center in each of Arkansas and Kansas. On July 1, 1997, McDonald
transferred two sales centers in Missouri to a former employee. Effective
October 1, 1997, McDonald will transfer one sales center in Missouri to a former
employee.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Home sales........... $ 20,480 98.4% $ 30,626 98.7% $ 29,451 97.9% $ 14,264 98.4%
Other revenue........ 326 1.6 408 1.3 633 2.1 230 1.6
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenue...... 20,806 100.0 31,034 100.0 30,084 100.0 14,494 100.0
Cost of sales.......... 16,952 81.5 25,386 81.8 24,566 81.7 11,619 80.2
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit........... 3,854 18.5 5,648 18.2 5,518 18.3 2,875 19.8
Selling, general and
administrative
expenses............. 2,724 13.1 4,206 13.6 3,925 13.0 1,828 12.6
--------- --------- --------- --------- --------- --------- --------- ---------
Income from
operations........... 1,130 5.4 1,442 4.6 1,593 5.3 1,047 7.2
Interest and other
expense, net......... 321 1.5 765 2.4 750 2.5 388 2.7
--------- --------- --------- --------- --------- --------- --------- ---------
Income before income
taxes................ $ 809 3.9% $ 677 2.2% $ 843 2.8% $ 659 4.5%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997
--------------------
STATEMENT OF OPERATIONS DATA:
Revenue:
Home sales........... $ 14,420 97.1%
Other revenue........ 425 2.9
--------- ---------
Total revenue...... 14,845 100.0
Cost of sales.......... 11,870 80.0
--------- ---------
Gross profit........... 2,975 20.0
Selling, general and
administrative
expenses............. 1,988 13.4
--------- ---------
Income from
operations........... 987 6.6
Interest and other
expense, net......... 343 2.3
--------- ---------
Income before income
taxes................ $ 644 4.3%
========= =========
32
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Period end sales centers........... 8 11 11 11 12
Homes sold......................... 765 1,035 966 483 461
Multi-section home sales........... 41% 44% 46% 45% 46%
Average home sale price............ $ 26,771 $ 29,590 $ 30,488 $ 29,532 $ 31,280
</TABLE>
MCDONALD RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1996
HOME SALES. Home sales increased $0.1 million, or 1.1%, from $14.3 million
for the six months ended June 30, 1996 to $14.4 million for the six months ended
June 30, 1997. The increase in home sales resulted from the opening of one sales
center in April 1997, which contributed $0.4 million to home sales, partially
offset by a $0.3 million decline in sales at centers open all of both periods.
The decrease in sales from centers open all of both periods resulted from a 7%
decline in the number of homes sold, which management attributes to sales center
manager turnover as well as increased competition. This decrease was partially
offset by a 6% increase in the average price per home.
OTHER REVENUE. Other revenue increased $0.2 million, or 84.8%, from $0.2
million for the six months ended June 30, 1996 to $0.4 million for the six
months ended June 30, 1997, primarily due to an increase in finance and
insurance revenue.
GROSS PROFIT. Gross profit increased $0.1 million, or 3.5%, from $2.9
million for the six months ended June 30, 1996 to $3.0 million for the six
months ended June 30, 1997. As a percentage of total revenue, gross margin
increased from 19.8% in the six months ended June 30, 1996 to 20.0% in the six
months ended June 30, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.2 million, or 8.8%, from $1.8 million for
the six months ended June 30, 1996 to $2.0 million for the six months ended June
30, 1997, primarily due to an increase in sales and administrative personnel
associated with the sales center opened in April 1997 and management personnel
added to support planned growth. As a percentage of total revenue, selling,
general and administrative expenses increased from 12.6% in the six months ended
June 30, 1996 to 13.4% in the six months ended June 30, 1997.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net decreased
$0.1 million, or 11.6%, from $0.4 million for the six months ended June 30, 1996
to $0.3 million for the six months ended June 30, 1997 due to an interest rate
reduction on floor plan financing.
MCDONALD RESULTS FOR 1996 COMPARED TO 1995
HOME SALES. Home sales decreased $1.1 million, or 3.8%, from $30.6 million
in 1995 to $29.5 million in 1996, resulting primarily from a $1.9 million
decline in sales at existing sales centers, partially offset by the full year
effect of three sales centers opened in 1995, which contributed $0.8 million in
incremental home sales. The decrease in sales from centers open all of both
periods resulted from a 15% decline in the number of homes sold, which
management attributes to increased competition in certain markets, partially
offset by a 4% increase in the average price per home, reflecting a shift toward
multi-section homes.
OTHER REVENUE. Other revenue increased $0.2 million, or 55.1%, from $0.4
million in 1995 to $0.6 million in 1996, primarily due to increases in finance
and insurance revenue and higher commissions on pre-owned home consignment
sales.
GROSS PROFIT. Gross profit decreased $0.1 million, or 2.3%, from $5.6
million in 1995 to $5.5 million in 1996. As a percentage of total revenue, gross
margin increased from 18.2% in 1995 to 18.3% in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.3 million, or 6.7%, from $4.2 million in
1995 to $3.9 million in 1996 due to a decrease in owners'
33
<PAGE>
compensation. As a percentage of total revenue, selling, general and
administrative expenses decreased from 13.6% in 1995 to 13.0% in 1996.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net remained
constant at $0.8 million in 1995 and 1996.
MCDONALD RESULTS FOR 1995 COMPARED TO 1994
HOME SALES. Home sales increased $10.1 million, or 49.5%, from $20.5
million in 1994 to $30.6 million in 1995. The increase in home sales resulted
from the opening of three sales centers in 1995, which contributed $5.3 million
of the increase and an increase in sales from centers open all of both periods,
which contributed $4.8 million in incremental home sales. The 35% increase in
the number of homes sold resulted from strong demand, combined with the opening
of three new sales centers during 1995. The average sales price increased 11%
due to an increase of multi-section homes sold as a percentage of total homes
sold.
OTHER REVENUE. Other revenue increased $0.1 million, or 25.2%, from $0.3
million in 1994 to $0.4 million in 1995.
GROSS PROFIT. Gross profit increased $1.7 million, or 46.5%, from $3.9
million in 1994 to $5.6 million in 1995. As a percentage of total revenue, gross
margin decreased from 18.5% in 1994 to 18.2% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.5 million, or 54.4%, from $2.7 million in
1994 to $4.2 million in 1995, primarily due to higher sales commissions as well
as costs required to support three new sales centers. As a percentage of total
revenue, selling, general and administrative expenses increased from 13.1% in
1994 to 13.6% in 1995.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.5 million, or 138.3%, from $0.3 million in 1994 to $0.8 million in 1995, as a
result of higher floor plan financing costs associated with higher average
inventory levels.
MCDONALD LIQUIDITY AND CAPITAL RESOURCES
McDonald generated $0.5 million of net cash from operating activities for
the six months ended June 30, 1997. Net cash used in investing activities was
$0.6 million, primarily for new sales centers. Net cash generated from financing
activities was $0.6 million and consisted of proceeds from the collections on
notes receivable from shareholders and long-term borrowings. At June 30, 1997,
McDonald had working capital of $1.2 million and $0.8 million of long-term debt.
Net cash used from operating activities during 1996 was negligible. Net
cash used in investing activities was $0.2 million, principally for new sales
centers. Net cash used in financing activities was negligible. At December 31,
1996, McDonald had working capital of $1.2 million and $0.4 million of long-term
debt.
34
<PAGE>
PATRICK RESULTS OF OPERATIONS
Patrick, headquartered in Corinth, Mississippi, was founded in 1966 and
operates six sales centers in Mississippi and one sales center in Alabama.
Effective January 1, 1997, Patrick transferred one sales center in Tennessee
to a former stockholder.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Home sales......... $ 20,707 96.6% $ 28,184 97.4% $ 28,946 96.8% $ 15,625 97.1%
Other revenue...... 724 3.4 749 2.6 957 3.2 465 2.9
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenue... 21,431 100.0 28,933 100.0 29,903 100.0 16,090 100.0
Cost of sales........ 17,554 81.9 23,664 81.8 23,858 79.8 12,953 80.5
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......... 3,877 18.1 5,269 18.2 6,045 20.2 3,137 19.5
Selling, general and
administrative
expenses........... 3,347 15.6 4,530 15.6 4,306 14.4 2,330 14.5
--------- --------- --------- --------- --------- --------- --------- ---------
Income from
operations......... 530 2.5 739 2.6 1,739 5.8 807 5.0
Interest and other
expense, net....... 296 1.4 464 1.6 564 1.9 298 1.9
--------- --------- --------- --------- --------- --------- --------- ---------
Income before income
taxes.............. $ 234 1.1% $ 275 1.0% $ 1,175 3.9% $ 509 3.1%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997
--------------------
STATEMENT OF OPERATIONS
DATA:
Revenue:
Home sales......... $ 15,737 97.5%
Other revenue...... 408 2.5
--------- ---------
Total revenue... 16,145 100.0
Cost of sales........ 12,646 78.3
--------- ---------
Gross profit......... 3,499 21.7
Selling, general and
administrative
expenses........... 2,431 15.1
--------- ---------
Income from
operations......... 1,068 6.6
Interest and other
expense, net....... 222 1.4
--------- ---------
Income before income
taxes.............. $ 846 5.2%
========= =========
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Period end sales centers............ 6 6 7 6 7
Homes sold.......................... 758 913 905 499 446
Multi-section home sales............ 73% 74% 66% 65% 73%
Average home sale price............. $ 27,318 $ 30,870 $ 31,985 $ 31,313 $ 35,285
</TABLE>
PATRICK RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1996
HOME SALES. Home sales increased $0.1 million, or 0.7%, from $15.6 million
for the six months ended June 30, 1996 to $15.7 million for the six months ended
June 30, 1997. The increase in home sales resulted from the opening of one sales
center in January 1997, which contributed $3.8 million to home sales, and the
full year effect of a sales center opened in April of 1996 which contributed
$0.7 million in incremental home sales, partially offset by a $2.7 million
decrease in home sales at centers open all of both periods, and a $1.7 million
decrease attributable to the transfer of one sales center to a former
stockholder in January 1997. Excluding sales in both periods from the
transferred sales center, home sales for the six months ended June 30, 1997
would have increased by 13%. The decrease in home sales from centers open all of
both periods resulted from a 26% decline in the number of homes sold, partially
offset by a 7% increase in the average sale price per home. Management
attributes the decline in the number of homes sold to a lack of timely product
availability from Patrick's principal manufacturer (including a June 1997 flood
at a manufacturing plant serving Patrick), increased competition in Patrick's
market area and Patrick's opening of an additional sales center in the market
area of an existing sales center.
OTHER REVENUE. Other revenue decreased $0.1 million, or 12.3%, from $0.5
million for the six months ended June 30, 1996 to $0.4 million for the six
months ended June 30, 1997, primarily due to a decrease in finance and insurance
revenue.
GROSS PROFIT. Gross profit increased $0.4 million, or 11.5%, from $3.1
million for the six months ended June 30, 1996 to $3.5 million for the six
months ended June 30, 1997. As a percentage of total
35
<PAGE>
revenue, gross margin increased from 19.5% in the six months ended June 30, 1996
to 21.7% in the six months ended June 30, 1997, due to increased sales of
multi-section homes as well as improved pricing policies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 4.3%, from $2.3 million for
the six months ended June 30, 1996 to $2.4 million for the six months ended June
30, 1997, primarily due to an increase in sales and administrative personnel
associated with the sales center opened in January 1997 and administrative
personnel added to support planned growth. As a percentage of total revenue,
selling, general and administrative expenses increased from 14.5% in the six
months ended June 30, 1996 to 15.1% in the six months ended June 30, 1997.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net decreased
$0.1 million, or 25.5%, from $0.3 million for the six months ended June 30, 1996
to $0.2 million for the six months ended June 30, 1997 primarily as a result of
lower floor plan financing cost associated with lower average inventory levels.
PATRICK RESULTS FOR 1996 COMPARED TO 1995
HOME SALES. Home sales increased $0.7 million, or 2.7%, from $28.2 million
in 1995 to $28.9 million in 1996. The increase in home sales resulted primarily
from the opening of one sales center in April 1996, which contributed $1.9
million to home sales and the full year effect of a sales center opened in
October of 1995, which contributed $2.5 million in incremental home sales in
1997, partially offset by a decline of $3.7 million in sales at centers open all
of both periods. The decrease in sales from centers open all of both periods
resulted from a 13% decline in the number of homes sold at existing sales
centers, partially offset by a .4% increase in the average sales price per home
as a result of increased sales of higher priced single and multi-section homes.
Management attributes the decline in number of homes sold to a lack of timely
product availability from its principal supplier as well as increased
competition.
OTHER REVENUE. Other revenue increased $0.3 million, or 27.8%, from $0.7
million in 1995 to $1.0 million in 1996, primarily due to an increase in repair
and maintenance revenue and finance and insurance revenue.
GROSS PROFIT. Gross profit increased $0.7 million, or 14.7%, from $5.3
million in 1995 to $6.0 million in 1996. As a percentage of total revenue, gross
margin increased from 18.2% in 1995 to 20.2% in 1996, reflecting increased sales
of higher margin homes and improved pricing policies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased by $0.2 million, or 4.9%, from $4.5 million in
1995 to $4.3 million in 1996, primarily due to a decrease in owner's
compensation. As a percentage of total revenue, selling, general and
administrative expenses decreased from 15.6% in 1995 to 14.4% in 1996.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.1 million, or 21.6%, from $0.5 million for 1995 to $0.6 million in 1996 as a
result of higher floor plan financing costs associated with higher average
inventory levels.
PATRICK RESULTS FOR 1995 COMPARED TO 1994
HOME SALES. Home sales increased $7.5 million, or 36.1%, from $20.7
million in 1994 to $28.2 million in 1995. The increase in home sales resulted
primarily from the full year effect of one sales center opened in September
1994, which contributed $3.6 million of incremental home sales partially offset
by the closing of one sales center, which decreased incremental home sales by
$0.4 million, as well as higher sales from centers open all of both periods,
which contributed $4.3 million of the increase.
OTHER REVENUE. Other revenue remained constant at $0.7 million in 1994 and
in 1995.
GROSS PROFIT. Gross profit increased $1.4 million, or 35.9%, from $3.9
million in 1994 to $5.3 million in 1995. As a percentage of total revenue, gross
margin increased from 18.1% in 1994 to 18.2% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.2 million, or 35.3%, from $3.3 million in
1994 to $4.5 million in 1995 due to higher owner's
36
<PAGE>
compensation and higher sales commissions consistent with higher sales volumes.
As a percentage of total revenue, selling, general and administrative expenses
remained constant at 15.6% from 1994 to 1995.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.2 million, or 56.8%, from $0.3 million for 1994 to $0.5 million for 1995 as a
result of higher floor plan financing costs associated with higher average
inventory levels.
PATRICK LIQUIDITY AND CAPITAL RESOURCES
Patrick generated $1.3 million of net cash from operating activities for
the six months ended June 30, 1997. Net cash used by investing activities was
$0.1 million, principally for purchases of property and equipment. Net cash used
in financing activities was $0.6 million and consisted of distributions to
shareholders of $0.3 million and payments on debt of $0.3 million. At June 30,
1997, Patrick had working capital of $0.4 million and $0.4 million of long-term
debt.
Patrick generated $1.0 million of net cash from operating activities during
1996. Net cash used in investing activities was $0.8 million, principally for
new sales centers. Net cash used in financing activities was $0.5 million and
consisted of distributions to shareholders of $0.3 million and payments on debt
of $0.2 million. At December 31, 1996, Patrick had working capital of $0.1
million and $0.8 million of long-term debt.
MOBILE WORLD RESULTS OF OPERATIONS
Mobile World, headquartered in San Antonio, Texas, was founded in 1992 and
operates five sales centers in central Texas.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------ ------------------------------------------
1995 1996 1996 1997
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Home sales......... $ 11,838 100.0% $ 15,836 99.3% $ 7,685 99.5% $ 8,456 99.3%
Other revenue...... 5 0.0 112 0.7 37 0.5 56 0.7
--------- --------- --------- --------- --------- --------- --------- ---------
Total
revenue....... 11,843 100.0 15,948 100.0 7,722 100.0 8,512 100.0
Cost of sales........ 9,349 78.9 12,360 77.5 6,075 78.7 6,816 80.1
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......... 2,494 21.1 3,588 22.5 1,647 21.3 1,696 19.9
Selling, general and
administrative
expenses............. 1,917 16.2 2,925 18.3 1,273 16.5 1,326 15.6
--------- --------- --------- --------- --------- --------- --------- ---------
Income from
operations........... 577 4.9 663 4.2 374 4.8 370 4.3
Interest and other
expense, net......... 300 2.6 435 2.8 213 2.7 247 2.9
--------- --------- --------- --------- --------- --------- --------- ---------
Income before income
taxes................ $ 277 2.3% $ 228 1.4% $ 161 2.1% $ 123 1.4%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING DATA:
Period end sales centers............ 3 5 5 5
Homes sold.......................... 356 446 224 227
Multi-section home sales............ 59% 57% 54% 64%
Average home sale price............. $ 33,253 $ 35,507 $ 34,308 $ 37,251
</TABLE>
MOBILE WORLD RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1996
HOME SALES. Home sales increased $0.8 million, or 10.0%, from $7.7 million
for the six months ended June 30, 1996 to $8.5 million for the six months ended
June 30, 1997. This increase was due to the
37
<PAGE>
opening of two sales centers in April 1996, which contributed $1.4 million in
incremental home sales, partially offset by a $0.6 million decline in home sales
from centers open all of both periods. The decrease in sales from centers open
all of both periods resulted from a 7% decline in the number of homes sold,
which management attributes to turnover of key personnel and increased
competition.
GROSS PROFIT. Gross profit increased $0.1 million, or 3.0%, from $1.6
million for the six months ended June 30, 1996 to $1.7 million for the six
months ended June 30, 1997. As a percentage of total revenue, gross margin
decreased from 21.3% in the six months ended June 30, 1996 to 19.9% in the six
months ended June 30, 1997, primarily due to an increase in the cost of delivery
and set up and, to a lesser extent, the sale of older inventory at reduced
margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses remained constant at $1.3 million for the six months
ended June 30, 1996 and the six months ended 1997. As a percentage of total
revenue, selling, general and administrative expenses decreased from 16.5% in
the six months ended June 30, 1996 to 15.6% in the six months ended June 30,
1997, primarily as a result of a lower sales commissions.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net remained
constant at $0.2 million for the six months ended June 30, 1996 and for the six
months ended June 30, 1997.
MOBILE WORLD RESULTS FOR 1996 COMPARED TO 1995
HOME SALES. Home sales increased $4.0 million, or 33.8%, from $11.8
million in 1995 to $15.8 million in 1996 due to the opening of two sales centers
in April 1996, which contributed $5.0 million of increased home sales, partially
offset by a $1.0 million decrease in sales from centers open all of both
periods. The decrease in sales from centers open all of both periods resulted
from an 11% decrease in the number of homes sold, partially offset by a 3%
increase in the average selling price per unit consistent with fewer sales of
pre-owned homes.
GROSS PROFIT. Gross profit increased $1.1 million, or 43.9%, from $2.5
million in 1995 to $3.6 million in 1996. As a percentage of total revenue, gross
margin increased from 21.1% in 1995 to 22.5% in 1996 primarily due to an
increase in finance and insurance revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.0 million, or 52.6%, from $1.9 million in
1995 to $2.9 million in 1996, primarily due to increased owner's compensation.
As a percentage of total revenue, selling, general and administrative expenses
increased from 16.2% in 1995 to 18.3% in 1996.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.1 million, or 45.0%, from $0.3 million in 1995 to $0.4 million in 1996 as a
result of higher floor plan financing interest costs associated with higher
average inventory levels.
MOBILE WORLD LIQUIDITY AND CAPITAL RESOURCES
Mobile World used $0.4 million of net cash in operating activities for the
six months ended June 30, 1997. Net cash used in investing activities was
negligible as was net cash used in financing activities. At June 30, 1997,
Mobile World had a working capital deficit of $0.1 million and $0.1 million of
long-term debt.
Mobile World generated $0.5 million of net cash from operating activities
during 1996. Net cash used in investing activities was $0.2 million, principally
for new sales centers. Net cash used in financing activities was negligible. At
December 31, 1996, Mobile World had a working capital deficit of $0.2 million
and $0.1 million of long-term debt.
38
<PAGE>
FIRST AMERICAN RESULTS OF OPERATIONS
First American, headquartered in Dothan, Alabama, was founded in 1981 and
operates three sales centers in southern Alabama and one sales center in the
Florida panhandle.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, SIX MONTHS ENDED JUNE 30,
-------------------- ------------------------------------------
1996 1996 1997
-------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Home sales......... $ 12,419 99.8% $ 7,072 99.9% $ 6,403 99.9%
Other revenue...... 19 0.2 8 0.1 8 0.1
--------- --------- --------- --------- --------- ---------
Total revenue... 12,438 100.0 7,080 100.0 6,411 100.0
Cost of sales........ 9,994 80.4 5,774 81.6 5,295 82.6
--------- --------- --------- --------- --------- ---------
Gross profit......... 2,444 19.6 1,306 18.4 1,116 17.4
Selling, general and
administrative
expenses............. 2,198 17.6 1,086 15.3 888 13.9
--------- --------- --------- --------- --------- ---------
Income from
operations........... 246 2.0 220 3.1 228 3.5
Interest and other
expense, net......... 295 2.4 148 2.1 135 2.0
--------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes......... $ (49) (0.4)% $ 72 1.0% $ 93 1.5%
========= ========= ========= ========= ========= =========
</TABLE>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------ --------------------
1996 1996 1997
------------ --------- ---------
OPERATING DATA:
Period end sales centers.............. 4 3 4
Homes sold............................ 359 198 193
Multi-section home sales.............. 57% 56% 60%
Average home sale price............... $ 34,593 $ 35,717 $ 33,176
FIRST AMERICAN RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE
SIX MONTHS ENDED
JUNE 30, 1996
HOME SALES. Home sales decreased by $0.7 million, or 9.5%, from $7.1
million for the six months ended June 30, 1996 to $6.4 million for the six
months ended June 30, 1997. The decrease in home sales resulted from a decrease
in sales from centers open all of both periods of $1.7 million partially offset
by a new sales center, which contributed $1.0 million to home sales. The
decrease in home sales from centers open all of both periods resulted from an
18% decline in the number of homes sold. Management attributes this decrease to
First American's opening of a sales center in the market area of an existing
sales center, increased competition and salesforce turnover and
underperformance. In addition, First American experienced a 7% decline in the
average price per home due to a 77% increase in the number of pre-owned homes
sold.
GROSS PROFIT. Gross profit decreased $0.2 million, or 14.5%, from $1.3
million for the six months ended June 30, 1996 to $1.1 million for the six
months ended June 30, 1997. As a percentage of total revenue, gross margin
decreased from 18.4% in the six months ended June 30, 1996 to 17.4% in the six
months ended June 30, 1997, reflecting lower margins on homes sold as management
sought to sell more sites at a subdivision owned by First American (this
subdivision is not being acquired by the Company in the Mergers).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.2 million, or 18.2%, from $1.1 million for
the six months ended June 30, 1996 to $0.9 million for the six months ended June
30, 1997, primarily due to lower management fees paid to an affiliated entity.
As a percentage of total revenue, selling, general and administrative expenses
decreased from 15.3% in the six months ended June 30, 1996 to 13.9% in the six
months ended June 30, 1997.
39
<PAGE>
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net remained
constant at $0.1 million for the six months ended June 30, 1996 and the six
months ended June 30, 1997.
FIRST AMERICAN LIQUIDITY AND CAPITAL RESOURCES
First American generated $0.2 million of net cash from operating activities
for the six months ended June 30, 1997. Net cash used by investing activities
was negligible. Net cash used in financing activities was $0.1 million,
representing payments on long-term debt. At June 30, 1997, First American had a
working capital deficit of $0.2 million and $0.3 million of long-term debt.
First American used $0.1 million of net cash in operating activities during
1996. Net cash used in investing activities was $0.1 million, principally to
open a sales center. Net cash used in financing activities was negligible. At
December 31, 1996, First American had a working capital deficit of $0.1 million
and $0.4 million of long-term debt.
COOPER RESULTS OF OPERATIONS
Cooper, headquartered in Wenatchee, Washington, was founded in 1973 and
operates a total of seven sales centers in central Washington.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------ ------------------------------------------
1995 1996 1996 1997
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Home sales........... $ 8,123 90.0% $ 8,823 91.0% $ 4,072 93.5% $ 5,415 95.9%
Other revenue........ 903 10.0 878 9.0 285 6.5 230 4.1
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenue...... 9,026 100.0 9,701 100.0 4,357 100.0 5,645 100.0
Cost of sales.......... 6,824 75.6 6,829 70.4 2,972 68.2 4,099 72.6
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit........... 2,202 24.4 2,872 29.6 1,385 31.8 1,546 27.4
Selling, general and
administrative
expenses............. 1,728 19.1 2,013 20.8 967 22.2 1,264 22.4
--------- --------- --------- --------- --------- --------- --------- ---------
Income from
operations........... 474 5.3 859 8.8 418 9.6 282 5.0
Interest and other
expense, net......... 499 5.5 311 3.2 145 3.3 299 5.3
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes......... $ (25) (0.2)% $ 548 5.6% $ 273 6.3% $ (17) (0.3)%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
OPERATING DATA:
Period end sales centers........ 3 6 3 7
Homes sold...................... 178 186 85 110
Multi-section home sales........ 85% 91% 88% 94%
Average home sale price......... $ 45,635 $ 47,435 $ 47,906 $ 49,227
COOPER RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1996
HOME SALES. Home sales increased $1.3 million, or 33.0%, from $4.1 million
for the six months ended June 30, 1996 to $5.4 million for the six months ended
June 30, 1997. The increase in home sales resulted primarily from the opening of
one sales center in the second half of 1996 and the repositioning of two sales
centers in the latter half of 1996 by transferring higher priced inventory to
two new "residential display" sales centers and the conversion of two existing
sales centers to focus on lower priced homes. The number of homes sold increased
29% during the first six months of 1997 as a result of the increase in the
number of sales centers. In addition, the average sales price per home increased
3% during the first six months of 1997, primarily as a result of higher sales of
multi-section homes.
40
<PAGE>
OTHER REVENUE. Other revenue decreased $0.1 million, or 19.3%, from $0.3
million for the six months ended June 30, 1996 to $0.2 million for the six
months ended June 30, 1997, primarily due to a decrease in construction-related
revenue.
GROSS PROFIT. Gross profit increased $0.1 million, or 11.6%, from $1.4
million for the six months ended June 30, 1996 to $1.5 million for the six
months ended June 30, 1997. As a percentage of total revenue, gross margin
decreased from 31.8% for the six months ended June 30, 1996 to 27.4%, for the
six months ended June 30, 1997 as a result of a reduction in construction
revenue due to inclement weather during early 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.3 million, or 30.7%, from $1.0 million for
the six months ended June 30, 1996 to $1.3 million for the six months ended June
30, 1997, primarily due to the hiring of management and administrative employees
to support planned growth. As a percentage of total revenue, selling, general
and administrative expenses increased from 22.2% for the six months ended June
30, 1996 to 22.4% for the six months ended June 30, 1997.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net increased
$0.2 million, or 106.2%, from $0.1 million for the first six months of 1996 to
$0.3 million for the first six months of 1997, as a result of higher floor plan
financing costs associated with higher average inventory levels.
COOPER RESULTS FOR 1996 COMPARED TO 1995
HOME SALES. Home sales increased $0.7 million, or 8.6%, from $8.1 million
in 1995 to $8.8 million in 1996. The increase in home sales resulted from an
increase in sales at centers open all of both periods. The increase in sales
from centers open all of both periods resulted from a 15% increase in the number
of homes sold in 1996 and a 12% increase in the average sales price per home.
OTHER REVENUE. Other revenue remained constant at $0.9 million in 1995 and
1996.
GROSS PROFIT. Gross profit increased $0.7 million, or 30.4%, from $2.2
million in 1995 to $2.9 million in 1996. As a percentage of total revenue, gross
margin increased from 24.4% in 1995 to 29.6% in 1996, primarily due to higher
margins from construction-related activities in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.3 million, or 16.5%, from $1.7 million in
1995 to $2.0 million in 1996, primarily due to the higher costs associated with
the opening of one new sales center and the repositioning of two sales centers
in 1996. As a percentage of total revenue, selling, general and administrative
expenses increased from 19.1% in 1995 to 20.8% in 1996.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net decreased
$0.2 million, or 37.7%, from $0.5 million for 1995 to $0.3 million in 1996, due
to more favorable floor plan financing terms.
COOPER LIQUIDITY AND CAPITAL RESOURCES
Net cash generated from operating activities for the six months ended June
30, 1997 was $0.1 million. Net cash used in investing activities was $0.2
million, principally for the purchase of property and equipment. Net cash
generated from financing activities was $0.1 million and consisted primarily of
proceeds from long-term debt. At June 30, 1997, Cooper had working capital of
$0.4 million and $0.5 million of long-term debt.
Cooper generated $0.1 million of net cash from operating activities during
1996. Net cash used in investing activities was $0.5 million, principally for
new sales centers. Net cash generated from financing activities was $0.4 million
and consisted of proceeds from short-term and long-term borrowings. At December
31, 1996, Cooper had working capital of $0.3 million and $0.4 million of
long-term debt.
41
<PAGE>
HOME FOLKS RESULTS OF OPERATIONS
Home Folks, headquartered in Owensboro, Kentucky, was founded in 1972 and
operates one sales center in Owensboro, Kentucky.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, SIX MONTHS ENDED JUNE 30,
-------------------- ------------------------------------------
1996 1996 1997
-------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Home sales....................... $ 7,985 99.5% $ 3,434 99.9% $ 3,961 99.6%
Other revenue.................... 42 0.5 4 0.1 16 0.4
--------- --------- --------- --------- --------- ---------
Total revenue.................. 8,027 100.0 3,438 100.0 3,977 100.0
Cost of sales...................... 6,121 76.3 2,650 77.1 3,104 78.0
--------- --------- --------- --------- --------- ---------
Gross profit....................... 1,906 23.7 788 22.9 873 22.0
Selling, general and administrative
expenses......................... 1,541 19.2 548 15.9 638 16.0
--------- --------- --------- --------- --------- ---------
Income from operations............. 365 4.5 240 7.0 235 6.0
Interest and other expense, net.... 112 1.4 68 2.0 42 1.1
--------- --------- --------- --------- --------- ---------
Income before income taxes......... $ 253 3.1% $ 172 5.0% $ 193 4.9%
========= ========= ========= ========= ========= =========
</TABLE>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------ --------------------
1996 1996 1997
------------ --------- ---------
OPERATING DATA:
Period end sales centers........... 1 1 1
Homes sold......................... 269 124 138
Multi-section homes sales.......... 55% 50% 63%
Average home sale price............ $ 29,684 $ 27,694 $ 28,703
HOME FOLKS RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX
MONTHS ENDED
JUNE 30, 1996
HOME SALES. Home sales increased $0.6 million, or 15.3%, from $3.4 million
for the six months ended June 30, 1996 to $4.0 million for the six months ended
June 30, 1997. This increase resulted from an 11% increase in the number of
homes sold, reflecting a strong local market and improvements to the sales
center's curb appeal. In addition, Home Folks experienced a 4% increase in the
average price per home due to increased sales of higher priced multi-section
homes.
GROSS PROFIT. Gross profit increased $0.1 million, or 10.8%, from $0.8
million for the six months ended June 30, 1996 to $0.9 million for the six
months ended June 30, 1997. As a percentage of total revenue, gross margin
decreased from 22.9% in the six months ended June 30, 1996 to 22.0% in the six
months ended June 30, 1997, primarily due to an increase in setup and delivery
costs associated with increased sales of multi-section homes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 16.4%, from $0.5 million for
the six months ended June 30, 1996 to $0.6 million for the six months ended June
30, 1997 due to increased sales commissions. As a percentage of total revenue,
selling, general and administrative expenses increased from 15.9% in the six
months ended June 30, 1996 to 16.0% in the six months ended June 30, 1997.
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net remained
constant at less than $0.1 million in the six months ended June 30, 1996 and the
six months ended June 30, 1997.
42
<PAGE>
HOME FOLKS LIQUIDITY AND CAPITAL RESOURCES
Home Folks generated $0.1 million net cash from operating activities for
the six months ended June 30, 1997. Net cash used in investing activities was
negligible. No net cash was used in financing activities. At June 30, 1997, Home
Folks had working capital of $0.5 million and no long-term debt.
Home Folks generated $0.6 million of net cash from operating activities
during 1996. Net cash used in investing activities was $0.1 million, principally
for purchases of property and equipment. Net cash used in financing activities
was $0.6 million and consisted of principal payments on short-term debt. At
December 31, 1996, Home Folks had working capital of $0.3 million and no
long-term debt.
WILLMAX RESULTS OF OPERATIONS
WillMax, headquartered in Colorado Springs, Colorado, was founded in 1994
and operates one sales center in Colorado Springs, Colorado.
The following table sets forth selected statement of operations data and
such data as a percentage of total revenue, together with selected operating
data, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, SIX MONTHS ENDED JUNE 30,
-------------------- ------------------------------------------
1996 1996 1997
-------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Home sales........... $ 3,512 98.7% $ 1,281 98.6% $ 1,613 94.7%
Other revenue........ 48 1.3 18 1.4 91 5.3
--------- --------- --------- --------- --------- ---------
Total revenue...... 3,560 100.0 1,299 100.0 1,704 100.0
Cost of sales.......... 2,955 83.0 1,097 84.4 1,273 74.7
--------- --------- --------- --------- --------- ---------
Gross profit........... 605 17.0 202 15.6 431 25.3
Selling, general and
administrative
expenses............... 511 14.4 167 12.9 315 18.5
--------- --------- --------- --------- --------- ---------
Income from
operations............. 94 2.6 35 2.7 116 6.8
Interest and other
expense, net........... 100 2.8 41 3.2 44 2.6
--------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes........... $ (6) (0.2)% $ (6) (0.5)% $ 72 4.2%
========= ========= ========= ========= ========= =========
</TABLE>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------ --------------------
1996 1996 1997
------------ --------- ---------
OPERATING DATA:
Period end sales centers.............. 1 1 1
Homes sold............................ 74 24 36
Multi-section home sales.............. 61% 84% 56%
Average home sale price............... $ 47,459 $ 53,375 $ 44,806
WILLMAX RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1996
HOME SALES. Home sales increased $0.3 million, or 25.9%, from $1.3 million
for the six months ended June 30, 1996 to $1.6 million for the six months ended
June 30, 1997. This increase resulted from a 50% increase in the number of homes
sold, partially offset by a 16% decrease in the average sale price per home due
to management's decision to increase its focus on sales of single-section homes.
GROSS PROFIT. Gross profit increased $0.2 million, or 113.4%, from $0.2
million for the six months ended June 30, 1996 to $0.4 million for the six
months ended June 30, 1997. As a percentage of total revenue, gross margin
increased from 15.6% in the six months ended June 30, 1996 to 25.3% in the six
months ended June 30, 1997 due to increased commissions on consignment sales and
an increase in the number of pre-owned homes sold, which have a higher gross
margin than new homes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 88.6%, from $0.2 million for
the six months ended June 30, 1996 to $0.3 million for the six months ended June
30, 1997. As a percentage of total revenue, selling, general and administrative
expenses increased from 12.9% in the six months ended June 30, 1996 to 18.5% in
the six months ended June 30, 1997, due primarily to increased commissions to
sales personnel for consignment sales.
43
<PAGE>
INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net remained
constant at less than $0.1 million for each of the six month periods ended June
30, 1996 and 1997.
WILLMAX LIQUIDITY AND CAPITAL RESOURCES
Net cash generated from operating activities for the six months ended June
30,1997 was $0.1 million. Net cash used in investing activities and financing
activities was negligible during the first six months of 1997. At June 30, 1997,
Willmax had working capital of $0.1 million and less than $0.1 million in long-
term debt.
Net cash from operating activities and investing activities was negligible
during 1996. Net cash used in financing activities was less than $0.1 million.
At December 31, 1996, Willmax had a working capital deficit of less than $0.1
million and $0.1 million in long-term debt.
44
<PAGE>
BUSINESS
HomeUSA was founded to become the leading independent national retailer of
manufactured homes by pursuing an aggressive consolidation of the highly
fragmented manufactured housing retail industry. The manufactured housing retail
industry generated $14 billion in sales in 1996 and is highly fragmented, with
over 6,000 retail sales centers. The vast majority of manufactured housing
retailers are independently-owned private companies operating a single sales
center. The Company believes that most of these retailers have not adopted a
professional sales and marketing approach and do not offer their customers the
full range of available products and services. Because many retailers have
limited access to capital for the modernization and expansion of their
businesses and have few attractive liquidity options, the Company believes that
significant consolidation opportunities exist. The Company believes that it will
develop a competitive advantage by offering manufacturers a substantial and
stable distribution system committed to maintaining high standards of
professionalism in sales and marketing, installation and service.
Upon consummation of this Offering, HomeUSA will acquire the nine Founding
Companies, which have been in business an average of 16 years and had pro forma
combined total revenue of $192.8 million in 1996 and $97.8 million in the first
six months of 1997.
PRODUCT OVERVIEW
A manufactured home is a single-family house constructed entirely in a
controlled factory environment, rather than at the home site. Manufactured homes
are built in sections, with homes consisting of one or more sections. Assembly
line techniques are utilized during construction, allowing volume purchases of
materials and components and more efficient use of labor. As a result,
manufactured homes are constructed for approximately one-half the cost per
square foot of new site-built homes. The construction of manufactured homes has
benefited greatly from improved design, better materials and the positive
effects of the Department of Housing and Urban Development ("HUD")
Manufactured Home Construction and Safety Standards (the "HUD Code"), which
established national standards covering all aspects of manufactured home
construction.
The quality of today's manufactured homes, both structurally and
aesthetically, is far superior to the "mobile homes" of the past, and in most
cases the appearance of manufactured homes closely resembles more traditional
site-built homes. A 1993 study conducted by the University of Michigan concluded
that there are no major quality differences between manufactured and site-built
housing in terms of structural performance and maintenance records. Manufactured
homes can be customized to meet individual customer needs and offer most of the
amenities of, and are generally built with the same materials as, site-built
homes. Many features associated with site-built homes are included in
manufactured homes, such as central heating, name brand appliances, carpeting,
cabinets and wall coverings. Optional features include such amenities as walk-in
closets, fireplaces, whirlpool baths and vaulted ceilings, as well as
retailer-installed options such as central air conditioning and furniture
packages.
INDUSTRY OVERVIEW
Total retail sales of manufactured homes in 1996 were approximately $14
billion, and industry analysts forecast that industry sales will increase by
approximately 6% per year through the year 2000. Manufactured housing continues
to gain share in the market for new homes. In 1996, manufactured homes accounted
for approximately one-third of all new single-family homes sold in the United
States, up from approximately one-quarter in 1991. Management attributes this
growth to (i) the relatively low cost and increasing quality of manufactured
homes, (ii) broader consumer acceptance of manufactured housing, (iii) greater
availability of financing and (iv) favorable demographic trends. The average
sale price of a new manufactured home in 1996 was $38,400 (exclusive of land),
as compared to $124,650 (exclusive of land) for a new site-built home. Because
increases in household incomes in the United States have failed to keep pace
with increases in the prices for new site-built homes, manufactured housing has
become the only viable form of new home ownership for an increasing number of
households, particularly first time buyers and retirees, groups which
historically have represented a large percentage of the purchasers of
manufactured homes. As consumer awareness of the quality and affordability of
manufactured housing has grown, demand has
45
<PAGE>
shifted toward larger, multi-section homes, which accounted for more than
one-half of the manufactured houses purchased in 1996. Multi-section homes have
attracted a higher income buyer than single section homes, and in 1996,
approximately 40% of manufactured home purchasers had family incomes above
$40,000, as compared to approximately 27% in 1986. Population shifts toward the
South, Southwest and Far West, where land costs are generally lower, zoning
ordinances are less restrictive and alternative forms of housing are in short
supply, should increase the demand for manufactured homes. Coinciding with this
regional shift in the population, the number of young adults and retirement age
persons is expected to more than double between 1997 and 2010, in contrast to
1991 through 1996, when the number of persons in these age groups remained
relatively constant.
Financing has become readily available to qualified manufactured home
buyers from a variety of lenders. A number of these lenders have established
securitization programs for consumer loans. Both the Federal Housing
Administration's and the Department of Veterans Affairs' guaranteed loan
programs permit loans for the purchase of manufactured housing. In addition, the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation accept manufactured housing mortgage loans and allow these mortgage
loans to be pooled with traditional real estate mortgage loans. Alternatively,
manufactured homes may be financed as secured personal property loans in
instances where the buyer does not own the land upon which the home will be
sited.
The manufactured housing retail industry is highly fragmented, with over
6,000 retail sales centers. Retail sales of manufactured homes are primarily
conducted through independently-owned retailers, the vast majority of which
operate a single sales center. Four manufacturers have vertically integrated
into retail sales. Oakwood Homes Corporation, Clayton, Palm Harbor and American
Homestar Corporation own and operate approximately ten percent of the total
number of sales centers, and their sales centers typically sell only homes
produced by them. Since manufactured homes can only be economically transported
within approximately 250 miles of a manufacturing facility, these manufacturers
are geographically constrained as to the location of the sales centers which
they own. In addition to their owned sales centers, these manufacturers (as well
as those manufacturers which are not vertically integrated) sell their homes
through networks of independent retailers. The two largest manufacturers,
Fleetwood and Champion, neither of which currently owns a significant number of
sales centers, accounted for 40% of all manufactured home shipments in 1996, and
the ten largest manufacturers accounted for 70% of all manufactured home
shipments in 1996.
From 1991 through 1996, the manufactured home retail industry experienced a
significant increase in the number of homes sold. Industry shipments were
approximately 171,000 homes in 1991 compared to 363,000 homes in 1996. During
the first half of 1997, industry shipments declined approximately 3% from the
first half of 1996, although total sectional shipments remained constant, due to
the shift toward larger, multi-section homes. The growth in sales from 1991 to
1996 and the low capital requirements for market entry have attracted a
significant number of new retailers into the industry during the past several
years. New sales centers have been opened by independently-owned operators, many
of whom have little capital or retail experience, as well as the four vertically
integrated manufacturers. Consistent with other industries with low barriers to
entry, the industry experienced influxes of new independent retailers in the
past when manufactured housing market conditions became more favorable and has
experienced a subsequent reduction in the number of sales centers as market
conditions became less favorable.
INDUSTRY CONSOLIDATION
The manufactured housing retail industry generated approximately $14
billion in sales in 1996 with no single independent retailer accounting for more
than 1% of total industry sales. The vast majority of independent retailers are
independently-owned private companies operating a single sales center. The
Company believes that the marketing practices of most independent retailers have
not kept pace with advances in the quality and aesthetic appeal of manufactured
housing, the increasing sophistication of target customers or the range of
products and services available. Because many industry retailers have limited
access to capital for modernization and expansion of their businesses and have
few attractive liquidity
46
<PAGE>
options, the Company believes that significant consolidation opportunities exist
for a well-capitalized, independent national retailer utilizing professional
marketing and sales techniques.
To date, the primary acquirors of sales centers in the retail manufactured
housing industry have been the four large vertically integrated manufacturers.
In addition to acquiring existing sales centers, these companies have been
opening new sales centers and are continuing to affiliate with independent
retailers. The Company believes that its decentralized operating strategy will
make it more attractive to acquisition candidates than vertically integrated
manufacturers, which typically install their own operating systems, procedures
and management and eliminate the acquired retailer's separate identity, thereby
effectively converting the business into a branch office. In contrast, the
Company intends to preserve much of the autonomy and identity of the acquired
businesses. By allowing the former owners of acquired companies the opportunity
to continue to manage their businesses and to increase their focus on customer
service and professional marketing and sales techniques rather than
administration, the Company believes it offers these owners an appealing
alternative to the integrated manufacturers. In addition, the Company believes
it will be regarded by acquisition candidates as an attractive acquiror because
of: (i) the Company's strategy for creating a national, professionally managed
manufactured home retailer; (ii) the lack of other attractive liquidity options
and viable exit strategies for owners of target businesses; (iii) the
opportunity for meaningful equity positions in the Company for the owners of
acquired businesses, thereby allowing them to participate in the Company's
growth; (iv) the Company's increased visibility and its access to financial
resources as a public company; and (v) the potential for increased profitability
and sales of the acquired company through access to capital to upgrade its sales
centers, purchasing economies and access to best marketing and sales practices.
The most important criteria for choosing an acquisition candidate will be
(i) the caliber of the candidate's management and sales personnel, (ii) the
location of the business, the market area served and the potential for
expansion, (iii) the candidate's sales and profitability and (iv) the brand of
manufactured homes sold by the candidate. The principals of the Founding
Companies have substantial experience in the industry and are personally
acquainted with the owners of numerous acquisition targets. Within the past
several months, the Company has contacted the owners of a number of acquisition
candidates, several of whom have expressed interest in having their businesses
acquired by the Company. The Company currently has no agreements to effect any
acquisitions other than the Founding Companies.
As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The consideration for
each future acquisition will vary on a case-by-case basis, with the major
factors in establishing the purchase price being historical operating results,
future prospects of the target and the ability of the target to complement the
products and services offered by the Company. Within 90 days following the
completion of this Offering, the Company intends to register 10,000,000
additional shares of Common Stock under the Securities Act for its use in
connection with future acquisitions. The Company believes that it can structure
its larger acquisitions as tax-free reorganizations by using its Common Stock as
consideration, which will be attractive to those targeted business owners with a
low tax basis in the stock of their businesses.
BUSINESS STRATEGY
The Company's objective is to become the leading independent national
retailer of manufactured housing homes by consolidating the industry through an
aggressive acquisition strategy, operating on a decentralized basis, increasing
operating efficiencies and promoting internal growth. The Company believes that
it will develop a competitive advantage by offering to manufacturers a
substantial and stable retail distribution system that is committed to
maintaining high standards of professionalism in sales and marketing,
installation and service.
EXPAND THROUGH ACQUISITIONS. The Company believes there are significant
opportunities for consolidation in the manufactured housing retail industry and
plans to pursue an aggressive acquisition program. The key elements of the
Company's acquisition strategy are:
47
<PAGE>
o ENTER NEW GEOGRAPHIC MARKETS. The Company intends to expand
into geographic markets not currently served by the Founding Companies by
selectively acquiring well-established manufactured home retailers that,
like the Founding Companies, are leaders in their regional markets, are
financially stable, have a strong customer base and can serve as
"platforms" for the future growth of the Company. Despite the
fragmentation in the industry, the Company believes there are established
retailers that have gained significant market share in their markets. The
Company anticipates that its platform acquisition candidates will each have
annual revenues of at least $15 million.
o BUILD REGIONAL DENSITY. The Company plans to build regional
density by pursuing acquisitions in markets it already serves as well as
markets served by future acquisitions. The Company believes that building
density in regional markets will allow it to manage inventories more
effectively, improve recruiting, training and retention of sales staffs,
develop regional advertising and marketing programs and manage the resale
of pre-owned homes more effectively. The Company believes that this
strategy will also allow the Company to dedicate sales centers in a
particular market to different types of homes which appeal to customers of
different demographic characteristics.
OPERATE ON DECENTRALIZED BASIS. The Company intends to manage the Founding
Companies and subsequently acquired companies on a decentralized basis, with
local management retaining responsibility for the day-to-day operations of sales
centers, profitability and internal growth of the business. The Company believes
that, while maintaining strong operating and financial controls, a decentralized
operating structure will retain the entrepreneurial culture present in each of
the Founding Companies and will allow the Company to capitalize on the
considerable local and regional market knowledge, name recognition and customer
relationships already established by each of the Founding Companies and
subsequently acquired businesses.
INCREASE OPERATING EFFICIENCIES. The Company believes that the combination
of the Founding Companies presents significant opportunities to achieve
operating efficiencies, which should continue to improve as the Company grows
both through acquisitions and internally. These opportunities include:
o IMPROVED FLOOR PLAN FINANCING. Based upon discussions with
several potential lenders, the Company believes that it will be able to
obtain floor plan financing on more favorable terms than any of the
Founding Companies could individually obtain. In 1996, the Founding
Companies incurred total interest expense of $4.2 million at a weighted
average interest rate of 10.2%.
o MAXIMIZE REBATES Several of the Founding Companies do not
currently qualify for the highest volume rebates offered by manufacturers.
By combining the sales volumes of the Founding Companies, the Company
expects to qualify for the maximum available manufacturers' volume rebates.
The Company also believes that it will be able to improve its access to
product by offering manufacturers the opportunity to deal with a single,
large distribution network for its products.
o VOLUME PURCHASING. By combining the sales volumes of the
Founding Companies, the Company believes that it will be able to realize
purchasing economies for retailer-installed options such as air
conditioning and appliances. Retailer-installed options and site amenities
can represent as much as ten percent of the sale price for a manufactured
home. The Company also believes that it will be able to reduce the total
operating expenses of the Founding Companies and other acquired businesses
by centralizing the Company's general liability and property insurance
coverage. The Founding Companies spent $2.0 million on insurance in 1996.
PROMOTE INTERNAL GROWTH. The Company believes there are opportunities to
increase the sales volume and profitability of the Founding Companies and
subsequently acquired businesses. The key elements of the Company's internal
growth strategy are:
o EXPAND VALUE-ADDED SERVICES PROVIDED. By expanding the range of
value-added services provided to customers, the Company believes it can
increase its sales and profitability, initially in the area of financing
and insurance arranged for customers. The Company believes that it can
expand other value-added services such as providing a full range of
retailer-installed options, assisting in locating
48
<PAGE>
home sites for customers and installing site amenities such as wells,
septic systems, carports, decks, driveways and landscaping.
o OPEN NEW SALES CENTERS. An integral part of the Company's
internal growth strategy is the opening of additional sales centers in
geographic areas served by the Company. The Company will focus primarily on
small to mid-sized communities as well as outlying suburban areas where the
market for manufactured homes is greatest and there is less competition
from site-built housing. The Company anticipates opening up to
approximately 20 new centers in the next 12 to 18 months. The Company has
hired a Senior Vice President of Real Estate and Construction with
significant experience in siting multi-unit retail centers to oversee the
site selection and relocation effort.
o ENHANCE CURB APPEAL. Marketing studies indicate that as many as
two-thirds of all people who visit a manufactured homes sales center do so
because of the center's "curb appeal." Historically, most sales centers
displayed model homes on gravel lots with few site improvements. The
Company intends to enhance curb appeal by utilizing "residential
displays" to feature professional landscaping, fully-skirted, well-lit and
furnished homes, and paved or elevated walkways to allow direct access into
homes.
o DEVELOP SOPHISTICATED MARKETING PROGRAM. The Company believes
that most consumers are unaware of the quality and affordability of
manufactured homes and that there is little manufacturer brand recognition
among consumers. Through the application of targeted marketing techniques
and image advertising, the Company believes it will be able to communicate
better the quality and affordability of manufactured homes to potential
customers. The Company intends to target groups such as newly-married
couples and retirees, primarily through radio, print and direct mail
advertising.
RETAIL OPERATIONS
RETAIL SALES CENTERS. As of June 30, 1997, the Company had 65 sales
centers in 14 states, most of which were located in small to mid-size markets
(communities having populations of 12,000 to 100,000) in the South, Southwest
and Far West. Following the Offering, all of the aforementioned sales centers
will be on leased land. A typical sales center is situated on approximately two
to four acres along a major local thoroughfare or highway, with a sales office
and between five to ten model homes. Sales centers also typically carry as many
as ten additional homes in inventory. The particular selection of model homes
displayed at the Company's sales centers is tailored to meet local demand. Most
of the Founding Companies' sales centers utilize "residential displays" where
model homes are displayed in a residential setting to create maximum curb
appeal.
SALES FORCE. The Company's sales centers are typically staffed with a
manager and three to five salespeople. The Founding Companies have established
incentive-based compensation packages for sales center managers and salespeople,
based on total sales targets within gross margin limitations. The Company will
emphasize professional customer service throughout all levels of its
organization, which it believes will be a distinguishing characteristic from
most of its competitors. In addition to sales personnel, some of the Founding
Companies employ finance and insurance managers whose responsibility is to
arrange financing and insurance for customers. The Company intends to attract
and retain quality salespeople and sales center managers by providing them with
(i) additional training to improve sales professionalism, (ii) an enhanced
career path from working for a larger company, (iii) the opportunity to realize
a more stable income and (iv) improved benefits packages.
SALES PROCESS. When most potential buyers of a manufactured home visit a
sales center for the first time, they have limited knowledge about the quality
and affordability of the homes and typically do not own a lot upon which to site
a home. As a result, the salesperson with whom they interact is critical.
Salespeople are trained to develop a personal relationship with prospective
customers as it may often take several months to close a sale, particularly of a
multi-section, higher-priced home. Several of the Founding Companies have
implemented successful retailing techniques such as the use of promotional
videos and brochures, sales appointments, initial "needs-assessment"
interviews and sophisticated sales-prospect tracking software.
49
<PAGE>
SITE SELECTION. Marketing studies indicate that as many as two-thirds of
all people who visit a manufactured homes sales center do so because of the
center's "curb appeal." Location is, therefore, critical to the success of
each sales center. The Company's sales centers are typically located in
high-traffic areas along major thoroughfares or highways, primarily in small to
mid-size communities or outlying suburban areas. Before selecting a sales center
location, the Company analyzes local market conditions, demographics, traffic
flows, regional shopping patterns, the availability of land and manufactured
housing sites and employment trends. The Company has hired a Senior Vice
President of Real Estate and Construction with significant experience in siting
multi-unit retail operations to oversee the site selection and relocation
effort.
PRE-OWNED HOME SALES CENTERS. The availability of pre-owned manufactured
homes has increased significantly in recent years. Retail lenders typically
contract on a consignment basis with manufactured home retailers to transport,
clean and resell pre-owned manufactured homes. Retailers either earn a
commission for selling the home or buy the home from the lender for resale.
McDonald has one sales center in Tulsa, Oklahoma devoted exclusively to
pre-owned home sales and plans to develop a refurbishing and sales center on
forty acres near Springfield, Missouri in early 1998. The Company will consider
opening additional pre-owned home sales centers in other regions.
VALUE-ADDED SERVICES PROVIDED
FINANCE AND INSURANCE. The Founding Companies have established
relationships with national financing sources, including Green Tree Financial
Corporation, Associates First Capital Corporation and Bank of America. The
volume of loans originated by the Founding Companies should enable the Company
to obtain better financing terms for its customers while increasing the
Company's loan origination and participation fee income. Following the Mergers,
the Company believes it will have an advantage over those integrated
manufactured housing retailers who have captive financing sources. The Company
believes it will be able to obtain the best available interest rates and terms
for its customers by marketing its customer loans to several lenders. Most of
the Founding Companies currently serve as insurance agents for homeowner's
insurance and mortgage and credit-life insurance. The Company believes there is
a significant opportunity to increase commission income on both initial
insurance policy sales and policy renewals. Currently, most of the Founding
Companies receive insurance commissions only from initial policy sales. The
Company has hired a Vice President of Financial Services to concentrate on
finance and insurance.
SITING ASSISTANCE. Approximately 60% of manufactured housing is located on
purchaser-owned property, with most of the balance located in manufactured home
communities where the homeowners rent the lot upon which the home is sited. For
purchasers without access to available land, siting assistance is a necessity.
In many markets, particularly those in proximity to larger cities, there is a
shortage of subdivision lots or communities on which to site manufactured homes.
Retailers who can provide customers a site for their home have a significant
advantage over their competitors who do not have similar access to home sites.
Four of the Founding Company owners or their affiliates currently own and/or
manage manufactured housing communities and subdivisions. The Company intends to
establish relationships with the owners of those communities and subdivisions to
provide purchasers of manufactured homes from the Company with access to these
lots on a preferential basis. See "Certain Transactions." In selected markets
where the Company has a sufficient number of sales centers and the need for
siting assistance is particularly important, the Company intends to seek
relationships with developers to meet customers' needs. The Company may consider
the acquisition or development of manufactured housing communities in the
future.
PERMITTING. Many manufactured home buyers require assistance with the
time-consuming process of obtaining permits and approvals required to site a
manufactured home. As a full service retailer of manufactured housing, the
Company assists its customers in obtaining all necessary permits, approvals and
title work required by lenders, including zoning approvals, building permits and
well and septic or sewer permits.
TRANSPORTATION AND INSTALLATION. The manufacturer's price for most
manufactured homes does not include the cost of transporting the home.
Therefore, the Company provides for the transportation and
50
<PAGE>
installation of new homes, the cost of which is included in the sales price of
the home. The Founding Companies either utilize their own employees or
independent contractors to perform these services. Homes are transported to the
site on a chassis. Homes are set either on concrete block piers, continuous
foundations or on basements and connected to site utilities such as electric,
gas, water and sewer or septic. Company personnel add skirting and entry stairs
and, when requested, will also arrange for the construction of wells, septic
systems, driveways, carports, porches and decks as well as landscaping.
RETAILER-INSTALLED OPTIONS. The Company offers retailer-installed options,
including central air conditioning, washers, dryers, dishwashers, ceiling fans,
stereo systems and various furniture packages. In most instances, the Founding
Companies purchase these items from local distributors as customer orders are
received. The Company believes it may be able to obtain these items at lower
cost through volume purchasing.
WARRANTIES. Manufacturers of manufactured housing provide a one-year
warranty on the home and the components they install. Fleetwood and Palm Harbor
also provide limited five-year warranties on the structural components of the
homes they manufacture. The Founding Companies, as part of their customer
service focus, arrange for the repair of items subject to manufacturer's
warranties, and seek reimbursement for repair costs from the manufacturer. To
date, unreimbursed warranty repair costs have not been material.
PRODUCTS AND PRODUCT SOURCING
The Company sells single and multi-section homes manufactured by a number
of manufacturers, representing a range of home sizes, floor plans and decors
that can be customized to fit a particular customer's needs. Single section
homes are typically 16 to 18 feet wide and 70 to 80 feet long, with between 960
to 1,300 square feet of living space. Current retail prices for single section
homes sold by the Company, without land, range from approximately $21,000 to
$38,000. Multi-section homes consist of two or more floor sections that are
joined at the home-site and contain between 1,200 and 2,500 square feet. Current
retail prices of multi-section homes sold by the Company, without land,
typically range from $26,000 to $62,000, depending upon floor plan, options and
size. Multi-section homes represented approximately 55% of the Company's new
home sales in 1996.
Manufactured homes contain from two to five bedrooms and have a living
room, dining room, kitchen and one or more bathrooms. Larger homes also may have
a family room or den. Homes feature central heating, electric and plumbing
systems, a range, refrigerator, carpeting and cabinets and may have draperies
and wall coverings. Other amenities that can be purchased by the home buyer
include air conditioning, dishwasher, washer, dryer and furniture package and
cabinets, many of which are retailer-installed options. Some manufacturers offer
other optional features associated with site-built homes such as walk-in
closets, fireplaces, whirlpool baths, sky-lights and vaulted ceilings. The chief
components used in manufactured homes are generally of the same kind and quality
as those used in conventional site-built homes.
The Company currently purchases manufactured homes primarily from
Fleetwood, Champion, Palm Harbor and Belmont. In 1996, approximately 60% of the
Company's new home sales were homes manufactured by Fleetwood. The Founding
Companies limit the number of manufacturers from whom they purchase homes based
on geographical proximity to manufacturers' plants, range of products and
ability to qualify for maximum manufacturer rebates.
The Company does not have contracts with manufacturers which would assure a
continuing supply of homes. The Company's agreements with manufacturers
generally have terms of one to three years and are terminable upon short notice
by either party. Some agreements with Fleetwood cover only a specific sales
center, and some of these agreements contain annual sales, inventory and
market-share targets, require the retailer to maintain a specified percentage of
the manufacturer's product in inventory and to achieve minimum scores on
customer satisfaction surveys. The sales center's failure to meet these targets
may result in reduced rebates from the manufacturer. Some manufacturer
agreements give a particular sales center the exclusive right to sell the
manufacturer's product within a particular Basic Trade Area as long as only that
manufacturer's products are sold at that sales center and specified sales and
customer satisfaction targets are met. Each of the Founding Companies'
agreements with manufacturers contain provisions prohibiting the
51
<PAGE>
assignment of the agreement without the manufacturer's prior written consent. In
addition, agreements with Fleetwood prohibit a substantial change of ownership
or control of a retailer's business, including the merger of the retailer or the
sale of substantially all of its assets, without the prior approval of
Fleetwood. The Company expects to obtain any required consents to the Mergers.
MARKETING
The Company believes that most consumers are unaware of the quality and
affordability of manufactured homes. Marketing studies indicate that as many as
two-thirds of all people who visit a manufactured homes sales center do so
because of the center's "curb appeal." Additionally, the Company believes that
there is little manufacturer brand name recognition by consumers. As a result,
the Company's principal marketing objectives are to improve the curb appeal of
its sales centers, to inform prospective buyers better of the quality and
affordability of manufactured housing and to instill in prospective customers
name recognition of the Company or one of its acquired businesses as a leading
retailer of manufactured homes.
The Company intends to utilize target marketing aimed particularly at
newly-married couples and recently retired persons. Advertising will include
radio commercials, print ads, billboards, direct mail, telemarketing and
mall-based kiosks. Advertising will be concentrated from March through October,
typically the strongest selling season for the manufactured home industry. The
Company also expects to display models at various events, such as state fairs.
Since customer referrals are a frequent source of new sales, the Company expects
to increase the use of customer satisfaction surveys.
Current advertising activities vary among the Founding Companies although
expenditures have been approximately 1% of home sales. Consistent with the
Company's decentralized operating strategy, the Founding Companies will retain a
large degree of discretion over their advertising programs, within annual
budgets approved by the Company. As the Company increases in size, it will
consider establishing a national marketing program to assist the Founding
Companies and other businesses in the preparation of advertising, media
purchases and signage.
MANAGEMENT INFORMATION SYSTEMS
Sophisticated management information systems have typically not been used
in the manufactured housing retail industry. Soon after the completion of the
Offering, the Company intends to assess the accounting and management
information systems used by the Founding Companies and to implement a
Company-wide voice and data communication system linking sales centers to
regional offices and to the Company's headquarters. The Company intends to focus
on revenue enhancing systems applications such as (i) a manufacturers' online
ordering and order status system, (ii) an online credit verification and loan
application submittal system, (iii) a sales prospect tracking system with the
capability to download new sales prospects from Company-developed or purchased
data bases and (iv) a construction management system to monitor the status of
site delivery, set-up and amenity construction. The Company has hired a Vice
President and Chief Technology Officer with significant experience in systems
integration to develop these systems.
COMPETITION
The manufactured housing retail industry is highly competitive and the
capital requirements for entry are relatively small, with inventory financing
and customer financing generally available to a prospective retailer from
various lenders. The manufactured housing industry has over 6,000 retail sales
centers, approximately ten percent of which are owned by the four vertically
integrated manufacturers. Manufactured homes compete with a variety of
alternative forms of housing, particularly new and existing site-built homes and
rental apartments, and any decline in the cost of site-built housing is likely
to reduce demand for manufactured housing. The principal competitive factors for
retail sales are price, marketing techniques, range of products and services,
product availability, price and terms of customer financing, and ability to
assist purchasers in obtaining sites on which to locate purchased homes. The
Company is not able to estimate the total number of competitors in its marketing
area, but believes that minimal barriers to entry have contributed to a
significant increase in the number of new retailers over the past several years.
A
52
<PAGE>
continuation of this increase in the number of retailers is likely to lead to
greater competition, reduced profit margins and possibly a decline in the
Company's home sales. The Company also may be required to compete for
acquisition candidates, particularly with the four vertically integrated
manufacturers of manufactured housing that are or may become active in making
acquisitions of retail sales centers. The vertically integrated manufacturers
have greater resources than the Company in terms of existing dealer networks as
well as greater financial strength.
The Company will seek to differentiate itself from other independent
retailers. This differentiation strategy includes the Company's: (i) purchasing
power advantages, such as volume rebates from manufacturers, and floor plan
financing, (ii) attractive residential displays of homes targeted to the markets
served, (iii) more highly-trained and motivated sales force and (iv) ability to
offer customers a comprehensive package of products and services from a single
retail source.
The Company is not able to estimate the total number of competitors in its
market areas but believes that minimal barriers to entry have contributed to a
significant increase in the number of retailers over the past several years. A
continuation of the increase in the number of retailers is likely to lead to
greater competition, reduced profit margins and possibly a decline in the
Company's home sales.
REGULATION
Construction of manufactured housing is governed by the National Mobile
Home Construction and Safety Standards Act of 1974. In 1976, HUD issued
regulations under this Act, known as the "HUD Code," which established
comprehensive national construction standards to preempt conflicting state and
local regulations. The HUD Code covers all aspects of manufactured home
construction, including structural integrity, energy efficiency, fire safety,
air-quality and thermal protection and is periodically updated to reflect new
technologies and construction methods. The HUD Code requires that homes sold in
hurricane-prone areas be designed to withstand 110 miles per hour winds.
Detailed inspections of homes during manufacture are mandated by HUD to insure
compliance with the HUD Code, which are conducted by independent, HUD-designated
inspection agencies. Certain components of manufactured homes are also subject
to regulation by the Consumer Product Safety Commission (the "CPSC") which is
empowered, in certain circumstances, to ban the use of component materials
believed to be hazardous to health and to require manufacturers to repair
construction defects. In addition to the HUD Code and the CPSC, Federal Trade
Commission regulations require disclosure of a manufactured home's insulation
specification.
The Company is subject to various laws applicable to consumer financing.
The Federal Consumer Credit Protection Act, also known as the "Truth-in-Lending
Act," and Regulation Z promulgated thereunder require written disclosure of
information relating to such financing, including the amount of the annual
percentage rate and the finance charges. The Federal Equal Credit Opportunity
Act and Regulation B promulgated thereunder prohibit discrimination against any
credit applicant based on certain specified grounds. Among other things,
Regulation B requires the Company to provide a customer whose credit request has
been denied with a statement of reasons for the denial. The Federal Fair Credit
Reporting Act also requires disclosure of certain information used as a basis to
deny credit. The Federal Trade Commission has issued or proposed various
regulations dealing with unfair credit practices, collection efforts,
preservation of consumers' claims and defenses. In addition, before it may
arrange financing for its customers, the Company is required, under certain
state laws, to obtain a mortgage or consumer finance broker's license. The sale
of insurance products by the Company is subject to various state insurance laws
and regulations which govern allowable charges and other insurance sales
practices. The Company must be licensed as an insurance broker in each state
where it arranges insurance for its customers. The Company's failure to comply
with applicable consumer finance or insurance laws and regulations could result
in substantial fines, the possible loss of these licenses or litigation by
government agencies or affected customers, any of which may have a material
adverse effect on the Company's business, financial condition and results of
operations.
The transportation of manufactured homes is subject to federal and state
highway use laws and regulations. The laws and regulations impose limitations on
the width, length and weight of the load.
53
<PAGE>
The siting of manufactured homes is subject to local zoning ordinances and,
in some jurisdictions, local building codes. Many local zoning ordinances
restrict manufactured homes from subdivisions containing site-built homes and
require variances to place a manufactured home outside of a community previously
zoned for manufactured housing. However, at least 20 states now prohibit
exclusionary and discriminatory zoning applicable only to manufactured homes.
EMPLOYEES
As of August 31, 1997, the Company employed 639 persons. Of these, 73 were
sales center managers, 208 were sales persons, 212 were employed in service and
146 were executive and administrative personnel. The Company does not have any
collective bargaining agreements and considers its employee relations to be
good.
PROPERTIES
As of June 30, 1997, the Company operated 65 sales centers located in 14
states, all of which will be leased upon completion of the Offering. See
"Certain Transactions." The sales centers consist of two to ten acres, on
which manufactured homes are displayed, each with a sales office containing
approximately 2,200 square feet. The leases of these sales centers provide for
monthly rentals ranging from $1,200 to $4,900 and initial terms of one to two
years. The Company does not anticipate difficulty in renewing leases as they
expire or in obtaining alternate sites as necessary. The Company leases its
principal executive and administrative offices in Houston, Texas.
RISK MANAGEMENT; LITIGATION
The primary risks in the Company's operations are bodily injury, property
damage and injured workers' compensation. Upon completion of this Offering, the
Company intends to maintain Company-wide policies of liability insurance for
bodily injury and third-party property damage and workers' compensation
coverage, in amounts which it considers sufficient to protect the Company
against these risks, subject to self-insured amounts.
The Company is, from time to time, a party to litigation arising in the
normal course of its business. In the opinion of the Company, the ultimate
liability, if any, with respect to any pending litigation is not currently
expected to have a material adverse effect on the financial condition or the
results of operations of the Company. However, the ultimate resolution of these
matters could result in losses in excess of current estimates.
54
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors and executive officers.
NAME AGE POSITION
- --------------------------- --- ---------------------------------------------
Cary N. Vollintine......... 55 Chairman of the Board, Chief Executive
Officer and President
Michael F. Loy............. 52 Senior Vice President, Chief Financial
Officer and Director
Frank W. Montfort.......... 47 Senior Vice President of Market Development
Philip deMena.............. 57 Senior Vice President of Real Estate and
Construction
Don A. Palmour............. 42 Vice President and Chief Technology Officer
Philip Campbell............ 36 Vice President and Controller
Donald D. Moseley.......... 52 Vice President of Financial Services
Larry T. Shaffer........... 56 President of Universal, Director*
Gary W. Fordham............ 42 President of AAA Homes, Director*
David E. Thompson.......... 44 Chief Operating Officer of AAA Homes,
Director*
Frank C. McDonald.......... 46 President of McDonald, Director*
Harold K. Patrick.......... 59 President of Patrick, Director*
Stanley Poisso............. 66 President of Mobile World, Director*
Randle C. Cooper........... 37 President of Cooper, Director*
Steven S. Harter........... 35 Director
Thomas N. Amonett.......... 54 Director*
James J. Blosser........... 59 Director*
Stephen F. Smith........... 56 Director*
Richard Berry.............. 56 President of Home Folks
Joseph R. Copeland......... 47 President of First American
- ------------
* Election as a director of the Company effective as of the consummation of this
Offering.
Cary N. Vollintine has served as Chairman of the Board, Chief Executive
Officer, President and Director of the Company since January 1997 and has been
involved in the organization of the Company, the acquisition of the Founding
Companies and this Offering. From March 1989 until January 1995, Mr. Vollintine
held various positions with Blockbuster Entertainment Corp. ("Blockbuster")
including Assistant to the Vice-Chairman, Managing Director of
Integration-Europe and Corporate Controller. Prior to its acquisition by Viacom,
Inc. in 1995, Blockbuster was a publicly-traded company in the video rental and
related businesses. Prior to that, Mr. Vollintine spent 22 years in various
positions at Arthur Andersen LLP, including Partner-in-Charge of Mergers and
Acquisitions -- Southwest United States and Partner-in-Charge of the Fort Worth,
Texas office.
Michael F. Loy has served as Senior Vice President and Chief Financial
Officer and a Director of the Company since May 1997. From 1992 through 1996,
Mr. Loy was Vice President of Finance, Chief Financial Officer and Secretary of
Proler International Corp., a publicly-traded metals recycling company, which
was acquired in December 1996. From 1990 to 1992, Mr. Loy served as President of
MFL Consulting Group, Inc., a private financial consulting firm. Prior to that,
Mr. Loy held the positions of Vice President, Chief Financial Officer and
Director of Cabot Energy Corp., a holding company for Cabot Corp.'s energy
operations, Senior Vice President of Finance and Chief Financial Officer of MCO
Resources, Inc., a publicly-traded energy company, and was an Audit Partner with
Arthur Andersen LLP.
Frank W. Montfort has served as Senior Vice President of Market Development
of the Company since April 1997. From 1995 until 1997, Mr. Montfort was a
consultant to a publicly-traded consolidator in the heating, ventilation and air
conditioning business. From 1992 until 1995, Mr. Montfort served as Regional
Vice President of American Ecology Corp., a publicly-traded waste services
company. Prior to that, Mr. Montfort held various executive positions with
Browning-Ferris Industries, Inc. and Holiday Inns, Inc.
55
<PAGE>
Philip deMena has served as Senior Vice President of Real Estate and
Construction of the Company since May 1997. From 1995 until 1997, Mr. deMena was
Senior Vice President of Development for Papa John's U.S.A., Inc., a
publicly-traded restaurant company. From 1994 to 1995, Mr. deMena served as
Senior Vice President of Development for Kenny Rogers Roasters, Inc. a
restaurant company. From 1988 through 1993, Mr. deMena held various positions
with Blockbuster, including Vice President -- Real Estate and Construction.
Prior to that, Mr. deMena held various real estate development positions with
Kentucky Fried Chicken, a unit of Pepsico, Inc., Burger Chef System, Inc., and
British Petroleum Oil Corporation.
Don A. Palmour has served as Vice President and Chief Technology Officer of
the Company since August 1997. From September 1991 until August 1997, Mr.
Palmour was a director of BSG Alliance/IT, Inc., a national systems integration
consulting company. Prior to that, he specialized in systems integration for
Price Waterhouse Consulting and Andersen Consulting.
Philip Campbell has served as Vice President and Controller of the Company
since May 1997. From 1990 until 1997, Mr. Campbell was Vice President and Chief
Financial Officer of Deck The Walls, Inc., an art and framing retail store
chain. Prior to that, Mr. Campbell was an Audit Manager with Arthur Andersen
LLP.
Donald D. Moseley has served as Vice President of Financial Services of the
Company since August 1997. From 1993 until 1997, Mr. Moseley was the Executive
Vice President and Chief Financial Officer of Mortgage Quote Service, Inc., a
developer and marketer of computer software systems for the real estate and
mortgage banking industries. From 1991 until 1993, Mr. Moseley was Executive
Vice President and Chief Financial Officer of Wedge Energy Group, Inc., an
international oil field service and manufacturing company. Prior to that, he
held various positions with Western Industrial Gas Co., Kelso-Lambert Royalty
Company and Arthur Andersen LLP.
Larry T. Shaffer will become a director of the Company upon consummation of
this Offering. He has been President of Universal since 1977 and will continue
in that capacity following the consummation of this Offering.
Gary W. Fordham will become a director of the Company upon consummation of
this Offering. He has been President of AAA Homes since 1988 and will continue
in that capacity following the consummation of this Offering. Mr. Fordham was
President of the Mississippi Manufactured Housing Association in 1991 and 1992
and has served on its Board of Directors since 1988. Mr. Fordham was a founder
of AAA Homes in 1987. Mr. Fordham was appointed in 1995 to the Board of
Directors of the Mississippi Home Corporation, the housing agency for the State
of Mississippi.
David E. Thompson will become a director of the Company upon consummation
of this Offering. He has been Chief Operating Officer of AAA Homes since January
1988 and will continue in that capacity following the consummation of this
Offering. Mr. Thompson was a founder of AAA Homes in 1987. In Mississippi, Mr.
Thompson served as President of the Mississippi Manufactured Housing Association
in 1994, Vice-President in 1993 and a director from 1993 to 1995.
Frank C. McDonald will become a director of the Company upon the
consummation of this Offering. Mr. McDonald founded McDonald in 1987. He has
served as the President and Chairman of the Board of McDonald since that time
and will continue as President of McDonald following consummation of this
Offering. He is currently a member of the Board of Directors, the Executive
Committee and is Chairman of the Federated States Division of the Manufactured
Housing Institute (the manufactured housing industry's national trade
association); a member and past President of the Manufactured Housing
Association of Oklahoma; and a Commissioner of the agency that regulates
manufactured housing in Oklahoma.
Harold K. Patrick will become a director of the Company upon consummation
of this Offering. He founded Patrick in 1966. He has served as President of
Patrick since that time and will continue in that capacity following the
consummation of this Offering. He is past President of and currently a director
of the Mississippi Manufactured Housing Association and a past Director of the
Southeastern Manufactured Housing Institute.
56
<PAGE>
Stanley Poisso will become a director of the Company upon consummation of
this Offering. He has been President of Mobile World, Inc. since 1992 and
President of Showcase of Homes, Inc. since 1996 and will continue in those
capacities following the consummation of this Offering. From 1988 to 1994, Mr.
Poisso was President of South Fort Homes. Prior to that, he was President of Sam
L. Ives Mobile Home Sales, Inc.
Randle C. Cooper will become a director of the Company upon consummation of
this Offering. He has been President of Cooper since 1981, and will continue in
that capacity following the consummation of this Offering. He is currently a
member of the Washington Manufactured Housing Association and the North Central
Washington Homebuilders Association.
Steven S. Harter has been a director of the Company since July 1996. Mr.
Harter is the President of Notre. Prior to becoming the President of Notre, Mr.
Harter was Senior Vice President of Notre Capital Ventures, Ltd. From 1989 to
1993, Mr. Harter was Director of Mergers and Acquisitions for Allwaste, Inc., a
publicly-traded environmental services company. From 1984 to 1989, Mr. Harter
was a certified public accountant with Arthur Andersen LLP. Mr. Harter also
serves as a director of Coach USA, Inc., Comfort Systems USA, Inc. and Metals
USA, Inc.
Thomas N. Amonett will become a director of the Company upon consummation
of this Offering. Mr. Amonett served as President and Chief Executive Officer of
Weatherford Enterra, Inc., a publicly-held diversified international energy
service and manufacturing company, from 1996 to 1997. From 1992 to 1996, he
served as Chairman of the Board and President of Reunion Resources Company, a
publicly-traded company currently engaged in the manufacture of plastic
products. Prior to that time, Mr. Amonett served as Chairman of Weatherford
International Incorporated (presently, Weatherford Enterra, Inc.) and President
of Houston Oil Fields Co., and was Of Counsel with Fulbright & Jaworski, an
international law firm. Mr. Amonett also serves as a director of Weatherford
Enterra, Inc., Reunion Industries, Inc., PetroCorp, Inc., ITEQ, Inc. and
American Residential Services, Inc.
James J. Blosser will become a director of the Company upon consummation of
this Offering. Since 1995, Mr. Blosser has been the Executive Vice President of
Huizenga Holdings, a private investment company. From 1994 until 1995, Mr.
Blosser was the President of the Blockbuster Park Division of Blockbuster. From
1990 to 1994, Mr. Blosser was the General Counsel of Huizenga Holdings. Prior to
1990, Mr. Blosser was engaged in the private practice of law.
Stephen F. Smith will become a director of the Company upon consummation of
this Offering. Mr Smith was a co-founder in 1996 of Energy Consolidation, Inc.,
a company engaged in the acquisition of oil and gas service companies, and has
served as its President since inception. Mr. Smith is also the co-founder of The
Abbey Group, a consolidator of event production and party equipment rental
companies. From 1980 to 1996, Mr. Smith was a co-founder, Executive Vice
President and Chief Operating Officer of Sandefer Oil & Gas, Inc., an
independent oil and gas exploration and production company. Prior to 1980, Mr.
Smith was an Audit Partner with Arthur Andersen & Co.
Richard Berry founded Home Folks in October 1968. He has served as
President of Home Folks since its inception and will continue in that capacity
following consummation of this Offering. Mr. Berry has served as a director of
the Kentucky Manufactured Housing Institute at various times since 1969 and
served two terms as its President. He was a member of the Manufactured Housing
Institute from 1991 to 1996.
Joseph R. Copeland founded First American Homes in August 1981. He has
served as President of First American since its inception and will continue in
that capacity following consummation of this Offering. Mr. Copeland is currently
Chairman of the Alabama Manufactured Housing Commission and is a member and past
director of the Alabama Manufactured Housing Institute.
Effective upon consummation of this Offering, the Board of Directors will
be divided into three classes of five, four and four directors, respectively,
with directors serving staggered three-year terms, expiring at the annual
meeting of stockholders in 1998, 1999 and 2000, respectively. At each annual
meeting of stockholders, one class of directors will be elected for a full term
of three years to succeed that class of directors whose terms are expiring. The
Company's Certificate of Incorporation permits the holders of the
57
<PAGE>
Restricted Common Stock to elect one director. Mr. Harter is the director
elected by the holders of the Restricted Common Stock. All officers serve at the
discretion of the Board of Directors.
The Board of Directors has established an Audit Committee, a Compensation
Committee, a Nominating Committee and an Executive Committee. Effective upon
consummation of this Offering, the members of the Audit and Compensation
Committees will be Messrs. Blosser, Amonett and Smith. The members of the
Executive Committee and the Nominating Committee will be selected following the
consummation of this Offering. The Executive Committee will include at least one
outside director and the Nominating Committee will include three members, two of
whom will be directors from the Founding Companies.
DIRECTORS COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
will not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries will receive a
fee of $2,000 for attendance at each Board of Directors' meeting and $1,000 for
each committee meeting (unless held on the same day as a Board of Directors'
meeting). In addition, under the Company's 1997 Non-Employee Directors' Stock
Plan, each non-employee director will automatically be granted an option to
acquire 10,000 shares of Common Stock upon such person's initial election as a
director, and an annual option to acquire 5,000 shares at each annual meeting of
the Company's stockholders thereafter at which such director is re-elected or
remains as a director, unless such annual meeting is held within three months of
such person's initial election as a director. Each non-employee director also
may elect to receive shares of Common Stock or credits representing "deferred
shares" in lieu of cash directors' fees. See "-- 1997 Non-Employee Directors'
Stock Plan." Directors are also reimbursed for out-of-pocket expenses incurred
in attending meetings of the Board of Directors or committees thereof.
EXECUTIVE COMPENSATION, EMPLOYMENT AGREEMENTS, COVENANTS NOT-TO-COMPETE
The Company was incorporated in July 1996, has conducted no operations,
other than those associated with this Offering, and generated no revenue to date
and will not pay any of its executive officers any compensation prior to the
consummation of this Offering. The Company anticipates that during 1997 its most
highly compensated executive officers (other than those employed by a Founding
Company) will be Messrs. Vollintine, Loy, Montfort, deMena and Palmour.
Each of Messrs. Vollintine, Loy, Montfort and deMena will enter into an
employment agreement with the Company upon consummation of this Offering
providing for an annual base salary of $150,000. Mr. Palmour will enter into an
employment agreement with the Company upon consummation of this Offering
providing for an annual base salary of $125,000. Each employment agreement will
be for a term of three years, and unless terminated or not renewed by the
Company or not renewed by the employee, the term will continue thereafter on a
year-to-year basis on the same terms and conditions existing at the time of
renewal. Each of these agreements will provide that, in the event of a
termination of employment by the Company without cause, the employee will be
entitled to receive from the Company an amount equal to one year's salary,
payable in one lump sum on the effective date of termination. In the event of a
change in control of the Company (as defined in the agreement) during the
initial three-year term, if the employee is not given at least five days' notice
of such change in control, the employee may elect to terminate his employment
and receive in one lump sum three times the amount he would receive pursuant to
a termination without cause during such initial term. The non-competition
provisions of the employment agreement do not apply to a termination without
such notice. In the event the employee is given at least five days' notice of
such change in control, the employee may elect to terminate his employment and
receive in one lump sum two times the amount he would receive pursuant to a
termination without cause during such initial term. In such event, the
non-competition provisions of the employment agreement would apply for two years
from the effective date of termination. Each employment agreement contains a
covenant not-to-compete with the Company for a period of two years immediately
following termination of employment or, in the case of a termination by the
Company without cause in the absence of a change in control, for a period of one
year following termination of employment.
58
<PAGE>
Each of Messrs. McDonald, Patrick, Shaffer, Fordham, Thompson, Cooper,
Poisso, Berry and Copeland will enter into an employment agreement with his
Founding Company providing for an annual base salary of $150,000. Each
employment agreement will be for a term of five years, and unless terminated or
not renewed by the Founding Company or not renewed by the employee, the term
will continue thereafter on a year-to-year basis on the same terms and
conditions existing at the time of renewal. Each of these agreements will
provide that, in the event of a termination of employment by the Founding
Company without cause during the first three years of the employment term (the
"Initial Term"), the employee will be entitled to receive from the Founding
Company an amount equal to his then current salary for the remainder of the
Initial Term or for one year, whichever is greater. In the event of a
termination of employment without cause during the final two years of the
initial five-year term of the employment agreement, the employee will be
entitled to receive an amount equal to his then current salary for one year. In
either case, payment is due in one lump sum on the effective date of
termination. In the event of a change in control of the Company (as defined in
the agreement) during the Initial Term, if the employee is not given at least
five days' notice of such change in control, the employee may elect to terminate
his employment and receive in one lump sum three times the amount he would
receive pursuant to a termination without cause during the Initial Term. The
non-competition provisions of the employment agreement do not apply to a
termination without such notice. In the event the employee is given at least
five days' notice of such change in control, the employee may elect to terminate
his employment agreement and receive in one lump sum two times the amount he
would receive pursuant to a termination without cause during the Initial Term.
In such event, the non-competition provisions of the employment agreement would
apply for two years from the effective date of termination. Each employment
agreement contains a covenant not-to-compete with the Company for a period of
two years immediately following termination of employment or, in the case of a
termination by the Company without cause in the absence of a change in control,
for a period of one year following termination of employment.
1997 LONG-TERM INCENTIVE PLAN
No stock options were granted to, exercised by or held by any executive
officer in 1996. In July 1997, the Board of Directors and the Company's
stockholders approved the Company's 1997 Long-Term Incentive Plan (the
"Plan"). The purpose of the Plan is to provide directors, officers, key
employees, consultants and other service providers with additional incentives by
increasing their ownership interests in the Company. Individual awards under the
Plan may take the form of one or more of: (i) either incentive stock options or
non-qualified stock options ("NQSOs"), (ii) stock appreciation rights; (iii)
restricted or deferred stock, (iv) dividend equivalents and (v) other awards not
otherwise provided for, the value of which is based in whole or in part upon the
value of the Common Stock.
The Compensation Committee will administer the Plan and select the
individuals who will receive awards and establish the terms and conditions of
those awards. The maximum number of shares of Common Stock that may be subject
to outstanding awards, determined immediately after the grant of any award, may
not exceed the greater of 2,000,000 shares or 15% of the aggregate number of
shares of Common Stock outstanding. Shares of Common Stock which are
attributable to awards which have expired, terminated or been canceled or
forfeited are available for issuance or use in connection with future awards.
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
At the closing of this Offering, NQSOs to purchase a total of 650,000
shares of Common Stock will be granted as follows: 200,000 shares to Mr.
Vollintine, 100,000 shares to Mr. Loy, 100,000 shares to Mr. Montfort, 100,000
shares to Mr. deMena, 50,000 shares to Mr. Campbell, 50,000 shares to Mr.
Palmour and 50,000 shares to Mr. Moseley. In addition, at the consummation of
this Offering, options to purchase 952,483 shares will be granted to certain
employees of the Founding Companies. Each of the foregoing options will have an
exercise price equal to the initial public offering price per share. These
options will
59
<PAGE>
vest at the rate of 20% per year, commencing on the first anniversary of this
Offering, and will expire at the earlier of ten years from the date of grant or
three months following termination of employment.
1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's 1997 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which was adopted by the Board of Directors and approved by the
Company's stockholders in July 1997, provides for (i) the automatic grant to
each non-employee director serving at the consummation of this Offering of an
option to purchase 10,000 shares, (ii) the automatic grant to each other
non-employee director of an option to purchase 10,000 shares upon such person's
initial election as a director, and (iii) an automatic annual grant to each
non-employee director of an option to purchase 5,000 shares at each annual
meeting of stockholders thereafter at which such director is re-elected or
remains as a director, unless such annual meeting is held within three months of
such person's initial election as a director. All options will have an exercise
price per share equal to the fair market value of the Common Stock on the date
of grant and are immediately vested and expire on the earlier of ten years from
the date of grant or one year after termination of service as a director. The
Directors' Plan also permits non-employee directors to elect to receive, in lieu
of cash directors' fees, shares or credits representing "deferred shares" at
future settlement dates, as selected by the director. The number of shares or
deferred shares received will equal the number of shares of Common Stock which,
at the date the fees would otherwise be payable, will have an aggregate fair
market value equal to the amount of such fees.
60
<PAGE>
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
In connection with the formation of the Company, HomeUSA issued to Notre a
total of 1,843,823 shares (as adjusted for a 90.7127-to-one stock dividend) of
Common Stock for an aggregate cash consideration of $18,439. Mr. Harter is the
President of Notre and a director of the Company. In August 1997, Notre
exchanged 1,718,823 shares of Common Stock for 1,718,823 shares of Restricted
Common Stock. See "Description of Capital Stock." Notre has agreed to advance
whatever funds are necessary to effect the Mergers and this Offering, all of
which will be on a non-interest-bearing basis. As of June 30, 1997, Notre had
incurred expenses on behalf of the Company in the aggregate amount of $0.1
million. All of Notre's advances will be repaid from the net proceeds of this
Offering.
From July 1996 through August 1997, the Company issued a total of 876,226
shares of Common Stock (as adjusted for a 90.7127-to-one stock dividend) at $.01
per share to various members of management, as follows: Mr.
Vollintine -- 380,226 shares, Mr. Loy -- 110,000 shares, Mr. Montfort -- 121,000
shares, Mr. deMena -- 110,000 shares, Mr. Campbell -- 55,000 shares, Mr.
Palmour -- 50,000 shares and Mr. Moseley -- 50,000 shares. The Company also
issued 454,894 shares of Common Stock at $0.01 per share to consultants to the
Company, including a total of 30,000 shares of Common Stock to persons who will
become directors of the Company upon consummation of this Offering. The Company
also granted options to purchase 10,000 shares of Common Stock under the
Directors' Plan, effective upon the consummation of this Offering, to Mr.
Harter, a director of the Company, and to Messrs. Amonett, Blosser and Smith,
who will become directors of the Company upon the consummation of this Offering.
Simultaneously with the consummation of this Offering, HomeUSA will acquire
by merger all of the issued and outstanding stock of the Founding Companies, at
which time each Founding Company will become a wholly-owned subsidiary of the
Company. The aggregate consideration to be paid by HomeUSA in the Mergers
consists of $ million in cash and 7,266,944 shares of Common Stock. In
addition, prior to the Mergers certain of the Founding Companies will make the
Owners' Distributions of $4.4 million and distribute certain real estate and
non-operating assets and liabilities having a net book value of $1.1 million.
The consummation of each Merger is subject to customary conditions. These
conditions include, among others, the continuing accuracy on the closing date of
the Mergers of the representations and warranties of the Founding Companies and
the principal stockholders thereof and of HomeUSA, the performance by each of
them of all covenants included in the agreements relating to the Mergers and the
absence of a material adverse change in the results of operations, financial
condition or business of each Founding Company.
There can be no assurance that the conditions to closing of the Mergers
will be satisfied or waived or that the acquisition agreements will not be
terminated prior to consummation. If any of the Mergers is terminated for any
reason, the Company does not intend to consummate this Offering on the terms
described herein.
61
<PAGE>
The following table sets forth the consideration to be paid by HomeUSA for
each of the Founding Companies. These amounts do not include the Owners'
Distributions or distributions of Other Assets. (In thousands of dollars, except
share amounts.)
SHARES OF
COMPANY CASH COMMON STOCK
- ---------------------------------------- ----------- ------------
Universal............................... $ 2,299,311
AAA Homes............................... 1,165,901
McDonald................................ 1,015,074
Patrick................................. 936,058
Mobile World............................ 521,101
First American.......................... 288,123
Cooper.................................. 691,308
Home Folks.............................. 248,620
Willmax................................. 101,448
In connection with the Mergers, and as consideration for their interests in
the Founding Companies, certain officers, directors and holders of more than 5%
of the outstanding shares of the Company, together with trusts for which they
act as trustees, will receive cash and shares of Common Stock of the Company as
follows. These amounts do not include any Owners' Distributions or Distributions
of Other Assets. (In thousands of dollars, except share amounts.)
SHARES OF
NAME CASH COMMON STOCK
- ---------------------------------------- ----------- ------------
Larry T. Shaffer(1)..................... $ 2,271,915
Gary W. Fordham......................... 600,000
David E. Thompson....................... 565,901
Frank C. McDonald....................... 610,416
Harold K. Patrick....................... 936,058
Stanley Poisso.......................... 521,101
Randle C. Cooper........................ 691,308
- ---------------
(1) Includes 323,956 shares of Common Stock issued to Larry T. Shaffer, Jr.
which may be deemed to be beneficially owned by Larry T. Shaffer, but as to
which he disclaims beneficial ownership, Larry T. Shaffer, Jr. has sole
voting power with respect to these shares.
Pursuant to the agreements to be entered into in connection with the
Mergers, the stockholders of the Founding Companies have agreed not to compete
with the Company for five years, commencing on the date of consummation of this
Offering.
Certain of the Founding Companies have incurred indebtedness which has been
personally guaranteed by their stockholders or by entities controlled by their
stockholders. At June 30, 1997, the aggregate amount of indebtedness of these
Founding Companies that was subject to personal guarantees was approximately
$44.1 million. The Company intends to use its revolving credit facility to
refinance their indebtedness.
LEASES OF REAL PROPERTY BY FOUNDING COMPANIES
Following the Mergers, the Company will lease Universal's facilities
located in Bristol, Virginia, Cookeville, Tennessee, Jefferson City, Tennessee,
two facilities in Kingsport, Tennessee, Powell, Tennessee and Murfreesboro,
Tennessee from Larry T. Shaffer, one of his immediate family members or an
entity controlled by Larry T. Shaffer. Larry T. Schaffer will remain President
of Universal following the consummation of this Offering and will become a
director of the Company. Each of the leases is for an initial term of five
years, expiring in October 2002 and contains one five-year renewal option. The
annual rental for the first year of the initial lease terms ranges from $8,900
to $48,000. The rental for each subsequent year of each initial lease term and
each year of each renewal period of the leases will be adjusted in accordance
with the CPI, not to exceed five percent of the rental for the immediately
preceding lease year. The Company will pay for all utilities, taxes and
insurance on the leased property. The Company believes that the economic terms
of the leases do not exceed fair market value.
62
<PAGE>
Following the Mergers, the Company will lease AAA Homes' facilities located
in Gulfport, and Pearl West, Mississippi from A-1 Realty, L.P. ("A-1"), a
Mississippi limited partnership controlled by Gary Fordham and David Thompson,
who will remain as President and Chief Operating Officer, respectively, of AAA
Homes following the consummation of this Offering and who each will become a
director of the Company. Each of the leases is for an initial term of five
years, expiring in October 2002 and contains three five-year renewal options.
The annual rental for each of the initial lease terms is $58,800 and $54,000,
respectively. The rental for each renewal period of the leases will be adjusted
in accordance with the CPI, not to exceed five percent of the rental for the
immediately preceding lease term or renewal period, as applicable. The Company
will pay for all utilities, taxes and insurance on the leased property. The
Company believes that the economic terms of the leases do not exceed fair market
value.
Following the Mergers, the Company will lease Patrick's facilities located
in Millington, Tennessee; Corinth and Como, Mississippi from H&P Development,
Inc. ("H&P"), a corporation of which Harold Patrick, who will remain as
President of Patrick following the consummation of this Offering and who will
become a director of the Company, is a controlling person. The Millington lease
is for an initial term of three years, expiring in October 2000, and contains
two three-year renewal options. Each of the Corinth and Como leases is for an
initial term of five years, expiring in October 2002, and contains three
five-year renewal options. The annual rental for each of the initial lease terms
ranges from $19,200 to $46,800. The rental for each renewal period of the leases
will be adjusted in accordance with the CPI, not to exceed ten percent in the
case of the Millington lease, and five percent in the cases of Corinth and Como
leases, of the rental for the immediately preceding lease term or renewal
period, as applicable. The Company will pay for all utilities, taxes and
insurance on the leased property. The Company believes that the economic terms
of the leases do not exceed fair market value.
Following the Mergers, the Company will lease Cooper's facilities located
in Yakima, Moses Lake, Okanogan and three facilities in Wenatchee, Washington
from Randle Cooper, one of his immediate family members or an entity controlled
by Randle Cooper. Randle Cooper will remain as President of Cooper following the
consummation of this Offering and will become a director of the Company. Each of
the leases is for a term of five years, expiring in October 2002. The annual
rental for each of the lease terms ranges from $18,000 to $30,000, respectively.
The Company will pay for all utilities, taxes and insurance on the leased
property. The Company believes that the economic terms of the lease do not
exceed fair market value.
Following the Mergers, the Company will lease McDonald's facilities located
in Tulsa and Muskogee, Oklahoma and Cape Girardeau, Poplar Bluff and
Springfield, Missouri from Frank C. McDonald, who will remain as President of
McDonald following the consummation of this Offering and will become a director
of the Company. Each of the leases is for an initial term of five years,
expiring in October 2002, and contains three five-year renewal options. The
annual rental for each of the initial lease terms ranges from $15,000 to
$60,000. The rental for each renewal period of the leases will be adjusted in
accordance with CPI, not to exceed five percent of the rental for the
immediately preceding lease term or renewal period, as applicable. The Company
will pay for all utilities, taxes and insurance on the leased property. The
Company believes that the economic terms of the leases do not exceed fair market
value.
The Company has adopted a policy that, whenever possible, it will not own
any real estate. Accordingly, in connection with future acquisitions, the
Company may require the distribution of real property owned by acquired
companies to its stockholders and the leaseback of such property at fair market
value.
OTHER TRANSACTIONS
Mr. McDonald and Mr. Cooper, who will become directors of the Company upon
consummation of the Offering, own interests in manufactured housing developments
in Missouri and Washington, respectively. The Company intends to enter into
arrangements with Mr. McDonald and Mr. Cooper, pursuant to which purchasers of
manufactured homes from the Company would have access to lots within these
developments on a preferential basis. The terms of these arrangements will be no
less favorable to the Company than those available to unrelated purchases of
lots.
63
<PAGE>
Patrick purchases all of its office supplies from Office Pro, a company of
which the son-in-law of Mr. Patrick is a one-third owner. Patrick receives a
discount from Office Pro on its purchases. In 1996, Patrick purchased $78,265 of
office supplies from Office Pro.
In April 1997, Mr. Poisso, who is the President of Mobile World and who
will become a director of the Company upon consummation of this Offering,
borrowed $72,491 from Mobile World on a non-interest bearing basis. As of June
30, 1997, a balance of $2,491 remained outstanding.
At various times in 1995, 1996 and 1997, Mr. Cooper, or entities of which
he is a controlling person, borrowed a total of $490,000 from Cooper. An
aggregate of $63,000 of these loans bears interest at the rate of 8% per annum,
with the remaining $359,716 of these loans bearing interest at the rate of 7%
per annum. All of the loans are unsecured and none of them has a stated maturity
date. As of August 31, 1997, the aggregate outstanding balance of these loans
was $445,000. All of these loans will be repaid at the closing of this Offering.
The Company has agreed to indemnify Notre for liabilities arising in
connection with actions taken by it in its role as a promoter prior to and
during the Offering.
COMPANY POLICY
Any future transactions with directors, officers, employees or affiliates
of the Company are anticipated to be minimal, and must be approved in advance by
a majority of disinterested members of the Board of Directors.
64
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock, after giving effect to the Mergers and this
Offering, by (i) each person known to own beneficially more than 5% of the
outstanding shares of Common Stock; (ii) each Company director and person who
has consented to be named as a director ("named directors"); (iii) each named
executive officer; and (iv) all executive officers, directors and named
directors as a group. All persons listed have an address c/o the Company's
principal executive offices and have sole voting and investment power with
respect to their shares unless otherwise indicated.
SHARES BENEFICIALLY
OWNED AFTER OFFERING
-----------------------
NUMBER PERCENT
----------- -------
Notre Capital Ventures II, L.L.C........ 1,843,823 11.9%
Steven S. Harter(1)..................... 1,853,823 12.0
Cary N. Vollintine(2)................... 416,590 2.7
Michael F. Loy(3)....................... 114,545 *
Frank W. Montfort....................... 121,000 *
Philip deMena........................... 110,000 *
Philip Campbell......................... 55,000 *
Don A. Palmour.......................... 50,000 *
Donald D. Moseley....................... 50,000 *
Larry T. Shaffer(5)..................... 2,271,915 14.7
Gary W. Fordham......................... 600,000 3.9
David E. Thompson....................... 565,901 3.7
Frank C. McDonald....................... 610,416 4.0
Harold K. Patrick....................... 936,058 6.1
Stanley Poisso.......................... 521,101 3.4
Randle C. Cooper........................ 691,308 4.5
Thomas N. Amonett(4).................... 10,000 *
James J. Blosser(4)..................... 10,000 *
Stephen F. Smith(4)..................... 10,000 *
All executive officers, directors and
named directors as a group (18
persons).............................. 8,740,345 56.6%
- ------------
* Less than 1%.
(1) Includes 10,000 shares of Common Stock issuable upon the exercise of options
granted under the Directors' Plan and 1,843,823 shares of Common Stock
issued to Notre. Mr. Harter is the President of Notre.
(2) Includes 36,364 shares of Common Stock issuable on conversion of a
convertible note issued by Notre which is convertible into Common Stock of
the Company owned by Notre.
(3) Includes 4,545 shares of Common Stock issuable on conversion of a
convertible note issued by Notre which is convertible into Common Stock of
the Company owned by Notre.
(4) Includes 10,000 shares of Common Stock issuable upon the exercise of options
granted under the Directors' Plan.
(5) Includes 323,956 shares of Common Stock issued to Larry T. Shaffer, Jr.
which may be deemed to be beneficially owned by Larry T. Shaffer, but as to
which he disclaims beneficial ownership, Larry T. Shaffer, Jr. has sole
voting power with respect to these shares.
65
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 60,000,000 shares
of capital stock, consisting of 50,000,000 shares of Common Stock, 5,000,000
shares of Restricted Common Stock and 5,000,000 shares of Preferred Stock
("Preferred Stock"). Upon completion of the Mergers and this Offering, the
Company will have outstanding 15,441,887 shares of Common Stock, including
1,718,823 shares of Restricted Common Stock and no shares of Preferred Stock.
The following discussion is qualified in its entirety by reference to the
Restated Certificate of Incorporation of HomeUSA, which is included as an
exhibit to the Registration Statement of which this Prospectus is a part.
COMMON STOCK AND RESTRICTED COMMON STOCK
The holders of Common Stock are each entitled to one vote for each share
held on all matters to which they are entitled to vote, including the election
of directors. The holders of Restricted Common Stock, voting together as a
single class, are entitled to elect one member of the Company's Board of
Directors and to 0.25 of one vote for each share held on all other matters on
which they are entitled to vote. Holders of Restricted Common Stock are not
entitled to vote on the election of any other directors. Upon consummation of
this Offering, the Board of Directors will be classified into three classes as
nearly equal in number as possible, with the term of each class expiring on a
staggered basis. The classification of the Board of Directors may make it more
difficult to change the composition of the Board of Directors and thereby may
discourage or make more difficult an attempt by a person or group to obtain
control of the Company. Cumulative voting for the election of directors is not
permitted. Any director, or the entire Board of Directors, may be removed at any
time, with cause, by a majority of the aggregate number of votes which may be
cast by the holders of outstanding shares of Common Stock and Restricted Common
Stock entitled to vote for the election of directors, provided, however, that
only the holders of the Restricted Common Stock may remove the director such
holders are entitled to elect.
Subject to the rights of any then outstanding shares of Preferred Stock,
holders of Common Stock and Restricted Common Stock are entitled to participate
pro rata in such dividends as may be declared in the discretion of the Board of
Directors out of funds legally available therefor. Holders of Common Stock and
Restricted Common Stock are entitled to share ratably in the net assets of the
Company upon liquidation after payment or provision for all liabilities and any
preferential liquidation rights of any Preferred Stock then outstanding. Holders
of Common Stock and holders of Restricted Common Stock have no preemptive rights
to purchase shares of stock of the Company. Shares of Common Stock are not
subject to any redemption provisions and are not convertible into any other
securities of the Company. Shares of Restricted Common Stock are not subject to
any redemption provisions but are convertible into Common Stock, on the
occurrence of certain events. All outstanding shares of Common Stock and
Restricted Common Stock are, and the shares of Common Stock to be issued
pursuant to this Offering and the Mergers will be upon payment therefor, fully
paid and non-assessable.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (i) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners, or a
transfer to a related party of such holder (as defined in Sections 267, 707, 318
and/or 4946 of the Internal Revenue Code of 1986, as amended)), (ii) in the
event any person acquires beneficial ownership of 15% or more of the outstanding
shares of Common Stock, or (iii) in the event any person offers to acquire 15%
or more of the total number of outstanding shares of Common Stock. After October
1, 1998, the Board of Directors may elect to convert any outstanding shares of
Restricted Common Stock into shares of Common Stock in the event 80% or more of
the originally outstanding shares of Restricted Common Stock have been
previously converted into shares of Common Stock.
The Common Stock has been approved for listing on The New York Stock
Exchange under the symbol "HSH" to official notice of issuance. The Restricted
Common Stock will not be listed on any exchange.
66
<PAGE>
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any series of the Preferred
Stock, in each case without any further action or vote by the stockholders. The
Company has no current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock and Restricted Common Stock as to dividend
rights, liquidation preference or both, may have full or limited voting rights
and may be convertible into shares of Common Stock. Accordingly, the issuance of
shares of Preferred Stock may discourage bids for the Common Stock or may
otherwise adversely affect the market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to Section 203 of the DGCL which, with certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period
of three years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and officers and
(b) by employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (iii) on or after such date, the
business combination is approved by the Board of Directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. An "interested stockholder" is defined as any person that is (a)
the owner of 15% or more of the outstanding voting stock of the corporation or
(b) an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Pursuant to the Company's Certificate of Incorporation and as permitted by
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director has derived an improper personal benefit.
Additionally, the Certificate of Incorporation of the Company provides that
directors and officers of the Company shall be, and at the discretion of the
Board of Directors non-officer employees and agents may be, indemnified by the
Company to the fullest extent authorized by Delaware law, as it now exists or
may in
67
<PAGE>
the future be amended, against all expenses and liabilities actually and
reasonably incurred in connection with service for or on behalf of the Company
and further permits the advancing of expenses incurred in defense of claims.
The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of the Company at an annual or special
meeting of stockholders must be effected at a duly called meeting and may not be
taken or effected by a written consent of stockholders in lieu thereof. The
Company's Bylaws provide that a special meeting of stockholders may be called
only by the Chief Executive Officer, by a majority of the Board of Directors or
by a majority of the Executive Committee of the Board of Directors. The Bylaws
provide that only those matters set forth in the notice of the special meeting
may be considered or acted upon at that special meeting. To amend or repeal the
Company's Bylaws, an amendment or repeal thereof must first be approved by the
Board of Directors or by the affirmative vote of the holders of at least 66 2/3%
of the total votes eligible to be cast by holders of voting stock with respect
to such amendment or repeal.
The Company's Bylaws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors (the "Nomination
Procedure") and with regard to other matters to be brought by stockholders
before an annual meeting of stockholders of the Company (the "Business
Procedure"). The Nomination Procedure requires that a stockholder give prior
written notice, in proper form, of a planned nomination for the Board of
Directors to the Secretary of the Company. The requirements as to the form and
timing of that notice are specified in the Company's Bylaws. If the Chairman of
the Board of Directors determines that a person was not nominated in accordance
with the Nomination Procedure, such person will not be eligible for election as
a director. Under the Business Procedure, a stockholder seeking to have any
business conducted at an annual meeting must give prior written notice, in
proper form, to the Secretary of the Company. The requirements as to the form
and timing of that notice are specified in the Company's Bylaws. If the Chairman
of the Board of Directors determines that the other business was not properly
brought before such meeting in accordance with the Business Procedure, such
business will not be conducted at such meeting.
Although the Company's Bylaws do not give the Board of Directors any power
to approve or disapprove stockholder nominations for the election of directors
or of any other business desired by stockholders to be conducted at an annual or
any other meeting, the Company's Bylaws (i) may have the effect of precluding a
nomination for the election of directors or precluding the conduct of business
at a particular meeting if the proper procedures are not followed or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is
.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Mergers and completion of this Offering, the
Company will have outstanding 15,441,887 shares of Common Stock. The 5,000,000
shares sold in this Offering (plus any additional shares sold upon exercise of
the Underwriters' over-allotment option) will be freely tradable without
restriction unless acquired by affiliates of the Company. None of the remaining
outstanding shares of Common Stock or Restricted Common Stock have been
registered under the Securities Act, which means that they may be resold
publicly only upon registration under the Securities Act or in compliance with
an exemption from the registration requirements of the Securities Act, including
the exemption provided by Rule 144 thereunder.
In general, under Rule 144, if a period of at least one year has elapsed
between the later of the date on which restricted securities were acquired from
the Company or the date on which they were acquired from
68
<PAGE>
an affiliate, the holder of such restricted securities (including an affiliate)
is entitled to sell a number of shares within any three-month period that does
not exceed the greater of (i) one percent of the then outstanding shares of the
Common Stock (approximately 154,418 shares upon completion of this Offering) or
(ii) the average weekly reported volume of trading of the Common Stock during
the four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain requirements pertaining to the manner of such sales, notices
of such sales and the availability of current public information concerning the
Company. Affiliates may sell shares not constituting restricted securities in
accordance with the foregoing volume limitations and other requirements but
without regard to the one year holding period. Under Rule 144(k), if a period of
at least two years has elapsed between the later of the date on which restricted
securities were acquired from the Company and the date on which they were
acquired from an affiliate, a holder of such restricted securities who is not an
affiliate at the time of the sale and who has not been an affiliate for at least
three months prior to the sale is entitled to sell the shares immediately
without regard to the volume limitations and other conditions described above.
The Company and its officers, directors and certain stockholders who
beneficially own 10,441,887 shares in the aggregate have agreed not to sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of BT Alex. Brown
Incorporated, except that the Company may issue Common Stock in connection with
acquisitions or in connection with the Plan and the Directors' Plan (the
"Plans") or upon conversion of shares of the Restricted Common Stock. See
"Underwriting." In addition, all of the stockholders of the Founding
Companies, certain other stockholders and the Company's officers and directors
have agreed with the Company that they will not sell any of their shares for a
period of one year after the closing of this Offering. These stockholders,
however, have the right, in the event the Company proposes to register under the
Securities Act any Common Stock for its own account or for the account of
others, subject to certain exceptions, to require the Company to include their
shares in the registration, subject to the right of the Company to exclude some
or all of the shares in the offering upon the advice of the managing
underwriter. In addition, certain of such stockholders have certain limited
demand registration rights to require the Company to register shares held by
them following the second anniversary of the consummation of this Offering.
Within 90 days after the consummation of this Offering, the Company intends
to register 10,000,000 shares of its Common Stock under the Securities Act for
use by the Company in connection with future acquisitions. Upon such
registration, these shares will generally be freely tradeable after their
issuance. In some instances, however, the Company may contractually restrict the
sale of shares issued in connection with future acquisitions. The piggyback
registration rights described above do not apply to the registration statement
relating to these 10,000,000 shares.
Prior to this Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale will have on the market price for
the Common Stock prevailing from time to time. Nevertheless, sales, or the
availability for sale of, substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the future ability of
the Company to raise equity capital and complete any additional acquisitions for
Common Stock.
69
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives,
BT Alex. Brown Incorporated, Bear, Stearns & Co. Inc., Montgomery Securities and
Sanders Morris Mundy Inc. (together, the "Representatives"), have severally
agreed to purchase from the Company the following respective number of shares of
Common Stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus:
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------- ---------
BT Alex. Brown Incorporated.............
Bear, Stearns & Co. Inc.................
Montgomery Securities...................
Sanders Morris Mundy Inc................
---------
Total.............................. 5,000,000
=========
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of Common Stock offered hereby if
any of such shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share to certain other dealers. After commencement of the
initial public offering, the offering price and other selling terms may be
changed by the Representatives.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 750,000
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it in the above table bears to 750,000, and the Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 5,000,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters and the Company regarding certain liabilities,
including liabilities under the Securities Act.
To facilitate the Offering of the Common Stock, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Specifically, the Underwriters may over-allot shares of the
Common Stock in connection with this Offering, thereby creating a short position
in the Underwriters' syndicate account. Additionally, to cover such
over-allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and purchase, shares of the Common
70
<PAGE>
Stock in the open market. Any of these activities may maintain the market price
of the Common Stock at a level above that which might otherwise prevail in the
open market. The Underwriters are not required to engage in these activities,
and, if commenced, any such activities may be discontinued at any time. The
Representatives, on behalf of the Underwriters, also may reclaim selling
concessions allowed to an Underwriter or dealer, if the syndicate repurchases
shares distributed by that Underwriter or dealer.
The Company has agreed that it will not sell or offer any shares of Common
Stock or options, rights or warrants to acquire any Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
BT Alex. Brown Incorporated, except for shares issued (i) in connection with
acquisitions, (ii) pursuant to the exercise of options granted under the Plans,
and (iii) upon conversion of shares of Restricted Common Stock. Further, the
Company's directors, officers and certain stockholders who beneficially own
10,441,887 shares in the aggregate have agreed not to directly or indirectly
sell or offer for sale or otherwise dispose of any Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
BT Alex. Brown Incorporated.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
A principal of Sanders Morris Mundy Inc., one of the Representatives, is an
investor in Notre. In July 1997, that principal purchased a note from Notre
which is convertible into shares of Common Stock upon consummation of this
Offering. The shares of Common Stock beneficially owned by that principal
represent less than 1% of the Common Stock to be outstanding after the
consummation of this Offering. Additionally, Sanders Morris Mundy will receive a
finder's fee from the Company as a result of having introduced one of the
Founding Companies to the Company.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiations between the Company and the Representatives.
Among the factors considered in such negotiations were prevailing market
conditions, the results of operations of the Founding Companies in recent
periods, the market capitalization and stages of development of other companies
which the Company and the Representatives believed to be comparable to the
Company, estimates of the business potential of the Company, the present state
of the Company's development and other factors deemed relevant by the Company
and the Representatives.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed on for the
Company by Bracewell & Patterson, L.L.P., Houston, Texas. Certain legal matters
related to this Offering will be passed on for the Underwriters by Piper &
Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The financial statements of HomeUSA, Universal, AAA Homes, Patrick, Mobile
World, First American, Cooper, Home Folks and WillMax, included elsewhere in
this Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports. The financial statements of McDonald included elsewhere in this
Prospectus have been included herein in reliance upon the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in giving said report.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement (which term
shall encompass any and all amendments thereto) on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Common Stock offered hereby. This Prospectus, which
is part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules and regulations
of the SEC. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract,
71
<PAGE>
agreement or other document filed as an exhibit to the Registration Statement,
reference is hereby made to the exhibit for a more complete description of the
matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. For further information with respect to the Company,
reference is hereby made to the Registration Statement and such exhibits and
schedules filed as a part thereof, which may be inspected, without charge, at
the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The SEC maintains a web site that contains reports, proxy and information
statements regarding registrants that file electronically with the SEC. The
address of this web site is (http://www.sec.gov). Copies of all or any portion
of the Registration Statement may be obtained from the Public Reference Section
of the SEC, upon payment of the prescribed fees.
72
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Basis of Presentation........................................ F-3
Unaudited Pro Forma Combined Balance Sheet as of
June 30, 1997.............................................. F-4
Unaudited Pro Forma Combined Statement of Operations for
the Year Ended December 31, 1996........................... F-5
Unaudited Pro Forma Combined Statement of Operations for
the Six months ended June 30, 1997......................... F-6
Notes to Unaudited Pro Forma Combined Financial Statements... F-7
HISTORICAL FINANCIAL STATEMENTS
HOMEUSA, INC ...................................................
Report of Independent Public Accountants .................... F-11
Balance Sheets .............................................. F-12
Statement of Operations ..................................... F-13
Statements of Stockholders' Equity .......................... F-14
Statement of Cash Flows ..................................... F-15
Notes to Financial Statements ............................... F-16
UNIVERSAL HOUSING GROUP
Report of Independent Public Accountants .................... F-19
Combined Balance Sheets ..................................... F-20
Combined Statements of Operations ........................... F-21
Combined Statements of Shareholders' Equity ................. F-22
Combined Statements of Cash Flows ........................... F-23
Notes to Combined Financial Statements ...................... F-24
AAA HOMES GROUP
Report of Independent Public Accountants .................... F-30
Combined Balance Sheets ..................................... F-31
Combined Statements of Operations ........................... F-32
Combined Statements of Shareholders' Equity ................. F-33
Combined Statements of Cash Flows ........................... F-34
Notes to Combined Financial Statements ...................... F-35
MCDONALD MOBILE HOMES, INC .....................................
Report of Independent Public Accountants .................... F-43
Balance Sheets .............................................. F-44
Statements of Operations .................................... F-45
Statements of Shareholders' Equity .......................... F-46
Statements of Cash Flows .................................... F-47
Notes to Financial Statements ............................... F-48
PATRICK HOME CENTER, INC .......................................
Report of Independent Public Accountants .................... F-54
Balance Sheets .............................................. F-55
Statements of Operations .................................... F-56
Statements of Shareholders' Equity .......................... F-57
Statements of Cash Flows .................................... F-58
Notes to Financial Statements ............................... F-59
F-1
<PAGE>
PAGE
-----
MOBILE WORLD GROUP
Report of Independent Public Accountants .................... F-66
Combined Balance Sheets ..................................... F-67
Combined Statements of Operations ........................... F-68
Combined Statements of Shareholder's Equity ................. F-69
Combined Statements of Cash Flows ........................... F-70
Notes to Combined Financial Statements ...................... F-71
FIRST AMERICAN HOMES GROUP
Report of Independent Public Accountants .................... F-77
Combined Balance Sheets ..................................... F-78
Combined Statements of Operations ........................... F-79
Combined Statements of Shareholders' Equity ................. F-80
Combined Statements of Cash Flows ........................... F-81
Notes to Combined Financial Statements ...................... F-82
COOPER'S MOBILE HOMES GROUP
Report of Independent Public Accountants .................... F-89
Combined Balance Sheets ..................................... F-90
Combined Statements of Operations ........................... F-91
Combined Statements of Shareholders' Equity ................. F-92
Combined Statements of Cash Flows ........................... F-93
Notes to Combined Financial Statements ...................... F-94
HOME FOLKS HOUSING CENTER, INC .................................
Report of Independent Public Accountants .................... F-101
Balance Sheets .............................................. F-102
Statements of Operations .................................... F-103
Statements of Shareholder's Equity .......................... F-104
Statements of Cash Flows .................................... F-105
Notes to Financial Statements ............................... F-106
WILLMAX HOMES OF COLORADO LLC
Report of Independent Public Accountants .................... F-111
Balance Sheets .............................................. F-112
Statements of Operations .................................... F-113
Statements of Members' Equity ............................... F-114
Statements of Cash Flows .................................... F-115
Notes to Financial Statements ............................... F-116
F-2
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to the mergers by HomeUSA, Inc. (HomeUSA or the Company), of substantially all
of the outstanding capital stock of Universal Housing, Inc. (Universal), CSF&T,
Inc., d.b.a. AAA Homes (AAA Homes), McDonald Mobile Homes, Inc. (McDonald),
Patrick Home Center, Inc. (Patrick), Mobile World, Inc. (Mobile World), First
American Homes, Inc. (First American), Cooper's Mobile Homes, Inc. (Cooper),
Home Folks Housing Center, Inc. (Home Folks) and WillMax Homes of Colorado LLC
(Willmax) (together, the Founding Companies). HomeUSA and the Founding Companies
are hereinafter referred to as the Company. These mergers (the Mergers) will
occur simultaneously with the closing of HomeUSA's initial public offering (the
Offering) and will be accounted for using the purchase method of accounting.
Universal, one of the Founding Companies, has been identified as the accounting
acquiror in accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 97 which states that the combining company which receives the
largest portion of voting rights in the combined corporation is presumed to be
the accquiror for accounting purposes. The unaudited pro forma combined
financial statements also give effect to the issuance of common stock in
connection with the Offering and as partial consideration for the acquisitions
to the sellers of the Founding Companies. These pro forma statements are based
on the historical financial statements of the Founding Companies included
elsewhere in this Prospectus and the estimates and assumptions set forth below
and in the notes to the unaudited pro forma combined financial statements.
The unaudited pro forma combined balance sheet gives effect to the the
Mergers and the Offering as if they had occurred on June 30, 1997. The unaudited
pro forma combined statements of operations give effect to these transactions as
if they had occurred on January 1, 1996.
HomeUSA has preliminarily analyzed the benefits that it expects to be
realized from reductions in salaries and certain benefits to the owners. To the
extent the owners of the Founding Companies have agreed prospectively to
reductions in salary, bonuses and benefits, these reductions have been reflected
in the pro forma combined statements of operations. With respect to other
potential benefits, HomeUSA has not and cannot quantify these benefits until
completion of the combination of the Founding Companies. It is anticipated that
these benefits will be offset by costs related to HomeUSA's new corporate
management and by the costs associated with being a public company. However,
because these costs cannot be accurately quantified at this time, they have not
been included in the pro forma financial information of HomeUSA.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The unaudited pro forma combined financial data presented herein do
not purport to represent what the Company's financial position or results of
operations would have actually been had such events occurred at the beginning of
the periods presented, as assumed, or to project the Company's financial
position or results of operations for any future period or the future results of
the Founding Companies. The unaudited pro forma combined financial statements
should be read in conjunction with the historical financial statements and notes
thereto included elsewhere in this Prospectus. Also see "Risk Factors"
included elsewhere herein.
F-3
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET -- JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
AAA MOBILE FIRST HOME
UNIVERSAL HOMES MCDONALD PATRICK WORLD AMERICAN COOPER FOLKS
--------- ------- -------- ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 2,928 $ 727 $ 953 $ 641 $ 310 $ 170 $ 463 $ 252
Accounts receivable, net.......... 1,584 1,487 973 1,161 372 344 545 442
Related party receivable.......... -- 68 -- -- 45 -- 679 --
Inventories....................... 7,488 10,356 8,378 4,740 4,453 3,084 4,285 1,196
Other current assets.............. 96 -- 266 4 68 4 10 --
Deferred tax asset................ -- -- -- -- -- -- 83 --
--------- ------- -------- ------- ------ -------- ------- ------
Total current assets.......... 12,096 12,638 10,570 6,546 5,248 3,602 6,065 1,890
PROPERTY AND EQUIPMENT, net.......... 861 1,348 1,510 2,313 641 291 883 299
OTHER ASSETS, net.................... 36 410 -- -- 2 16 166 --
RELATED PARTY RECEIVABLE............. -- -- -- -- -- -- 65 --
GOODWILL............................. -- -- -- -- -- -- -- --
--------- ------- -------- ------- ------ -------- ------- ------
Total assets.................. $12,993 $14,396 $12,080 $8,859 $5,891 $3,909 $7,179 $2,189
========= ======= ======== ======= ====== ======== ======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................ $ 2,721 $ 1,562 $ 1,521 $1,191 $ 683 $ 464 $ 946 $ 406
Floor plan payable................ 8,090 9,548 7,105 4,823 4,614 2,416 4,470 1,000
Deferred tax liability............ -- 131 268 -- -- 89 -- --
Related-party payable............. -- 50 -- -- -- 598 -- --
Current maturities of long-term
debt............................ -- 179 435 154 38 250 219 --
Payable to Founding Company
Stockholders.................... -- -- -- -- -- -- -- --
--------- ------- -------- ------- ------ -------- ------- ------
Total current liabilities..... 10,811 11,470 9,329 6,168 5,335 3,817 5,635 1,406
LONG-TERM DEBT, net of current
maturities.......................... -- 289 407 285 44 70 294 --
DEFERRED TAX LIABILITY............... 66 139 22 68 77 20 287 --
--------- ------- -------- ------- ------ -------- ------- ------
Total liabilities............. 10,877 11,898 9,758 6,521 5,456 3,907 6,216 1,406
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock...................... 2 68 37 20 2 30 218 32
Additional paid-in capital........ -- -- 164 -- -- 10 -- 3
Partners' capital................. -- 68 -- -- -- -- -- --
Retained earnings (deficit)....... 2,114 2,442 2,273 2,556 433 (38) 745 765
Treasury stock, at cost........... -- (80) (152) (238) -- -- -- (17)
--------- ------- -------- ------- ------ -------- ------- ------
Total stockholders' equity.... 2,116 2,498 2,322 2,338 435 2 963 783
--------- ------- -------- ------- ------ -------- ------- ------
Total liabilities and
stockholders' equity......... $12,993 $14,396 $12,080 $8,859 $5,891 $3,909 $ 7,179 $2,189
========= ======= ======== ======= ====== ======== ======= ======
<CAPTION>
HOME PRO FORMA POST MERGER
WILLMAX USA, INC. TOTAL ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------- --------- ------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 105 $ 12 $ 6,561 $ (580) $ 5,981 $ 16,481 $ 22,462
Accounts receivable, net.......... 211 -- 7,119 (129) 6,990 -- 6,990
Related party receivable.......... -- -- 792 -- 792 -- 792
Inventories....................... 900 -- 44,880 (1,800) 43,080 -- 43,080
Other current assets.............. 13 -- 461 108 569 -- 569
Deferred tax asset................ -- -- 83 -- 83 -- 83
------- --------- ------- ----------- --------- ------------ -----------
Total current assets.......... 1,229 12 59,896 (2,401) 57,495 16,481 73,976
PROPERTY AND EQUIPMENT, net.......... 56 -- 8,202 (2,065) 6,137 -- 6,137
OTHER ASSETS, net.................... 9 130 769 (52) 717 (112) 605
RELATED PARTY RECEIVABLE............. -- -- 65 -- 65 -- 65
GOODWILL............................. -- -- -- 52,546 52,546 -- 52,546
------- --------- ------- ----------- --------- ------------ -----------
Total assets.................. $1,294 $ 142 $68,932 $48,028 $116,960 $ 16,369 $ 133,329
======= ========= ======= =========== ========= ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................ $ 227 $ 112 9,833 (402) 9,431 (112) 9,319
Floor plan payable................ 925 -- 42,991 (1,412) 41,579 -- 41,579
Deferred tax liability............ -- -- 488 28 516 -- 516
Related-party payable............. -- -- 648 (431) 217 -- 217
Current maturities of long-term
debt............................ 8 -- 1,283 (625) 658 (658) --
Payable to Founding Company
Stockholders.................... -- -- -- 24,837 24,837 (24,837) --
------- --------- ------- ----------- --------- ------------ -----------
Total current liabilities..... 1,160 112 55,243 21,995 77,238 (25,607) 51,631
LONG-TERM DEBT, net of current
maturities.......................... 35 -- 1,424 3,768 5,192 (5,192) --
DEFERRED TAX LIABILITY............... -- -- 679 531 1,210 -- 1,210
------- --------- ------- ----------- --------- ------------ -----------
Total liabilities............. 1,195 112 57,346 26,294 83,640 (30,799) 52,841
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock...................... -- 30 439 (335) 104 50 154
Additional paid-in capital........ -- 8,817 8,994 23,485 32,479 47,118 79,597
Partners capital.................. 99 -- 167 (167) -- -- --
Retained earnings (deficit)....... -- (8,817) 2,473 (1,736) 737 -- 737
Treasury stock, at cost........... -- -- (487) 487 -- -- --
------- --------- ------- ----------- --------- ------------ -----------
Total stockholders' equity.... 99 30 11,586 21,734 33,320 47,168 80,488
------- --------- ------- ----------- --------- ------------ -----------
Total liabilities and
stockholders' equity......... $1,294 $ 142 $68,932 $48,028 $116,960 $ 16,369 $ 133,329
======= ========= ======= =========== ========= ============ ===========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AAA MOBILE FIRST HOME
UNIVERSAL HOMES MCDONALD PATRICK WORLD AMERICAN COOPER FOLKS
---------- ------- --------- -------- ------- --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL REVENUE........................ $ 51,683 $39,196 $30,084 $29,903 $15,948 $12,438 $9,701 $8,027
COST OF SALES........................ 39,820 30,543 24,566 23,858 12,360 9,994 6,829 6,121
---------- ------- --------- -------- ------- --------- ------- ------
Gross profit........................ 11,863 8,653 5,518 6,045 3,588 2,444 2,872 1,906
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 9,344 6,272 3,925 4,306 2,925 2,198 2,013 1,541
---------- ------- --------- -------- ------- --------- ------- ------
Income from operations.............. 2,519 2,381 1,593 1,739 663 246 859 365
OTHER INCOME (EXPENSE):
Interest expense, net............... (412) (994) (808) (622) (427) (374) (326) (126)
Other income, net................... 424 44 58 58 (8) 79 15 14
---------- ------- --------- -------- ------- --------- ------- ------
INCOME (LOSS) BEFORE INCOME TAXES.... 2,531 1,431 843 1,175 228 (49) 548 253
PROVISION FOR INCOME TAXES........... 131 559 314 2 88 2 277 --
---------- ------- --------- -------- ------- --------- ------- ------
NET INCOME (LOSS).................... $ 2,400 $ 872 $ 529 $ 1,173 $ 140 $ (51) $ 271 $ 253
========== ======= ========= ======== ======= ========= ======= ======
NET INCOME PER SHARE.................
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1).............
<CAPTION>
HOME PRO FORMA
WILLMAX USA, INC. TOTAL ADJUSTMENTS PRO FORMA
-------- ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUE........................ $3,560 $ -- $ 200,540 $ (7,702) $ 192,838
COST OF SALES........................ 2,955 -- 157,046 (5,846) 151,200
-------- ---------- --------- ------------ ----------
Gross profit........................ 605 -- 43,494 (1,856) 41,638
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 511 33,035 (5,216) 27,819
-------- ---------- --------- ------------ ----------
Income from operations.............. 94 10,459 3,360 13,819
OTHER INCOME (EXPENSE):
Interest expense, net............... (94) -- (4,183) 1,268 (2,915)
Other income, net................... (6) -- 678 (31) 647
-------- ---------- --------- ------------ ----------
INCOME (LOSS) BEFORE INCOME TAXES.... (6) 6,954 4,597 11,551
PROVISION FOR INCOME TAXES........... -- -- 1,373 3,610 4,983
-------- ---------- --------- ------------ ----------
NET INCOME (LOSS).................... $ (6) $ -- $ 5,581 $ 987 $ 6,568
======== ========== ========= ============ ==========
NET INCOME PER SHARE................. $ 0.48
==========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1)............. 13,655,554
==========
</TABLE>
(1) Includes (i) 1,843,823 shares issued to Notre Capital Ventures II, L.L.C.
(ii) 1,331,120 shares issued to management and consultants of HomeUSA, (iii)
7,266,944 shares issued to owners of the Founding Companies and (iv)
3,213,667 of the 5,000,000 shares sold in the Offering necessary to pay the
cash portion of the Merger consideration and expenses of this Offering. The
1,786,333 shares excluded reflect the net cash proceeds to HomeUSA.
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AAA MOBILE FIRST HOME
UNIVERSAL HOMES MCDONALD PATRICK WORLD AMERICAN COOPER FOLKS
--------- ------- -------- ------- ------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL REVENUE........................ $24,703 $18,182 $14,845 $16,145 $8,512 $6,411 $5,645 $ 3,977
COST OF SALES........................ 19,208 13,943 11,870 12,646 6,816 5,295 4,099 3,104
--------- ------- -------- ------- ------- -------- ------ ---------
Gross profit.................. 5,495 4,239 2,975 3,499 1,696 1,116 1,546 873
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 3,455 3,154 1,988 2,431 1,326 888 1,264 638
--------- ------- -------- ------- ------- -------- ------ ---------
Income (loss) from
operations................... 2,040 1,085 987 1,068 370 228 282 235
OTHER INCOME (EXPENSE):
Interest expense, net............. (309) (406) (391) (252) (252) (187) (330) (52)
Other income, net................. 253 12 48 30 5 52 31 10
--------- ------- -------- ------- ------- -------- ------ ---------
INCOME (LOSS) BEFORE INCOME TAXES.... 1,984 691 644 846 123 93 (17) 193
PROVISION (BENEFIT) FOR INCOME
TAXES............................... 108 254 236 42 48 40 (3) --
--------- ------- -------- ------- ------- -------- ------ ---------
NET INCOME (LOSS).................... $ 1,876 $ 437 $ 408 $ 804 $ 75 $ 53 $ (14) $ 193
========= ======= ======== ======= ======= ======== ====== =========
NET INCOME PER SHARE.................
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1).............
<CAPTION>
HOME PRO FORMA
WILLMAX USA, INC. TOTAL ADJUSTMENT PRO FORMA
-------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUE........................ $1,704 $ -- $ 100,124 $ (2,345) $ 97,779
COST OF SALES........................ 1,273 -- 78,254 (1,875) 76,379
-------- --------- --------- ---------- ----------
Gross profit.................. 431 -- 21,870 (470) 21,400
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 315 8,817 24,276 (9,147) 15,129
-------- --------- --------- ---------- ----------
Income (loss) from
operations................... 116 (8,817) (2,406) 8,677 6,271
OTHER INCOME (EXPENSE):
Interest expense, net............. (44) -- (2,223) 559 (1,664)
Other income, net................. -- -- 441 (3) 438
-------- --------- --------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.... 72 (8,817) (4,188) 9,233 5,045
PROVISION (BENEFIT) FOR INCOME
TAXES............................... -- -- 725 1,451 2,176
-------- --------- --------- ---------- ----------
NET INCOME (LOSS).................... $ 72 $ (8,817) $ (4,913) $ 7,782 $ 2,869
======== ========= ========= ========== ==========
NET INCOME PER SHARE................. $ 0.21
==========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE(1)............. 13,655,554
==========
</TABLE>
(1) Includes (i) 1,843,823 shares issued to Notre Capital Ventures II, L.L.C.,
(ii) 1,331,120 shares issued to management and consultants of HomeUSA, (iii)
7,266,944 shares issued to owners of the Founding Companies and (iv)
3,213,667 of the 5,000,000 shares sold in the Offering necessary to pay the
cash portion of the Merger consideration and expenses of this Offering. The
1,786,333 shares included reflect the net cash proceeds to HomeUSA.
See accompanying notes to unaudited pro forma combined financial statements.
F-6
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
HomeUSA, Inc. was formed to become a leading independent national retailer
of manufactured homes. HomeUSA, Inc. has conducted no operations to date and
will acquire the Founding Companies simultaneously with the consummation of the
Offering.
The historical financial statements represent the financial position and
results of operations of the Founding Companies and were derived from the
respective financial statements included elsewhere herein.
2. ACQUISITION OF FOUNDING COMPANIES:
Concurrently with and as a condition to the closing of the Offering,
HomeUSA will acquire all of the outstanding capital stock of the Founding
Companies. The Mergers will be accounted for using the purchase method of
accounting with Universal being treated as the accounting acquiror. The
following table sets forth the consideration to be paid (a) in cash and (b) in
shares of the Company's Common Stock to the stockholders of each of the Founding
Companies. For purposes of computing the estimated purchase price for accounting
purposes, the value of the shares has been determined using an estimated fair
value of $ per share, which represents a discount of twenty-five percent from
the assumed initial public offering price due to restrictions on the sale and
transferability of the shares issued. The estimated purchase price for the
acquisitions is based upon preliminary estimates and is subject to certain
purchase price adjustments at and following closing. The table does not reflect
distributions to the Founding Companies of Excess Operating Capital greater or
less than zero. Excess Operating Capital is defined as net working capital minus
long-term debt, as of the effective date of the Mergers. These distributions are
referred to herein as the Owners' Distributions. The Owners' Distributions, had
they occurred on June 30, 1997, would have been approximately $4.4 million.
COMMON STOCK
----------------------
VALUE OF
CASH SHARES SHARES
--------- --------- ---------
(DOLLARS IN THOUSANDS)
Universal............................ $ 2,299,311 $
AAA Homes............................ 1,165,901
McDonald............................. 1,015,074
Patrick.............................. 936,058
Mobile World......................... 521,101
First American....................... 288,123
Cooper............................... 691,308
Home Folks........................... 248,620
WillMax.............................. 101,448
--------- --------- ---------
Total........................... $ 7,266,944 $
========= ========= =========
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Records the payable for the Founding Companies' Owners' Distribution.
(b) Records the distribution of certain real estate and nonoperating
assets and liabilities in connection with the Mergers. In addition, reflects the
reduction for certain operating assets and liabilities representing sales
centers which will not be acquired in the Mergers.
(c) Records the purchase of the Founding Companies, the liability for the
cash portion of the consideration to be paid to the stockholders of the Founding
Companies in connection with the Mergers and the issuance of 7.3 million shares
of Common Stock to the Founding Companies.
(d) Records the net deferred income tax liability attributable to the
temporary differences between the financial reporting and tax bases of assets
and liabilities held in S Corporations.
(e) Records the cash proceeds from the issuance of 5,000,000 shares of
Common Stock, net of estimated offering costs (based on an assumed initial
public offering price of $ per share). Offering costs
F-7
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
primarily consist of underwriting discounts and commissions, accounting fees,
legal fees and printing expenses.
(f) Records the cash portion of the consideration to be paid to the
stockholders of the Founding Companies in connection with the Mergers, the
payment of the Owners' Distributions and the repayment of long-term debt.
The following tables summarize the unaudited pro forma combined balance
sheet adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............ $ -- $ (580) $ -- $ -- $ (580)
Accounts receivable, net............. -- (129) -- -- (129)
Inventories.......................... -- (1,800) -- -- (1,800)
Other current assets................. -- 108 -- -- 108
--------- --------- --------- --------- ------------
Total current assets........ -- (2,401) -- -- (2,401)
Property and equipment, net.......... -- (2,065) -- -- (2,065)
Other assets, net.................... -- (52) -- -- (52)
Goodwill............................. -- -- 52,546 -- 52,546
--------- --------- --------- --------- ------------
Total assets................ -- (4,518) 52,546 -- 48,028
========= ========= ========= ========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
expenses........................... -- (402) -- -- (402)
Floor plan payable................... -- (1,412) -- -- (1,412)
Deferred tax liability............... -- -- -- 28 28
Related party payable................ -- (431) -- -- (431)
Current maturities of long-term
debt............................... -- (625) -- -- (625)
Payable to Founding Company
stockholders....................... -- -- 24,837 -- 24,837
--------- --------- --------- --------- ------------
Total current liabilities... -- (2,870) 24,837 28 21,995
Long-term debt, net of current
maturities......................... 4,357 (589) -- -- 3,768
Deferred tax liability............... -- -- -- 531 531
--------- --------- --------- --------- ------------
Total liabilities........... 4,357 (3,459) 24,837 559 26,294
Stockholders' equity:
Common stock..................... -- -- (335) -- (335)
Additional paid-in capital....... (4,357) -- 27,842 -- 23,485
Partners' capital................ -- -- (209) 42 (167)
Retained earnings................ -- (1,059) (76) (601) (1,736)
Treasury stock, at cost.......... -- -- 487 -- 487
--------- --------- --------- --------- ------------
Total stockholders'
equity.................... (4,357) (1,059) 27,709 (559) 21,734
--------- --------- --------- --------- ------------
Total liabilities and
stockholders' equity...... $ -- $ (4,518) $ 52,546 $ -- $ 48,028
========= ========= ========= ========= ============
</TABLE>
F-8
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
POST MERGER
(E) (F) ADJUSTMENTS
--------- --------- -------------
ASSETS
Cash and cash equivalents............ $ 47,168 $ (30,687) $ 16,481
--------- --------- -------------
Total current assets........ 47,168 (30,687) 16,481
Other assets......................... (112) -- (112)
--------- --------- -------------
Total assets................ 47,056 (30,687) 16,369
========= ========= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued......... (112) -- (112)
Current maturities of long-term
debt............................... -- (658) (658)
Payable to Founding Company
stockholders....................... -- (24,837) (24,837)
--------- --------- -------------
Total current liabilities... (112) (25,495) (25,607)
Long-term debt, net of current
maturities......................... -- (5,192) (5,192)
--------- --------- -------------
Total liabilities........... (112) (30,687) (30,799)
Stockholders' equity:
Common stock..................... 50 -- 50
Additional paid-in capital....... 47,118 -- 47,118
--------- --------- -------------
Total stockholders'
equity...................... 47,168 -- 47,168
--------- --------- -------------
Total liabilities and
stockholders' equity........ $ 47,056 $ (30,687) $ 16,369
========= ========= =============
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
YEAR ENDED DECEMBER 31, 1996
(a) Reflects the sales centers of certain Founding Companies which will
not be acquired in the Mergers.
(b) Reflects the reduction in operations for the distribution of certain
non-operating assets and liabilities which will not be acquired in the Mergers.
(c) Reflects the $4.9 million reduction in salaries, bonuses and benefits
to the owners of the Founding Companies to which they have agreed prospectively.
(d) Reflects the amortization of goodwill to be recorded as a result of
the Mergers over a 40-year estimated life.
(e) Reflects the reduction in interest expense of $1.0 million due to
refinancing of the floor plan payable in connection with the Mergers.
(f) Reflects the incremental provision for federal and state income taxes
relating to the statements of operations adjustments and to reflect income taxes
on S corporation and LLC income as if these entities had been C corporations
during the periods presented.
F-9
<PAGE>
HOMEUSA, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the unaudited pro forma combined statements
of operations adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENTS
--------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue........................ $ (7,702) $ -- $ -- $ -- $ -- $ -- $ (7,702)
Cost of sales........................ (5,846) -- -- -- -- -- (5,846)
Gross profit......................... (1,856) -- -- -- -- -- (1,856)
Selling, general and
administrative..................... (1,535) (128) (4,867) 1,314 -- -- (5,216)
--------- --------- --------- --------- --------- --------- -----------
Income (loss) from operations........ (321) 128 4,867 (1,314) -- -- 3,360
Other income (expense)
Interest expense, net............ 205 33 -- -- 1,030 -- 1,268
Other income, net................ (31) -- -- -- -- -- (31)
--------- --------- --------- --------- --------- --------- -----------
Income (loss) before income taxes.... (147) 161 4,867 (1,314) 1,030 -- 4,597
Provision (benefit) for income
taxes.............................. (65) -- -- -- -- 3,675 3,610
--------- --------- --------- --------- --------- --------- -----------
Net income (loss).................... $ (82) $ 161 $ 4,867 $ (1,314) $ 1,030 $ (3,675) $ 987
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997
(a) Reflects the sales centers of certain Founding Companies' which will
not be acquired in the Mergers.
(b) Reflects the reduction in operations for the distribution of certain
non-operating assets and liabilities which will not be acquired in the Mergers.
(c) Reflects the $0.7 million reduction in salaries, bonuses and benefits
to the owners of the Founding Companies to which they have agreed prospectively
and the reversal of the $8.8 million non-cash compensation charge related to the
issuance of 1,145,120 shares of Common Stock to management of and consultants to
the Company offset by a $0.1 million charge for the recurring portion of salary
expenses of management.
(d) Reflects the amortization of goodwill to be recorded as a result of
these Mergers over a 40-year estimated life.
(e) Reflects the reduction in interest expense of $0.4 million due to
refinancing of the floor plan payable in conjunction with the Mergers.
(f) Reflects the incremental provision for federal and state income taxes
relating to the statements of operations adjustments and to reflect income taxes
on S corporation and LLC income as if these entities had been C corporations
during the periods presented.
The following table summarizes unaudited pro forma combined statements of
operations adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENTS
--------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue........................ $ (2,345) $ -- $ -- $ -- $ -- $ -- $ (2,345)
Cost of sales........................ (1,875) -- -- -- -- -- (1,875)
Gross profit......................... (470) -- -- -- -- -- (470)
Selling, general and
administrative..................... (370) (53) (9,380) 656 -- -- (9,147)
--------- --------- --------- --------- --------- --------- -----------
Income (loss) from operations........ (100) 53 9,380 (656) -- -- 8,677
Other income (expense)
Interest expense, net............ 98 32 -- -- 429 -- 559
Other income, net................ (3) -- -- -- -- -- (3)
--------- --------- --------- --------- --------- --------- -----------
Income (loss) before income taxes.... (5) 85 9,380 (656) 429 -- 9,233
Provision (benefit) for income
taxes.............................. (40) -- -- -- -- 1,491 1,451
--------- --------- --------- --------- --------- --------- -----------
Net income (loss).................... $ 35 $ 85 $ 9,380 $ (656) $ 429 $ (1,491) $ 7,782
</TABLE>
F-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To HomeUSA, Inc.:
We have audited the accompanying balance sheet of HomeUSA, Inc., as of
December 31, 1996, and the related statement of stockholders' equity for the
period from inception (July 3, 1996) to December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HomeUSA, Inc., as of
December 31, 1996, and for the period from inception (July 3, 1996) to December
31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
September 10, 1997
F-11
<PAGE>
HOMEUSA, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
(UNAUDITED)
ASSETS
CASH AND CASH EQUIVALENTS............ $ 1 $ 12
DEFERRED OFFERING COSTS.............. 26 130
--- --------
Total assets............... $ 27 $ 142
=== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCRUED LIABILITIES AND AMOUNTS DUE
TO STOCKHOLDERS.................... $ 8 $ 112
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par,
5,000,000 shares authorized,
none issued
and outstanding............... -- --
Common stock, $.01 par,
50,000,000 shares authorized,
1,843,823 and 2,988,943 shares
issued and outstanding......... 19 30
Additional paid-in capital...... -- 8,817
Retained deficit................ -- (8,817)
--- --------
Total stockholders'
equity....................... 19 30
--- --------
Total liabilities and
stockholders' equity......... $ 27 $ 142
=== ========
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
HOMEUSA, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
SIX MONTHS
ENDED
JUNE 30, 1997
-------------
(UNAUDITED)
REVENUES............................. $ --
COMPENSATION EXPENSE RELATING TO
ISSUANCE OF COMMON STOCK TO
MANAGEMENT AND CONSULTANTS......... 8,817
-------------
LOSS BEFORE INCOME TAXES............. (8,817)
INCOME TAX BENEFIT................... --
-------------
NET LOSS............................. $ (8,817)
=============
The accompanying notes are an integral part of this financial statement.
F-13
<PAGE>
HOMEUSA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
----------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION (July 3,
1996).............................. 90,713 $ 1 $-- $ -- $ 1
Issuance of shares to Notre..... 1,753,110 18 -- -- 18
----------- ------ ---------- --------- -------------
BALANCE, December 31, 1996........... 1,843,823 19 -- -- 19
Issuance of management and
consultant shares
(unaudited)................... 1,145,120 11 8,817 -- 8,828
Net loss (unaudited)............ -- -- -- (8,817) (8,817)
----------- ------ ---------- --------- -------------
BALANCE, June 30, 1997 (unaudited)... 2,988,943 $ 30 $8,817 $ (8,817) $ 30
=========== ====== ========== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
HOMEUSA, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS
ENDED
JUNE 30,
1997
-------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................... $(8,817)
Adjustments to reconcile net loss
to net cash provided by
operating activities --
Compensation expense related to
issuance of common stock to
management..................... 8,817
Changes in assets and
liabilities --
Increase in deferred
offering costs........... (104)
Increase in accrued
liabilities and amounts due
to stockholders.......... 104
-------------
Net cash provided by
operating
activities.......... --
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock.................. 11
-------------
Net cash provided by
financing
activities.......... 11
NET INCREASE......................... 11
CASH beginning of period............. 1
-------------
CASH, end of period.................. $ 12
=============
The accompanying notes are an integral part of this financial statement.
F-15
<PAGE>
HOMEUSA, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
HomeUSA, Inc., a Delaware corporation (HomeUSA or the Company), was founded
in July 1996 to become a leading national retailer of manufactured homes and
accessories. HomeUSA intends to acquire nine businesses (the Mergers), complete
an initial public offering (the Offering) of its common stock and, subsequent to
the Offering, continue to acquire through merger or purchase, similar companies
to expand its national operations.
HomeUSA has not conducted any operations, and all activities to date have
related to the Offering and the Mergers. All expenditures to date have been
funded by the majority stockholder, Notre Capital Ventures II, L.L.C. (Notre),
on behalf of the Company. Notre has committed to fund the organization expenses
and offering costs. As of December 31, 1996, and June 30, 1997, costs of
approximately $26,000 and $104,000 (unaudited), respectively, have been incurred
by Notre in connection with the Offering. HomeUSA has treated these costs as
deferred offering costs. HomeUSA is dependent upon the Offering to execute the
pending Mergers. There is no assurance that the pending Mergers discussed below
will be completed or that HomeUSA will be able to generate future operating
revenues.
The Company has an absence of a combined operating history and HomeUSA's
future success is dependent upon a number of factors which include, among
others, the ability to integrate operations, reliance on the identification and
integration of satisfactory acquisition candidates, reliance on acquisition
financing, the ability to manage growth, and attract and retain qualified
management and sales personnel as well as the need for additional capital and
the availability and cost of floor plan financing. Other factors include the
availability of sites for manufactured homes, dependence on key manufacturers,
availability of product, the availability of customer financing, risks
associated with increased regulation and competition, and the cyclical nature of
the manufactured housing industry.
2. INTERIM FINANCIAL INFORMATION:
The interim financial statements as of June 30, 1997, and for the six
months then ended are unaudited, and certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been omitted. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows with respect to the interim financial statements, have been included.
The results of operations for the interim period are not necessarily indicative
of the results for the entire fiscal year.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles require 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. Actual results could differ from those estimates.
3. STOCKHOLDERS' EQUITY:
COMMON STOCK AND PREFERRED STOCK
HomeUSA effected a 90.7127-for-one stock dividend on August 1, 1997, for
each share of common stock of the Company (Common Stock) then outstanding. In
addition, the Company increased the number of authorized shares of Common Stock
to 50,000,000 and authorized 5,000,000 shares of $.01 par value preferred stock.
The effects of the Common Stock dividend have been retroactively reflected on
the balance sheet and in the accompanying notes.
F-16
<PAGE>
HOMEUSA INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the organization and initial capitalization of HomeUSA,
the Company issued 90,713 shares of common stock at $.01 per share to Notre.
Notre incurred $18,000 of expenses on behalf of the Company for which the
Company issued 1,753,110 shares to Notre in October 1996.
In January and May 1997, the Company issued a total of 1,145,120 shares of
Common Stock to management and consultants to the Company at a price of $.01 per
share. As a result, the Company recorded a nonrecurring, noncash compensation
charge of $8.8 million (unaudited) in the first and second quarters of 1997
representing the difference between the amount paid for the shares and an
estimated fair value of the shares on the date of sale as if the Founding
Companies were combined. During the third quarter of 1997, 186,000 shares were
issued to management and consultants to the Company at a price of $.01 per
share, resulting in an additional nonrecurring non-cash compensation charge of
$1.4 million (unaudited).
RESTRICTED COMMON STOCK
In August 1997, the primary stockholder exchanged 1,718,823 of its shares
of Common Stock for an equal number of shares of restricted voting common stock
(Restricted Common Stock). The holder of Restricted Common Stock is entitled to
elect one member of the Company's board of directors and to .25 of one vote for
each share on all other matters on which they are entitled to vote. Holders of
Restricted Common Stock are not entitled to vote on the election of any other
directors.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (i) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners, or a
transfer to a related party of such holders (as defined in Sections 267, 707,
318 and/or 4946 of the Internal Revenue Code of 1986, as amended), (ii) in the
event any person acquires beneficial ownership of 15 percent or more of the
total number of outstanding shares of Common Stock of the Company or (iii) in
the event any person offers to acquire 15 percent or more of the total number of
outstanding shares of Common Stock of the Company. After October 1, 1998, the
board of directors may elect to convert any remaining shares of Restricted
Common Stock into shares of Common Stock in the event 80 percent or more of the
originally outstanding shares of Restricted Common Stock have been previously
converted into shares of Common Stock.
LONG-TERM INCENTIVE PLAN
In July 1997, the Company's stockholders approved the Company's 1997
Long-Term Incentive Plan (the Plan), which provides for the granting or awarding
of incentive or nonqualified stock options, stock appreciation rights,
restricted or deferred stock, dividend equivalents and other incentive awards to
directors, officers, key employees and consultants to the Company. The number of
shares authorized and reserved for issuance under the Plan is the greater of
2,000,000 shares or 15 percent of the aggregate number of shares of Common Stock
outstanding. The terms of the option awards will be established by the
compensation committee of the Company's board of directors. The Company intends
to file a registration statement registering the issuance of shares upon
exercise of options granted under this Plan. The Company expects to grant
nonqualified stock options to purchase a total of 650,000 shares of Common Stock
to key employees of the Company at the initial public offering price upon
consummation of the Offering. In addition, the Company expects to grant options
to purchase a total of 952,483 shares of Common Stock to certain employees of
the Founding Companies at the initial public offering price per share. These
options will vest at the rate of 20 percent per year, commencing on the first
anniversary of the Offering and will expire seven years from the date of grant
or three months following termination of employment.
F-17
<PAGE>
HOMEUSA INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NONEMPLOYEE DIRECTORS' STOCK PLAN
In July 1997, the Company's stockholders approved the 1997 Nonemployee
Directors' Stock Plan (the Directors' Plan), which provides for the granting or
awarding of stock options and stock appreciation rights to nonemployees. The
number of shares authorized and reserved for issuance under the Stock Plan is
275,000 shares. The Directors' Plan provides for the automatic grant of options
to purchase 10,000 shares to each nonemployee director serving at the
commencement of the Offering.
Each nonemployee director will be granted options to purchase an additional
10,000 shares at the time of the initial election. In addition, each director
will be automatically granted options to purchase 5,000 shares at each annual
meeting of the stockholders occurring more than two months after the date of the
director's initial election. All options will be exercised at the fair market
value at the date of grant and are immediately vested upon grant.
Options will be granted to each of three future and one current member of
the board of directors to purchase 10,000 shares of Common Stock at the initial
public offering price per share effective upon the consummation of this
Offering. These options will expire the earlier of 10 years from the date of
grant or one year after termination of service as a director.
The Directors' Plan allows nonemployee directors to receive shares
(deferred shares) at future settlement dates in lieu of cash. The number of
deferred shares will have an aggregate fair market value equal to the fees
payable to the directors.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation," allows entities to choose between a new
fair-value based method of accounting for employee stock options or similar
equity instruments and the current intrinsic, value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 (APB No. 25). Entities
electing to remain with the accounting in APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value method of
accounting had been applied. The Company will provide pro forma disclosure of
net income and earnings per share, as applicable, in the notes to future
consolidated financial statements.
4. EVENTS SUBSEQUENT TO THE DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
Wholly owned subsidiaries of HomeUSA have signed definitive agreements to
acquire by merger or share exchange nine companies (Founding Companies) to be
effective contemporaneously with the Offering. The companies to be acquired are
the Universal Housing Group, the AAA Homes Group, McDonald Mobile Homes, Inc.,
Patrick Home Center, Inc., the Mobile World Group, the First American Homes
Group, the Cooper's Mobile Homes Group, Home Folks Housing Center, Inc. and
WillMax Homes of Colorado, LLC. HomeUSA will acquire the Founding Companies for
cash and 7.3 million shares of Common Stock.
In September, 1997, HomeUSA filed a registration statement on Form S-1 for
the sale of its common stock. An investment in shares of Common Stock offered by
this Prospectus involves a high degree of risk as discussed in Note 1. For a
more thorough discussion of risk factors, see "Risk Factors" included
elsewhere in this Prospectus.
F-18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Universal Housing Group:
We have audited the accompanying combined balance sheets of Universal
Housing Group (the Group), as defined in Note 1 to the financial statements as
of December 31, 1995 and 1996, and the related combined statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These combined financial statements are the
responsibility of the Group's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Group
as of December 31, 1995 and 1996, and the results of their combined operations
and their combined cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 6, 1997
F-19
<PAGE>
UNIVERSAL HOUSING GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 2,108 $ 8,031 $ 2,928
Accounts receivable, net........... 2,351 1,772 1,584
Inventories........................ 9,334 8,655 7,488
Other current assets............... 38 36 96
--------- --------- -----------
Total current assets.......... 13,831 18,494 12,096
PROPERTY AND EQUIPMENT, net............. 584 801 861
OTHER ASSETS............................ 40 34 36
--------- --------- -----------
Total assets.................. $ 14,455 $ 19,329 $12,993
========= ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $ 2,920 $ 2,376 $ 2,721
Related-party payable.............. -- 50 --
Floor plan payable................. 713 6,729 8,090
--------- --------- -----------
Total current liabilities..... 3,633 9,155 10,811
DEFERRED TAX LIABILITY.................. 63 65 66
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $10 par value, 2,000
shares authorized, 200 shares
issued and outstanding........... 2 2 2
Retained earnings.................. 10,757 10,107 2,114
--------- --------- -----------
Total shareholders' equity.... 10,759 10,109 2,116
--------- --------- -----------
Total liabilities and
shareholders' equity....... $ 14,455 $ 19,329 $12,993
========= ========= ===========
The accompanying notes are an integral part of these combined financial
statements.
F-20
<PAGE>
UNIVERSAL HOUSING GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Home sales......................... $ 48,232 $ 56,039 $ 51,330 $ 25,217 $ 24,607
Other revenue...................... 226 206 353 101 96
--------- --------- --------- --------- ---------
Total revenue................. 48,458 56,245 51,683 25,318 24,703
COST OF SALES........................... 37,844 43,041 39,820 19,768 19,208
--------- --------- --------- --------- ---------
Gross profit.................. 10,614 13,204 11,863 5,550 5,495
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 7,789 10,131 9,344 4,234 3,455
--------- --------- --------- --------- ---------
Income from operations........ 2,825 3,073 2,519 1,316 2,040
OTHER INCOME (EXPENSE):
Interest expense................... (362) (221) (412) (144) (309)
Other income, net.................. 192 283 424 106 253
--------- --------- --------- --------- ---------
Income before income taxes.... 2,655 3,135 2,531 1,278 1,984
PROVISION FOR INCOME TAXES.............. 138 181 131 61 108
--------- --------- --------- --------- ---------
NET INCOME.............................. $ 2,517 $ 2,954 $ 2,400 $ 1,217 $ 1,876
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-21
<PAGE>
UNIVERSAL HOUSING GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
COMMON RETAINED
STOCK EARNINGS TOTAL
------ -------- ---------
BALANCE, December 31, 1993.............. $ 1 $ 6,351 $ 6,352
Distributions...................... -- (250) (250)
Net income......................... -- 2,517 2,517
------ -------- ---------
BALANCE, December 31, 1994.............. 1 8,618 8,619
Issuance of common stock........... 1 -- 1
Distributions...................... -- (815) (815)
Net income......................... -- 2,954 2,954
------ -------- ---------
BALANCE, December 31, 1995.............. 2 10,757 10,759
Distributions...................... -- (3,050) (3,050)
Net income......................... -- 2,400 2,400
------ -------- ---------
BALANCE, December 31, 1996.............. 2 10,107 10,109
Distributions (unaudited).......... -- (9,869) (9,869)
Net income (unaudited)............. -- 1,876 1,876
------ -------- ---------
BALANCE, June 30, 1997 (unaudited)...... $ 2 $ 2,114 $ 2,116
====== ======== =========
The accompanying notes are an integral part of these combined financial
statements.
F-22
<PAGE>
UNIVERSAL HOUSING GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 2,517 $ 2,954 $ 2,400 $ 1,217 $ 1,876
Adjustments to reconcile net income to
net cash provided by operating
activities --
Depreciation and amortization.... 71 80 94 47 52
Gain on sale of assets........... (7) (9) (19) (1) (17)
Deferred state tax provision..... 3 1 2 1 1
Changes in assets and
liabilities --
Accounts receivable........... (211) (318) 579 218 187
Inventories................... 111 (1,782) 679 (167) 1,167
Other current assets.......... (8) (14) 2 6 (60)
Other noncurrent assets....... 27 37 6 -- (2)
Accounts payable and accrued
expenses................... 440 741 (544) 420 345
Floor plan payable............ (2,160) (1,157) 6,016 4,431 1,361
--------- --------- --------- --------- ---------
Net cash provided by
operating
activities............ 783 533 9,215 6,172 4,910
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment... (58) (256) (316) (196) (124)
Proceeds from sale of equipment....... 15 10 24 15 30
--------- --------- --------- --------- ---------
Net cash used in
investing activities.. (43) (246) (292) (181) (94)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock.................. -- 1 -- -- --
(Payments on) Proceeds from short-term
debt............................... (30) (30) 50 -- (50)
Distribution to shareholders.......... (250) (815) (3,050) -- (9,869)
--------- --------- --------- --------- ---------
Net cash used in
financing activities (280) (844) (3,000) -- (9,919)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 460 (557) 5,923 5,991 (5,103)
CASH AND CASH EQUIVALENTS, beginning of
period................................ 2,205 2,665 2,108 2,108 8,031
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period................................ $ 2,665 $ 2,108 $ 8,031 $ 8,099 $ 2,928
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest........................... $ 362 $ 221 $ 412 $ 144 $ 310
Taxes.............................. 406 497 623 334 229
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-23
<PAGE>
UNIVERSAL HOUSING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Universal Housing Group (the Group) includes the accompanying combined
financial statements of the following companies under common control and
ownership:
Universal Housing, Inc. --
Universal Housing, Inc., a Tennessee S Corporation, operates 14 retail
manufactured home sales centers in Tennessee and Virginia.
Universal Housing of East Tn., Inc. --
Universal Housing of East Tn., Inc., a Tennessee S Corporation,
operates one retail manufactured home sales center in eastern
Tennessee.
Shaffer and Webb Insurance Agency --
Shaffer and Webb Insurance Agency, a sole proprietorship, sells
physical damage insurance to customers of Universal Housing, Inc.,
and Universal Housing of East Tn., Inc.
The Group's owners intend to enter into a definitive agreement with HomeUSA
Inc. (HomeUSA), pursuant to which all of the ownership interests of the Group
will be exchanged for cash and shares of HomeUSA's common stock concurrently
with the consummation of an initial public offering (the Offering) of the common
stock of HomeUSA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and the results of
operations of the Group. All significant intercompany transactions have been
eliminated in combination.
INTERIM FINANCIAL INFORMATION
The interim combined financial statements as of June 30, 1997, and for the
six months ended June 30, 1996 and 1997, are unaudited, and certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the combined interim financial
statements have been included. The Group's operations are subject to different
seasonal variations in sales. Due to seasonality and other factors, the results
of operations for the interim periods are not necessarily indicative of the
results for the entire fiscal year.
CASH AND CASH EQUIVALENTS
The Group considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market using the specific
identification method for new and pre-owned homes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such
F-24
<PAGE>
UNIVERSAL HOUSING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
assets are charged to operations as incurred. Disposals are removed at cost less
accumulated depreciation, and any resulting gain or loss is reflected in other
income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Group's retail sales), upon execution of the loan
agreement and other required documentation and receipt of a designated minimum
down payment. The Group also maintains pre-owned manufactured home inventory
owned by third parties for which the Group records a sales commission in other
revenues when sold to customers. Home sales exclude any sales and use taxes
collected.
The Group receives an agent's commission on insurance policies issued by
unrelated insurance companies. Insurance commissions are recognized in other
revenue at the time the policies are written.
The Group arranges financing for customers through various institutions for
which the Group receives certain financing fees which are recognized in other
revenue along with the sale of the related home. Other revenue also includes
repair and maintenance services.
COST OF SALES
Cost of sales includes the cost of manufactured homes, less any
manufacturer rebates realized, as well as the cost of retailer installed
options, set-up and delivery.
INCOME TAXES
Universal Housing, Inc. and Universal Housing of East Tn., Inc. have
elected S Corporation status as defined by the Internal Revenue Code, whereby
they are not subject to taxation for federal purposes. Under S Corporation
status, the shareholders report their share of the Group's taxable earnings or
losses on their personal tax returns. Shaffer and Webb Insurance Agency is a
sole proprietorship. The Group will terminate their S Corporation and sole
proprietorship status concurrently with the effective date of the Offering. The
provision for income taxes is composed entirely of state income taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Group's financial instruments consist primarily of floor plan payables
and accounts receivables. The carrying amount of these financial instruments
approximates fair value due either to length of maturity or existence of
variable interest rates that approximate market rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Group to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Group maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Group has not
incurred losses related to these balances to date.
MAJOR SUPPLIERS
The Group purchases all of its homes from two primary suppliers at the
prevailing prices charged by the manufacturers. The Group's sales volume could
be adversely affected by the manufacturers' inability to supply the sales center
with an adequate supply of homes.
The retail agreements between the sales center and the manufacturer contain
certain provisions, including the minimum amount of homes to be purchased and
displayed, guidelines for the display of model homes, installation and delivery
guidelines and terms of reimbursement for warranty work performed by the
retailer pursuant to the manufacturer's warranty. These agreements also provide
for volume rebate incentive
F-25
<PAGE>
UNIVERSAL HOUSING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
programs based on inventory purchases. Accordingly, inventory has been recorded
net of volume rebates. Retail agreements may be terminated by the sales center
with notice and by the manufacturer for good cause, as defined in the agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining 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. Actual results could differ from those estimates.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the net change in floor plan
financing of inventory is reflected as an operating activity.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting
for the Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," was issued in June 1996 and establishes, among other things, new
criteria related to accounting for transfers of financial assets in exchange for
cash or other consideration. SFAS No. 125 also establishes new accounting
requirements for pledged collateral. In addition, SFAS No. 125 is effective for
all transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. The Group will adopt this
statement when required and has not determined the impact that the adoption of
SFAS No. 125 will have on its financial statements.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31
LIVES IN -------------------- JUNE 30,
YEARS 1995 1996 1997
--------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Buildings............................... 25 $ 354 $ 390 $ 417
Leasehold improvements.................. 10 199 283 314
Equipment............................... 7 307 438 410
Furniture and fixtures.................. 5 201 191 200
--------- --------- -----------
Total.............................. 1,061 1,302 1,341
Less -- Accumulated depreciation........ (477) (501) (480)
--------- --------- -----------
Property and equipment, net........ $ 584 $ 801 $ 861
========= ========= ===========
</TABLE>
F-26
<PAGE>
UNIVERSAL HOUSING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
Due from manufacturers.................. $ 499 $ 325 $ 475
Due from finance companies.............. 1,650 954 890
Other................................... 202 493 219
--------- --------- -----------
$ 2,351 $ 1,772 $ 1,584
========= ========= ===========
Inventories consist of the following (in thousands):
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
New homes, net of unearned volume
rebates............................... $ 8,787 $ 7,902 $ 6,739
Pre-owned homes......................... 213 333 320
Parts, accessories and other............ 334 420 429
--------- --------- -----------
$ 9,334 $ 8,655 $ 7,488
========= ========= ===========
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
Accounts payable, trade................. $ 941 $ 983 $ 874
Accrued compensation.................... 1,303 1,019 834
Customer deposits....................... 269 250 520
Other accrued expenses.................. 407 124 493
--------- --------- -----------
$ 2,920 $ 2,376 $ 2,721
========= ========= ===========
5. FLOOR PLAN PAYABLE:
The Group has a floor plan credit facility with lending institutions to
finance a major portion of its manufactured home inventory until such inventory
is sold. Interest on amounts borrowed is paid monthly at the lender's prime rate
(8.25 percent at December 31, 1996 and 8.5 percent at June 30, 1997
(unaudited)). The floor plan payable is secured by all of the Group's
manufactured home inventory, the related furniture, fixtures and accessories and
accounts receivable and is guaranteed by the majority shareholder of the Group.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Group must make periodic payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreement. In the event the home remains in inventory 12 months after
the date of purchase, the balance of the obligation related to that home will
become due. In addition, certain of the Group's floor plan agreements include
subjective acceleration clauses which could result in the lines of credit being
due on demand should the Group experience a material adverse change in its
financial position as determined by the lender. The maximum amount that can be
borrowed under the floor plan lines of credit is $8.75 million, and the largest
balance outstanding during the year ended December 31, 1996, was approximately
$6.7 million. The average balance outstanding during 1996 was approximately $4.6
million with a weighted average interest rate paid of 8.27 percent.
F-27
<PAGE>
UNIVERSAL HOUSING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The components of the provision for income taxes are as follows (in
thousands):
DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal --
Current............................ $ -- $ 14 $ --
Deferred........................... -- 1 (1)
--------- --------- ---------
-- 15 (1)
--------- --------- ---------
State --
Current............................ 136 164 124
Deferred........................... 2 2 8
--------- --------- ---------
138 166 132
--------- --------- ---------
Total provision............... $ 138 $ 181 $ 131
========= ========= =========
The provision for income taxes differs from an amount computed at the
statutory rates as follows
(in thousands):
DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal income tax at statutory rates... $ 929 $ 1,097 $ 886
State income taxes...................... 138 166 132
Effect of S corporation income.......... (929) (1,082) (887)
--------- --------- ---------
$ 138 $ 181 $ 131
========= ========= =========
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1995 and 1996, are as follows (in thousands):
1995 1996
--------- ---------
Deferred tax assets --
Accrued expenses................... $ -- $ 11
Other.............................. 6 7
--------- ---------
Total deferred tax assets..... 6 18
--------- ---------
Deferred tax liabilities --
Bases differences in property and
equipment......................... (11) (11)
Other.............................. (58) (72)
--------- ---------
Total deferred tax
liabilities................ (69) (83)
--------- ---------
Net deferred tax liability.... $ (63) $ (65)
========= =========
7. RELATED-PARTY TRANSACTIONS:
The Group leases facilities from certain shareholders of the Group under
operating leases. The rent paid under this related-party lease was approximately
$18,000, $77,000 and $113,000 for the years ended December 31, 1994, 1995 and
1996, respectively.
Certain shareholders of the Group own interest in a real estate investment
entity which, from time to time, sells land to customers of the Group.
F-28
<PAGE>
UNIVERSAL HOUSING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Group leases various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2002. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1997............................... $ 301
1998............................... 231
1999............................... 185
2000............................... 165
2001............................... 86
Thereafter......................... 11
---------
Total......................... $ 979
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $296,000, $353,000 and $381,000 for the
years ended December 31, 1994, 1995 and 1996, respectively.
LITIGATION
The Group is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Group's combined financial position or
combined results of operations.
INSURANCE
The Group carries a standard range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and
excess liability coverage. The Group has not incurred significant claims or
losses on any of its insurance policies.
9. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In September 1997, the Group and its shareholders entered into a definitive
agreement with a wholly-owned subsidiary of HomeUSA providing for the merger of
the Group with the subsidiary of HomeUSA (the Merger). The cash portion of the
purchase price of the Merger will be adjusted to the extent the Excess Operating
Capital is greater or less than zero. Excess Operating Capital is defined as net
working capital minus long-term debt, as of the effective date of the Merger.
Had this distribution been made at June 30, 1997, the effect on the Group's
balance sheet would have been to decrease shareholders' equity by approximately
$1.2 million.
Concurrently with the Merger, the Group will enter into agreements with the
shareholders to lease land, equipment and buildings used in the Group's
operations for negotiated amounts and terms.
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AAA Homes Group:
We have audited the accompanying combined balance sheets of AAA Homes
Group, (the Group) as defined in Note 1 to the financial statements, as of
December 31, 1995 and 1996, and the related combined statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These combined financial statements are the
responsibility of the Group's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Group
as of December 31, 1995 and 1996, and the results of their combined operations
and their combined cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 6, 1997
F-30
<PAGE>
AAA HOMES GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 889 $ 814 $ 727
Accounts receivable................ 867 1,398 1,487
Related-party receivable........... 48 80 68
Inventories........................ 6,880 9,248 10,356
--------- --------- -----------
Total current assets.......... 8,684 11,540 12,638
PROPERTY AND EQUIPMENT, net............. 859 1,106 1,348
OTHER ASSETS, net....................... 289 396 410
--------- --------- -----------
Total assets.................. $ 9,832 $ 13,042 $14,396
========= ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $ 1,439 $ 1,682 $ 1,562
Related-party payable.............. -- 49 50
Floor plan payable................. 6,995 9,002 9,548
Current maturities of long-term
debt............................. 58 108 179
Deferred Tax Liability............. 27 26 131
--------- --------- -----------
Total current liabilities..... 8,519 10,867 11,470
LONG-TERM DEBT, net of current
maturities............................ 113 32 289
DEFERRED TAX LIABILITY.................. 61 132 139
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 105,000
shares authorized,
68,000 issued and 36,500
outstanding...................... 68 68 68
Retained earnings.................. 1,151 2,023 2,442
Partners' capital.................. -- -- 68
Treasury stock, 31,500 shares, at
cost............................. (80) (80) (80)
--------- --------- -----------
Total shareholders' equity.... 1,139 2,011 2,498
--------- --------- -----------
Total liabilities and
shareholders' equity....... $ 9,832 $ 13,042 $14,396
========= ========= ===========
The accompanying notes are an integral part of these combined financial
statements.
F-31
<PAGE>
AAA HOMES GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Home sales......................... $ 20,159 $ 27,166 $ 38,584 $ 20,386 $ 17,494
Other revenue...................... 306 385 612 252 688
--------- --------- --------- --------- ---------
Total revenue................. 20,465 27,551 39,196 20,638 18,182
COST OF SALES........................... 16,113 21,604 30,543 16,420 13,943
--------- --------- --------- --------- ---------
Gross profit.................. 4,352 5,947 8,653 4,218 4,239
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 3,370 4,465 6,272 2,803 3,154
--------- --------- --------- --------- ---------
Income from operations........ 982 1,482 2,381 1,415 1,085
OTHER INCOME (EXPENSE):
Interest expense, net.............. (464) (679) (994) (478) (406)
Other income, net.................. 82 52 44 17 12
--------- --------- --------- --------- ---------
Income before income taxes.... 600 855 1,431 954 691
PROVISION FOR INCOME TAXES.............. 236 337 559 374 254
--------- --------- --------- --------- ---------
NET INCOME.............................. $ 364 $ 518 $ 872 $ 580 $ 437
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-32
<PAGE>
AAA HOMES GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TREASURY
COMMON RETAINED PARTNERS' STOCK,
STOCK EARNINGS CAPITAL AT COST TOTAL
------ --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.............. $ 68 $ 269 $-- $ (80) $ 257
Net income......................... -- 364 -- -- 364
------ --------- --------- -------- ---------
BALANCE, December 31, 1994.............. 68 633 -- (80) 621
Net income......................... -- 518 -- -- 518
------ --------- --------- -------- ---------
BALANCE, December 31, 1995.............. 68 1,151 -- (80) 1,139
Net income......................... -- 872 -- -- 872
------ --------- --------- -------- ---------
BALANCE, December 31, 1996.............. 68 2,023 -- (80) 2,011
Net income (unaudited)............. -- 419 18 -- 437
Capital contributions
(unaudited)...................... -- -- 50 -- 50
------ --------- --------- -------- ---------
BALANCE, June 30, 1997 (unaudited)...... $ 68 $ 2,442 $ 68 $ (80) $ 2,498
====== ========= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-33
<PAGE>
AAA HOMES GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 364 $ 518 $ 872 $ 580 $ 437
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities --
Depreciation and amortization.... 25 60 151 87 96
Gain on sale of assets........... (29) -- -- -- --
Deferred income tax provision.... 6 36 70 35 112
Changes in assets and
liabilities --
Accounts receivable, net...... (25) (377) (531) (895) (89)
Related-party receivable...... (13) (34) (32) (8) 12
Inventories................... (637) (2,459) (2,105) (2,570) 1,947
Other assets, net............. 41 (41) (22) 107 7
Accounts payable and accrued
expenses................... 234 400 243 436 (120)
Related-party payables........ -- -- 49 -- 1
Floor plan payable............ 678 2,712 1,744 2,391 (2,457)
--------- --------- --------- --------- ---------
Net cash provided by
(used in) operating
activities............ 644 815 439 163 (54)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment... (58) (616) (357) (167) (32)
Proceeds from sale of equipment....... 88 2 4 4 --
Purchases of manufactured home
operations......................... (40) -- (130) (130) (204)
--------- --------- --------- --------- ---------
Net cash used in
investing
activities............ (10) (614) (483) (293) (236)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments on) Proceeds from long-term
debt............................... (103) (45) (31) (34) 153
Capital contributions................. 5 -- -- -- 50
--------- --------- --------- --------- ---------
Net cash provided by
(used in) financing
activities............ (98) (45) (31) (34) 203
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 536 156 (75) (164) (87)
CASH AND CASH EQUIVALENTS, beginning
of period............................. 197 733 889 889 814
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period................................ $ 733 $ 889 $ 814 $ 725 $ 727
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest........................... $ 423 $ 684 $ 1,112 $ 696 $ 431
Taxes.............................. 246 196 337 206 201
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-34
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
AAA Homes Group (the Group) includes the financial statements of the
following companies under common control and ownership: CSF&T, Inc., d.b.a. AAA
Homes (a Mississippi corporation), Fordham Insurance Agency, Inc. (a Mississippi
corporation), and AAA Homes LLC (a Louisiana limited liability company). The
Group is primarily engaged in the retail sale of new and pre-owned manufactured
homes and the sale of the related finance, insurance and service contracts
thereon. The Group operates sales centers in Mississippi and Louisiana which
have retail agreements with a number of manufacturers.
In April 1996, the Group acquired the inventory, office building and
certain other assets and related rights of Wood Mobile Homes (Wood) located in
Mississippi. The aggregate consideration paid for Wood was $130,000 in cash. The
accompanying combined balance sheets include allocations of the respective
purchase price which resulted in goodwill of $120,000 which is being amortized
over 40 years.
AAA Homes, LLC was formed in November 1996 by the shareholders of CSF&T,
Inc., and commenced operations with the purchase of three Louisiana sales
centers acquired from Basset Homes, Inc. (Basset) in March 1997.
The aggregate consideration paid for Basset was $204,000 in cash and
$175,000 in notes payable to the seller. The accompanying combined balance
sheets as of June 30, 1997, include allocations of the respective purchase price
which resulted in goodwill of $66,040 which is being amortized over 40 years.
The Group's owners intend to enter into a definitive agreement with
HomeUSA, Inc. (HomeUSA), pursuant to which all of the ownership interests of the
Group will be exchanged for cash and shares of HomeUSA's common stock
concurrently with the consummation of an initial public offering (the Offering)
of the common stock of HomeUSA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and the results of
operations of the Group. All significant intercompany transactions have been
eliminated in combination.
INTERIM FINANCIAL INFORMATION
The interim combined financial statements as of June 30, 1997, and for the
six months ended June 30, 1996 and 1997, are unaudited, and certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the combined interim financial
statements have been included. The Group's operations are subject to different
seasonal variations in sales. Due to seasonality and other factors, the results
of operations for the interim periods are not necessarily indicative of the
results for the entire fiscal year.
CASH AND CASH EQUIVALENTS
The Group considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market using the specific
identification method for new and pre-owned homes.
F-35
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and setup and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Group's retail sales), upon execution of the loan
agreement and other required documentation and receipt of a designated minimum
down payment. Home sales exclude any sales and use taxes collected.
The Group receives an agent's commission on insurance policies issued by
unrelated insurance companies. Insurance commissions are recognized in other
revenue at the time the policies are written.
The Group arranges financing for customers through various institutions for
which the Group receives certain financing fees which are recognized in other
revenue along with the sale of the related home.
Other revenue also includes repair and maintenance services.
COST OF SALES
Cost of sales includes the cost of manufactured homes, less any
manufacturer rebates realized, as well as the cost of retailer installed
options, set-up and delivery.
GOODWILL
Goodwill represents the excess of the consideration paid over the fair
market value of assets acquired and is being amortized on the straight-line
method over 40 years. Accumulated amortization totaled approximately $10,000,
$19,000 and $34,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
INCOME TAXES
The Group accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount to be
realized. The provision for income taxes is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
AAA Homes, LLC (AAA), as a limited liability company is taxed as a
partnership for federal and state income tax purposes, as such, in lieu of
corporate income taxes, the shareholders separately account for AAA's items of
income, deductions, losses and credits on their individual income tax returns
based on their respective ownership interests. The financial statements do not
include a provision for income taxes for AAA.
F-36
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Group's financial instruments consist primarily of floor plan payables,
accounts receivable and long-term debt. The carrying amount of these financial
instruments approximates fair value due either to length of maturity or
existence of variable interest rates that approximate market rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Group to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Group maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Group has not
incurred losses related to these balances to date.
MAJOR SUPPLIERS
The Group purchases 78 percent of its homes through a retail agreement with
a primary supplier at the prevailing prices charged by the manufacturers.
Pursuant to this agreement, the Group received volume rebates on inventory
purchases. The Group's sales volume could be adversely affected by the
manufacturers' inability to supply the sales centers with an adequate supply of
homes.
The retail agreements between the sales centers and the manufacturers
contain certain provisions, including the minimum amount of homes to be
purchased and displayed, guidelines for the display of model homes, installation
and delivery guidelines and terms of reimbursement for warranty work performed
by the retailer pursuant to the manufacturer's warranty. These agreements also
provide for volume rebate incentive programs based on inventory purchases.
Accordingly, inventory has been recorded net of volume rebates. Retail
agreements may be terminated by the sales center with notice and by the
manufacturer for good cause, as defined in the agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining 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. Actual results could differ from those estimates.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the net change in floor plan
financing of inventory is reflected as an operating activity.
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 125, "Accounting for the Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," was issued in June 1996 and
establishes, among other things, new criteria related to accounting for
transfers of financial assets in exchange for cash or other consideration. SFAS
No. 125 also establishes new accounting requirements for pledged collateral. In
addition, SFAS No. 125 is effective for all transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996. The
Group will adopt this statement when required and has not determined the impact
that the adoption of SFAS No. 125 will have on its financial statements.
F-37
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES -------------------- JUNE 30,
(IN YEARS) 1995 1996 1997
------------ --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land.................................... $ 110 $ 110 $ 110
Buildings............................... 25 375 386 472
Leasehold improvements.................. 10 293 497 612
Equipment............................... 5-7 118 184 255
Furniture and fixtures.................. 5 159 243 290
--------- --------- -----------
Total.............................. 1,055 1,420 1,739
Less -- Accumulated depreciation........ (196) (314) (391)
--------- --------- -----------
Property and equipment, net........ $ 859 $ 1,106 $ 1,348
========= ========= ===========
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
Due from manufacturer................... $ 280 $ 452 $ 370
Due from finance companies.............. 484 684 848
Other................................... 103 262 269
--------- --------- -----------
$ 867 $ 1,398 $ 1,487
========= ========= ===========
Inventories consist of the following (in thousands):
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- ----------
(UNAUDITED)
New homes, net of unearned volume
rebates............................... $ 6,567 $ 8,545 $ 9,535
Pre-owned homes......................... 292 629 675
Parts, accessories and other............ 21 74 146
--------- --------- ----------
$ 6,880 $ 9,248 $ 10,356
========= ========= ==========
Other assets consist of the following (in thousands):
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- ----------
(UNAUDITED)
Notes receivable........................ $ 133 $ 109 $ 81
Goodwill, net........................... 115 220 278
Other................................... 41 67 51
--------- --------- ----------
$ 289 $ 396 $ 410
========= ========= ==========
F-38
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- ----------
(UNAUDITED)
Accounts payable, trade................. $ 601 $ 807 $ 744
Accrued compensation.................... 219 298 100
Other accrued expenses.................. 619 577 718
--------- --------- ----------
$ 1,439 $ 1,682 $1,562
========= ========= ==========
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT:
FLOOR PLAN PAYABLE
The Group has three primary floor plan credit facilities with lending
institutions to finance a major portion of its manufactured home inventory until
such inventory is sold. Interest on amounts borrowed is paid monthly at rates
varying from 0.75 percent up to 1.75 percent (depending on the length of time
the note is outstanding) over the prime rate (9.0 percent to 10.0 percent at
December 31, 1996, and 9.25 percent to 10.25 percent at June 30, 1997
(unaudited)). The floor plan payable is secured by all of the Group's
manufactured home inventory, the related furniture, fixtures and accessories and
accounts receivable, and is guaranteed by the shareholders of the Group.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Group must make periodic loan payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreement. In the event the home remains in inventory 12 months after
the date of purchase, the balance of the obligation related to that home will
become due. In addition, certain of the Group's floor plan agreements include
subjective acceleration clauses which could result in the lines of credit being
due on demand should the Group experience a material adverse change in its
financial position as determined by the lender. The maximum aggregate amount
that can be borrowed under the lines of credit is $13.0 million, and the largest
balance outstanding during the year ended December 31, 1996, was approximately
$10.3 million. The average balance outstanding during 1996 was approximately
$8.0 million with a weighted average interest rate paid of 12.8 percent.
F-39
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
(IN THOUSANDS)
Note payable to a bank in monthly
installments of $908 including
interest at 8%, final payment of
$72,000 due October 9, 1997, secured
by shareholders....................... $ 89 $ 75 $ 72
Notes payable to individuals in total
monthly installments of approximately
$5,000 including interest ranging from
6% to 10% with annual payments of
approximately $25,000 including
interest, due April 10, 1997, secured
by shareholders....................... 82 30 --
Note payable to a bank accruing interest
at 8%, principal and accrued interest
due April 25, 1998, secured by
shareholders.......................... -- 35 32
Notes payable to an individual in total
monthly installments of $3,689
including interest at 8% beginning
July 14, 1997, with annual payments of
$10,000, $30,000 and final payment of
$35,000 plus accrued interest at 8%,
due March 14, 1999, secured by
shareholders.......................... -- -- 175
Note payable to a financial institution,
monthly payments of $3,605 including
interest at 9%, due April 2002,
secured by shareholders............... -- -- 189
--------- --------- -----------
171 140 468
Less -- Current portion................. (58) (108) (179)
--------- --------- -----------
$ 113 $ 32 $ 289
========= ========= ===========
AAA Homes has a $50,000 line of credit with a financial institution that is
secured by a certificate of deposit. The line of credit expired on November 28,
1996, and there were no amounts outstanding on the line at December 31, 1995.
At December 31, 1996, future principal payments of long-term debt are
$108,272 for 1997 and $31,500 for 1998.
6. INCOME TAXES:
The components of the provision for income taxes are as follows (in
thousands):
DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal --
Current............................ $ 199 $ 260 $ 422
Deferred........................... 5 31 61
--------- --------- ---------
204 291 483
--------- --------- ---------
State --
Current............................ 31 41 67
Deferred........................... 1 5 9
--------- --------- ---------
32 46 76
--------- --------- ---------
Total provision............... $ 236 $ 337 $ 559
========= ========= =========
F-40
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from an amount computed at the
statutory rates as follows (in thousands):
DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal income tax at statutory rates... $ 210 $ 300 $ 501
State income taxes...................... 21 30 50
Nondeductible expenses.................. 5 7 8
--------- --------- ---------
$ 236 $ 337 $ 559
========= ========= =========
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1995 and 1996, are as follows (in thousands):
1995 1996
--------- ---------
Deferred tax assets --
Accrued expenses................... $ 20 $ 8
--------- ---------
Total deferred tax assets..... 20 8
--------- ---------
Deferred tax liabilities --
Bases differences in property and
equipment......................... (38) (56)
Other.............................. (70) (110)
--------- ---------
Total deferred tax
liabilities................ (108) (166)
--------- ---------
Net deferred tax liability.... $ (88) $ (158)
========= =========
7. RELATED-PARTY TRANSACTIONS:
The Group owns a 1 percent general partnership interest in a limited
partnership (the Partnership). The Partnership leases various facilities,
equipment and land under operating leases to the Group. Rental expense on these
leases totaled approximately $13,000, $137,000 and $153,000 for the years ended
December 31, 1994, 1995 and 1996, respectively. The investment balance in the
Partnership at December 31, 1995 and 1996, was de minimus.
Financing of pre-owned manufactured homes is provided through an affiliate
of the Group. The amount of sales that were financed by this affiliate during
the years ended December 31, 1994, 1995 and 1996, were approximately $29,000,
$26,000 and $30,000, respectively. Amounts due from this affiliate were
approximately $27,000 and $57,000 at December 31, 1995 and 1996, respectively.
The shareholders of the Group own a majority interest in a limited
liability company, which was established in 1996 to enable a retailer to
purchase manufactured homes through the Group's exclusive retailing agreement
with a manufacturer. Volume rebates received on behalf of this limited liability
company are recorded as related-party payables and were approximately $49,000 at
December 31, 1996.
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Group leases various facilities, equipment and land under operating
lease agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2001. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
F-41
<PAGE>
AAA HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1997............................... $ 463
1998............................... 380
1999............................... 266
2000............................... 47
2001............................... 12
Thereafter......................... --
---------
Total......................... $ 1,168
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $214,000, $338,000 and $404,000 for the
years ended December 31, 1994, 1995 and 1996, respectively.
LITIGATION
The Group is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Group's combined financial position or
combined results of operations.
INSURANCE
The Group carries a standard range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and
excess liability coverage. The Group has not incurred significant claims or
losses on any of its insurance policies.
EMPLOYEE 401(K) RETIREMENT PLAN
The Group participates in a 401(k) profit-sharing plan (the Plan) with
related companies, which covers all employees at least 21 years of age who have
completed at least 1,000 hours of services in a 12-month period subsequent to
employment. The Plan allows for employee contributions through salary reductions
of up to 15 percent of total compensation, subject to the statutory limits.
Employer matching contributions were $7,000, $10,000 and $11,000 for 1994, 1995
and 1996, respectively. The discretionary profit-sharing contributions were
$75,000 and $100,000 for 1994 and 1995, respectively, with no contribution made
in 1996.
9. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In September 1997, the Group and its shareholders entered into a definitive
agreement with a wholly-owned subsidiary of HomeUSA providing for the merger of
the Group with the subsidiary of HomeUSA (the Merger). Property and equipment of
approximately $438,000, accounts receivable of approximately $35,000 and other
assets of approximately $52,000, which are included in the combined balance
sheet at June 30, 1997, will be distributed to the shareholders of the Group. In
addition, shareholders of the Group will assume liabilities of approximately
$470,000 which are included in the combined balance sheet at June 30, 1997.
Assuming the transaction had occurred January 1, 1996, net income would have
been increased by $125,000 and $65,000 for the year ended December 31, 1996 and
the six months ended June 30, 1997, respectively. The cash portion of the
purchase price of the Merger will be adjusted to the extent the Excess Operating
Capital is greater or less than zero. Excess Operating Capital is defined as net
working capital minus long-term debt, as of the effective date of the Merger.
Had these distributions been made at June 30, 1997, the effect on the Group's
balance sheet would have been to decrease shareholders' equity by approximately
$1.3 million.
Concurrently with the Merger, the Group will enter into agreements with the
shareholders to lease land, equipment and buildings used in the Group's
operations for negotiated amounts and terms.
F-42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
McDonald Mobile Homes, Inc.:
We have audited the accompanying balance sheets of McDonald Mobile Homes,
Inc. as of December 31, 1996 and 1995, and the related statements of operations,
shareholders' equity and cash flows for the years ended December 31, 1996, 1995
and 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of McDonald Mobile Homes, Inc.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years ended December 31, 1996, 1995 and 1994, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
March 28, 1997, except as to the information
presented in the second paragraph of Note 7,
for which the date is May 1, 1997.
F-43
<PAGE>
MCDONALD MOBILE HOMES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 645 $ 477 $ 953
Accounts receivable............. 924 769 973
Inventories..................... 8,776 8,168 8,378
Other current assets............ 257 128 266
--------- --------- ------------
Total current assets....... 10,602 9,542 10,570
NOTES RECEIVABLE FROM SHAREHOLDERS... -- 155 --
PROPERTY AND EQUIPMENT, net.......... 908 933 1,510
--------- --------- ------------
Total assets............... $ 11,510 $ 10,630 $ 12,080
========= ========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses...................... $ 1,211 $ 892 $ 1,521
Floor plan payable.............. 8,094 6,995 7,105
Current maturities long-term
debt.......................... 165 198 435
Deferred tax liability.......... 388 268 268
--------- --------- ------------
Total current
liabilities............. 9,858 8,353 9,329
LONG-TERM DEBT, net of current
maturities......................... 241 199 407
DEFERRED TAX LIABILITY............... 50 22 22
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.50 par value,
100,000 shares authorized and
74,773 shares issued and
outstanding in 1996 and $1 par
value 50,000 shares
authorized, and 25,000 shares
issued and outstanding in
1995.......................... 25 37 37
Less -- Treasury stock, at
cost.......................... -- -- (152)
Additional paid-in capital...... -- 154 164
Retained earnings............... 1,336 1,865 2,273
--------- --------- ------------
Total shareholders'
equity.................. 1,361 2,056 2,322
--------- --------- ------------
Total liabilities and
shareholders' equity.... $ 11,510 $ 10,630 $ 12,080
========= ========= ============
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
MCDONALD MOBILE HOMES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Home sales...................... $ 20,480 $ 30,626 $ 29,451 $ 14,264 $ 14,420
Other revenue................... 326 408 633 230 425
--------- --------- --------- --------- ---------
Total revenue.............. 20,806 31,034 30,084 14,494 14,845
COST OF SALES........................ 16,952 25,386 24,566 11,619 11,870
--------- --------- --------- --------- ---------
Gross profit............... 3,854 5,648 5,518 2,875 2,975
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................ 2,724 4,206 3,925 1,828 1,988
--------- --------- --------- --------- ---------
Income from operations..... 1,130 1,442 1,593 1,047 987
OTHER INCOME (EXPENSE):
Interest expense, net........... (422) (824) (808) (404) (391)
Other income, net............... 101 59 58 16 48
--------- --------- --------- --------- ---------
Income before income
taxes................... 809 677 843 659 644
PROVISION FOR INCOME TAXES........... 302 253 314 244 236
--------- --------- --------- --------- ---------
NET INCOME........................... $ 507 $ 424 $ 529 $ 415 $ 408
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
MCDONALD MOBILE HOMES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TREASURY
COMMON PAID-IN STOCK, RETAINED
STOCK CAPITAL AT COST EARNINGS TOTAL
------ ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993......... $ 25 $-- $-- $ 405 $ 430
Net income...................... -- -- -- 507 507
------ ---------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1994......... 25 -- -- 912 937
Net income...................... -- -- -- 424 424
------ ---------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1995......... 25 -- -- 1,336 1,361
Net income...................... -- -- -- 529 529
Exercise of stock options....... 35 (10) -- -- 25
Adjustment of par value......... (30) 30 -- -- --
Issuance of common stock........ 7 134 -- -- 141
------ ---------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1996......... 37 154 -- 1,865 2,056
Net income (unaudited).......... -- -- -- 408 408
Repurchase of common stock
(unaudited)..................... -- 10 (152) -- (142)
------ ---------- -------- -------- ---------
BALANCE AT JUNE 30, 1997
(unaudited)........................ $ 37 $ 164 $ (152) $2,273 $ 2,322
====== ========== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
MCDONALD MOBILE HOMES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 507 $ 424 $ 529 $ 415 $ 408
Adjustments to reconcile net income
to cash provided by (used in)
operating activities --
Depreciation.................... 40 65 77 33 50
Deferred income tax provision... 199 149 (148) -- --
Noncash compensation on stock
issuance...................... -- -- 11 11 --
Changes in operating assets and
liabilities --
Accounts receivable............. (257) (189) 155 265 (204)
Inventories..................... (1,858) (3,649) 608 749 (209)
Other assets, net............... (4) (183) 183 (63) (189)
Accounts payable and accrued
expenses...................... 147 243 (319) (244) 488
Floor plan payable.............. 2,150 3,257 (1,099) (1,068) 110
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities.......... 924 117 (3) 98 454
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemptions of (investments in)
certificates of deposit....... (20) (1) (54) -- 50
Purchases of property and
equipment..................... (169) (552) (133) (60) (688)
Proceeds from sale of assets.... 31 47 31 -- 60
--------- --------- --------- --------- ---------
Net cash used in investing
activities.................... (158) (506) (156) (60) (578)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.... -- 195 54 27 504
Repayments of long-term debt.... (51) (52) (63) (31) (59)
Proceeds from issuance of
stock......................... -- -- -- -- 155
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities.......... (51) 143 (9) (4) 600
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 715 (246) (168) 34 476
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 176 891 645 645 477
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 891 $ 645 $ 477 $ 679 $ 953
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period
for --
Interest........................ $ 399 $ 807 $ 806 $ 409 $ 404
Income taxes.................... 75 135 118 45 102
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The principal operations of McDonald Mobile Homes (the Company) consist of
the sale and installation of manufactured homes in the states of Arkansas,
Kansas, Missouri and Oklahoma. The Company began operations in January 1987. The
Company operates under the names of Affordable Mobile Homes, All American Home
Center, Budget Mobile Homes, Coffeyville Mobile Homes, Granny's Mobile Homes,
Granny's II, Harrison Home Center and Mobile Home Supercenter.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of June 30, 1997, and for the six
months ended June 30, 1996 and 1997, are unaudited, and certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. The Company's operations are subject to seasonal variations in
sales. Due to seasonality and other factors, the results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
At December 31, 1996 and 1995, the Company had cash balances in excess of
FDIC insured limits of $896,065 and $622,976, respectively.
INVENTORIES
Inventories are valued at the lower of cost or market using the
specific-identification method for new and pre-owned homes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Company's retail sales), upon execution of the
loan agreement and other required documentation and receipt of a designated
minimum down payment. Home sales also includes revenue from the construction of
site amenities. Home sales exclude any sales and use taxes collected.
The Company receives an agent's commission on insurance policies issued by
unrelated insurance companies. Insurance commissions are recognized in other
revenue at the time the policies are written.
F-48
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company also maintains used manufactured home inventory owned by third
parties for which the Company records a sales commission in other revenue when
sold to customers.
Also included in other revenue is the revenue from repair and maintenance
services.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount to be
realized. The provision for income taxes is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
MAJOR SUPPLIERS
The Company purchases 59 percent of its homes through retail agreements
with three primary manufacturers at the prevailing prices charged by the
manufacturers. Pursuant to these agreements, the Company received volume rebates
on inventory purchases. The Company's sales volume could be adversely affected
by the manufacturers' inability to supply the sales centers with an adequate
supply of homes.
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. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -------------------- JUNE 30,
(IN YEARS) 1995 1996 1997
------------ --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Buildings............................ 20-30 $ 241 $ 231 $ 270
Land and leasehold improvements...... 20-30 439 463 931
Equipment............................ 5-7 344 414 506
--------- --------- -----------
1,024 1,108 1,707
Less-Accumulated depreciation........ (116) (175) (197)
--------- --------- -----------
$ 908 $ 933 $ 1,510
========= ========= ===========
</TABLE>
F-49
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
Amounts due from manufacturers....... $ 725 $ 608 $ 316
Due from finance companies........... 160 109 426
Other................................ 39 52 231
--------- --------- -----------
$ 924 $ 769 $ 973
========= ========= ===========
Inventories consist of the following (in thousands):
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- ------------
(UNAUDITED)
New homes............................ $ 8,111 $ 6,997 $6,874
Pre-owned homes...................... 602 1,011 1,234
Parts, accessories and other......... 63 160 270
--------- --------- ------------
$ 8,776 $ 8,168 $8,378
========= ========= ============
At December 31, 1996 and 1995, substantially all new manufactured homes
were pledged as collateral against floor plan notes payable. Additionally, at
December 31, 1996, pre-owned manufactured homes with costs of $301,653 were
pledged as collateral against floor plan notes payable (see Note 5).
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- ------------
(UNAUDITED)
Accounts payable, trade.............. 665 $ 309 $ 489
Customer deposits.................... 92 114 154
Other accrued expenses............... 454 469 878
--------- --------- ------------
$ 1,211 $ 892 $1,521
========= ========= ============
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT:
FLOOR PLAN PAYABLE
The Company has floor plan credit facilities with several lending
institutions to finance a major portion of its manufactured home inventory until
such inventory is sold. Interest on amounts borrowed is paid monthly at rates
varying from 0.5 percent up to 7.5 percent (depending upon the length of time
the note is outstanding) over the lenders' prime rate (8.75 percent to 15.75
percent at December 31, 1996 and 9.0 percent to 16.0 percent at June 30, 1997
(unaudited)). The floor plan payable is collateralized by a portion of the
Company's manufactured home inventory and contract proceeds receivable and are
guaranteed by the majority shareholder.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Company must make periodic payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreement. In addition, certain of the Company's floor plan
agreements included subjective acceleration clauses which could result in the
notes being due on demand should the Company experience a material adverse
change in their financial position as determined by the lender. The
F-50
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
average balance outstanding during 1996 was $7.2 million with a weighted average
interest rate paid during 1996 and 1995 of 11.0 percent and 11.9 percent,
respectively.
LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
DECEMBER 31
-------------- JUNE 30,
1995 1996 1997
----- ----- -----------
(UNAUDITED)
Installment notes collateralized by
land and equipment with
principal and interest due
monthly at rates ranging from
8.5% to 10.25% as of December
31, 1996, maturing at various
dates from October 1997 through
September 2003.................. $ 297 $ 288 $ 733
Note to majority shareholder with
interest at 11% due monthly, due
upon 30 days written notice by
the shareholder................. 109 109 109
----- ----- -----------
406 397 842
Less -- Current portion............ (165) (198) (435)
----- ----- -----------
Long-term debt..................... $ 241 $ 199 $ 407
===== ===== ===========
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1996, are: 1997, $197,644; 1998, $73,908; 1999,
$54,388; 2000, $21,279; 2001, $16,715; and thereafter, $33,114.
The Company's installment notes include a construction loan commitment with
available capacity of $86,074 as of December 31, 1996.
6. INCOME TAXES:
The provision (benefit) for income taxes related to the statements of
operations for the years ended December 31, 1994, 1995 and 1996, are summarized
below (in thousands):
1994 1995 1996
----- ----- ------
Current.............................. $ 103 $ 104 $ 462
Deferred............................. 199 149 (148)
----- ----- ------
$ 302 $ 253 $ 314
===== ===== ======
The provision for income taxes on pretax income varied from the amount
computed by applying the U.S. federal statutory rate as a result of the
following (in thousands):
1994 1995 1996
----- ----- -----
Federal income tax at statutory
rates................................ $ 275 $ 230 $ 287
State income tax..................... 32 27 27
Other................................ (5) (4) --
----- ----- -----
$ 302 $ 253 $ 314
===== ===== =====
F-51
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax liabilities at December 31, 1995 and 1996 are comprised of the
following (in thousands):
1995 1996
--------- ---------
Deferred tax liabilities --
Accrued income.................. $ 270 $ 226
Inventories..................... 126 --
Depreciation of property and
equipment..................... 42 64
--------- ---------
Total deferred tax
liability............... $ 438 $ 290
========= =========
7. SHAREHOLDERS' EQUITY:
In December 1992, the Company's sole shareholder, under an informal plan,
granted options to executive officers to acquire up to 35,000 shares of common
stock for $1 per share which were exercisable for a period of up to five years.
In March 1996, the options were exercised in exchange for notes bearing interest
at 6.5 percent with a term not exceeding two years. In May 1997, $25,000 of the
related notes were paid and the remaining $10,000 was recorded as a reduction of
additional paid-in capital at December 31, 1996.
In April 1997, the Company entered into an agreement to repurchase 10,000
shares from a former executive officer of the Company for total consideration of
$152,000. As part of this agreement, the Company will sell certain inventory and
equipment to the former executive officer at a price that equals the Company's
current carrying value for the related inventory and equipment.
In March 1996, the Company entered into stock purchase agreements with a
group of investors who acquired 14,773 shares of common stock for $130,000 by
issuing notes, bearing interest at 6.5 percent, to the Company. These notes were
fully paid in April 1997. Compensation expense and a contribution of capital of
$11,371 has been recognized in 1996 based on the fair value of the Company's
stock at the date of the agreement related to the acquisition of common stock by
an investor who is also a member of Company management.
8. RELATED-PARTY TRANSACTION:
At December 31, 1996, the Company had a certificate of deposit totaling
$50,000 which is pledged as collateral for indebtedness incurred by an employee
of the company. Subsequent to December 31, 1996, the debt was satisfied and the
collateral was released.
At December 31, 1996 and 1995, an officer of the Company provided a
personal certificate of deposit of $25,000 as collateral for the Company's floor
plan with a bank.
The Company incurred rent expense of $15,000 during 1996, 1995 and 1994
related to land which is owned by the majority shareholder. The land is utilized
by the Company for one of its retail centers.
9. PROFIT-SHARING PLAN:
Effective January 1, 1993, the Company adopted a profit-sharing plan,
qualified under Section 415 of the Internal Revenue Code. Contributions to the
plan are at management's discretion. Contributions are made to a "qualified"
employee's account and vest evenly over a five-year period. During the years
ended December 31, 1995 and 1994, the Company contributed $200,000 and $175,000,
respectively. The Company did not make a contribution for the year ended
December 31, 1996.
F-52
<PAGE>
MCDONALD MOBILE HOMES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES:
INSURANCE
The Company carries a standard range of insurance coverage, including
general and business auto liability, commercial property, workers' compensation
and excess liability coverage. The Company has not incurred significant claims
or losses on any of its insurance policies.
11. SUBSEQUENT EVENTS:
PROPOSED ACQUISITION BY HOMEUSA (UNAUDITED)
In September 1997, the Company and its shareholders entered into a
definitive agreement with a wholly-owned subsidiary of HomeUSA providing for the
merger of the Company with the subsidiary of HomeUSA (the Merger). As discussed
in Note 7, the Company entered into an agreement in April 1997 with a former
shareholder of the Company to sell certain assets and liabilities of the Company
in exchange for his stock which will not be a party to the Merger. Approximately
$1,613,000 of inventory, $103,000 of property and equipment, floor plan payable
of $1,275,000 and other obligations, net, of $250,000, which are included in the
balance sheet at June 30, 1997, will be distributed during the third quarter of
1997. Total revenues would have been reduced by approximately $3,695,000 and
$2,107,000 and net income would have been reduced by $97,000 and $42,000 for the
year ended December 31, 1996 and the six months ended June 30, 1997,
respectively, assuming the transaction had occurred January 1, 1996. The cash
portion of the purchase price of the Merger will be adjusted to the extent the
Excess Operating Capital is greater or less than zero. Excess Operating Capital
is defined as net working capital minus long-term debt, as of the effective date
of the Merger. Had these distributions been made at June 30, 1997, the effect on
the Company's balance sheet would have been to decrease shareholders' equity by
approximately $101,000.
Concurrently with the Merger, the Company will enter into agreements with
the shareholders to lease land and buildings used in the Company's operations
for negotiated amounts and terms.
F-53
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Patrick Home Center, Inc.:
We have audited the accompanying balance sheets of Patrick Home Center,
Inc., as of December 31, 1995 and 1996, and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1995 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 6, 1997
F-54
<PAGE>
PATRICK HOME CENTER, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 386 $ 47 $ 641
Accounts receivable, net........... 1,054 1,116 1,161
Inventories........................ 5,431 6,976 4,740
Deferred tax asset................. 34 1 4
Other current assets............... 216 122 --
--------- --------- ----------
Total current assets.......... 7,121 8,262 6,546
PROPERTY AND EQUIPMENT, net............. 1,874 2,484 2,313
--------- --------- ----------
Total assets.................. $ 8,995 $ 10,746 $8,859
========= ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $ 906 $ 877 $1,191
Floor plan payable................. 5,686 6,914 4,823
Current maturities of long-term
debt............................. 785 410 154
--------- --------- ----------
Total current liabilities..... 7,377 8,201 6,168
LONG-TERM DEBT, net of current
maturities............................ 175 354 285
DEFERRED TAX LIABILITY.................. 150 65 68
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 20,000
shares authorized, 20,000 issued
and 20,000 shares outstanding in
1995 and 1996 and 19,000 shares
outstanding at June 30, 1997..... 20 20 20
Retained earnings.................. 1,273 2,106 2,556
Treasury stock, 1,000 shares, at
cost............................. -- -- (238)
--------- --------- ----------
Total shareholders' equity.... 1,293 2,126 2,338
--------- --------- ----------
Total liabilities and
shareholders' equity....... $ 8,995 $ 10,746 $8,859
========= ========= ==========
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
PATRICK HOME CENTER, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
REVENUE:
<S> <C> <C> <C> <C> <C>
Home sales......................... $ 20,707 $ 28,184 $ 28,946 $ 15,625 $ 15,737
Other revenue...................... 724 749 957 465 408
--------- --------- --------- --------- ---------
Total revenue................. 21,431 28,933 29,903 16,090 16,145
COST OF SALES........................... 17,554 23,664 23,858 12,953 12,646
--------- --------- --------- --------- ---------
Gross profit.................. 3,877 5,269 6,045 3,137 3,499
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 3,347 4,530 4,306 2,330 2,431
--------- --------- --------- --------- ---------
Income from operations........ 530 739 1,739 807 1,068
OTHER INCOME (EXPENSE):
Interest expense, net.............. (336) (518) (622) (323) (252)
Other income, net.................. 40 54 58 25 30
--------- --------- --------- --------- ---------
Income before income taxes.... 234 275 1,175 509 846
PROVISION FOR INCOME TAXES.............. 90 106 2 3 42
--------- --------- --------- --------- ---------
NET INCOME.............................. $ 144 $ 169 $ 1,173 $ 506 $ 804
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE>
PATRICK HOME CENTER, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TREASURY
COMMON RETAINED STOCK,
STOCK EARNINGS AT COST TOTAL
------ --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993.............. $ 20 $ 960 $ -- $ 980
Dividends.......................... -- -- -- --
Net income......................... -- 144 144
------ --------- --------- ---------
BALANCE, December 31, 1994.............. 20 1,104 -- 1,124
Dividends.......................... -- -- -- --
Net income......................... -- 169 -- 169
------ --------- --------- ---------
BALANCE, December 31, 1995.............. 20 1,273 -- 1,293
Distributions...................... -- (340) -- (340)
Net income......................... -- 1,173 -- 1,173
------ --------- --------- ---------
BALANCE, December 31, 1996.............. 20 2,106 -- 2,126
Distributions (unaudited).......... -- (354) -- (354)
Repurchase of common stock
(unaudited) -- -- (238) (238)
Net income (unaudited)............. -- 804 -- 804
------ --------- --------- ---------
BALANCE, June 30, 1997 (unaudited)...... $ 20 $ 2,556 $ (238) $ 2,338
====== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE>
PATRICK HOME CENTER, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 144 $ 169 $ 1,173 $ 506 $ 804
Adjustments to reconcile net income to
net cash provided by operating
activities --
Depreciation and amortization.... 140 134 134 51 42
Deferred income tax provision
(benefit)..................... 41 11 (52) (13) --
Loss (gain) on sale of assets.... 7 16 (1) 8 --
Changes in assets and
liabilities --
Accounts receivable, net...... 960 (407) (62) (646) (44)
Inventories................... (784) (1,882) (1,545) (1,087) 1,552
Other current assets.......... (129) 5 108 158 122
Accounts payable and accrued
expenses................... (46) 293 (29) 314 308
Floor plan payable............ 83 2,155 1,228 1,190 (1,508)
--------- --------- --------- --------- ---------
Net cash provided by
operating
activities............ 416 494 954 481 1,276
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment... (472) (544) (767) (191) (161)
Proceeds from sale of equipment....... 111 80 10 10 108
--------- --------- --------- --------- ---------
Net cash used in
investing
activities............ (361) (464) (757) (181) (53)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments on) proceeds from long-term
debt............................... (101) 105 (196) (358) (275)
Distribution to shareholders.......... -- -- (340) (20) (354)
--------- --------- --------- --------- ---------
Net cash provided by
(used in) financing
activities............ (101) 105 (536) (378) (629)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (46) 135 (339) (78) 594
CASH AND CASH EQUIVALENTS, beginning of
period................................ 297 251 386 386 47
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period................................ $ 251 $ 386 $ 47 $ 308 $ 641
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest......................... $ 344 $ 501 $ 619 $ 328 $ 254
Taxes............................ 30 21 -- -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Patrick Home Center, Inc. (the Company), a Mississippi corporation, is
primarily engaged in the retail sale of new and pre-owned manufactured homes.
The Company operates sales centers in Mississippi and Tennessee which have
retail agreements with a number of home manufacturers.
In July 1997, the Company purchased an existing sales lot located in
Millington, Tennessee, for $85,000.
The Company and its shareholders intend to enter into a definitive
agreement with HomeUSA, Inc. (HomeUSA), pursuant to which all ownership
interests of the Company will be exchanged for cash and shares of HomeUSA's
common stock concurrently with the consummation of an initial public offering
(the Offering) of the common stock of HomeUSA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of June 30, 1997, and for the six
months ended June 30, 1996 and 1997, are unaudited, and certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. Due to seasonality and other factors, the results of operations
for the interim periods are not necessarily indicative of the results for the
entire fiscal year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market using the specific
identification method for new and pre-owned homes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Company's retail sales), upon execution of the
loan agreement and other required documentation and receipt of a designated
minimum down payment.
The Company also maintains pre-owned manufactured home inventory owned by
third parties for which the Company records a sales commission in other revenue
when sold to customers. Home sales also includes revenue from the construction
of site amenities. Home sales exclude any sales and use taxes collected.
F-59
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company receives an agent's commission on insurance policies issued by
unrelated insurance companies. Insurance commissions are recognized in other
revenue at the time the policies are written.
The Company arranges financing for customers through various institutions
for which the Company receives certain financing fees which are recognized in
other revenue along with the sale of the related home.
Other revenue also includes the revenue from repair and maintenance
service.
COST OF SALES
Cost of sales includes the cost of manufactured homes, less any
manufacturer rebates realized, as well as the cost of retailer installed
options, set-up and delivery and site amenities.
INCOME TAXES
The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, the shareholders report their share of the
Company's taxable earnings or losses in their personal tax returns. The Company
will terminate its S Corporation status concurrently with the effective date of
this offering. The provision for income taxes in 1996 is composed entirely of
state income taxes.
Prior to 1996, the Company was a corporation subject to federal income
taxes; accordingly, prior to 1996, the Company followed the liability method of
accounting for income taxes in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes". Under SFAS No. 109
deferred income taxes were recognized for the tax consequences in future years
of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences were
expected to affect taxable income. Valuation allowances were established when
necessary to reduce deferred tax assets to the amount to be realized. The
provision for income taxes was the tax payable for the year and the change
during the year in deferred tax assets and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of short-term
certificates of deposit, floor plan payables, notes receivable and long-term
debt. The carrying amount of these financial instruments approximates fair value
due either to length of maturity or existence of variable interest rates that
approximate market rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of cash, deposits and accounts
receivable. The Company maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Company has not
incurred losses related to these balances to date.
MAJOR SUPPLIERS
The Company purchases substantially all of its homes from two primary
suppliers at the prevailing prices charged by the manufacturers. The Company's
sales volume could be adversely affected by the manufacturers' inability to
supply the sales centers with homes.
The retail agreements between the sales center and the manufacturer contain
certain provisions, including the minimum amount of homes to be purchased and
displayed, guidelines for the display of model homes, installation and delivery
guidelines and terms of reimbursement for warranty work performed by the
retailer pursuant to the manufacturer's warranty. These agreements also provide
for volume rebate incentive programs based on purchases. Accordingly, inventory
has been recorded net of volume rebates. Retail
F-60
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
agreements may be terminated by the sales center with notice and by the
manufacturer for good cause, as defined in the agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining 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. Actual results could differ from those estimates.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the net change in floor plan
financing of inventory is reflected as an operating activity. At December 31,
1996, cash includes $28,000 in amounts restricted that is held with a financing
institution in relation to recourse financing provided to the Company's
customers.
SPIN-OFF OF SALES CENTER
The Company received 1,000 shares of its common stock in exchange for net
assets of the Company valued at $238,000 in connection with a spin-off of a
sales center in January 1997. For purposes of cash flows, this transaction is a
noncash event. In conjunction with the exchange, assets and liabilities were
disposed of as follows (in thousands):
Fair value of assets.................... $ 858
Liabilities............................. (620)
---------
Value of treasury stock................. $ 238
=========
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," was issued in June 1996 and establishes,
among other things, new criteria related to accounting for transfers of
financial assets in exchange for cash or other consideration. SFAS No. 125 also
establishes new accounting requirements for pledged collateral. In addition,
SFAS No. 125 is effective for all transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996. The
Company will adopt this statement when required and has not determined the
impact that the adoption of SFAS No. 125 will have on its financial statements.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES -------------------- JUNE 30,
IN YEARS 1995 1996 1997
------------ --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land.................................... $ 337 $ 482 $ 482
Buildings............................... 25 464 511 415
Leasehold improvements.................. 10 512 799 744
Equipment............................... 5-7 586 623 493
Furniture and fixtures.................. 5 373 485 507
--------- --------- -----------
Total.............................. 2,272 2,900 2,641
Less -- Accumulated depreciation........ (398) (416) (328)
--------- --------- -----------
Property and equipment, net........ $ 1,874 $ 2,484 $ 2,313
========= ========= ===========
</TABLE>
F-61
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
Due from manufacturers.................. $ 508 $ 471 $ 456
Due from finance companies.............. 455 546 606
Other................................... 91 99 99
--------- --------- -----------
$ 1,054 $ 1,116 $ 1,161
========= ========= ===========
Inventories consist of the following (in thousands):
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
New homes, net of unearned volume
rebates............................... $ 4,959 $ 6,402 $ 4,093
Pre-owned homes......................... 372 426 515
Parts, accessories and other............ 100 148 132
--------- --------- -----------
$ 5,431 $ 6,976 $ 4,740
========= ========= ===========
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
Accounts payable, trade................. $ 274 $ 196 $ 359
Accrued compensation.................... 95 237 188
Customer deposits....................... 107 98 192
Other accrued expenses.................. 430 346 452
--------- --------- -----------
$ 906 $ 877 $ 1,191
========= ========= ===========
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT:
FLOOR PLAN PAYABLE
The Company has two floor plan credit facilities with lending institutions
to finance a major portion of its manufactured home inventory until such
inventory is sold. Interest on amounts borrowed is paid monthly at rates varying
up to 0.75 percent (depending on the time the note is outstanding) over the
lender's prime rate (8.25 percent to 9 percent at December 31, 1996 and 8.5
percent to 9.25 percent at June 30, 1997 (unaudited)). The floor plan payable is
secured by all of the Company's manufactured home inventory, the related
furniture, fixtures and accessories and accounts receivables, and is guaranteed
by a shareholder of the Company.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Company must make periodic payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreements. In the event the home remains in inventory 12 months
after the date of purchase, the balance of the obligation related to that home
will become due. In addition, certain of the Company's floor plan agreements
include subjective acceleration clauses which could result in the lines of
credit being due on demand should the Company experience a material adverse
change in its financial position as determined by the lender. The largest
balance outstanding during the year ended December 31,
F-62
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1996 was approximately $7.6 million. The average balance outstanding during 1996
was approximately $7 million with a weighted average interest rate paid of 7.8
percent.
LONG-TERM DEBT
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- ------------
(UNAUDITED)
(IN THOUSANDS)
Letters of credit to Deposit Guaranty
National Bank, face amount $500,000
at prime plus 0.5% to 0.75% (8.75%
to 9% at December 31, 1996)........ $ 200 $ 164 $ 3
Long-term debt, maturing in varying
amounts through 2001, with interest
ranging from 5.5% to 9.6% at
December 31, 1996.................. 760 600 436
--------- --------- ------------
960 764 439
Less -- Current portion.............. (785) (410) (154)
--------- --------- ------------
$ 175 $ 354 $ 285
========= ========= ============
The aggregate maturities of long-term debt as of December 31, 1996, are as
follows (in thousands):
Year ending December 31 --
1997............................... $ 410
1998............................... 135
1999............................... 72
2000............................... 76
2001............................... 71
---------
$ 764
=========
6. INCOME TAXES:
The components of the provision for income taxes are as follows: (in
thousands)
DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal --
Current............................ $ 43 $ 84 $ --
Deferred........................... 36 9 (57)
State --
Current............................ 6 12 54
Deferred........................... 5 1 5
--------- --------- ---------
Total provision............... $ 90 $ 106 $ 2
========= ========= =========
F-63
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from an amount computed at the
statutory rates as follows: (in thousands)
DECEMBER 31
-------------------------------
1994 1995 1996
--------- --------- ---------
Federal income tax at statutory rates... $ 82 $ 97 $ 411
State income tax................... 8 9 59
Effect of S corporation income..... -- -- (411)
Other.............................. -- -- (57)
--------- --------- ---------
$ 90 $ 106 $ 2
========= ========= =========
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1995 and 1996, are as follows (in thousands):
1995 1996
--------- ---------
Deferred tax assets --
Accrued expenses................... $ 37 $ 5
Other.............................. 15 2
--------- ---------
Total......................... 52 7
Deferred tax liabilities --
Bases difference in property and
equipment........................ (105) (15)
Other.............................. (63) (56)
--------- ---------
Total......................... (168) (71)
--------- ---------
Net deferred income tax
assets..................... $ (116) $ (64)
========= =========
7. RELATED-PARTY TRANSACTIONS:
The Company purchases office supplies from a related party. Total
expenditures for the year ended December 31, 1996, were approximately $78,000.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2006. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1997............................... $ 129
1998............................... 111
1999............................... 56
2000............................... 18
---------
Total......................... $ 314
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $102,000, $132,000 and $159,000 for the
years ended December 31, 1994, 1995 and 1996, respectively.
F-64
<PAGE>
PATRICK HOME CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
RECOURSE FINANCING
In connection with home sales, the Company guaranteed certain amounts due
to lending institutions from its customers. In the event of default by the
customer, the outstanding balance would be owed by the Company to the lending
institution. These amounts are collateralized by the related homes. As of
December 31, 1996 and June 30, 1997, amounts guaranteed by the Company were
$401,000 and $293,000 (unaudited), respectively. Reserves of $44,000 have been
included in the accompanying balance sheets as of December 31, 1996 and June 30,
1997 (unaudited).
LITIGATION
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Company's financial position or results of
operations.
INSURANCE
The Company carries a standard range of insurance coverage, including
general and business auto liability, commercial property, workers' compensation
and excess liability coverage. The Company has not incurred significant claims
or losses on any of its insurance policies.
EMPLOYEE 401(K) RETIREMENT PLAN
The Company has implemented a 401(k) retirement plan with an effective date
of July 1, 1996, which covers all employees meeting certain service
requirements. The Company matches employee contributions not to exceed 25
percent of the employee's contribution up to 6 percent of the employee's base
salary. The Company recorded contribution expense of $18,239 as of December 31,
1996.
9. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS (UNAUDITED):
In September 1997, the Company and its shareholder entered into a
definitive agreement with a wholly-owned subsidiary of HomeUSA providing for the
merger of the Company with the subsidiary of HomeUSA (the Merger). Property and
equipment of approximately $248,000, which are included in the balance sheet at
June 30, 1997, will be distributed to the shareholder. The cash portion of the
purchase price of the Merger will be adjusted to the extent the Excess Operating
Capital is greater or less than zero. Excess Operating Capital is defined as net
working capital minus long-term debt as of the effective date of the Merger. Had
these distributions been made at June 30, 1997, the effect on the Company's
balance sheet would have been to decrease shareholder's equity by approximately
$103,000.
Concurrently with the Merger, the Company will enter into an agreement with
the shareholder to lease land, equipment and buildings used in the Company's
operations for negotiated amounts and terms.
F-65
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mobile World Group:
We have audited the accompanying combined balance sheets of Mobile World
Group (the Group), as defined in Note 1 of the financial statements, as of
December 31, 1995 and 1996, and the related combined statements of operations,
shareholder's equity and cash flows for the years then ended. These combined
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Group
as of December 31, 1995 and 1996, and the results of their combined operations
and their combined cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 6, 1997
F-66
<PAGE>
MOBILE WORLD GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................... $ 562 $ 750 $ 310
Accounts receivable, net........... 322 428 372
Related-party receivable........... 5 32 45
Inventories........................ 2,122 3,934 4,453
Other current assets............... 146 212 68
--------- --------- ----------
Total current assets.......... 3,157 5,356 5,248
PROPERTY AND EQUIPMENT, net............. 503 663 641
OTHER ASSETS............................ 4 4 2
--------- --------- ----------
Total assets.................. $ 3,664 $ 6,023 $5,891
--------- --------- ----------
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $ 991 $ 1,200 $ 683
Related-party payable.............. -- 50 --
Floor plan payable................. 2,257 4,238 4,614
Current maturities of long-term
debt............................. 38 42 38
--------- --------- ----------
Total current liabilities..... 3,286 5,530 5,335
LONG-TERM DEBT, net of current
maturities............................ 94 61 44
DEFERRED TAX LIABILITY.................. 65 72 77
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock, no par value, 1,000,
2,000 and 2,000 shares
authorized, issued and
outstanding...................... 1 2 2
Retained earnings.................. 218 358 433
--------- --------- ----------
Total shareholder's equity.... 219 360 435
--------- --------- ----------
Total liabilities and
shareholder's equity....... $ 3,664 $ 6,023 $5,891
========= ========= ==========
The accompanying notes are an integral part of these combined financial
statements.
F-67
<PAGE>
MOBILE WORLD GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED JUNE 30
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Home sales............................ $ 11,838 $ 15,836 $ 7,685 $ 8,456
Other revenue......................... 5 112 37 56
--------- --------- --------- ---------
Total revenue...................... 11,843 15,948 7,722 8,512
COST OF SALES........................... 9,349 12,360 6,075 6,816
--------- --------- --------- ---------
Gross profit....................... 2,494 3,588 1,647 1,696
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 1,917 2,925 1,273 1,326
--------- --------- --------- ---------
Income from operations............. 577 663 374 370
OTHER INCOME (EXPENSE):
Interest expense, net................. (318) (427) (216) (252)
Other income (expense), net........... 18 (8) 3 5
--------- --------- --------- ---------
Income before income taxes......... 277 228 161 123
PROVISION FOR INCOME TAXES.............. 107 88 62 48
--------- --------- --------- ---------
NET INCOME.............................. $ 170 $ 140 $ 99 $ 75
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-68
<PAGE>
MOBILE WORLD GROUP
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
COMMON RETAINED
STOCK EARNINGS TOTAL
------ -------- -----
BALANCE, December 31, 1994.............. $ 1 $ 48 $ 49
Net income......................... -- 170 170
------ -------- -----
BALANCE, December 31, 1995.............. 1 218 219
Net income......................... 1 140 141
------ -------- -----
BALANCE, December 31, 1996.............. 2 358 360
Net income (unaudited)............. -- 75 75
------ -------- -----
BALANCE, June 30, 1997 (unaudited)...... $ 2 $ 433 $ 435
====== ======== =====
The accompanying notes are an integral part of these combined financial
statements.
F-69
<PAGE>
MOBILE WORLD GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED JUNE 30
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 170 $ 140 $ 99 $ 75
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities --
Depreciation and amortization.... 45 82 38 38
Deferred income tax provision
(benefit)..................... (106) (56) (28) 165
Gain on sale of assets........... (21) -- -- (2)
Changes in assets and
liabilities --
Accounts receivable........... (172) (106) (156) 56
Related-party receivable...... (5) (27) (30) (13)
Inventories................... (796) (1,812) (683) (519)
Other current assets.......... (8) (3) 3 (16)
Other noncurrent assets....... (2) -- -- 2
Accounts payable and accrued
expenses................... 529 209 76 (517)
Related-party payable......... -- 50 50 (50)
Floor plan payable............ 839 1,981 731 377
--------- --------- --------- ---------
Net cash provided by
(used in) operating
activities............ 473 458 100 (404)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment... (296) (242) (236) (17)
Proceeds from sale of equipment....... 40 -- -- 2
--------- --------- --------- ---------
Net cash used in
investing
activities............ (256) (242) (236) (15)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments of) long-term
debt............................... 37 (29) (8) (21)
Issuance of stock..................... -- 1 1 --
--------- --------- --------- ---------
Net cash provided by
(used in) financing
activities............ 37 (28) (7) (21)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH......... 254 188 (143) (440)
CASH, beginning of period............... 308 562 562 750
--------- --------- --------- ---------
CASH, end of period..................... $ 562 $ 750 $ 419 $ 310
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest......................... $ 311 $ 419 $ 219 $ 251
Taxes............................ 27 100 15 49
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-70
<PAGE>
MOBILE WORLD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Mobile World Group (the Group) includes the financial statements of Mobile
World, Inc. and Showcase of Homes, Inc. (both Texas corporations) under common
management and ownership. The Group is primarily engaged in the retail sale of
new and pre-owned manufactured homes. The Group operated sales centers in Texas
which have retail agreements with a number of home manufacturers.
The Group's owners intend to enter into a definitive agreement with
HomeUSA, Inc. (HomeUSA), pursuant to which all of the ownership interests of the
Group will be exchanged for cash and shares of HomeUSA's common stock
concurrently with the consummation of an initial public offering (the Offering)
of the common stock of HomeUSA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and results of
operations of the Group. All significant intercompany transactions and balances
have been eliminated in combination.
INTERIM FINANCIAL INFORMATION
The interim combined financial statements as of June 30, 1997, and for the
six months ended June 30, 1996 and 1997, are unaudited, and certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim combined financial
statements have been included. The Group's operations are subject to different
seasonal variations in sales. Due to seasonality and other factors, the results
of operations for the interim periods are not necessarily indicative of the
results for the entire year.
INVENTORIES
Inventories are valued at the lower of cost or market using the specific
identification method for new and pre-owned homes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Group's retail sales), upon execution of the loan
agreement and other required documentation and receipt of a designated minimum
down payment. Home sales exclude any sales and use taxes collected.
The Group receives an agent's commission on insurance policies issued by
unrelated insurance companies. Insurance commissions are recognized in other
revenues at the time the policies are written.
F-71
<PAGE>
MOBILE WORLD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Group arranges financing for customers through various institutions for
which the Group receives certain financing fees which are recognized in other
revenues along with the sale of the related home.
Other revenues also includes repair and maintenance services.
COST OF SALES
Cost of sales includes the cost of manufactured homes, less any
manufacturer rebates realized, as well as the cost of retailer installed
options, set-up and delivery.
INCOME TAXES
The Group accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount to be
realized. The provision for income taxes is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Group's financial instruments consist primarily of floor plan payables
and accounts receivables. The carrying amount of these financial instruments
approximates fair value due either to length of maturity or existence of
variable interest rates that approximate market rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Group to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Group maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Group has not
incurred losses related to these balances to date.
MAJOR SUPPLIERS
The Group purchases substantially all of its homes from two primary
suppliers at the prevailing prices charged by the manufacturers. The Group's
sales volume could be adversely affected by the manufacturers' inability to
supply the sales center with an adequate supply of homes.
The retail agreements between the sales center and the manufacturer contain
certain provisions, including the minimum amount of homes to be purchased and
displayed, guidelines for the display of model homes, installation and delivery
guidelines and terms of reimbursement for warranty work performed by the
retailer pursuant to the manufacturer's warranty. These agreements also provide
for volume rebate incentive programs based on inventory purchases. Accordingly,
inventory has been recorded net of volume rebates. Retail agreements may be
terminated by the sales center with notice and by the manufacturer for good
cause, as defined in the agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining 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. Actual results could differ from those estimates.
F-72
<PAGE>
MOBILE WORLD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the net change in floor plan
financing of inventory is reflected as an operating activity in the statements
of cash flows.
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," was issued in June 1996 and establishes,
among other things, new criteria related to accounting for transfers of
financial assets in exchange for cash or other consideration. SFAS No. 125 also
establishes new accounting requirements for pledged collateral. In addition,
SFAS No. 125 is effective for all transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996. The Group
will adopt this statement when required and has not determined the impact that
the adoption of SFAS No. 125 will have on its financial statements.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES -------------------- JUNE 30,
IN YEARS 1995 1996 1997
------------ --------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Buildings............................... 25 $ 90 $ 131 $ 134
Leasehold improvements.................. 10 96 164 146
Equipment............................... 5-7 329 402 399
Furniture and fixtures.................. 5 68 128 162
--------- --------- ----------
Total.............................. 583 825 841
Less -- Accumulated depreciation........ (80) (162) (200)
--------- --------- ----------
Property and equipment, net........ $ 503 $ 663 $ 641
========= ========= ==========
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
Due from manufacturers.................. $ 106 $ 188 $ 126
Due from finance companies.............. 205 191 218
Other................................... 11 49 28
--------- --------- -----------
$ 322 $ 428 $ 372
========= ========= ===========
Inventories consist of the following (in thousands):
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
New homes, net of unearned volume
rebates............................... $ 2,089 $ 3,880 $ 4,323
Pre-owned homes......................... 31 48 118
Parts, accessories and other............ 2 6 12
--------- --------- -----------
$ 2,122 $ 3,934 $ 4,453
========= ========= ===========
F-73
<PAGE>
MOBILE WORLD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
Accounts payable, trade................. $ 107 $ 114 $ 148
Other accrued expenses.................. 671 729 294
Income tax payable...................... 213 357 241
--------- --------- -----------
$ 991 $ 1,200 $ 683
========= ========= ===========
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT:
FLOOR PLAN PAYABLE
The Group has six floor plan credit facilities with lending institutions to
finance a major portion of its manufactured home inventory until such inventory
is sold. Interest on amounts borrowed is paid monthly at rates varying up to 4.0
percent (depending on the time the note is outstanding) over the lender's prime
rate (8.25 percent to 12.25 percent at December 31, 1996, and 8.5 percent to
12.5 percent at June 30, 1997 (unaudited)). The floor plan payable is secured by
all of the Group's manufactured home inventory, the related furniture, fixtures
and accessories and accounts receivable, and is guaranteed by the shareholder of
the Group.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Group must make periodic payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreement. In the event the home remains in inventory 12 months after
the date of purchase, the balance of the obligation related to that home will
become due. In addition, certain of the Group's floor plan agreements include
subjective acceleration clauses which could result in the lines of credit being
due on demand should the Group experience a material adverse change in its
financial position as determined by the lender. The maximum aggregate amount
that can be borrowed under the floor plan lines of credit is approximately $6.7
million, and the largest balance during the year ended December 31, 1996 was
approximately $4.3 million. The average balance outstanding during 1996 was
approximately $3.6 million with a weighted average interest rate paid of 9.8
percent.
LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
(IN THOUSANDS)
Notes payable, maturing in varying
amounts through December 2000, with
interest ranging from 5.5% to 10.25%
at December 31, 1996.................. $ 132 $ 103 $ 82
Less -- Current portion............ (38) (42) (38)
--------- --------- ---
$ 94 $ 61 $ 44
========= ========= ===
F-74
<PAGE>
MOBILE WORLD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate maturities of long-term debt as of December 31, 1996, are as
follows (in thousands):
Year ending December 31 --
1997............................... $ 42
1998............................... 28
1999............................... 19
2000............................... 14
---------
$ 103
=========
6. INCOME TAXES:
The components of the provision for income taxes are as follows (in
thousands):
DECEMBER 31,
--------------------
1995 1996
--------- ---------
Federal:
Current............................ $ 188 $ 127
Deferred........................... (93) (49)
--------- ---------
95 78
--------- ---------
State:
Current............................ 25 17
Deferred........................... (13) (7)
--------- ---------
12 10
--------- ---------
Total provision............... $ 107 $ 88
========= =========
The provision for income taxes differs from an amount computed at the
statutory rates as follows (in thousands):
DECEMBER 31,
----------------------
1995 1996
--------- -----------
Federal income tax at statutory rates... $ 97 $ 80
State income taxes...................... 8 7
Nondeductible expenses.................. 2 1
--------- ---
$ 107 $ 88
========= ===
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1995 and 1996 are as follows:
1995 1996
--------- ---------
Deferred tax assets --
Accrued expenses................... $ 144 $ 344
Accrued income..................... 79 159
--------- ---------
Total deferred tax assets..... 223 503
--------- ---------
Deferred tax liabilities --
Bases difference in property and
equipment......................... (17) (36)
Accrued expenses................... (58) (261)
Other.............................. (76) (78)
--------- ---------
Total deferred tax
liabilities............... (151) (375)
--------- ---------
Net deferred tax assets....... $ 72 $ 128
========= =========
F-75
<PAGE>
MOBILE WORLD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED-PARTY TRANSACTIONS:
The Group leases facilities from related parties of the Group under
operating leases. Rental expense on related-party leases totaled $24,000 and
$96,000 for the years ended December 31, 1995 and 1996, respectively.
The Group has a note payable to the shareholder. The note is due on demand
and bears interest at 7.0 percent. The balance at December 31, 1996, was
$50,000. The balance was paid in full during 1997.
The Group leases certain office space from an employee. The note balance
related to the office space is included in the floor plan payable balance of the
Group at December 31, 1996. The employee repays the Group for the monthly
interest and principal payments on the office space. At December 31, 1996, the
related note receivable balance is approximately $28,000 and is included in
accounts receivable.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Group leases various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2006. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1997............................... $ 7
1998............................... 6
1999............................... 1
---------
Total......................... $ 14
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $81,000 and $154,000 for the years ended
December 31, 1995 and 1996, respectively.
LITIGATION
The Group is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Group's financial position or results of
operations.
INSURANCE
The Group carries a standard range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and
excess liability coverage. The Group has not incurred significant claims or
losses on any of its insurance policies.
9. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS (UNAUDITED):
In September 1997, the Group and its shareholder entered into a definitive
agreement with a wholly-owned subsidiary of HomeUSA providing for the merger of
the Group with the subsidiary of HomeUSA (the Merger). The cash portion of the
purchase price of the merger will be adjusted to the extent the Excess Operating
Capital is greater or less than zero. Excess Operating Capital is defined as net
working capital minus long-term debt, as of the effective date of the Merger.
Had this distribution been made at June 30, 1997, the Group would have had a
reduction in purchase price of approximately $90,000.
Concurrently with the Merger, the Group will enter into agreements with the
shareholder to lease land, equipment and buildings used in the Group's
operations for negotiated amounts and terms.
F-76
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To First American Homes Group:
We have audited the accompanying combined balance sheet of First American
Homes Group (collectively, the Group), as defined in Note 1 to the financial
statements, as of December 31, 1996, and the related statements of operations,
shareholders' deficit and cash flows for the year then ended. These combined
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Group as of
December 31, 1996, and the results of their combined operations and their
combined cash flows for the year then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 6, 1997
F-77
<PAGE>
FIRST AMERICAN HOMES GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31 JUNE 30,
1996 1997
------------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................... $ 30 $ 170
Accounts receivable, net........... 402 344
Inventories........................ 3,910 3,084
Other current assets............... 1 4
------------- ------------
Total current assets....... 4,343 3,602
PROPERTY AND EQUIPMENT, net.......... 302 291
OTHER ASSETS......................... 32 16
------------- ------------
Total assets............... $ 4,677 $3,909
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................... $ 585 $ 464
Related-party payable.............. 538 598
Floor plan payable................. 3,153 2,416
Current maturities of long-term
debt............................... 75 250
Deferred tax liability............. 62 89
------------- ------------
Total current
liabilities.................. 4,413 3,817
LONG-TERM DEBT, net of current
maturities........................... 297 70
DEFERRED TAX LIABILITY............... 18 20
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $20, $1 and no par
value; 1,000, 2,400 and 100
shares authorized, issued and
outstanding..................... 30 30
Additional paid-in capital......... 10 10
Retained deficit................... (91) (38)
------------- ------------
Total shareholders' equity
(deficit).................... (51) 2
------------- ------------
Total liabilities and
shareholders'
equity (deficit)........ $ 4,677 $3,909
============= ============
The accompanying notes are an integral part of these combined financial
statements.
F-78
<PAGE>
FIRST AMERICAN HOMES GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
SIX MONTHS ENDED
YEAR ENDED JUNE 30
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
REVENUE:
Home sales...................... $ 12,419 $ 7,072 $ 6,403
Other revenue................... 19 8 8
------------ --------- ---------
Total revenue.............. 12,438 7,080 6,411
COST OF SALES........................ 9,994 5,774 5,295
------------ --------- ---------
Gross profit............... 2,444 1,306 1,116
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,198 1,086 888
------------ --------- ---------
Income from operations..... 246 220 228
OTHER INCOME (EXPENSE):
Interest expense................ (374) (188) (187)
Other income, net............... 79 40 52
------------ --------- ---------
Income (loss) before income
taxes................... (49) 72 93
INCOME TAX PROVISION (BENEFIT)....... 2 (3) 40
------------ --------- ---------
NET INCOME (LOSS).................... $ (51) $ 75 $ 53
============ ========= =========
The accompanying notes are an integral part of these combined financial
statements.
F-79
<PAGE>
FIRST AMERICAN HOMES GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- -------- -----
BALANCE, December 31, 1995......... $ 30 $ 10 $ (40) $ --
Net loss...................... -- -- (51) (51)
------ ---------- -------- -----
BALANCE, December 31, 1996......... 30 10 (91) (51)
Net income (unaudited)........ -- -- 53 53
------ ---------- -------- -----
BALANCE, June 30, 1997 (unaudited). $ 30 $ 10 $ (38) $ 2
====== ========== ======== =====
The accompanying notes are an integral part of these combined financial
statements.
F-80
<PAGE>
FIRST AMERICAN HOMES GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS
YEAR ENDED ENDED JUNE 30
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ (51) $ 75 $ 53
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities --
Depreciation and
amortization............... 31 16 19
Loss on sale of assets..... 15 5 5
Deferred income tax
provision.................. 42 14 29
Changes in assets and
liabilities --
Accounts receivable... (152) 33 58
Inventories........... (1,174) (477) 826
Other assets.......... 22 12 13
Accounts payable and
accrued expenses... (55) (222) (121)
Related-party
payable............... 86 118 60
Floor plan payable.... 1,158 615 (737)
------------ --------- ---------
Net cash
provided by
(used in)
operating
activities.... (78) 189 205
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment.......... (136) (118) (13)
Sales of equipment.............. 59 -- --
------------ --------- ---------
Net cash used in
investing
activities.... (77) (118) (13)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt...... (13) (42) (52)
------------ --------- ---------
Net cash used in
financing
activities.... (13) (42) (52)
------------ --------- ---------
NET INCREASE (DECREASE) IN CASH...... (168) 29 140
CASH, beginning of period............ 198 198 30
------------ --------- ---------
CASH, end of period.................. $ 30 $ 227 $ 170
============ ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period
for --
Interest................... $ 374 $ 188 $ 187
The accompanying notes are an integral part of these combined financial
statements.
F-81
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
First American Homes Group includes the financial statements of the
following group of companies under common control and ownership (collectively,
the Group): First American Homes, Inc. (an Alabama corporation), and its wholly
owned subsidiary, Hall's Mobile Homes, Inc. (a Florida corporation), D&S, Inc.
(an Alabama corporation) and Son Development Corporation (an Alabama
corporation). The Group is primarily engaged in the retail sale of new and
pre-owned manufactured homes. The Group operates sales centers in Alabama and
Florida which have retail agreements with a number of manufacturers.
The Group's owners intend to enter into a definitive agreement with
HomeUSA, Inc. (HomeUSA), pursuant to which all outstanding shares of the Group's
common stock will be exchanged for cash and shares of HomeUSA's common stock
concurrent with the consummation of the initial public offering (the Offering)
of the common stock of HomeUSA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and the results of
operations of the Group. All significant intercompany transactions have been
eliminated in combination.
INTERIM FINANCIAL INFORMATION
The interim combined financial statements as of June 30, 1997, and for the
six months ended June 30, 1996 and 1997, are unaudited, and certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim combined financial
statements have been included. The Group's operations are subject to different
seasonal variations in sales. Due to seasonality and other factors, the results
of operations for the interim periods are not necessarily indicative of the
results for the entire fiscal year.
INVENTORIES
Inventories are valued at the lower of cost or market using the
specific-identification method for new and pre-owned homes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Group's retail sales), upon execution of the loan
agreement and other required documentation and receipt of a designated minimum
down payment. Home sales also includes revenue from the construction of site
amenities. Home sales exclude any sales and use taxes collected.
The Group arranges financing for customers through various institutions for
which the Group receives certain financing fees which are recognized in other
revenues along with the sale of the related home.
F-82
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
COST OF SALES
Cost of sales includes the cost of manufactured homes, less any
manufacturer rebates realized, as well as the cost of retailer installed
options, set-up and delivery and site amenities.
INCOME TAXES
First American Homes, Inc., and its wholly owned subsidiary, Hall's Mobile
Homes, Inc., account for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount to be realized. The
provision (benefit) for income taxes is the tax payable (receivable) for the
year and the change during the year in deferred tax assets and liabilities.
D&S, Inc. and Son Development Corporation have elected S Corporation status
as defined by the Internal Revenue Code, whereby D&S, Inc. and Son Development
Corporation are not subject to taxation for federal purposes. Under S
Corporation status, the shareholders report their share of the companies'
taxable earnings or losses in their personal tax returns. D&S, Inc. and Son
Development Corporation will terminate their S Corporation status concurrently
with the effective date of this offering.
SHAREHOLDERS' EQUITY
Shareholders' equity of the Group includes the following shares of common
stock which were authorized, issued and outstanding at December 31, 1996 and
June 30, 1997 (unaudited): 1,000 shares of common stock at $20 par value for
First American Homes, Inc., 2,400 shares of common stock at $1 par value for
D&S, Inc., and 100 shares of common stock at no par value for Son Development
Corporation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Group's financial instruments consist primarily of accounts receivable,
floor plan payables and long-term debt. The carrying amount of these financial
instruments approximates fair value due either to length of maturity or
existence of variable interest rates that approximate market rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Group to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Group maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Group has not
incurred losses related to these balances to date.
MAJOR SUPPLIERS
The Group purchases substantially all of its homes from three primary
suppliers at the prevailing prices charged by the manufacturers. The Group's
sales volume could be adversely affected by these manufacturers' inability to
supply the sales centers with an adequate supply of homes.
The Group has retail agreements with manufacturers which contain certain
provisions, including the minimum amount of homes to be purchased and displayed,
guidelines for the display of model homes, installation and delivery guidelines,
and terms of reimbursement for warranty work performed by the retailer pursuant
to the manufacturer's warranty. These agreements also provide for volume rebate
incentive programs based on inventory purchases. Accordingly, inventory has been
recorded net of volume rebates. Retail agreements may be terminated by the sales
center with notice and by the manufacturer for good cause, as defined in the
agreement.
F-83
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining 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. Actual results could differ from those estimates.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the net change in floor plan
financing of inventory is reflected as an operating activity in the statements
of cash flows.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," was issued in June 1996 and establishes,
among other things, new criteria related to accounting for transfers of
financial assets in exchange for cash or other consideration. SFAS No. 125 also
establishes new accounting requirements for pledged collateral. In addition,
SFAS No. 125 is effective for all transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996. The Group
will adopt this statement when required and has not determined the impact that
the adoption of SFAS No. 125 will have on its financial statements.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
ESTIMATED
USEFUL LIVES DECEMBER 31, JUNE 30,
IN YEARS 1996 1997
------------ ------------ -----------
(UNAUDITED)
Buildings.......................... 25 $ 111 $ 111
Leasehold improvements............. 10 145 152
Equipment.......................... 5-7 100 102
Furniture and fixtures............. 5 46 45
------------ -----------
Total.................... 402 410
Less -- Accumulated depreciation... (100) (119)
------------ -----------
Property and equipment,
net................... $ 302 $ 291
============ ===========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Accounts receivable, trade........... $ 201 $ 174
Due from manufacturers............... 113 54
Due from finance companies........... 33 36
Other................................ 55 80
------------ -----------
$ 402 $ 344
============ ===========
F-84
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Inventories consist of the following (in thousands):
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
New homes, net of unearned volume
rebates............................ $3,003 $ 2,234
Pre-owned homes...................... 383 370
Parts, accessories and other......... 524 480
------------ -----------
$3,910 $ 3,084
============ ===========
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Accounts payable, trade.............. $ 319 $ 235
Customer deposits.................... 28 49
Other accrued expenses............... 238 180
------------ -----------
$ 585 $ 464
============ ===========
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT:
FLOOR PLAN PAYABLE
The Group has four primary floor plan credit facilities with lending
institutions to finance a major portion of its manufactured home inventory until
such inventory is sold. Interest on amounts borrowed is paid monthly at rates
varying from 0.50 percent up to 4.50 percent (depending on the time the note is
outstanding) over the lender's prime rate (8.75 percent to 12.75 percent at
December 31, 1996, and 9.0 percent to 13.0 percent at June 30, 1997
(unaudited)). The floor plan payable is secured by all of the Group's
manufactured home inventory and the related furniture, fixtures and accessories,
and is guaranteed by the majority shareholder of the Group.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Group must make periodic payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreement. In the event the home remains in inventory 12 months after
the date of purchase, the balance of the obligation related to that home will
become due. In addition, certain of the Group's floor plan agreements include
subjective acceleration clauses which could result in the lines of credit being
due on demand should the Group experience a material adverse change in its
financial position as determined by the lender. The maximum aggregate amount
that can be borrowed under the floor plan lines of credit is approximately $4.3
million, and the largest balance during the year ended December 31, 1996, was
$3.9 million. The average balance outstanding during 1996 was approximately $3.0
million with a weighted average interest rate paid of 12.02 percent.
F-85
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
(IN THOUSANDS)
Note payable to Bank of the South in
monthly installments of $661
including interest at 8.0%, final
payment of $661 due March 1999,
secured............................ $ 16 $ 13
Note payable to Peoples Community
Bank in monthly installments of
$557 including interest at 10.0%,
final payment of $557 due April
1998, secured...................... 8 5
Note payable to Peoples Community
Bank in monthly installments of
$1,463 including interest at 9.25%,
final payment of $1,463 due March
2001, secured...................... 62 55
Note payable to Southland Bank in
monthly installments of $985
including interest at prime, final
payment of $985 due August 2000,
unsecured.......................... 37 33
Note payable to Southland Bank
accruing interest at prime plus
0.50%, principal and accrued
interest due March 1997, secured... 30 --
Note payable to Southland Bank in
monthly installments of $979
including interest at prime plus
2.0%, final payment of $979 due May
1998, secured 15 10
Note payable to Southland Bank in
quarterly interest installments at
prime plus 1.0%, final payment of
$204,000 due January 1998,
secured............................ 204 204
------------ -----------
372 320
Less -- Current portion.............. (75) (250)
------------ -----------
$ 297 $ 70
============ ===========
The aggregate maturities of long-term debt as of December 31, 1996, are as
follows (in thousands):
Year ending December 31 --
1997............................... $ 75
1998............................... 242
1999............................... 27
2000............................... 24
2001............................... 4
---------
$ 372
=========
F-86
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The components of the provision for income taxes are as follows at December
31, 1996 (in thousands):
Federal --
Current......................... $ (27)
Deferred 29
---------
2
---------
State --
Current......................... (4)
Deferred........................ 4
---------
--
---------
Total provision............ $ 2
=========
The provision for income taxes at December 31, 1996, differs from an amount
computed at the statutory rates as follows (in thousands):
Federal income tax at statutory
rates................................ $ (17)
State income taxes................... --
Effect of S corporation losses....... 19
---------
$ 2
=========
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1996, are as follows (in thousands):
Deferred tax assets --
Accrued expenses................ $ 64
---------
Total deferred tax
assets.................. 64
---------
Deferred tax liabilities --
Bases difference in property and
equipment...................... (34)
Other........................... (110)
---------
Total deferred tax
liabilities............. (144)
---------
Net deferred tax
liabilities............. $ (80)
=========
7. RELATED-PARTY TRANSACTIONS:
The Group leases various facilities, equipment and land under operating
leases from a company owned by a majority shareholder. Rental expense on these
leases totaled approximately $91,000 for the year ended December 31, 1996. The
Group also pays a management fee to this related party which totaled
approximately $260,000 for the year ended December 31, 1996.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Group leases various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2000. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
F-87
<PAGE>
FIRST AMERICAN HOMES GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1997............................ $ 173
1998............................ 169
1999............................ 117
2000............................ 38
---------
Total...................... $ 497
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $156,000 for the year ended December 31,
1996.
LITIGATION
The Group is involved in legal actions arising in the ordinary course of
business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Group's financial position or results
of operations.
INSURANCE
The Group carries a standard range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and
excess liability coverage. The Group has not incurred significant claims or
losses on any of its insurance policies.
9. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In September 1997, the Group and its shareholders entered into a definitive
agreement with a wholly-owned subsidiary of HomeUSA providing for the merger of
the Group with the subsidiary of HomeUSA (the Merger). A portion of Son
Development Corporation (Son), representing a manufactured housing development
and the related operating assets and liabilities, will not be acquired in the
Merger. Approximately $188,000 of inventory and $447,000 of property and
equipment, which are included in the combined balance sheet at June 30, 1997,
will be distributed to the shareholders of the Group. In addition, shareholders
of the Group will assume liabilities of approximately $864,000, which are
included in the combined balance sheet at June 30, 1997. Revenue would have been
reduced by approximately $673,000 and $238,000 and income from operations
increased by approximately $64,000 and $24,000 for the year ended December 31,
1996 and the six months ended June 30, 1997, respectively, assuming the
transaction had occurred January 1, 1996. The cash portion of the purchase price
of the Merger will be adjusted to the extent the excess operating capital is
greater or less than zero. Excess operating capital is defined as net working
capital minus long-term debt, as of the effective date of the Merger. Had these
distributions been made at June 30, 1997, the effect on the Group's balance
sheet would have been to decrease shareholders' equity by approximately
$291,000.
Concurrently with the Merger, the Group will enter into agreements with the
shareholders to lease land and buildings used in the Group's operations for
negotiated amounts and terms.
F-88
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cooper's Mobile Homes Group:
We have audited the accompanying combined balance sheets of Cooper's Mobile
Homes Group, (the Group) as defined in Note 1 to the financial statements, as of
December 31, 1995 and 1996, and the related combined statements of operations,
shareholders' equity and cash flows for the years then ended. These combined
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Group
as of December 31, 1995 and 1996, and the results of their combined operations
and their combined cash flows for the years then ended, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
September 5, 1997
F-89
<PAGE>
COOPER'S MOBILE HOMES GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................... $ 478 $ 425 $ 463
Accounts receivable, net........... 342 375 545
Related-party receivable........... 409 665 679
Inventories........................ 3,097 3,782 4,285
Deferred tax asset................. 78 -- 83
Other current assets............... -- 26 10
--------- --------- -----------
Total current assets.......... 4,404 5,273 6,065
PROPERTY AND EQUIPMENT, net............. 315 756 883
RELATED-PARTY RECEIVABLE, noncurrent.... 95 65 65
OTHER ASSETS, net....................... 36 135 166
--------- --------- -----------
Total assets.................. $ 4,850 $ 6,229 $ 7,179
========= ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses......................... $ 444 $ 633 $ 946
Floor plan payable................. 3,506 4,024 4,470
Current maturities of long-term
debt............................. 64 224 219
Deferred tax liability............. -- 43 --
--------- --------- -----------
Total current liabilities..... 4,014 4,924 5,635
LONG-TERM DEBT, net of current
maturities............................ 19 220 294
DEFERRED TAX LIABILITY.................. 317 308 287
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 12,500,
17,500 and 217,500 shares
authorized, issued and
outstanding at December 31, 1995
and 1996 and June 30, 1997,
respectively..................... 12 18 218
Retained earnings.................. 488 759 745
--------- --------- -----------
Total shareholders' equity.... 500 777 963
--------- --------- -----------
Total liabilities and
shareholders' equity....... $ 4,850 $ 6,229 $ 7,179
========= ========= ===========
The accompanying notes are an integral part of these combined financial
statements.
F-90
<PAGE>
COOPER'S MOBILE HOMES GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED JUNE 30
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Home sales............................ $ 8,123 $ 8,823 $ 4,072 $ 5,415
Other revenue......................... 903 878 285 230
--------- --------- --------- ---------
Total revenue...................... 9,026 9,701 4,357 5,645
COST OF SALES........................... 6,824 6,829 2,972 4,099
--------- --------- --------- ---------
Gross profit....................... 2,202 2,872 1,385 1,546
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 1,728 2,013 967 1,264
--------- --------- --------- ---------
Income from operations............. 474 859 418 282
OTHER INCOME (EXPENSE):
Interest expense, net................. (436) (326) (139) (330)
Other income (loss), net.............. (63) 15 (6) 31
--------- --------- --------- ---------
Income (loss) before income
taxes............................ (25) 548 273 (17)
PROVISION (BENEFIT) FOR INCOME TAXES.... (8) 277 138 (3)
--------- --------- --------- ---------
NET INCOME (LOSS)....................... $ (17) $ 271 $ 135 $ (14)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-91
<PAGE>
COOPER'S MOBILE HOMES GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
COMMON RETAINED
STOCK EARNINGS TOTAL
------ -------- ---------
BALANCE, December 31, 1994.............. $ 12 $ 505 $ 517
Net loss........................... -- (17) (17)
------ -------- ---------
BALANCE, December 31, 1995.............. 12 488 500
Issuance of common stock........... 6 -- 6
Net income......................... -- 271 271
------ -------- ---------
BALANCE, December 31, 1996.............. 18 759 777
Issuance of common stock
(unaudited)....................... 200 -- 200
Net loss (unaudited)............... -- (14) (14)
------ -------- ---------
BALANCE, June 30, 1997 (unaudited)...... $ 218 $ 745 $ 963
====== ======== =========
The accompanying notes are an integral part of these combined financial
statements.
F-92
<PAGE>
COOPER'S MOBILE HOMES GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31 ENDED JUNE 30
-------------------- --------------------
1995 1996 1996 1997
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $ (17) $ 271 $ 135 $ (14)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities --
Depreciation and amortization.... 73 106 53 66
Deferred income tax provision
(benefit)..................... 238 112 61 (147)
Changes in assets and
liabilities --
Accounts receivable........... (86) (33) (206) (170)
Related-party receivable...... (382) (256) (11) (14)
Inventories................... (458) (685) (573) (503)
Other current assets.......... 5 (26) (105) 16
Related-party receivable,
noncurrent................. 24 30 95 --
Other noncurrent assets,
net........................ -- (99) -- 131
Accounts payable and accrued
expenses................... (100) 189 391 313
Floor plan payable............ 1,005 518 229 446
--------- --------- --------- ---------
Net cash provided by
operating
activities............ 302 127 69 124
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment... (154) (547) (263) (155)
--------- --------- --------- ---------
Net cash used in
investing
activities............ (154) (547) (263) (155)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments on) proceeds from short-term
debt,.............................. (16) 160 154 (5)
Proceeds from issuance of common
stock.............................. -- 6 -- --
(Payments on) proceeds from long-term
debt............................... (64) 201 56 74
--------- --------- --------- ---------
Net cash provided by
(used in) financing
activities (80) 367 210 69
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH......... 68 (53) 16 38
CASH, beginning of period............... 410 478 478 425
--------- --------- --------- ---------
CASH, end of period..................... $ 478 $ 425 $ 494 $ 463
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest........................... $ 436 $ 326 $ 139 $ 330
Taxes.............................. -- 69 -- 102
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-93
<PAGE>
COOPER'S MOBILE HOMES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Cooper's Mobile Homes Group (the Group) includes the financial statements
of the following companies under common control and ownership: PacWest MGMT.,
Inc., Home USA, Inc. dba Contemporary Family Homes Center, and Cooper Mobile
Homes, Inc., and its subsidiaries: Cooper Homes, Inc., Concept Home, Inc., and
Contemporary Home Center, Inc., (all Washington corporations). The Group is
primarily engaged in the retail sale of new and pre-owned manufactured homes as
well as a provider of construction services for site amenities and capital
improvements. The Group operates sales centers in Washington which have an
exclusive retail agreement with a single home manufacturer.
Home USA, Inc., dba Contemporary Family Homes Center (Contemporary), was
formed in June 1997 by the shareholders of the Group. On June 30, 1997, the
shareholders of the Group acquired the inventory, buildings and certain other
assets and assumed liabilities and related rights of Contemporary Family Homes,
Inc., located in Washington, which they contributed to the Group in exchange for
200,000 shares of $1 par value common stock of Contemporary. The accompanying
combined balance sheets include allocations of the purchase price which resulted
in goodwill of $102,000 which is being amortized over 40 years.
The Group's owners intend to enter into a definitive agreement with
HomeUSA, Inc. (a Delaware Corporation) (HomeUSA), pursuant to which all of the
ownership interests of the group will be exchanged for cash and shares of
HomeUSA's common stock concurrently with the consummation of an initial public
offering (the Offering) of the common stock of HomeUSA. HomeUSA is unrelated to
Contemporary.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and the results of
operations of the Group. All significant intercompany transactions have been
eliminated in combination.
INTERIM FINANCIAL INFORMATION
The interim combined financial statements as of June 30, 1997, and for the
six months ended June 30, 1996 and 1997, are unaudited, and certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the combined interim financial
statements have been included. The Group's operations are subject to different
seasonal variations in sales. Due to seasonality and other factors, the results
of operations for the interim periods are not necessarily indicative of the
results for the entire fiscal year.
CASH
Included in the cash balance at December 31, 1995 and 1996, is $301,588 and
$200,000, respectively, in cash held as collateral against the Group's floor
plan payable.
INVENTORIES
Inventories are valued at the lower of cost or market using the specific
identification method for new and pre-owned homes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such
F-94
<PAGE>
COOPER'S MOBILE HOME GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
assets are charged to operations as incurred. Disposals are removed at cost less
accumulated depreciation, and any resulting gain or loss is reflected in other
income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Group's retail sales), upon execution of the loan
agreement and other required documentation and receipt of a designated minimum
down payment. Home sales also includes revenue from the construction of site
amenities. Home sales exclude any sales and use taxes collected.
The Group recognizes construction revenue based on project completion as
all projects are completed within 90 days.
The Group arranges financing for customers through various institutions for
which the Group receives certain financing fees which are recognized in other
revenues along with the sale of the related home.
Also included in other revenue is the revenue from repair and maintenance
services and construction services provided to related parties.
COST OF SALES
Cost of sales includes the cost of manufactured homes, less any
manufacturer rebates realized, as well as the cost of retailer installed
options, set-up and delivery, site amenities and other construction services.
INCOME TAXES
The Group accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount to be
realized. The provision (benefit) for income taxes is the tax payable
(receivable) for the year and the change during the year in deferred tax assets
and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Group's financial instruments consist primarily of floor plan payable,
accounts receivable and short-term and long-term debt. The carrying amount of
these financial instruments approximates fair value due either to length of
maturity or existence of variable interest rates that approximate market rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Group to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Group maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Group has not
incurred significant losses related to these balances to date.
MAJOR SUPPLIER
The Group purchases all of its homes through a retailing agreement with a
primary supplier, at the prevailing prices charged by the manufacturer. Pursuant
to the agreement, the Group received volume rebates on inventory purchases. The
Group's sales volume could be adversely affected by the manufacturer's inability
to supply the sales centers with an adequate supply of homes.
The retail agreement between the sales centers and the manufacturer contain
certain provisions, including the minimum amount of homes to be purchased and
displayed, guidelines for the display of model
F-95
<PAGE>
COOPER'S MOBILE HOME GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
homes, installation and delivery guidelines and terms of reimbursement for
warranty work performed by the retailer pursuant to the manufacturer's warranty.
The agreement also provides for volume rebate incentive programs based on
inventory purchases. Accordingly, inventory has been recorded net of volume
rebates. The retail agreement may be terminated by the sales centers with notice
and by the manufacturer for good cause, as defined in the agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining 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. Actual results could differ from those estimates.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the net change in floor plan
financing of inventory is reflected as an operating activity.
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," was issued in June 1996 and establishes,
among other things, new criteria related to accounting for transfers of
financial assets in exchange for cash or other consideration. SFAS No. 125 also
establishes new accounting requirements for pledged collateral. In addition,
SFAS No. 125 is effective for all transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996. The Group
will adopt this statement when required and has not determined the impact that
the adoption of SFAS No. 125 will have on its financial statements.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31
USEFUL LIVES -------------------- JUNE 30,
IN YEARS 1995 1996 1997
------------ --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Buildings............................... 25 $ 101 $ 101 $ 107
Leasehold improvements.................. 10 1 426 485
Equipment............................... 5-7 466 509 477
Furniture and fixtures.................. 5 58 137 276
--------- --------- -----------
Total......................... 626 1,173 1,345
Less -- Accumulated depreciation........ (311) (417) (462)
--------- --------- -----------
Property and equipment, net... $ 315 $ 756 $ 883
========= ========= ===========
</TABLE>
F-96
<PAGE>
COOPER'S MOBILE HOME GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
Due from manufacturers.................. $ 217 $ 303 $ 190
Other................................... 135 82 365
Less -- Allowance for doubtful
accounts.............................. (10) (10) (10)
--------- --------- -----------
$ 342 $ 375 $ 545
========= ========= ===========
Inventories consist of the following (in thousands):
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
New homes, net of unearned volume
rebates............................... $ 3,027 $ 3,611 $ 3,975
Pre-owned homes......................... 14 14 81
Parts, accessories and other............ 56 157 229
--------- --------- -----------
$ 3,097 $ 3,782 $ 4,285
========= ========= ===========
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
Accounts payable, trade................. $ 251 $ 165 $ 471
Customer deposits....................... 20 140 139
Other accrued expenses.................. 173 328 336
--------- --------- -----------
$ 444 $ 633 $ 946
========= ========= ===========
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT:
FLOOR PLAN PAYABLE
The Group has two floor plan credit facilities with lending institutions to
finance a major portion of its manufactured home inventory until such inventory
is sold. Interest on amounts borrowed is paid monthly at rates of 9.0 percent to
10.25 percent or rates varying from 1.0 percent up to 3.0 percent (depending on
the length of time the note is outstanding) over the lender's prime rate (9.25
percent to 11.25 percent at December 31, 1996, and 9.5 percent to 11.50 percent
at June 30, 1997 (unaudited)). The floor plan payable is secured by all of the
Group's manufactured home inventory, related furniture, fixtures and accessories
and accounts receivable, and is guaranteed by the shareholder of the Group.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Group must make periodic loan payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreement. In the event the home remains in inventory 12 months after
the date of purchase, the balance of the obligation related to that home will
become due. In addition, certain of the Group's floor plan agreements include
subjective acceleration clauses which could result in the lines of credit being
due on demand should the Group experience a material adverse change in its
financial position as determined by the lender. The maximum aggregate amount
that can be borrowed under the lines of credit is $7.5 million, and the largest
balance outstanding during the year ended December 31, 1996 was
F-97
<PAGE>
COOPER'S MOBILE HOME GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $5.0 million. The average balance outstanding during 1996 was
approximately $4.6 million with a weighted average interest rate paid of 9.60
percent.
LONG-TERM DEBT
Long-term debt consists of the following
DECEMBER 31
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
(IN THOUSANDS)
Note payable to shareholders, quarterly
payments of $25,000, due October 1999,
interest to be paid by the Group's
primary home supplier, secured by
shareholders.......................... $ -- $ 300 $ 260
Notes payable, maturing in varying
amounts through November 2001, with
interest ranging from 8.50% to 8.90%,
secured by shareholders............... 83 144 253
--------- --------- -----------
83 444 513
Less -- Current portion................. (64) (224) (219)
--------- --------- -----------
$ 19 $ 220 $ 294
========= ========= ===========
The aggregate maturities of long-term debt as of December 31, 1996, are as
follows (in thousands):
Year ending December 31 --
1997............................... $ 224
1998............................... 105
1999............................... 105
2000............................... 5
2001............................... 5
---------
$ 444
=========
6. INCOME TAXES:
The components of the provision (benefit) for income taxes are as follows
(in thousands):
DECEMBER 31
--------------------
1995 1996
--------- ---------
Federal --
Current............................ $ 61 $ 164
Deferred........................... (69) 113
--------- ---------
$ (8) $ 277
========= =========
The provision (benefit) for income taxes differs from an amount computed at
the statutory rates as follows (in thousands):
DECEMBER 31
----------------
1995 1996
---- ---------
Federal income tax at statutory rates... $(9) $ 192
Nondeductible expenses.................. 1 13
Valuation allowance..................... -- 72
---- ---------
$(8) $ 277
==== =========
F-98
<PAGE>
COOPER'S MOBILE HOME GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The significant items giving rise to the deferred tax assets and
liabilities as of December 31, 1995 and 1996, are as follows (in thousands):
1995 1996
--------- ---------
Deferred tax assets --
Accrued expenses................... $ 94 $ 95
NOL carryforward................... -- 72
--------- ---------
Total......................... 94 167
--------- ---------
Deferred tax liabilities --
Other.............................. (333) (446)
--------- ---------
Total......................... (333) (446)
--------- ---------
Less -- Valuation allowance on NOL
carryforward.......................... -- (72)
--------- ---------
Net deferred income tax
liability................. $ (239) $ (351)
========= =========
7. RELATED-PARTY TRANSACTIONS:
The Group provides administrative, managerial and construction services to
companies which are under common control and ownership of the Group. The Group
provided approximately $631,000 and $452,000 of such services during the years
ended December 31, 1995 and 1996, respectively, and the services are included in
other revenues. At December 31, 1995 and 1996, the Group had approximately
$106,000 and $263,000, respectively, in related-party receivables for such
services. Additionally, included in inventory at December 31, 1996, are
investments of $367,483 in manufactured homes and capital improvements on
several housing developments owned by the shareholders of the Company.
The Group leases facilities from an entity which is owned by the
shareholders of the Group under operating leases. The rent paid under these
leases was approximately $52,000 and $128,000 for the years ended December 31,
1995 and 1996, respectively.
A related party is the Group's designated shipper of inventory purchased
from its manufacturer. This related party also acts as an agent of the Group and
performs delivery and set-up on behalf of the Group. Expenses incurred by the
Group for such delivery and set-up services were approximately $5,000 for the
year ended 1995. There were no such expenses in 1996.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Group leases various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2005. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1997............................... $ 207
1998............................... 201
1999............................... 189
2000............................... 149
2001............................... 140
Thereafter......................... 482
---------
Total......................... $ 1,368
=========
F-99
<PAGE>
COOPER'S MOBILE HOME GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $102,000 and $193,000 for the years
ended December 31, 1995 and 1996, respectively.
RECOURSE FINANCING
In connection with home sales, the Company guaranteed certain amounts due
to lending institutions from its customers. In the event of default by the
customer, the outstanding balance would be owed by the Company to the lending
institution. These amounts are collateralized by the related homes. As of
December 31, 1996 and June 30, 1997, amounts guaranteed by the Company were
$268,000 and $358,000 (unaudited), respectively.
LITIGATION
The Group is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Group's financial position or results of
operations.
INSURANCE
The Group carries a standard range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and
excess liability coverage. The Group has not incurred significant claims or
losses on any of its insurance policies.
9. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS (UNAUDITED):
PROPOSED ACQUISITIONS BY HOMEUSA (UNAUDITED)
In September 1997, the Group and its shareholders entered into a definitive
agreement with a wholly-owned subsidiary of HomeUSA providing for the merger of
the Group with the subsidiary of HomeUSA (the Merger). Property and equipment of
approximately $32,000 which are included in the combined balance sheet at June
30, 1997, will be distributed to the shareholders of the Group. In addition, the
shareholders of the Group will assume liabilities of approximately $23,000 which
are included in the combined balance sheet as of June 30, 1997. The cash portion
of the purchase price of the Merger will be adjusted to the extent the Excess
Operating Capital is greater or less than zero. Excess Operating Capital is
defined as net working capital minus long-term debt, as of the effective date of
the Merger. Had these distributions been made at June 30, 1997, the effect on
the Group's balance sheet would have been to decrease shareholders' equity by
approximately $249,000.
Concurrently with the Merger, the Group will enter into agreements with the
shareholders to lease land, equipment and buildings used in the Group's
operations for negotiated amounts and terms.
F-100
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Home Folks Housing Center, Inc.:
We have audited the accompanying balance sheet of Home Folks Housing
Center, Inc., as of December 31, 1996, and the related statements of operations,
shareholder's equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 6, 1997
F-101
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................... $ 149 $ 252
Accounts receivable, net........... 133 442
Inventories........................ 1,304 1,196
Other current assets............... 18 --
------------ -----------
Total current assets.......... 1,604 1,890
PROPERTY AND EQUIPMENT, net............. 299 299
------------ -----------
Total assets.................. $1,903 $ 2,189
============ ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses.......................... $ 359 $ 406
Floor plan payable................. 954 1,000
------------ -----------
Total current liabilities..... 1,313 1,406
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Common stock, no par value, 1,000
shares authorized, 1,000 shares
issued and 500 shares
outstanding....................... 32 32
Additional paid-in capital......... 3 3
Retained earnings.................. 572 765
Treasury stock, 500 shares, at
cost.............................. (17) (17)
------------ -----------
Total shareholder's equity.... 590 783
------------ -----------
Total liabilities and
shareholder's equity....... $1,903 $ 2,189
============ ===========
The accompanying notes are an integral part of these financial statements.
F-102
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
SIX MONTHS
ENDED JUNE 30
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
REVENUES:
Home sales......................... $7,985 $ 3,434 $ 3,961
Other revenue...................... 42 4 16
------------ --------- ---------
Total revenue................... 8,027 3,438 3,977
COST OF SALES........................ 6,121 2,650 3,104
------------ --------- ---------
Gross profit.................... 1,906 788 873
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,541 548 638
------------ --------- ---------
Income from operations.......... 365 240 235
OTHER INCOME (EXPENSE):
Interest expense, net........... (126) (71) (52)
Other income, net............... 14 3 10
------------ --------- ---------
NET INCOME........................... $ 253 $ 172 $ 193
============ ========= =========
The accompanying notes are an integral part of these financial statements.
F-103
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TREASURY
COMMON PAID-IN RETAINED STOCK
STOCK CAPITAL EARNINGS AT COST TOTAL
------ ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........... $ 32 $ 3 $ 319 $ (17) $ 337
Net income...................... -- -- 253 -- 253
------ ---------- -------- -------- ---------
BALANCE, December 31, 1996........... 32 3 572 (17) 590
Net income (unaudited).......... -- -- 193 -- 193
------ ---------- -------- -------- ---------
BALANCE, June 30, 1997 (unaudited)... $ 32 $ 3 $ 765 $ (17) $ 783
====== ========== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-104
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
YEAR ENDED JUNE 30
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 253 $ 172 $ 193
Adjustments to reconcile net
income to net cash provided by
operating activities --
Depreciation and
amortization............ 67 32 29
Changes in assets and
liabilities --
Accounts receivable... 25 (140) (309)
Inventories........... (254) (355) 108
Other current
assets............. 8 8 18
Accounts payable and
accrued expenses... (114) (124) 47
Floor plan payable.... 637 936 46
------------ --------- ---------
Net cash provided
by operating
activities...... 622 529 132
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment..................... (109) (103) (29)
------------ --------- ---------
Net cash used in
investing
activities...... (109) (103) (29)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt................ (640) (565) --
------------ --------- ---------
Net cash used in
financing
activities...... (640) (565) --
------------ --------- ---------
NET INCREASE (DECREASE) IN CASH...... (127) (139) 103
CASH, beginning of period............ 276 276 149
------------ --------- ---------
CASH, end of period.................. $ 149 $ 137 $ 252
============ ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest..... $ 131 $ 73 $ 54
The accompanying notes are an integral part of these financial statements.
F-105
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Home Folks Housing Center, Inc. (the Company) and its sole shareholder
intend to enter into a definitive agreement with HomeUSA, Inc. (HomeUSA),
pursuant to which all outstanding shares of the Company's common stock will be
exchanged for cash and shares of HomeUSA's common stock concurrently with the
consummation of an initial public offering (the Offering) of the common stock of
HomeUSA.
The Company is a Kentucky corporation that is primarily engaged in the
retail sale of new and pre-owned manufactured homes. The Company operates a
sales center in Kentucky which has an exclusive retail agreement with a home
manufacturer.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of June 30, 1997, and for the six
months ended June 30, 1996 and 1997, are unaudited, and certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. The Company's operations are subject to seasonal variations in
sales. Due to seasonality and other factors, the results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
INVENTORIES
Inventories are valued at the lower of cost or market using the specific
identification method for new and pre-owned homes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Company's retail sales), upon execution of the
loan agreement and other required documentation and receipt of a designated
minimum down payment. Home sales exclude any sales and use taxes collected.
The Company arranges financing for customers through various institutions
for which the Company receives certain financing fees which are recognized in
other revenues along with the sale of the related home.
F-106
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
COST OF SALES
Cost of sales includes the cost of manufactured homes, less any
manufacturer rebates realized, as well as the cost of retailer installed
options, set-up and delivery.
INCOME TAXES
The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under S Corporation status, the shareholder reports his share of the
Company's taxable earnings or losses in his personal tax return. The Company
will terminate its S Corporation status concurrently with the effective date of
this offering.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of floor plan payables and
accounts receivable. The carrying amount of these financial instruments
approximates fair value due either to length of maturity or existence of
variable interest rates that approximate market rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Company maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Company has not
incurred losses related to these balances to date.
MAJOR SUPPLIER
The Company purchases all of its homes through an exclusive retail
agreement with a primary supplier, at the prevailing prices charged by the
manufacturer. Pursuant to this agreement, the Company received volume rebates on
inventory purchases. The Company's sales volume could be adversely affected by
the manufacturer's inability to supply the sales center with an adequate supply
of homes.
The retail agreement between the sales centers and the manufacturer
contains certain provisions, including the minimum amount of homes to be
purchased and displayed, guidelines for the display of model homes, installation
and delivery guidelines and terms of reimbursement for warranty work performed
by the retailer pursuant to the manufacturer's warranty. These agreements also
provide for volume rebate incentive programs based on inventory purchases.
Accordingly, inventory has been recorded net of volume rebates. Retail
agreements may be terminated by the sales center with notice and by the
manufacturer for good cause, as defined in the agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining 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. Actual results could differ from those estimates.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the net change in floor plan
financing of inventory is reflected as an operating activity.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," was issued in June 1996 and establishes, among other things, new
criteria related to accounting for transfers of financial assets in exchange for
cash
F-107
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
or other consideration. SFAS No. 125 also establishes new accounting
requirements for pledged collateral. In addition, SFAS No. 125 is effective for
all transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. The Company will adopt this
statement when required and has not determined the impact that the adoption of
SFAS No. 125 will have on its financial statements.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31, JUNE 30,
IN YEARS 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Buildings............................ 25 $ 111 $ 111
Leasehold improvements............... 10 25 31
Equipment............................ 5-7 421 444
Furniture and fixtures............... 5 40 40
------------ -----------
Total......................... 597 626
Less -- Accumulated depreciation..... (298) (327)
------------ -----------
Property and equipment, net... $ 299 $ 299
============ ===========
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Due from manufacturers............... $ 54 $ 130
Due from finance companies........... 79 312
------------ -----------
$ 133 $ 442
============ ===========
Inventories consist of the following (in thousands):
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
New homes, net of unearned volume
rebates............................ $1,030 $ 943
Pre-owned homes...................... 202 193
Parts, accessories and other......... 72 60
------------ -----------
$1,304 $ 1,196
============ ===========
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Accounts payable, trade.............. $ 241 $ 156
Customer deposits.................... 26 117
Other accrued expenses............... 92 133
------------ -----------
$ 359 $ 406
============ ===========
F-108
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT:
FLOOR PLAN PAYABLE
The Company has a floor plan credit facility with a lending institution to
finance a major portion of its manufactured home inventory until such inventory
is sold. Interest on amounts borrowed is paid monthly at rates varying from 1.25
percent up to 3.0 percent (depending on the time the note is outstanding) over
the lender's prime rate (9.5 percent to 11.25 percent at December 31, 1996, and
9.75 percent to 11.5 percent at June 30, 1997 (unaudited)). The floor plan
payable is secured by all of the Company's manufactured home inventory, the
related furniture, fixtures and accessories and accounts receivable, and is
guaranteed by the shareholder of the Company.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Company must make periodic payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreement. In the event the home remains in inventory 12 months after
the date of purchase, the balance of the obligation related to that home will
become due. In addition, certain of the Company's floor plan agreements include
subjective acceleration clauses which could result in the lines of credit being
due on demand should the Company experience a material adverse change in its
financial position as determined by the lender. The maximum amount that can be
borrowed under the floor plan line of credit is $1.5 million, and the largest
balance outstanding during the year ended December 31, 1996 was approximately
$1.4 million. The average balance outstanding during 1996 was $1.2 million with
a weighted average interest rate paid of 11.24 percent.
The Company has an agreement with the sole shareholder whereby the sole
shareholder has financed a portion of its manufactured home inventory until such
inventory is sold and contract proceeds are received. Interest on amounts
borrowed is paid monthly at rates varying from 12 percent to 12.5 percent. As of
December 31, 1996, there were no balances due to the shareholder.
LONG-TERM DEBT
Beginning January 7, 1997, the Company entered into a revolving line of
credit agreement with a financial institution. The Company may borrow up to
$100,000 under this facility, with the outstanding principal amount due on
January 7, 1998. Interest is payable quarterly at the prime rate. At June 30,
1997, the Company had available borrowing capacity of $100,000 under the line of
credit.
6. RELATED-PARTY TRANSACTIONS:
The Company leased land from related parties of the Company under operating
leases. Rental expense on related-party leases totaled $55,000 for the year
ended December 31, 1996.
7. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2006. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
F-109
<PAGE>
HOME FOLKS HOUSING CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1997............................ $ 80
1998............................ 80
1999............................ 80
2000............................ 78
2001............................ 78
Thereafter...................... 377
---------
Total...................... $ 773
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $70,000 for the year ended December 31,
1996.
LITIGATION
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Company's financial position or
results of operations.
INSURANCE
The Company carries a standard range of insurance coverage, including
general and business auto liability, commercial property, workers' compensation
and excess liability coverage. The Company has not incurred significant claims
or losses on any of its insurance policies.
EMPLOYEE 401(K) RETIREMENT PLAN
The Company has implemented a 401(k) retirement plan with an effective date
of January 1, 1995, which covers all employees meeting certain service
requirements. The Company matches employee contributions up to 4 percent of the
employee's base salary. The Company recorded contribution expense of $27,167 as
of December 31, 1996.
8. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In September 1997, the Company and its shareholder entered into a
definitive agreement with a wholly-owned subsidiary of HomeUSA providing for the
merger of the Company with the subsidiary of HomeUSA (the Merger). The cash
portion of the purchase price of the Merger will be adjusted to the extent the
Excess Operating Capital is greater or less than zero. Excess Operating Capital
is defined as net working capital minus long-term debt as of the effective date
of the Merger. Had this distribution been made at June 30, 1997, the effect on
the Company's balance sheet would have been to decrease shareholder's equity by
approximately $478,000.
Concurrently with the Merger, the Company will enter into agreements with
the shareholder to lease land, equipment and buildings used in the Company's
operations for negotiated amounts and terms.
F-110
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To WillMax Homes of Colorado LLC:
We have audited the accompanying balance sheet of WillMax Homes of Colorado
LLC (the Company) as of December 31, 1996, and the related statements of
operations, members' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1996, and the results of its operations and its cash flows for the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 6, 1997
F-111
<PAGE>
WILLMAX HOMES OF COLORADO LLC
BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, JUNE 30,
1996 1997
------------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $ 70 $ 105
Accounts receivable, net........ 153 211
Inventories..................... 1,057 900
Other current assets............ 13 13
------------- ------------
Total current assets....... 1,293 1,229
PROPERTY AND EQUIPMENT, net.......... 57 56
OTHER ASSETS......................... 20 9
------------- ------------
Total assets............... $ 1,370 $1,294
============= ============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................ $ 178 $ 227
Floor plan payable.............. 1,111 925
Short-term debt................. 19 8
------------- ------------
Total current
liabilities.................. 1,308 1,160
LONG-TERM RELATED PARTY PAYABLE...... 35 35
COMMITMENTS AND CONTINGENCIES
MEMBERS' EQUITY...................... 27 99
------------- ------------
Total liabilities and
members' equity.............. $ 1,370 $1,294
============= ============
The accompanying notes are an integral part of these financial statements.
F-112
<PAGE>
WILLMAX HOMES OF COLORADO LLC
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
REVENUE:
Home sales...................... $3,512 $ 1,281 $ 1,613
Other revenue................... 48 18 91
------------ --------- ---------
Total revenue.............. 3,560 1,299 1,704
COST OF SALES........................ 2,955 1,097 1,273
------------ --------- ---------
Gross profit............... 605 202 431
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 511 167 315
------------ --------- ---------
Income from operations..... 94 35 116
OTHER INCOME (EXPENSE):
Interest expense, net........... (94) (43) (44)
Other income (expense), net..... (6) 2 --
------------ --------- ---------
NET INCOME (LOSS).................... $ (6) $ (6) $ 72
============ ========= =========
The accompanying notes are an integral part of these financial statements.
F-113
<PAGE>
WILLMAX HOMES OF COLORADO LLC
STATEMENTS OF MEMBERS' EQUITY
(IN THOUSANDS)
BALANCE, December 31, 1995........... $ (7)
Distributions................... (10)
Net loss........................ (6)
Contribution.................... 50
---------
BALANCE, December 31, 1996........... 27
Net income (unaudited).......... 72
---------
BALANCE, June 30, 1997 (unaudited)... $ 99
=========
The accompanying notes are an integral part of these financial statements.
F-114
<PAGE>
WILLMAX HOMES OF COLORADO LLC
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ (6) $ (6) $ 72
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation and
amortization........... 12 5 5
Issuance of capital as
compensation........... 50 -- --
Changes in assets and
liabilities --
Accounts receivable,
net............... (5) (34) (58)
Inventories........... (45) 48 157
Other assets.......... (28) (48) 11
Accounts payable and
accrued
expenses.......... 61 153 49
Floor plan payable.... 3 (57) (186)
------------ --------- ---------
Net cash
provided by
operating
activities... 42 61 50
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment...................... (11) (2) (4)
------------ --------- ---------
Net cash used in
investing
activities... (11) (2) (4)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term debt..... (22) (12) (11)
Distribution to members......... (10) -- --
------------ --------- ---------
Net cash used in
financing
activities... (32) (12) (11)
------------ --------- ---------
NET INCREASE (DECREASE) IN CASH...... (1) 47 35
CASH, beginning of period............ 71 71 70
------------ --------- ---------
CASH, end of period.................. $ 70 $ 118 $ 105
============ ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.......... $ 94 $ 43 $ 44
The accompanying notes are an integral part of these financial statements.
F-115
<PAGE>
WILLMAX HOMES OF COLORADO LLC
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
WillMax Homes of Colorado LLC (the Company) is a Colorado limited liability
corporation, and is primarily engaged in the retail sale of new and pre-owned
manufactured homes. The Company operates a sales center in Colorado which has a
retail agreement with a home manufacturer.
The Company and its members intend to enter into a definitive agreement
with HomeUSA, Inc. (HomeUSA), pursuant to which all member interests in the
Company will be exchanged for cash and shares of HomeUSA's common stock
concurrent with the consummation of the initial public offering (the Offering)
of the common stock of HomeUSA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of June 30, 1997, and for the six
months ended June 30, 1996 and 1997, are unaudited, and certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. The Company's operations are subject to different seasonal
variations in sales. Due to seasonality and other factors, the results of
operations for the interim periods are not necessarily indicative of the results
for the entire fiscal year.
INVENTORIES
Inventories are valued at the lower of cost or market using the specific
identification method for new and pre-owned homes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
Home sales consist of new and pre-owned manufactured homes as well as
retailer installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Company's retail sales), upon execution of the
loan agreement and other required documentation and receipt of a designated
minimum down payment. Home sales also includes revenue from the construction of
site amenities. Home sales exclude any sales and use taxes collected.
The Company also maintains pre-owned manufactured home inventory owned by
third parties for which the Company receives a sales commission when sold to
customers. Consignment sales commissions are recognized in other revenue when
the related home is sold.
The Company receives an agent's commission on insurance policies issued by
unrelated insurance companies. Insurance commissions are recognized in other
revenue at the time the policies are written.
F-116
<PAGE>
WILLMAX HOMES OF COLORADO LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company arranges financing for customers through various institutions
for which the Company receives certain financing fees which are recognized in
other revenue along with the sale of the related home.
Also included in other revenues is the revenue from repair and maintenance
services.
COST OF SALES
Cost of sales includes the cost of manufactured homes, less any
manufacturer rebates realized, as well as the cost of retailer installed
options, set-up and delivery and site amenities.
INCOME TAXES
The Company, as a limited liability company, is taxed under sections of the
federal and state income tax laws which provide that, in lieu of corporate
income taxes, the members separately account for the Company's items of income,
deductions, losses and credits on their individual income tax returns based on
their respective ownership interests. As such, the financial statements do not
include a provision for income taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of accounts
receivable, floor plan payables and debt. The carrying amount of these financial
instruments approximates fair value due either to length of maturity or
existence of variable interest rates that approximate market rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Company maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Company has not
incurred losses related to these balances to date.
MAJOR SUPPLIERS
The Company purchases all of its homes from a primary supplier at the
prevailing prices charged by the manufacturer. The Company's sales volume could
be adversely affected by the manufacturer's inability to supply the sales center
with an adequate supply of homes.
The retail agreement between the sales center and the manufacturer contain
certain provisions, including the minimum amount of homes to be purchased and
displayed, guidelines for the display of model homes, installation and delivery
guidelines and terms of reimbursement for warranty work performed by the
retailer pursuant to the manufacturer's warranty. These agreements also provide
for volume rebate incentive programs based on inventory purchases. Accordingly,
inventory has been recorded net of volume rebates. Retail agreements may be
terminated by the sales center with notice and by the manufacturer for good
cause, as defined in the agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining 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. Actual results could differ from those estimates.
F-117
<PAGE>
WILLMAX HOMES OF COLORADO LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the net change in floor plan
financing of inventory is reflected as an operating activity. At December 31,
1996, cash includes $38,000 in amounts restricted that is held with a financing
institution in relation to customer deposits.
NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," was issued in June 1996 and establishes, among other things, new
criteria related to accounting for transfers of financial assets in exchange for
cash or other consideration. SFAS No. 125 also establishes new accounting
requirements for pledged collateral. In addition, SFAS No. 125 is effective for
all transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. The Company will adopt this
statement when required and has not determined the impact that the adoption of
SFAS No. 125 will have on its financial statements.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31, JUNE 30,
IN YEARS 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures............... 5 $ 46 $ 47
Leasehold improvements............... 10 30 34
------------ -----------
Total...................... 76 81
Less -- Accumulated depreciation..... (19) (25)
------------ -----------
Property and equipment,
net........................ $ 57 $ 56
============ ===========
</TABLE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Due from manufacturers............... $ 47 $ 62
Due from finance companies........... 55 64
Other................................ 51 85
------------ -----------
$ 153 $ 211
============ ===========
Inventories consist of the following (in thousands):
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
New homes, net of unearned volume
rebates.............................. $1,043 $ 881
Pre-owned homes...................... 14 19
------------ -----------
$1,057 $ 900
============ ===========
F-118
<PAGE>
WILLMAX HOMES OF COLORADO LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Accounts payable, trade.............. $ 46 $ 54
Accrued compensation................. 24 13
Customer deposits.................... 55 75
Other accrued expenses............... 53 85
------------ -----------
$ 178 $ 227
============ ===========
5. FLOOR PLAN PAYABLE AND LONG-TERM DEBT:
FLOOR PLAN PAYABLE
The Company has three floor plan credit facilities with lending
institutions to finance a major portion of its manufactured home inventory until
such inventory is sold. Interest on amounts borrowed is paid monthly at rates
varying up to 2.0 percent (depending on the time the note is outstanding) over
the lender's prime rate (8.25 percent to 10.25 percent at December 31, 1996 and
8.5 percent to 10.5 percent at June 30, 1997 (unaudited)). The floor plan
payable is secured by all of the Company's manufactured home inventory, the
related furniture, fixtures and accessories and accounts receivable, and is
guaranteed by a stockholder.
Floor plan payables are due upon the receipt of sale proceeds from the
related inventory; however, the Company must make periodic payments when the
related home remains in inventory beyond the length of time specified in the
floor plan agreements. In the event the home remains in inventory 12 months
after the date of purchase, the balance of the obligation related to that home
will become due. In addition, certain of the Company's floor plan agreements
include subjective acceleration clauses which could result in the lines of
credit being due on demand should the Company experience a material adverse
change in its financial position as determined by the lender. The maximum amount
that can be borrowed under the floor plan lines of credit is $2.4 million and
the largest balance outstanding during the year ended December 31, 1996, was
approximately $1.3 million. The average balance outstanding during 1996 was
approximately $1.1 million with a weighted average interest rate paid of 8.4
percent.
LONG-TERM DEBT
The Company has long-term debt of $25,000 which is due to a related party
in November 1998. This note bears interest of 12 percent per year and interest
only payments are due monthly until maturity.
The Company also has a $10,000 note due to the general manager upon
termination of his employment which bears interest at 12 percent per year.
6. RELATED-PARTY TRANSACTIONS:
The members of the corporation are partners in two land lease communities
in which the Company sells homes.
7. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases its facilities under an operating lease agreement. The
lease agreement is noncancelable and expires in October 1998. The lease
agreements are subject to renewal under essentially the same terms and
conditions as the original leases.
F-119
<PAGE>
WILLMAX HOMES OF COLORADO LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments for operating leases are as follows (in
thousands):
Year ending December 31 --
1997............................ $ 32
1998............................ 26
---------
Total...................... $ 58
=========
Total rent expense under all operating leases was approximately $30,000 for
the year ended December 31, 1996.
LITIGATION
The Company is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on the Company's financial position or results of
operations.
INSURANCE
The Company carries a standard range of insurance coverage, including
general and business auto liability, commercial property, workers' compensation
and excess liability coverage. The Company has not incurred significant claims
or losses on any of its insurance policies.
8. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS (UNAUDITED):
In September 1997, the Company and its members entered into a definitive
agreement with a wholly-owned subsidiary of HomeUSA providing for the merger of
the Company with the subsidiary of HomeUSA (the Merger). The cash portion of the
purchase price of the Merger will be adjusted to the extent the Excess Operating
Capital is greater or less than zero. Excess Operating Capital is defined as net
working capital minus long-term debt, as of the effective date of the Merger.
Had this distribution been made at June 30, 1997, the effect on the Company's
balance sheet would have been to decrease members' equity by approximately
$65,000.
F-120
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANY ONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary...................... 4
The Company............................. 10
Risk Factors............................ 12
Use of Proceeds......................... 18
Dividend Policy......................... 18
Capitalization.......................... 19
Dilution................................ 20
Selected Financial Data................. 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 23
Business................................ 45
Management.............................. 55
Certain Transactions.................... 61
Principal Stockholders.................. 65
Description of Capital Stock............ 66
Shares Eligible for Future Sale......... 68
Underwriting............................ 70
Legal Matters........................... 71
Experts................................. 71
Additional Information.................. 71
Index to Financial Statements........... F-1
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE HEREOF), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
5,000,000 SHARES
[LOGO]
HOMEUSA, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
BT ALEX. BROWN
BEAR, STEARNS & CO. INC.
MONTGOMERY SECURITIES
SANDERS MORRIS MUNDY
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the securities being registered. All amounts are estimates
except for the fees payable to the SEC.
AMOUNT TO
BE PAID
------------
SEC registration fee.................... $ 22,652
Printing expenses....................... $ 280,000
Legal fees and expenses................. $ 875,000
Accounting fees and expenses............ $ 2,500,000
Blue sky fees and expenses.............. $ 10,000
Transfer Agent's and Registrar's fees... $ 10,000
Miscellaneous........................... $ 302,348
------------
TOTAL.............................. $ 4,000,000
============
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company's Certificate of Incorporation, as amended, and Bylaws
incorporate substantially the provisions of the Delaware General Corporation Law
("DGCL") providing for indemnification of directors and officers of the
Company against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an officer or director of the
Company or is or was serving at the request of the Company as a director,
officer or employee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
As permitted by Section 102 of the DGCL, the Company's Certificate of
Incorporation, as amended, contains provisions eliminating a director's personal
liability for monetary damages to the Company and its stockholders arising from
a breach of a director's fiduciary duty except for liability (a) for any breach
of the director's duty of loyalty to the Company or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit.
Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if in the case
of other than derivative suits such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that such person's conduct was unlawful). In the
case of a derivative suit, an officer, employee or agent of the corporation
which is not protected by the Certificate of Incorporation may be indemnified by
the corporation for reasonable expenses, including attorneys' fees, if such
person has acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in the case of a derivative suit in respect of any
claim as to which an officer, employee or agent has been adjudged to be liable
to the corporation unless that person is fairly and reasonably entitled to
indemnity for proper expenses. Indemnification is mandatory in the case of a
director or officer who is successful on the merits in defense of a suit against
such person.
The Company intends to enter into Indemnity Agreements with its directors
and certain key officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
DGCL as described above.
II-1
<PAGE>
The Company intends to purchase liability insurance policies covering
directors and officers in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On July 3, 1996, HomeUSA issued and sold 1,000 shares of Common Stock to
Notre for a consideration of $1,000. This sale was exempt from registration
under Section 4(2) of the Securities Act, no public offering being involved.
On October 8, 1996 HomeUSA issued and sold 19,325.96 shares of Common Stock
to Notre for a consideration of $17,439. This sale was exempt from registration
under Section 4(2) of the Securities Act, no public offering being involved.
On January 15, 1997, HomeUSA issued and sold shares of Common Stock to the
following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act no
public offering being involved: Cary N. Vollintine -- 1,766.3 shares for a
consideration of $1,602.26; Willie Thurman Langston II -- 126.16 shares for a
consideration of $114.45; Kevin J. Lilly -- 63.07 shares for a consideration of
$57.22; Robert P. Gauntt -- 63.07 shares for a consideration of $57.22; and
WillMax Capital Inc. -- 2,270.96 shares for a consideration of $2,060.05.
On May 10, 1997, HomeUSA issued and sold shares of Common Stock to the
following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act, no
public offering being involved: Cary N. Vollintine -- 2,204.76 shares for a
consideration of $2,000.00; Frank W. Montfort -- 1,212.62 shares for a
consideration of $1,100.00; Philip Campbell -- 551.19 shares for a consideration
of $500.00; Michael F. Loy -- 1,102.38 shares for a consideration of $1,000;
Philip C. deMena -- 1,102.38 shares for a consideration of $1,000.00; Richard T.
Howell -- 110.23 shares for a consideration of $100.00; Jennifer
Jackson -- 110.23 shares for a consideration of $100.00; Melinda A.
Malek -- 11.02 shares for a consideration of $10.00; Stephen Baur -- 440.95
shares for a consideration of $400.00; Shellie Gray LePori -- 275.59 shares for
a consideration of $250.00; Infoscope, Inc. -- 44.09 shares for a consideration
of $40.00; Susan Yancey -- 5.51 shares for a consideration of $5.00; Jennifer G.
Davidson -- 5.51 shares for a consideration of $5.00; John R. Oren -- 551.19
shares for a consideration of $500.00; Steven J. Blum -- 110.23 shares for a
consideration of $100.00; Willie Thurman Langston II -- 165.35 shares for a
consideration of $150.00; Kevin J. Lilly -- 82.67 shares for a consideration of
$75.00; Robert P. Gauntt -- 82.67 shares for a consideration of $75.00; Kenneth
V. Garcia -- 110.23 shares for a consideration of $100.00 and Karl V.
Baumgartner -- 55.11 shares for a consideration of $50.00.
On August 1, 1997, HomeUSA issued and sold shares of Common Stock to the
following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act, no
public offering being involved: Donald D. Moseley -- 551.19 shares for a
consideration of $500.00; Don A. Palmour -- 551.19 shares for a consideration of
$500.00; Cary N. Vollintine -- 220.47 shares for a consideration of $200.00;
Frank W. Montfort -- 121.26 shares for a consideration of $110.00; Philip
Campbell -- 55.11 shares for a consideration of $50.00; Michael F. Loy -- 110.23
shares for a consideration of $100; Philip C. deMena -- 110.23 shares for a
consideration of $100.00; Stephen F. Smith -- 110.23 shares for a consideration
of $100.00; Thomas N. Amonett -- 110.23 shares for a consideration of $100.00
and James J. Blosser -- 110.23 shares for a consideration of $100.00.
Effective August 1, 1997, HomeUSA effected a 90.7127-to-one stock dividend
on shares of Common Stock issued on and as of August 1, 1997.
Effective August 1, 1997, HomeUSA issued 1,718,823 shares of Restricted
Common Stock to Notre in exchange for 1,718,823 shares of Common Stock. This
issuance was exempt from registration under Section 4(2) of the Securities Act,
no public offering being involved.
Simultaneously with the consummation of this Offering, the Company will
issue 7,266,984 shares of its Common Stock in connection with the Mergers of the
Founding Companies. Each of these transactions
II-2
<PAGE>
was completed without registration under the Securities Act in reliance upon the
exemption provided by Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
1.1 -- Form of Underwriting Agreement
*3.1 -- Amended and Restated Certificate of Incorporation of HomeUSA, Inc., as amended
*3.2 -- Bylaws of HomeUSA, Inc., as amended
4.1 -- Form of certificate evidencing ownership of Common Stock of HomeUSA, Inc.
5.1 -- Opinion of Bracewell & Patterson, L.L.P.
*10.1 -- HomeUSA, Inc. 1997 Long-Term Incentive Plan
*10.2 -- HomeUSA, Inc. 1997 Non-Employee Directors' Stock Plan
*10.3 -- Agreement and Plan of Organization dated as of September 10, 1997, by and among HomeUSA,
Inc., McDonald Homes Acquisition Corp., McDonald Homes, Inc. and the Stockholders named
therein
*10.4 -- Agreement and Plan of Organization dated as of September 10, 1997, by and among HomeUSA,
Inc., Universal Housing Acquisition Corp., Universal Housing of East Tennessee Acquisition
Corp., Shaffer & Webb Insurance Agency Acquisition Corp., Universal Housing, Inc.,
Universal Housing of East TN, Inc., Shaffer & Webb Insurance Agency, Inc. and the
Stockholders named therein
*10.5 -- Agreement and Plan of Organization dated as of September 10, 1997, by and among HomeUSA,
Inc., First American Homes Acquisition Corp., D & S Acquisition Corp., Son Development
Acquisition Corp., First American Homes, Inc., D&S, Inc., Son Development Corporation and
the Stockholders named therein
*10.6 -- Agreement and Plan of Organization dated as of September 10, 1997, by and among HomeUSA,
Inc., Mobile World Acquisition Corp., Showcase of Homes Acquisition Corp., Mobile World,
Inc., Showcase of Homes, Inc. and the Stockholders named therein
*10.7 -- Agreement and Plan of Organization dated as of September 10, 1997, by and among HomeUSA,
Inc., Patrick Home Center Acquisition Corp., Patrick Home Center, Inc. and the Stockholder
named therein
*10.8 -- Agreement and Plan of Organization dated as of September 10, 1997, by and among HomeUSA,
Inc., Home Folks Housing Center Acquisition Corp., Home Folks Housing Center, Inc. and the
Stockholder named therein
*10.9 -- Agreement and Plan of Organization dated as of September 10, 1997, by and among HomeUSA,
Inc., Cooper's Mobile Homes Acquisition Corp., Pac West Management Acquisition Corp.,
HUSAI Acquisition Corp., Cooper's Mobile Homes, Inc., Pac West Mgmt., Inc., HomeUSA, Inc.,
and the Stockholders named therein
*10.10 -- Agreement and Plan of Organization dated as of September 10, 1997, by and among HomeUSA,
Inc., CSF&T Acquisition Corp., AAA Homes Acquisition Corp., Fordham Insurance Agency
Acquisition Corp., CSF&T, Inc., AAA Homes, L.L.C., Fordham Insurance Agency, Inc. and the
Stockholders named therein
*10.11 -- Agreement and Plan of Organization dated as of September 10, 1997, by and among HomeUSA,
Inc., WillMax Homes of Colorado L.L.C. and the Owners named therein
10.12 -- Form of Employment Agreement between HomeUSA, Inc. and Cary N. Vollintine
10.13 -- Form of Employment Agreement between HomeUSA, Inc. and Michael F. Loy
10.14 -- Form of Employment Agreement between HomeUSA, Inc. and Frank W. Montfort
10.15 -- Form of Employment Agreement between HomeUSA, Inc. and Philip deMena
10.16 -- Form of Employment Agreement between HomeUSA, Inc. and Philip Campbell
10.17 -- Form of Employment Agreement between HomeUSA, Inc. and Don A. Palmour
10.18 -- Form of Employment Agreement between HomeUSA and Donald D. Moseley
*10.19 -- Form of Founders' Employment Agreement
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
10.20 -- Form of Agreement Among Certain Stockholders
*10.21 -- Form of Indemnity Agreement with Notre Capital Ventures II, L.L.C.
*21.1 -- List of subsidiaries of HomeUSA, Inc.
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Coopers & Lybrand L.L.P.
23.3 -- Consent of Bracewell & Patterson, L.L.P. (included in Exhibit 5.1)
*23.4 -- Consent of Frank C. McDonald to be named as a director
*23.5 -- Consent of Harold K. Patrick to be named as a director
*23.6 -- Consent of Larry T. Shaffer to be named as a director
*23.7 -- Consent of Gary W. Fordham to be named as a director
*23.8 -- Consent of David E. Thompson to be named as a director
*23.9 -- Consent of Randle C. Cooper to be named as a director
*23.10 -- Consent of Stanley Poisso be named as a director
*23.11 -- Consent of Stephen F. Smith to be named as a director
*23.12 -- Consent of Thomas N. Amonett to be named as a director
*23.13 -- Consent of James J. Blosser to be named as a director
*24.1 -- Power of Attorney (included herein on Signature Page)
*27 -- Financial Data Schedule
</TABLE>
- ------------
* Filed herewith
(b) Financial Statement Schedules
The following financial statement schedules are included herein.
Schedule I
All other schedules for which provision is made in the applicable
accounting regulation of the SEC are not required under the related
instructions, are inapplicable, or the information is included in the
consolidated financial statements, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions described in Item 14, or otherwise,
the Company has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(c) The undersigned registrant hereby undertakes that: (i) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; (ii) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, HOMEUSA, INC.
HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT THERETO TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
HOUSTON, STATE OF TEXAS, ON SEPTEMBER 15, 1997.
HOMEUSA, INC.
By: /s/ CARY N. VOLLINTINE
BY: CARY N. VOLLINTINE
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of Cary N. Vollintine and Michael F. Loy with full power to act without the
other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (until revoked in writing) to sign any and all amendments
(including post-effective amendments) to this Registration Statement, to file
the same, together with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, to sign any and all
applications, registration statements, notices and other documents necessary or
advisable to comply with the applicable state securities laws, and to file this
same, together with all other documents in connection therewith, with the
appropriate state securities authorities, granting unto said attorneys-in-fact
and agents or any of them or their or his substitutes or substitute, full power
and authority to perform and does each and every act and thing necessary and
advisable as fully to all intents and purposes as he might or could perform and
do in person, thereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON SEPTEMBER 15, 1997.
SIGNATURE TITLE
- ----------------------- -------------------------------------------------------
/s/ CARY N. VOLLINTINE Chairman of the Board; Chief Executive Officer and
CARY N. VOLLINTINE President
/s/ MICHAEL F. LOY Senior Vice President; Chief Financial Officer and
MICHAEL F. LOY Director (Chief Accounting Officer)
/s/ STEVEN S. HARTER Director
STEVEN S. HARTER
II-5
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ERTON CORPORATION
Erton Corporation, a corporation duly organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the "Company"),
originally incorporated July 3, 1996, does hereby certify:
FIRST: That the Board of Directors of the Company, pursuant to a unanimous
written consent signed by all directors of the Company and effective as of July
31, 1997, adopted the following resolution, proposing and declaring advisable
and in the best interests of the Company the amendment and restatement of the
Certificate of Incorporation of the Company set forth in such resolution, and
directed that the same be submitted to a vote of the stockholders of the
Company:
RESOLVED, that the Certificate of Incorporation of the Company be amended
and restated to read in its entirety as follows:
ARTICLE I
The name of the corporation is HomeUSA, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE FOUR
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is Sixty Million (60,000,000) shares, of which
Five Million (5,000,000) shares, designated as Preferred Stock, shall have a par
value of One Cent ($.01) per share (the "Preferred Stock"), Fifty Million
(50,000,000) shares, designated as Common Stock, shall have a par value of One
Cent ($.01)
2
<PAGE>
per share (the "Common Stock"), and Five Million (5,000,000) shares, designated
as Restricted Voting Common Stock, shall have a par value of One Cent ($.01) per
share (the "Restricted Voting Common Stock").
A statement of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, in respect of each class of stock of the
Corporation is as follows:
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of this Certificate of Incorporation and the limitations prescribed by law, the
Board of Directors is expressly authorized by adopting resolutions to issue the
shares, fix the number of shares and change the number of shares constituting
any series, and to provide for or change the voting powers, designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, including dividend rights
(and whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), a redemption price or prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, without any further action or vote by the
stockholders.
COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the holders of the Common Stock
shall be entitled to receive, as and when declared by the Board of Directors out
of the funds of the Corporation legally available therefor, such dividends
(payable in cash, stock or otherwise) as the Board of Directors may from time to
time determine, payable to stockholders of record on such dates, not exceeding
60 days preceding the dividend payment dates, as shall be fixed for such purpose
by the Board of Directors in advance of payment of each particular dividend. All
dividends on Common Stock shall be paid PARI PASSU with dividends on Restricted
Voting Common Stock.
2. LIQUIDATION.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Common Stock
and Restricted
3
<PAGE>
Voting Common Stock ratably in proportion to the number of shares of Common
Stock and Restricted Voting Common Stock held by them respectively.
3. VOTING RIGHTS.
Except as otherwise required by law, each holder of shares of Common Stock
shall be entitled to one vote for each share of Common Stock standing in such
holder's name of the books of the Corporation.
RESTRICTED VOTING COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the holders of the Restricted
Voting Common Stock shall be entitled to receive, as and when declared by the
Board of Directors out of the funds of the Corporation legally available
therefor, such dividends (payable in cash, stock or otherwise) as the Board of
Directors may from time to time determine, payable to stockholders of record on
such dates, not exceeding 60 days preceding the dividend payment dates, as shall
be fixed for such purpose by the Board of Directors in advance of payment of
each particular dividend. All dividends on Restricted Voting Common Stock shall
be paid PARI PASSU with dividends on Common Stock.
2. LIQUIDATION.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Restricted
Voting Common Stock and Common Stock ratably in proportion to the number of
shares of Restricted Voting Common Stock and Common Stock held by them
respectively.
3. VOTING RIGHTS.
Holders of Restricted Voting Common Stock voting as a class shall be
entitled to elect one member of the Board of Directors, but shall not otherwise
be entitled to vote in the election of directors of the Corporation. Subject to
the foregoing, and except as otherwise required by law, each holder of shares of
Restricted Voting Common Stock shall be entitled to one-half (.50) of one vote
for each share of Restricted Voting Common Stock standing in such holder's name
of the books of the Corporation.
4
<PAGE>
4. CONVERSION OF THE RESTRICTED VOTING COMMON STOCK.
Each share of Restricted Voting Common Stock will automatically convert
into Common Stock on a share for share basis (a) in the event of a disposition
of such share of Restricted Voting Common Stock by the holder thereof (other
than a disposition which is a distribution by a holder to its partners or
beneficial owners or a transfer to a related party of such holder (as defined in
Sections 267, 707, 318 and/or 4946 of the Internal Revenue Code of 1986)), (b)
in the event any person acquires beneficial ownership of 15% or more of the
outstanding shares of Common Stock of the Corporation, (c) in the event any
person offers to acquire 15% or more of the outstanding shares of Common Stock
of the Corporation, (d) in the event the holder of Restricted Voting Common
Stock elects to convert it into Common Stock at any time after the second
anniversary of the consummation of the Corporation's initial public offering of
its Common Stock (the "Public Offering"), (e) on the third anniversary of the
date of the consummation of the Corporation's Public Offering, or (f) in the
event a majority of the aggregate number of votes which may be cast by the
holders of outstanding shares of Common Stock and Restricted Voting Common Stock
entitled to vote approve such conversion.
After October 1, 1998, the Corporation may elect to convert any
outstanding shares of Restricted Voting Common Stock into shares of Common Stock
in the event 80% or more of the outstanding shares of Restricted Voting Common
Stock have been converted into shares of Common Stock.
ARTICLE FIVE
1. BOARD OF DIRECTORS.
Following the consummation of the Corporation's Public Offering, the
Directors shall be classified with respect to the time for which they shall
severally hold office into three classes as nearly equal in number as possible.
The Class I directors shall be elected to hold office for an initial term
expiring at the 1998 annual meeting of stockholders, the Class II Directors
shall be elected to hold office for an initial term expiring at the 1999 annual
meeting of stockholders and the Class III Directors shall be elected to hold
office for an initial term expiring at the 2000 annual meeting of stockholders,
with the members of each class of directors to hold office until their
successors have been duly elected and qualified. At each annual meeting of
stockholders, the successors to the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election and until their successors have been duly elected and qualified. At
each annual meeting of stockholders at which a quorum is present, the persons
receiving a plurality of the votes cast shall be directors. No director or class
of directors may be removed from office by a vote of the stockholders at any
time except for cause. Election of directors need not be by written ballot
unless the Bylaws of the Corporation so provide.
5
<PAGE>
Notwithstanding the foregoing, the holders of Restricted Voting Common
Stock voting as a class shall be entitled to elect one member of the Board of
Directors, and only the holders of the Restricted Voting Common Stock shall be
entitled to remove such member from the Board of Directors.
2. VACANCIES.
Any vacancy on the Board of Directors resulting from death, retirement,
resignation, disqualification or removal from office or other cause, as well as
any vacancy resulting from an increase in the number of directors which occurs
between annual meetings of the stockholders at which directors are elected,
shall be filled only by a majority vote of the remaining directors then in
office, though less than a quorum, except that those vacancies resulting from
removal from office by a vote of the stockholders may be filled by a vote of the
stockholders at the same meeting at which such removal occurs. The directors
chosen to fill vacancies shall hold office for a term expiring at the end of the
next annual meeting of stockholders at which the term of the class to which they
have been elected expires. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director. If the
vacancy on the Board of Directors results from the death, retirement,
resignation, disqualification or removal from office of the director elected by
the holders of the Restricted Voting Common Stock, only the holders of the
Restricted Voting Common Stock shall be entitled to fill such vacancy.
Notwithstanding the foregoing, whenever the holders of one or more classes
or series of Preferred Stock shall have the right, voting separately, as a class
or series, to elect directors, the election, term of office, filling of
vacancies, removal and other features of such directorships shall be governed by
the terms of the resolution or resolutions adopted by the Board of Directors
pursuant to ARTICLE FOUR applicable thereto, and each director so elected shall
not be subject to the provisions of this ARTICLE FIVE unless otherwise provided
therein.
3. POWER TO MAKE, ALTER AND REPEAL BYLAWS.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter and repeal the
Bylaws of the Corporation.
4. AMENDMENT AND REPEAL OF ARTICLE FIVE.
Notwithstanding any provision of this Certificate of Incorporation and of
the Bylaws, and notwithstanding the fact that a lesser percentage may be
specified by Delaware law, unless such action has been approved by a majority
vote of the full Board of Directors, the affirmative vote of 66 2/3 percent of
the votes which all stockholders of the then outstanding shares of capital stock
of the Corporation would be entitled to cast thereon, voting together as a
single class, shall be required to amend or repeal any provisions of this
ARTICLE FIVE or to adopt any provision inconsistent
6
<PAGE>
with this ARTICLE FIVE. In the event such action has been previously approved by
a majority vote of the full Board of Directors, the affirmative vote of a
majority of the outstanding stock entitled to vote thereon shall be sufficient
to amend or repeal any provision of this ARTICLE FIVE or adopt any provision
inconsistent with this ARTICLE FIVE.
ARTICLE SIX
The Corporation reserves the right to amend, alter, change or repeal any
provision in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute.
ARTICLE SEVEN
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law or (iv) for any transaction
from which the director derived an improper personal benefit.
ARTICLE EIGHT
The Corporation shall, to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law, as the same may be amended and
supplemented, indemnify each director and officer of the Corporation from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section and the indemnification provided for herein shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders, vote of disinterested
directors or otherwise, and shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such persons and the Corporation may purchase and maintain
insurance on behalf of any director or officer to the extent permitted by
Section 145 of the Delaware General Corporation Law.
SECOND, that in lieu of a meeting and vote of stockholders, the holder of
a majority of all of the stock of the Corporation entitled to vote on said
amendment has consented in writing to said amendment in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
7
<PAGE>
IN WITNESS WHEREOF, Erton Corporation has caused this Certificate of
Amendment to be signed by Steve Harter, as President, this 31st of July, 1997.
ERTON CORPORATION
By: _______________________________
Steve Harter
President
8
EXHIBIT 3.2
BYLAWS
OF
HOMEUSA, INC.
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation shall be held on such date, at such time and at such place within or
without the State of Delaware as may be designated by the Board of Directors,
for the purpose of electing Directors and for the transaction of such other
business as may be properly brought before the meeting, which date shall be
within thirteen (13) months subsequent to the last annual meeting of
stockholders.
SECTION 2. SPECIAL MEETINGS. Unless otherwise provided in the Certificate
of Incorporation of the Corporation, special meetings of the stockholders for
any purpose or purposes may be called at any time by the Chief Executive
Officer, by a majority of the Board of Directors, or by a majority of the
executive committee (if any), at such time and at such place as may be stated in
the notice of the meeting. Business transacted at such meeting shall be confined
to the purpose(s) stated in the notice of such meeting.
SECTION 3. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(a) ANNUAL MEETINGS OF STOCKHOLDERS.
(i) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the
Stockholders may be made at an annual meeting of Stockholders
(A) pursuant to the Corporation's notice of meeting, (B) by or
at the direction of the Board of Directors or (C) by any
Stockholder who was a Stockholder of record at the time of
giving of notice provided for in this Section, who is entitled
to vote at the meeting and who complies with the notice
procedures set forth in this Section.
(ii) For nominations or other business to be properly brought
before an annual meeting by a Stockholder pursuant to section
3(a)(i) of this ARTICLE I, the Stockholder must have given
timely notice thereof in writing to the
-2-
<PAGE>
Secretary of the Corporation and such other business must
otherwise be a proper matter for Stockholder action. To be
timely, a Stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the
Corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first (1st) anniversary
of the preceding year's annual meeting; PROVIDED, HOWEVER,
that in the event that the date of the annual meeting is more
than thirty (30) days before or more than sixty (60) days
after such anniversary date, notice by the Stockholder to be
timely must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such annual
meeting and not later than the close of business on the later
of the sixtieth (60th) day prior to such annual meeting or the
tenth (10th) day following the day on which public
announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period
for the giving of a Stockholders's notice as described above.
Such Stockholder's notice shall set forth:
(A) as to each person whom the Stockholder proposes to
nominate for election or reelection as a Director all
information relating to such person that is required to
be disclosed in solicitations of proxies for election of
Directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") and Rule 14a-11 thereunder (including
such person's written consent to being named in the
proxy statement as a nominee and to serving as a
Director if elected);
(B) as to any other business that the Stockholder
proposes to bring before the meeting, a brief
description of the business desired to be brought before
the meeting, the reasons for conducting such business at
the meeting and any material interest in such business
of such Stockholder and the beneficial owner, if any, on
whose behalf the proposal is made; and
(C) as to the Stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination
or proposal is made (1) the name and address of such
Stockholder, as they appear on the
-3-
<PAGE>
Corporations's books, and of such beneficial owner and
(2) the class and number of shares of the Corporation
which are owned beneficially and of record by such
Stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of
Section 3(a)(ii) of this ARTICLE I to the contrary, in the
event that the number of Directors to be elected to the Board
of Directors is increased and there is no public announcement
by the Corporation naming all of the nominees for Director or
specifying the size of the increased Board of Directors at
least seventy (70) days prior to the first (1st) anniversary
of the preceding year's annual meeting, a Stockholder's notice
required by this Section shall also be considered timely, but
only with respect to nominees for any new positions created by
such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Corporation not later
than the close of business on the tenth (10th) day following
the day on which such public announcement is first made by the
Corporation.
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of Stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of
meeting. Nominations of persons for election to the Board of
Directors may be made at a special meeting of Stockholders at which
Directors are to be elected pursuant to the Corporation's notice of
meeting (a) by or at the direction of the Board of Directors or (b)
provided that the Board of Directors has determined that Directors
shall be elected at such meeting, by any Stockholder who is a
Stockholder of record at the time of giving of notice provided for
in this Section 3, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 3.
In the event the Corporation calls a special meeting of Stockholders
for the purpose of electing one or more Directors to the Board of
Directors, any such Stockholder may nominate a person or persons (as
the case may be), for election to such positions(s) as specified in
the Corporation's notice of meeting, if the Stockholder's notice
required by Section 3(a)(ii) of this ARTICLE I shall be delivered to
the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the ninetieth (90th) day
prior to such special meeting and not later than the close of
business on the later of the sixtieth (60th) day prior to such
special meeting or the tenth (10th) day following the day on which
public announcement is first made of the date of the special meeting
and of the nominees proposed by the Board of Directors to be elected
at such
-4-
<PAGE>
meeting. In no event shall the public announcement of an adjournment
of a special meeting commence a new time period for the giving of a
Stockholder's notice as described above.
(c) GENERAL.
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 3 shall be eligible to
serve as Directors and only such business shall be conducted
at a meeting of Stockholders as shall have been brought before
the meeting in accordance with the procedures set forth in
this Section 3. Except as otherwise provided by applicable
law, the Chairman of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to
be brought before the meeting was made or proposed, as the
case may be, in accordance with the procedures set forth in
this Section 3 and, if any proposed nomination or business is
not in compliance with this Section 3, to declare that such
defective proposal or nomination shall be disregarded.
(ii) For purposes of this Section 3, "public announcement"
shall mean disclosure in a press release reported by the Dow
Jones News Service, Associate Press or comparable national
news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section
3, a Stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this
Section 3. Nothing in this Section 3 shall be deemed to affect
any rights (A) of Stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act; or (B) of the holders of
any series of Common Stock or Preferred Stock or any
outstanding voting indebtedness to elect Directors under
specified circumstances.
Notwithstanding any other provisions of the Certificate of Incorporation
of the Corporation, and notwithstanding that a lesser percentage may be
permitted from time to time by applicable law, no provision of this Section 3 of
ARTICLE I may be altered, amended or repealed in any respect, nor may any
provision inconsistent therewith be adopted, unless such alteration, amendment,
repeal
-5-
<PAGE>
or adoption is approved by the affirmative vote of the holders of at least 80
percent of the combined voting power of the then outstanding shares of the
Corporation's stock entitled to vote generally at elections of Directors voting
together as a single class, and at least 80 percent of each class, series and
issuance of combined voting power of the then outstanding shares of the
Corporation's stock entitled to vote generally at elections of Directors voting
separately as a class, series and issuance.
SECTION 4. QUORUM. At any meeting of the stockholders, the holders of a
majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these Bylaws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these Bylaws.
SECTION 5. ADJOURNED MEETINGS. Whether or not a quorum shall be present in
person or represented at any meeting of the stockholders, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting may adjourn from
time to time; provided, however, that if the holders of any class of stock of
the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. ORGANIZATION. Each annual and special meeting of Stockholders
held in person shall be presided over by a chairman, who shall have the
exclusive authority to, among other things, determine (a) whether business and
nominations have been properly brought before such meetings, and (b) the order
in which business and nominations properly brought before such meeting shall be
-6-
<PAGE>
considered. The chairman of each annual and special meeting shall be the
Chairman of the Board of Directors, or such person as shall be appointed by the
resolution approved by the majority of the Board of Directors.
The Secretary of the Corporation shall act as Secretary of all meetings of
the stockholders; but in the absence of the Secretary, the Chairman may appoint
any person to act as Secretary of the meeting. It shall be the duty of the
Secretary to prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten (10) days
next preceding the meeting, to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, and shall be
produced and kept at the time and place of the meeting during the whole time
thereof and subject to the inspection of any stockholder who may be present.
SECTION 7. VOTING. Except as otherwise provided in the Certificate of
Incorporation or by law, each stockholder shall be entitled to one vote for each
share of the capital stock of the Corporation registered in the name of such
stockholder upon the books of the Corporation. Each stockholder entitled to vote
at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. When
directed by the presiding officer or upon the demand of any stockholder, the
vote upon any matter before a meeting of stockholders shall be by ballot. Except
as otherwise provided by law or by the Certificate of Incorporation, Directors
shall be elected by a plurality of the votes cast at a meeting of stockholders
by the stockholders entitled to vote in the election and, whenever any corporate
action, other than the election of Directors is to be taken, it shall be
authorized by a majority of the votes cast at a meeting of stockholders by the
stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. INSPECTORS. When required by law or directed by the presiding
officer or upon the demand of any stockholder entitled to vote, but not
otherwise, the polls shall be opened and closed, the proxies and ballots shall
be received and taken in charge, and all questions touching the
-7-
<PAGE>
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by two or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 9. ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of Incorporation of the Corporation, prior to a firm commitment
underwritten public offering of the Corporation's Common Stock in which gross
proceeds equal or exceed $25 million before deducting underwriters' discounts
and other expenses of the offering (the "Offering"), any action permitted or
required by law, the Certificate of Incorporation of the Corporation or these
Bylaws to be taken at a meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in the state of incorporation, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent, and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the
earliest dated consent delivered in the manner required by this Section to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
the state of incorporation, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
Prompt notice of the taking of corporation action without a meeting by
less than a unanimous written consent shall be given by the Secretary to those
stockholders who have not consented in writing.
Subsequent to the Offering, any action required or permitted to be taken
by the Stockholders must be effected at a duly called annual or special meeting
of Stockholders and may not be effected without such a meeting by any consent in
writing by such holders.
-8-
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. NUMBER AND TERM OF OFFICE. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors,
none of whom need be stockholders of the Corporation. The number of Directors
constituting the Board of Directors shall be fixed from time to time by
resolution passed by a majority of the Board of Directors. The Directors shall,
except as hereinafter otherwise provided for filling vacancies or as otherwise
provided in the Certificate of Incorporation, be elected at the annual meeting
of stockholders, and shall hold office until their respective successors are
elected and qualified or until their earlier resignation or removal.
SECTION 2. REMOVAL, VACANCIES AND ADDITIONAL DIRECTORS. Except as
otherwise provided in the Certificate of Incorporation, the stockholders may, at
any special meeting the notice of which shall state that it is called for that
purpose, remove, with or without cause, any Director and fill the vacancy;
provided that whenever any Director shall have been elected by the holders of
any class of stock of the Corporation voting separately as a class under the
provisions of the Certificate of Incorporation, such Director may be removed and
the vacancy filled only by the holders of that class of stock voting separately
as a class. Except as otherwise provided in the Certificate of Incorporation,
vacancies caused by any such removal and not filled by the stockholders at the
meeting at which such removal shall have been made, or any vacancy caused by the
death or resignation of any Director or for any other reason, and any newly
created directorship resulting from any increase in the authorized number of
Directors, may be filled by the affirmative vote of a majority of the Directors
then in office, although less than a quorum, and any Director so elected to fill
any such vacancy or newly created directorship shall hold office until his
successor is elected and qualified or until his earlier resignation or removal.
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies.
SECTION 3. PLACE OF MEETING. The Board of Directors may hold its meetings
in such place or places in the State of Delaware or outside the State of
Delaware as the Board from time to time shall determine.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such times and places as the Board from time to time by
resolution shall determine. No notice
-9-
<PAGE>
shall be required for any regular meeting of the Board of Directors; but a copy
of every resolution fixing or changing the time or place of regular meetings
shall be mailed to every Director at least five (5) days before the first
meeting held in pursuance thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be held whenever called by direction of the Chairman of the Board, the
Vice Chairman of the Board, the President or by any two of the Directors then in
office.
Notice of the day, hour and place of holding of each special meeting shall
be given by mailing the same at least two (2) days before the meeting or by
causing the same to be transmitted by telegraph, cable or wireless at least one
day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these Bylaws may
be transacted at any special meeting, and an amendment of these Bylaws may be
acted upon if the notice of the meeting shall have stated that the amendment of
these Bylaws is one of the purposes of the meeting. At any meeting at which
every Director shall be present, even though without any notice, any business
may be transacted, including the amendment of these Bylaws.
SECTION 6. QUORUM. Subject to the provisions of Section 2 of this Article
II, a majority of the members of the Board of Directors in office (but, unless
the Board shall consist solely of one Director, in no case less than one-third
of the total number of Directors nor less than two Directors) shall constitute a
quorum for the transaction of business and the vote of the majority of the
Directors present at any meeting of the Board of Directors at which a quorum is
present shall be the act of the Board of Directors. If at any meeting of the
Board there is less than a quorum present, a majority of those present may
adjourn the meeting from time to time.
SECTION 7. ORGANIZATION. The Chairman of the Board, or in his absence, the
Vice Chairman of the Board, or in his absence, the President shall preside at
all meetings of the Board of Directors. In the absence of the Chairman of the
Board, the Vice Chairman of the Board and the President, a Chairman shall be
elected from the Directors present. The Secretary of the Corporation shall act
as Secretary of all meetings of the Directors; but in the absence of the
Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 8. COMMITTEE. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they
-10-
<PAGE>
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided by resolution passed by a
majority of the whole Board, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and the
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending
these Bylaws; and unless such resolution, these Bylaws, or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock.
SECTION 9. CONFERENCE TELEPHONE MEETINGS. Unless otherwise restricted by
the Certificate of Incorporation or by these Bylaws, the members of the Board of
Directors or any committee designated by the Board, may participate in a meeting
of the Board or such committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
SECTION 10. CONSENT OF DIRECTORS OR COMMITTEE IN LIEU OF MEETING. Unless
otherwise restricted by the Certificate of Incorporation or by these Bylaws, any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereto, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
ARTICLE III
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a Chairman
of the Board, a Vice Chairman of the Board, a President, one or more Vice
Presidents, a Secretary and a Treasurer, and such additional officers, if any,
as shall be elected by the Board of Directors pursuant to the provisions of
Section 8 of this Article III. The Chairman of the Board, the Vice Chairman of
the Board, the President, one or more Vice Presidents, the Secretary and the
Treasurer shall be elected by the Board of Directors at its first meeting after
each annual meeting of the stockholders. The failure to hold such election shall
not of itself terminate the term of office of any officer. All officers shall
hold office at the pleasure of the Board of Directors. Any officer may resign at
any time upon
-11-
<PAGE>
written notice to the Corporation. Officers may, but need not, be Directors. Any
number of offices may be held by the same person.
All officers, agents and employees shall be subject to removal, with or
without cause, at any time by the Board of Directors. The removal of an officer
without cause shall be without prejudice to his contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his
removal, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation as
set forth in these Bylaws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
SECTION 2. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The Chairman of
the Board shall be the chief executive officer of the Corporation and, subject
to the control of the Board of Directors, shall have general charge and control
of all its business and affairs and shall have all powers and shall perform all
duties incident to the office of Chairman of the Board. He shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors and
shall have such other powers and perform such other duties as may from time to
time be assigned to him by these Bylaws or by the Board of Directors.
SECTION 3. POWERS AND DUTIES OF THE VICE CHAIRMAN OF THE BOARD. The Vice
Chairman of the Board, in the absence of the Chairman of the Board, shall be the
chief executive officer of the Corporation and, subject to the control of the
Board of Directors and the Chairman of the Board, shall have general charge and
control of all its business and affairs and shall have all powers and shall
perform all duties incident to the office of Vice Chairman of the Board. In the
absence of the Chairman of the Board, he shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors and shall have such
other powers and perform such other duties as may from time to time be assigned
to him by these Bylaws or by the Board of Directors or the Chairman of the
Board.
SECTION 4. POWERS AND DUTIES OF THE PRESIDENT. The President shall be the
chief operating officer of the Corporation and, subject to the control of the
Board of Directors, the Chairman of the Board and the Vice Chairman of the
Board, shall have general charge and control of all its operations
-12-
<PAGE>
and shall have all powers and shall perform all duties incident to the office of
President. In the absence of the Chairman of the Board and the Vice Chairman of
the Board, he shall preside at all meetings of the stockholders and at all
meetings of the Board of Directors and shall have such other powers and perform
such other duties as may from time to time be assigned to him by these Bylaws or
by the Board of Directors, the Chairman of the Board or the Vice Chairman of the
Board.
SECTION 5. POWERS AND DUTIES OF THE VICE PRESIDENTS. Each Vice President
shall have all powers and shall perform all duties incident to the office of
Vice President and shall have such other powers and perform such other duties as
may from time to time be assigned to him by these Bylaws or by the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board or the
President.
SECTION 6. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep
the minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders in books provided for that purpose; he shall attend
to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors or the President shall
authorize and direct; he shall have charge of the stock certificate books,
transfer books and stock ledgers and such other books and papers as the Board of
Directors or the President shall direct, all of which shall at all reasonable
times be open to the examination of any Director, upon application, at the
office of the Corporation during business hours; and whenever required by the
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board or
the President shall render statements of such accounts; and he shall have all
powers and shall perform all duties incident to the office of Secretary and
shall also have such other powers and shall perform such other duties as may
from time to time be assigned to him by these Bylaws or by the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board or the
President.
SECTION 7. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall have
custody of, and when proper shall pay out, disburse or otherwise dispose of, all
funds and securities of the Corporation which may have come into his hands; he
may endorse on behalf of the Corporation for collection checks, notes and other
obligations and shall deposit the same to the credit of the Corporation in such
bank or banks or depositary or depositaries as the Board of Directors may
designate; he shall sign all receipts and vouchers for payments made to the
Corporation; he shall enter or cause to be entered regularly in the books of the
Corporation kept for the purpose full and accurate accounts of all moneys
received or paid or otherwise disposed of by him and whenever required by the
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board or
the President shall render statements of such accounts; he shall, at all
reasonable times, exhibit his books and accounts to any Director of the
Corporation upon application at the office of the
-13-
<PAGE>
Corporation during business hours; and he shall have all powers and he shall
perform all duties incident to the office of Treasurer and shall also have such
other powers and shall perform such other duties as may from time to time be
assigned to him by these Bylaws or by the Board of Directors, the Chairman of
the Board, the Vice Chairman of the Board or the President.
SECTION 8. ADDITIONAL OFFICERS. The Board of Directors may from time to
time elect such other officers (who may but need not be Directors), including a
Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned to
them by the Board of Directors, the Chairman of the Board, the Vice Chairman of
the Board or the President.
The Board of Directors may from time to time by resolution delegate to any
Assistant Treasurer or Assistant Treasurers any of the powers or duties herein
assigned to the Treasurer; and may similarly delegate to any Assistant Secretary
or Assistant Secretaries any of the powers or duties assigned to the Secretary.
SECTION 9. GIVING OF BOND BY OFFICERS. All officers of the Corporation, if
required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such penalties and
with such conditions and security as the Board shall require.
SECTION 10. VOTING UPON STOCKS. Unless otherwise ordered by the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board, the
President or any Vice President shall have full power and authority on behalf of
the Corporation to attend and to act and to vote, or in the name of the
Corporation to execute proxies to vote, at any meeting of stockholders of any
corporation in which the Corporation may hold stock, and at any such meeting
shall possess and may exercise, in person or by proxy, any and all rights,
powers and privileges incident to the ownership of such stock. The Board of
Directors may from time to time, by resolution, confer like powers upon any
other person or persons.
SECTION 11. COMPENSATION OF OFFICERS. The officers of the Corporation
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Board of Directors.
-14-
<PAGE>
ARTICLE IV
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. NATURE OF INDEMNITY. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was or has
agreed to become a Director or officer of the Corporation, or is or was serving
or has agreed to serve at the request of the Corporation as a Director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, and may indemnify any person who was or is a party or is
threatened to be made a party to such an action, suit or proceeding by reason of
the fact that he is or was or has agreed to become an employee or agent of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; except that in the case of
an action or suit by or in the right of the Corporation to procure a judgment in
its favor (1) such indemnification shall be limited to expenses (including
attorneys' fees) actually and reasonably incurred by such person in the defense
or settlement of such action or suit, and (2) no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2. SUCCESSFUL DEFENSE. To the extent that a Director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section 1
of this Article IV or in defense of any claim, issue or matter
-15-
<PAGE>
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
SECTION 3. DETERMINATION THAT INDEMNIFICATION IS PROPER. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested Directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
SECTION 4. ADVANCE PAYMENT OF EXPENSES. Unless the Board of Directors
otherwise determines in a specific case, expenses incurred by a Director or
officer in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article IV.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate. The
Board of Directors may authorize the Corporation's legal counsel to represent
such Director, officer, employee or agent in any action, suit or proceeding,
whether or not the Corporation is a party to such action, suit or proceeding.
SECTION 5. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement, vote of stockholders
-16-
<PAGE>
or disinterested Directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a Director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person. The Corporation may enter into an agreement
with any of its Directors, officers, employees or agents providing for
indemnification and advancement of expenses, including attorneys fees, that may
change, enhance, qualify or limit any right to indemnification or advancement of
expenses created by this Article IV.
SECTION 6. SEVERABILITY. If this Article IV or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
SECTION 7. SUBROGATION. In the event of payment of indemnification to a
person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may deem necessary or desirable to perfect such right of recovery, including the
execution of such documents necessary to enable the Corporation effectively to
enforce any such recovery.
SECTION 8. NO DUPLICATION OF PAYMENTS. The Corporation shall not be liable
under this Article IV to make any payment in connection with any claim made
against a person described in Section 1 of this Article IV to the extent such
person has otherwise received payment (under any insurance policy, bylaw or
otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE V
STOCK-SEAL-FISCAL YEAR
SECTION 1. CERTIFICATES FOR SHARES OF STOCK. The certificates for shares
of stock of the Corporation shall be in such form, not inconsistent with the
Certificate of Incorporation, as shall be approved by the Board of Directors.
All certificates shall be signed by the Chairman of the Board, the Vice Chairman
of the Board, the President or a Vice President and by the Secretary or an
-17-
<PAGE>
Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall not be
valid unless so signed.
In case any officer or officers who shall have signed any such certificate
or certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates had not ceased to be such
officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered as
the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. Whenever a person
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or destroyed, he shall file in the office of the Corporation
an affidavit setting forth, to the best of his knowledge and belief, the time,
place and circumstances of the loss, theft or destruction, and, if required by
the Board of Directors, a bond of indemnity or other indemnification sufficient
in the opinion of the Board of Directors to indemnify the Corporation and its
agents against any claim that may be made against it or them on account of the
alleged loss, theft or destruction of any such certificate or the issuance of a
new certificate in replacement therefor. Thereupon the Corporation may cause to
be issued to such person a new certificate in replacement for the certificate
alleged to have been lost, stolen or destroyed. Upon the stub of every new
certificate so issued shall be noted the fact of such issue and the number, date
and the name of the registered owner of the lost, stolen or destroyed
certificate in lieu of which the new certificate is issued.
SECTION 3. TRANSFER OF SHARES. Shares of stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof, in person or
by his attorney duly authorized in writing, upon surrender and cancellation of
certificates for the number of shares of stock to be transferred, except as
provided in Section 2 of this Article IV.
-18-
<PAGE>
SECTION 4. REGULATIONS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than sixty (60) nor less than ten (10) days before
the date of such meeting, or (ii) in the case of corporate action to be taken by
consent in writing without a meeting prior to, or more than ten (10) days after,
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, or (iii) more than sixty (60) days prior to any other
action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held; the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is delivered to the Corporation; and the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 6. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. CORPORATE SEAL. The Board of Directors shall provide a suitable
seal, containing the name of the Corporation, which seal shall be kept in the
custody of the Secretary. A
-19-
<PAGE>
duplicate of the seal may be kept and be used by any officer of the Corporation
designated by the Board of Directors, the Chairman of the Board, the Vice
Chairman of the Board or the President.
SECTION 8. FISCAL YEAR. The fiscal year of the Corporation shall be such
fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. CHECKS, NOTES, ETC. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
SECTION 2. LOANS. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized so to do, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. CONTRACTS. Except as otherwise provided in these Bylaws or by
law or as otherwise directed by the Board of Directors, the Chairman of the
Board, the Vice Chairman of the Board, the President or any Vice President shall
be authorized to execute and deliver, in the name and on behalf of the
Corporation, all agreements, bonds, contracts, deeds, mortgages, and other
instruments, either for the Corporation's own account or in a fiduciary or other
capacity, and the seal of the Corporation, if appropriate, shall be affixed
thereto by any of such officers or the Secretary or an Assistant Secretary. The
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board,
the President or any Vice President designated by the Board of Directors, the
Chairman
-20-
<PAGE>
of the Board, the Vice Chairman of the Board or the President may authorize any
other officer, employee or agent to execute and deliver, in the name and on
behalf of the Corporation, agreements, bonds, contracts, deeds, mortgages, and
other instruments, either for the Corporation's own account or in a fiduciary or
other capacity, and, if appropriate, to affix the seal of the Corporation
thereto. The grant of such authority by the Board or any such officer may be
general or confined to specific instances.
SECTION 4. WAIVERS OF NOTICE. Whenever any notice whatever is required to
be given by law, by the Certificate of Incorporation or by these Bylaws to any
person or persons, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
SECTION 5. OFFICES OUTSIDE OF DELAWARE. Except as otherwise required by
the laws of the State of Delaware, the Corporation may have an office or offices
and keep its books, documents and papers outside of the State of Delaware at
such place or places as from time to time may be determined by the Board of
Directors, the Chairman of the Board or the Vice Chairman of the Board.
ARTICLE VII
AMENDMENTS
The Board of Directors shall have the power to adopt, amend and repeal
from time to time Bylaws of the Corporation, subject to the right of the
stockholders entitled to vote with respect thereto to amend or repeal such
Bylaws as adopted or amended by the Board of Directors; provided, however, that
unless a different percentage is called for in a particular provision hereof,
any amendment or repeal of the Bylaws of the Corporation by the stockholders
shall be by a vote of the holders of at least 66 2/3 percent of the total votes
eligible to be cast by holders of voting stock with respect to such amendment or
repeal.
-21-
EXHIBIT 10.1
HOMEUSA, INC.
1997 LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of this 1997 Long-Term Incentive Plan (the "Plan")
of HomeUSA, Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company and its stockholders by providing a means to attract,
retain and reward executive officers and other key employees and consultants of
and service providers to the Company and its subsidiaries (including consultants
and others providing services of substantial value) and to enable such persons
to acquire or increase a proprietary interest in the Company, thereby promoting
a closer identity of interests between such persons and the Company's
stockholders.
2. DEFINITIONS. The definitions of awards under the Plan, including
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, Dividend Equivalents and Other
Stock-Based Awards are set forth in Section 6 of the Plan. Such awards, together
with any other right or interest granted to a Participant under the Plan, are
termed "Awards." For purposes of the Plan, the following additional terms shall
be defined as set forth below:
(a) "Award Agreement" means any written agreement, contract, notice or
other instrument or document evidencing an Award.
(b) "Beneficiary" shall mean the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(c) "Board" means the Board of Directors of the Company.
(d) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan
of the Company, acquires directly or indirectly the Beneficial Ownership (as
defined in Section 13(d) of the Exchange Act) of any voting security of the
Company and immediately after such acquisition such Person is, directly or
indirectly, the Beneficial Owner of voting securities representing 50 percent or
more of the total voting power of all of the then-outstanding voting securities
of the Company;
-2-
<PAGE>
(ii) the following individuals no longer constitute a majority of
the members of the Board: (A) the individuals who, as of the closing date of the
Initial Public Offering, constitute the Board (the "Original Directors"); (B)
the individuals who thereafter are elected to the Board and whose election, or
nomination for election, to the Board was approved by a vote of at least
two-thirds (2/3) of the Original Directors then still in office (such directors
becoming "Additional Original Directors" immediately following their election);
and (C) the individuals who are elected to the Board and whose election, or
nomination for election, to the Board was approved by a vote of at least
two-thirds (2/3) of the Original Directors and Additional Original Directors
then still in office (such directors also becoming "Additional Original
Directors" immediately following their election);
(iii) the stockholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the Company, or a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75 percent of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least 75
percent of the holders of outstanding voting securities of the Company
immediately prior to the transaction, with the voting power of each such
continuing holder relative to other such continuing holders not substantially
altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or a substantial portion of the Company's assets (i.e., 50
percent or more of the total assets of the Company).
(e) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
(f) "Committee" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act shall be
deemed to include rules thereunder and successor provisions and rules thereto.
(h) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee, PROVIDED, HOWEVER, that (i) if the Stock is listed on a
national securities exchange or quoted in an interdealer quotation system, the
Fair Market Value of such Stock on a given date shall be based upon the last
sales price or, if unavailable,
-3-
<PAGE>
the average of the closing bid and asked prices per share of the Stock on such
date (or, if there was no trading or quotation in the Stock on such date, on the
next preceding date on which there was trading or quotation) as reported in the
WALL STREET JOURNAL (or other reporting service approved by the Committee), (ii)
the "Fair Market Value" of Stock subject to Options granted effective upon
commencement of the Initial Public Offering shall be the Initial Public Offering
price of the shares so issued and sold in the Initial Public Offering, as set
forth in the first final prospectus used in such offering (the provisions of
clause (i) notwithstanding) and (iii) the "Fair Market Value" of Stock prior to
the date of the Initial Public Offering shall be as determined by the Board of
Directors.
(i) "Initial Public Offering" shall mean an initial public offering of
shares of Stock in a firm commitment underwriting registered with the Securities
and Exchange Commission in compliance with the provisions of the Securities Act
of 1933, as amended.
(j) "ISO" means any Option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
(k) "Participant" means a person who, at a time when eligible under
Section 5 hereof, has been granted an Award under the Plan.
(l) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(m) "Stock" means the Common Stock, $.01 par value, of the Company and
such other securities as may be substituted for Stock or such other securities
pursuant to Section 4.
3. ADMINISTRATION.
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select persons to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to each
such person;
(iii) to determine the number of Awards to be granted, the number of
shares of Stock to which an Award will relate, the terms and conditions of any
Award granted under the Plan (including, but not limited to, any exercise price,
grant price or purchase price, any restriction or
-4-
<PAGE>
condition, any schedule for lapse of restrictions or conditions relating to
transferability or forfeiture, exercisability or settlement of an Award, and
waivers or accelerations thereof, performance conditions relating to an Award
(including performance conditions relating to Awards not intended to be governed
by Section 7(f) and waivers and modifications thereof), based in each case on
such considerations as the Committee shall determine), and all other matters to
be determined in connection with an Award;
(iv) to determine whether, to what extent and under what
circumstances an Award may be settled, or the exercise price of an Award may be
paid, in cash, Stock, other Awards, or other property, or an Award may be
canceled, forfeited, or surrendered;
(v) to determine whether, to what extent and under what
circumstances cash, Stock, other Awards or other property payable with respect
to an Award will be deferred either automatically, at the election of the
Committee or at the election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need not
be identical for each Participant;
(vii) to adopt, amend, suspend, waive and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(viii)to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any Award,
rules and regulations, Award Agreement or other instrument hereunder; and
(ix) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. Unless authority is
specifically reserved to the Board under the terms of the Plan, the Company's
Certificate of Incorporation or Bylaws, or applicable law, the Committee shall
have sole discretion in exercising authority under the Plan. Any action of the
Committee with respect to the Plan shall be final, conclusive and binding on all
persons, including the Company, subsidiaries of the Company, Participants, any
person claiming any rights under the Plan from or through any Participant and
stockholders, except to the extent the Committee may subsequently modify, or
take further action not consistent with, its prior action. If not specified in
the Plan, the time at which the Committee must or may make any determination
shall be determined by the Committee, and any such determination may thereafter
be modified by the Committee (subject to Section 8(e)). The express grant of any
specific power to the Committee, and the taking of any action by the Committee,
shall
-5-
<PAGE>
not be construed as limiting any power or authority of the Committee. The
Committee may delegate to officers or managers of the Company or any subsidiary
of the Company the authority, subject to such terms as the Committee shall
determine, to perform administrative functions and, with respect to Participants
not subject to Section 16 of the Exchange Act, to perform such other functions
as the Committee may determine, to the extent permitted under Rule 16b-3, if
applicable, and other applicable law.
(c) LIMITATION OF LIABILITY. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants or any
executive compensation consultant, legal counsel or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
its behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination or
interpretation.
4. STOCK SUBJECT TO PLAN.
(a) AMOUNT OF STOCK RESERVED. The total amount of Stock that may be
subject to outstanding awards, determined immediately after the grant of any
Award, shall not exceed the greater of 2,000,000 shares of Stock or 15% of the
total number of shares of Stock outstanding at the time of such grant.
Notwithstanding the foregoing, the number of shares that may be delivered upon
the exercise of ISOs shall not exceed 500,000, subject in each case to
adjustment as provided in Section 4(c), and the number of shares that may be
delivered as Restricted Stock and Deferred Stock (other than pursuant to an
Award granted under Section 7(f)) shall not in the aggregate exceed 500,000,
provided, however, that shares subject to ISOs, Restricted Stock or Deferred
Stock Awards shall not be deemed delivered if such Awards are forfeited, expire
or otherwise terminate without delivery of shares to the Participant. To the
extent that an Award is only to be paid in cash or is paid in cash, any shares
of Stock subject to such Award shall again be available for the grant of an
Award. Any shares of Stock delivered pursuant to an Award may consist, in whole
or in part, of authorized and unissued shares, treasury shares or shares
acquired in the market for a Participant's Account.
(b) ANNUAL PER-PARTICIPANT LIMITATIONS. During any calendar year, no
Participant may be granted Awards that may be settled by delivery of more than
250,000 shares of Stock, subject to adjustment as provided in Section 4(c). In
addition, with respect to Awards that may be settled in cash (in whole or in
part), no Participant may be paid during any calendar year cash amounts relating
to such Awards that exceed the greater of the Fair Market Value of the number of
shares of Stock set forth in the preceding sentence at the date of grant or the
date of settlement of
-6-
<PAGE>
Award. This provision sets forth two separate limitations, so that Awards that
may be settled solely by delivery of Stock will not operate to reduce the amount
of cash-only Awards, and vice versa; nevertheless, Awards that may be settled in
Stock or cash must not exceed either limitation.
(c) ADJUSTMENTS. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Stock or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Stock or other
securities, liquidation, dissolution, or other similar corporate transaction or
event, affects the Stock such that an adjustment is appropriate in order to
prevent dilution or enlargement of the rights of Participants under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any or
all of (i) the number and kind of shares of Stock reserved and available for
Awards under Section 4(a), including shares reserved for the ISOs and Restricted
and Deferred Stock, (ii) the number and kind of shares of Stock specified in the
Annual Per-Participant Limitations under Section 4(b), (iii) the number and kind
of shares of outstanding Restricted Stock or other outstanding Award in
connection with which shares have been issued, (iv) the number and kind of
shares that may be issued in respect of other outstanding Awards and (v) the
exercise price, grant price or purchase price relating to any Award (or, if
deemed appropriate, the Committee may make provision for a cash payment with
respect to any outstanding Award); provided, however, that no adjustment shall
be made if the resolutions of the Board of Directors authorizing the transaction
which otherwise would cause an adjustment to be made hereunder provide that no
adjustment shall be made as the result of such transaction. In addition, the
Committee is authorized to make adjustments in the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or nonrecurring
events (including, without limitation, events described in the preceding
sentence) affecting the Company or any subsidiary or the financial statements of
the Company or any subsidiary, or in response to changes in applicable laws,
regulations, or accounting principles. The foregoing notwithstanding, no
adjustments shall be authorized under this Section 4(c) with respect to ISOs or
SARs in tandem therewith to the extent that such authority would cause the Plan
to fail to comply with Section 422(b)(1) of the Code, and no such adjustment
shall be authorized with respect to Options, SARs or other Awards subject to
Section 7(f) to the extent that such authority would cause such Awards to fail
to qualify as "qualified performance-based compensation" under Section
162(m)(4)(C) of the Code.
5. ELIGIBILITY. Executive officers and other key employees of the Company
and its subsidiaries, including any director or officer who is also such an
employee, and persons who provide consulting or other services to the Company
deemed by the Committee to be of substantial value to the Company, are eligible
to be granted Awards under the Plan. In addition, a person who has been offered
employment by the Company or its subsidiaries is eligible to be granted an Award
under the Plan, provided that such Award shall be canceled if such person fails
to commence such employment, and no payment of value may be made in connection
with such Award until such
-7-
<PAGE>
person has commenced such employment. The foregoing notwithstanding, no member
of the Committee shall be eligible to be granted Awards under the Plan.
6. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service of the Participant. Except as provided in Section 6(f), 6(h), or 7(a),
or to the extent required to comply with requirements of the Delaware General
Corporation Law that lawful consideration be paid for Stock, only services may
be required as consideration for the grant (but not the exercise) of any Award.
(b) OPTIONS. The Committee is authorized to grant Options (including
"reload" options automatically granted to offset specified exercises of Options)
on the following terms and conditions ("Options"):
(i) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee; PROVIDED,
HOWEVER, that, except as provided in Section 7(a), such exercise price shall be
not less than the Fair Market Value of a share on the date of grant of such
Option.
(ii) TIME AND METHOD OF EXERCISE. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, the
methods by which such exercise price may be paid or deemed to be paid, the form
of such payment, including, without limitation, cash, Stock, other Awards or
awards granted under other Company plans or other property (including notes or
other contractual obligations of Participants to make payment on a deferred
basis, such as through "cashless exercise" arrangements, to the extent permitted
by applicable law), and the methods by which Stock will be delivered or deemed
to be delivered to Participants.
(iii) ISOS. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Section 422 of the Code, including but
not limited to the requirement that no ISO shall be granted more than ten years
after the effective date of the Plan. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to ISOs shall be interpreted,
amended, or altered, nor shall any discretion or authority granted under the
Plan be exercised, so as to disqualify either the Plan or any ISO under Section
422 of the Code, unless requested by the affected Participant.
-8-
<PAGE>
(iv) TERMINATION OF EMPLOYMENT. Unless otherwise determined by the
Committee, upon termination of a Participant's employment with the Company and
its subsidiaries, such Participant may exercise any Options during the
three-month period following such termination of employment, but only to the
extent such Option was exercisable immediately prior to such termination of
employment. Notwithstanding the foregoing, if the Committee determines that such
termination is for cause, all Options held by the Participant shall terminate as
of the termination of employment.
(c) STOCK APPRECIATION RIGHTS. The Committee is authorized to grant
SARs on the following terms and conditions ("SARs"):
(i) RIGHT TO PAYMENT. An SAR shall confer on the Participant to whom
it is granted a right to receive, upon exercise thereof, the excess of (A) the
Fair Market Value of one share of Stock on the date of exercise (or, if the
Committee shall so determine in the case of any such right other than one
related to an ISO, the Fair Market Value of one share at any time during a
specified period before or after the date of exercise), over (B) the grant price
of the SAR as determined by the Committee as of the date of grant of the SAR,
which, except as provided in Section 7(a), shall be not less than the Fair
Market Value of one share of Stock on the date of grant.
(ii) OTHER TERMS. The Committee shall determine the time or times at
which an SAR may be exercised in whole or in part, the method of exercise,
method of settlement, form of consideration payable in settlement, method by
which Stock will be delivered or deemed to be delivered to Participants, whether
or not an SAR shall be in tandem with any other Award, and any other terms and
conditions of any SAR. Limited SARs that may only be exercised upon the
occurrence of a Change in Control may be granted on such terms, not inconsistent
with this Section 6(c), as the Committee may determine. Limited SARs may be
either freestanding or in tandem with other Awards.
(d) RESTRICTED STOCK. The Committee is authorized to grant Restricted
Stock on the following terms and conditions ("Restricted Stock"):
(i) GRANT AND RESTRICTIONS. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions, if any, as the
Committee may impose, which restrictions may lapse separately or in combination
at such times, under such circumstances, in such installments, or otherwise, as
the Committee may determine. Except to the extent restricted under the terms of
the Plan and any Award Agreement relating to the Restricted Stock, a Participant
granted Restricted Stock shall have all of the rights of a stockholder
including, without limitation, the right to vote Restricted Stock or the right
to receive dividends thereon.
-9-
<PAGE>
(ii) FORFEITURE. Except as otherwise determined by the Committee,
upon termination of employment or service (as determined under criteria
established by the Committee) during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be forfeited
and reacquired by the Company; PROVIDED, HOWEVER, that the Committee may
provide, by rule or regulation or in any Award Agreement, or may determine in
any individual case, that restrictions or forfeiture conditions relating to
Restricted Stock will be waived in whole or in part in the event of termination
resulting from specified causes.
(iii) CERTIFICATES FOR STOCK. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, such certificates may bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Restricted Stock, the
Company may retain physical possession of the certificate, and the Participant
shall have delivered a stock power to the Company, endorsed in blank, relating
to the Restricted Stock.
(iv) DIVIDENDS. Dividends paid on Restricted Stock shall be either
paid at the dividend payment date in cash or in shares of unrestricted Stock
having a Fair Market Value equal to the amount of such dividends, or the payment
of such dividends shall be deferred and/or the amount or value thereof
automatically reinvested in additional Restricted Stock, other Awards, or other
investment vehicles, as the Committee shall determine or permit the Participant
to elect. Stock distributed in connection with a Stock split or Stock dividend,
and other property distributed as a dividend, shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted Stock with respect
to which such Stock or other property has been distributed, unless otherwise
determined by the Committee.
(e) DEFERRED STOCK. The Committee is authorized to grant Deferred Stock
subject to the following terms and conditions ("Deferred Stock"):
(i) AWARD AND RESTRICTIONS. Delivery of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred Stock by
the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, Deferred Stock shall be subject to such restrictions
as the Committee may impose, if any, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times, separately or
in combination, in installments or otherwise, as the Committee may determine.
(ii) FORFEITURE. Except as otherwise determined by the Committee,
upon termination of employment or service (as determined under criteria
established by the Committee) during the applicable deferral period or portion
thereof to which forfeiture conditions apply (as provided in the Award Agreement
evidencing the Deferred Stock), all Deferred Stock that is at that time subject
to such forfeiture conditions shall be forfeited; PROVIDED, HOWEVER, that the
-10-
<PAGE>
Committee may provide, by rule or regulation or in any Award Agreement, or may
determine in any individual case, that restrictions or forfeiture conditions
relating to Deferred Stock will be waived in whole or in part in the event of
termination resulting from specified causes.
(f) BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS. The
Committee is authorized to grant Stock as a bonus, or to grant Stock or other
Awards in lieu of Company obligations to pay cash under other plans or
compensatory arrangements. Stock or Awards granted hereunder shall be subject to
such other terms as shall be determined by the Committee.
(g) DIVIDEND EQUIVALENTS. The Committee is authorized to grant Dividend
Equivalents entitling the Participant to receive cash, Stock, other Awards or
other property equal in value to dividends paid with respect to a specified
number of shares of Stock ("Dividend Equivalents"). Dividend Equivalents may be
awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents shall be paid or distributed
when accrued or shall be deemed to have been reinvested in additional Stock,
Awards or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee may specify.
(h) OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to
limitations under applicable law, to grant such other Awards that may be
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on, or related to, Stock and factors that may influence the
value of Stock, as deemed by the Committee to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee and Awards valued by
reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries ("Other Stock Based Awards"). The
Committee shall determine the terms and conditions of such Awards. Stock issued
pursuant to an Award in the nature of a purchase right granted under this
Section 6(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may be granted
pursuant to this Section 6(h).
7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS.
Awards granted under the Plan may, in the discretion of the Committee, be
granted either alone or in addition to, in tandem with or in substitution for
any other Award granted under the Plan or any award granted under any other plan
of the Company, any subsidiary or any business entity to be acquired by the
Company or a subsidiary, or any other right of a Participant to receive payment
from
-11-
<PAGE>
the Company or any subsidiary. Awards granted in addition to or in tandem with
other Awards or awards may be granted either as of the same time as or a
different time from the grant of such other Awards or awards.
(b) TERM OF AWARDS. The term of each Award shall be for such period as may
be determined by the Committee; PROVIDED, HOWEVER, that in no event shall the
term of any ISO or an SAR granted in tandem therewith exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code).
(c) FORM OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a subsidiary
upon the grant, exercise or settlement of an Award may be made in such forms as
the Committee shall determine, including, without limitation, cash, Stock, other
Awards or other property, and may be made in a single payment or transfer, in
installments or on a deferred basis. Such payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents in respect of installment or deferred payments denominated in Stock.
(d) LOAN PROVISIONS. With the consent of the Committee, and subject at all
times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee or arrange for a loan
or loans to a Participant with respect to the exercise of any Option or other
payment in connection with any Award, including the payment by a Participant of
any or all federal, state or local income or other taxes due in connection with
any Award. Subject to such limitations, the Committee shall have full authority
to decide whether to make a loan or loans hereunder and to determine the amount,
terms and provisions of any such loan or loans, including the interest rate to
be charged in respect of any such loan or loans, whether the loan or loans are
to be with or without recourse against the borrower, the terms on which the loan
is to be repaid and conditions, if any, under which the loan or loans may be
forgiven.
(e) PERFORMANCE-BASED AWARDS. The Committee may, in its discretion,
designate any Award the exercisability or settlement of which is subject to the
achievement of performance conditions as a performance-based Award subject to
this Section 7(f), in order to qualify such Award as "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder. The performance objectives for an Award subject to this
Section 7(f) shall consist of one or more business criteria and a targeted level
or levels of performance with respect to such criteria, as specified by the
Committee but subject to this Section 7(f). Performance objectives shall be
objective and shall otherwise meet the requirements of Section 162(m)(4)(C) of
the Code. Business criteria used by the Committee in establishing performance
-12-
<PAGE>
objectives for Awards subject to this Section 7(f) shall be selected exclusively
from among the following:
(1) Annual return on capital;
(2) Annual earnings per share;
(3) Annual cash flow provided by operations;
(4) Changes in annual revenues; and/or
(5) Strategic business criteria, consisting of one or more
objectives based on meeting specified revenue, market penetration, geographic
business expansion goals, cost targets, and goals relating to acquisitions or
divestitures.
The levels of performance required with respect to such business criteria
may be expressed in absolute or relative levels. Achievement of performance
objectives with respect to such Awards shall be measured over a period of not
less than one year nor more than five years, as the Committee may specify.
Performance objectives may differ for such Awards to different Participants. The
Committee shall specify the weighting to be given to each performance objective
for purposes of determining the final amount payable with respect to any such
Award. The Committee may, in its discretion, reduce the amount of a payout
otherwise to be made in connection with an Award subject to this Section 7(f),
but may not exercise discretion to increase such amount, and the Committee may
consider other performance criteria in exercising such discretion. All
determinations by the Committee as to the achievement of performance objectives
shall be in writing. The Committee may not delegate any responsibility with
respect to an Award subject to this Section 7(f).
(f) ACCELERATION UPON A CHANGE OF CONTROL. Notwithstanding anything
contained herein to the contrary, unless otherwise provided by the Committee in
an Award Agreement, all conditions and restrictions relating to an Award,
including limitations on exercisability, risks of forfeiture and conditions and
restrictions requiring the continued performance of services or the achievement
of performance objectives with respect to the exercisability or settlement of
such Award, shall immediately lapse upon a Change in Control.
8. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the registration
requirements of the Securities Act of 1933, as amended, or any other federal or
state securities law, any requirement under any listing agreement
-13-
<PAGE>
between the Company and any national securities exchange or automated quotation
system or any other law, regulation or contractual obligation of the Company
until the Company is satisfied that such laws, regulations, and other
obligations of the Company have been complied with in full. Certificates
representing shares of Stock issued under the Plan will be subject to such
stop-transfer orders and other restrictions as may be applicable under such
laws, regulations and other obligations of the Company, including any
requirement that a legend or legends be placed thereon.
(b) LIMITATIONS ON TRANSFERABILITY. Awards and other rights under the Plan
will not be transferable by a Participant except by will or the laws of descent
and distribution or to a Beneficiary in the event of the Participant's death,
and, if exercisable, shall be exercisable during the lifetime of a Participant
only by such Participant or his guardian or legal representative; PROVIDED,
HOWEVER, that such Awards and other rights (other than ISOs and SARs in tandem
therewith) may be transferred to one or more transferees during the lifetime of
the Participant, and may be exercised by such transferees in accordance with the
terms of such Award consistent with the registration of the offer and sale of
Stock on Form S-8 or Form S-3 or a successor registration form of the Securities
and Exchange Commission, and permitted by the Committee. Awards and other rights
under the Plan may not be pledged, mortgaged, hypothecated or otherwise
encumbered, and shall not be subject to the claims of creditors.
(c) NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Neither the Plan
nor any action taken hereunder shall be construed as giving any employee or
other person the right to be retained in the employ or service of the Company or
any of its subsidiaries, nor shall it interfere in any way with the right of the
Company or any of its subsidiaries to terminate any employee's employment or
other person's service at any time.
(d) TAXES. The Company and any subsidiary is authorized to withhold from
any Award granted or to be settled, any delivery of Stock in connection with an
Award, any other payment relating to an Award or any payroll or other payment to
a Participant amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations.
(e) CHANGES TO THE PLAN AND AWARDS. The Board may amend, alter, suspend,
discontinue or terminate the Plan or the Committee's authority to grant Awards
under the Plan without the consent of stockholders or Participants, except that
any such action shall be subject to the approval of the Company's stockholders
at or before the next annual meeting of stockholders for which the record date
is after such Board action if such stockholder approval is required by any
-14-
<PAGE>
federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to stockholders for approval; PROVIDED, HOWEVER, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant under any Award theretofore granted to
him. The Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue, or terminate, any Award theretofore granted and any Award
Agreement relating thereto; PROVIDED, HOWEVER, that, without the consent of an
affected Participant, no such action may materially impair the rights of such
Participant under such Award.
(f) NO RIGHTS TO AWARDS; NO STOCKHOLDER RIGHTS. No Participant or
employee shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Participants and employees. No
Award shall confer on any Participant any of the rights of a stockholder of the
Company unless and until Stock is duly issued or transferred and delivered to
the Participant in accordance with the terms of the Award or, in the case of an
Option, the Option is duly exercised.
(g) UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant
pursuant to an Award, nothing contained in the Plan or any Award shall give any
such Participant any rights that are greater than those of a general creditor of
the Company; PROVIDED, HOWEVER, that the Committee may authorize the creation of
trusts or make other arrangements to meet the Company's obligations under the
Plan to deliver cash, Stock, other Awards, or other property pursuant to any
Award, which trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with the
consent of each affected Participant.
(h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.
(i) NO FRACTIONAL SHARES. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
-15-
<PAGE>
(j) COMPLIANCE WITH CODE SECTION 162(M). It is the intent of the Company
that employee Options, SARs and other Awards designated as Awards subject to
Section 7(f) shall constitute "qualified performance-based compensation" within
the meaning of Code Section 162(m). Accordingly, if any provision of the Plan or
any Award Agreement relating to such an Award does not comply or is inconsistent
with the requirements of Code Section 162(m), such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements, and
no provision shall be deemed to confer upon the Committee or any other person
discretion to increase the amount of compensation otherwise payable in
connection with any such Award upon attainment of the performance objectives.
(k) GOVERNING LAW. The validity, construction and effect of the Plan, any
rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of laws, and applicable federal law.
(l) EFFECTIVE DATE; PLAN TERMINATION. The Plan shall become effective as
of the date of its adoption by the Board, subject to stockholder approval prior
to the commencement of the Initial Public Offering, and shall continue in effect
until terminated by the Board.
-16-
EXHIBIT 10.2
HOMEUSA, INC.
1997 NON-EMPLOYEE DIRECTORS' STOCK PLAN
1. PURPOSE. The purpose of this 1997 Non-Employee Directors' Stock Plan
(the "Plan") of HomeUSA, Inc., a Delaware corporation (the "Company"), is to
advance the interests of the Company and its stockholders by providing a means
to attract and retain highly qualified persons to serve as non-employee
directors of the Company and to enable such persons to acquire or increase a
proprietary interest in the Company, thereby promoting a closer identity of
interests between such persons and the Company's stockholders.
2. DEFINITIONS. In addition to terms defined elsewhere in the Plan, the
following are defined terms under the Plan:
(a) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
(b) "Deferred Share" means a credit to a Participant's deferral account
under Section 7 which represents the right to receive one Share upon settlement
of the deferral account. Deferral accounts, and Deferred Shares credited
thereto, are maintained solely as bookkeeping entries by the Company evidencing
unfunded obligations of the Company.
(c) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
References to any provision of the Exchange Act shall be deemed to include rules
thereunder and successor provisions and rules thereto.
(d) "Fair Market Value" of a Share on a given date mean the last sales
price or, if last sales information is generally unavailable, the average of the
closing bid and asked prices per Share on such date (or, if there was no trading
or quotation in the stock on such date, on the next preceding date on which
there was trading or quotation) as reported in the WALL STREET JOURNAL;
PROVIDED, HOWEVER, that the "Fair Market Value" of a Share subject to Options
granted effective on the date on which the Company commences an Initial Public
Offering shall be the price of the shares so issued and sold, as set forth in
the first final prospectus used in such Initial Public Offering.
(e) "Initial Public Offering" means an initial public offering of shares
in a firm commitment underwriting registered with the Securities and Exchange
Commission in compliance with the provisions of the Securities Act of 1933, as
amended.
-2-
<PAGE>
(f) "Option" means the right, granted to a director under Section 6, to
purchase a specified number of Shares at the specified exercise price for a
specified period of time under the Plan. All Options will be non-qualified stock
options.
(g) "Participant" means a person who, as a non-employee director of the
Company, has been granted an Option or Deferred Shares which remain outstanding
or who has elected to be paid fees in the form of Shares or Deferred Shares
under the Plan.
(h) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(i) "Share" means a share of common stock, $.01 par value, of the Company
and such other securities as may be substituted for such Share or such other
securities pursuant to Section 8.
3. SHARES AVAILABLE UNDER THE PLAN. Subject to adjustment as provided in
Section 8, the total number of Shares reserved and available for issuance under
the Plan is 275,000. Such Shares may be authorized but unissued Shares, treasury
Shares, or Shares acquired in the market for the account of the Participant. For
purposes of the Plan, Shares that may be purchased upon exercise of an Option or
delivered in settlement of Deferred Shares will not be considered to be
available after such Option has been granted or Deferred Share credited, except
for purposes of issuance in connection with such Option or Deferred Share;
PROVIDED, HOWEVER, that, if an Option expires for any reason without having been
exercised in full, the Shares subject to the unexercised portion of such Option
will again be available for issuance under the Plan.
4. ADMINISTRATION OF THE PLAN. The Plan will be administered by the Board
of Directors of the Company; PROVIDED, HOWEVER, that any action by the Board
relating to the Plan will be taken only if, in addition to any other required
vote, such action is approved by the affirmative vote of a majority of the
directors.
5. ELIGIBILITY. Each director of the Company who, on any date on which an
Option is to be granted under Section 6 or on which fees are to be paid which
could be received in the form of Shares or deferred in the form of Deferred
Shares under Section 7, is not an employee of the Company or any subsidiary of
the Company will be eligible, at such date, to be granted an Option under
Section 6 or receive fees in the form of Shares or defer fees in the form of
Deferred Shares under Section 7. No person other than those specified in this
Section 5 will be eligible to participate in the Plan.
-3-
<PAGE>
6. OPTIONS. An Option to purchase 10,000 Shares, subject to adjustment as
provided in Section 8, will be automatically granted, (i) at the commencement of
the Initial Public Offering, to each person who is serving as a director of the
Company at that time or who becomes a director of the Company at that time and
who is eligible under Section 5 at that time, and thereafter (ii) at the
effective date of initial election to the Board of Directors, to each person so
elected who is eligible under Section 5 at that date. In addition, an Option to
purchase 5,000 Shares, subject to adjustment as provided in Section 8, will be
automatically granted, at the close of business of each annual meeting of
stockholders of the Company, to each member of the Board of Directors who is
eligible under Section 5 at the close of business of such annual meeting.
Notwithstanding the foregoing, any person who was automatically granted an
Option to purchase 10,000 Shares at the effective date of initial election to
the Board of Directors shall not be automatically granted an Option to purchase
5,000 shares at the first annual meeting of stockholders following such initial
election if such annual meeting takes place within three months of the effective
date of such person's initial election to the Board of Directors.
(a) EXERCISE PRICE. The exercise price per Share purchasable upon exercise
of an Option will be equal to 100% of the Fair Market Value of a Share on the
date of grant of the Option.
(b) OPTION EXPIRATION. A Participant's Option will expire at the earlier
of (i) 10 years after the date of grant or (ii) one year after the date the
Participant ceases to serve as a director of the Company for any reason.
(c) EXERCISABILITY. Each Option may be exercised commencing immediately
upon its grant.
(d) METHOD OF EXERCISE. A Participant may exercise an Option, in whole or
in part, at such time as it is exercisable and prior to its expiration, by
giving written notice of exercise to the Secretary of the Company, specifying
the Option to be exercised and the number of Shares to be purchased, and paying
in full the exercise price in cash (including by check) or by surrender of
Shares already owned by the Participant having a Fair Market Value at the time
of exercise equal to the exercise price, or by a combination of cash and Shares.
7. RECEIPT OF SHARES OR DEFERRED SHARES IN LIEU OF FEES. Each director of
the Company may elect to be paid fees, in his or her capacity as a director
(including annual retainer fees for service on the Board, fees for service on a
Board committee, fees for service as chairman of a Board committee, and any
other fees paid to directors) in the form of Shares or Deferred Shares in lieu
of cash payment of such fees, if such director is eligible to do so under
Section 5 at the date any such fee is otherwise payable. If so elected, payment
of fees in the form of Shares or Deferred Shares shall be made in accordance
with this Section 7.
-4-
<PAGE>
(a) ELECTIONS. Each director who elects to be paid fees for a given
calendar year in the form of Shares or to defer such payment of fees in the form
of Deferred Shares for such year must file an irrevocable written election with
the Secretary of the Company no later than December 31 of the year preceding
such calendar year; PROVIDED, HOWEVER, that any newly elected or appointed
director may file an election for any year not later than 30 days after the date
such person first became a director, and a director may file an election for the
year in which the Plan became effective not later than 30 days after the date of
effectiveness. An election by a director shall be deemed to be continuing and
therefore applicable to subsequent Plan years unless the director revokes or
changes such election by filing a new election form by the due date for such
form specified in this Section 7(a). The election must specify the following:
(i) A percentage of fees to be received in the form of Shares or
deferred in the form of Deferred Shares under the Plan; and
(ii) In the case of a deferral, the period or periods during which
settlement of Deferred Shares will be deferred (subject to such
limitations as may be specified by counsel to the Company).
Certain elections may not result in receipt of Shares or deferral of fees
as Deferred Shares.
(b) PAYMENT OF FEES IN THE FORM OF SHARES. At any date on which fees are
payable to a Participant who has elected to receive such fees in the form of
Shares, the Company will issue to such Participant, or to a designated third
party for the account of such Participant, a number of Shares having an
aggregate Fair Market Value at that date equal to the fees, or as nearly as
possible equal to the fees (but in no event greater than the fees), that would
have been payable at such date but for the Participant's election to receive
Shares in lieu thereof. If the Shares are to be credited to an account
maintained by the Participant and to the extent reasonably practicable without
requiring the actual issuance of fractional Shares, the Company shall cause
fractional Shares to be credited to the Participant's account. If fractional
Shares are not so credited, any part of the Participant's fees not paid in the
form of whole Shares will be payable in cash to the Participant (either paid
separately or included in a subsequent payment of fees, including a subsequent
payment of fees subject to an election under this Section 7).
(c) DEFERRAL OF FEES IN THE FORM OF DEFERRED SHARES. The Company will
establish a deferral account for each Participant who elects to defer fees in
the form of Deferred Shares under this Section 7. At any date on which fees are
payable to a Participant who has elected to defer fees in the form of Deferred
Shares, the Company will credit such Participant's deferral account with a
number of Deferred Shares equal to the number of Shares having an aggregate Fair
Market Value at that date equal to the fees that otherwise would have been
payable
-5-
<PAGE>
at such date but for the Participant's election to defer receipt of such fees in
the form of Deferred Shares. The amount of Deferred Shares so credited shall
include fractional Shares calculated to at least three decimal places.
(d) CREDITING OF DIVIDEND EQUIVALENTS. Whenever dividends are paid or
distributions made with respect to Shares, a Participant to whom Deferred Shares
are then credited in a deferral account shall be entitled to receive, as
dividend equivalents, an amount equal in value to the amount of the dividend
paid or property distributed on a single Share multiplied by the number of
Deferred Shares (including any fractional Share) credited to his or her deferral
account as of the record date for such dividend or distribution. Such dividend
equivalents shall be credited to the Participant's deferral account as a number
of Deferred Shares determined by dividing the aggregate value of such dividend
equivalents by the Fair Market Value of a Share at the payment date of the
dividend or distribution.
(e) SETTLEMENT OF DEFERRED SHARES. The Company will settle the
Participant's deferral account by delivering to the Participant (or his or her
beneficiary) a number of Shares equal to the number of whole Deferred Shares
then credited to his or her deferral account (or a specified portion in the
event of any partial settlement), together with cash in lieu of any fractional
Share remaining at a time that less than one whole Deferred Share is credited to
such deferral account. Such settlement shall be made within 30 days of the
Participant's resignation from Board of Directors of the Company.
(f) DELAYED EFFECTIVENESS OF ELECTIONS IN ORDER TO COMPLY WITH RULE 16B-3.
Other provisions of this Section 7 notwithstanding, if any payment of fees in
the form of Shares or deferral of fees in the form of Deferred Shares would
occur (i) less than six months after the Participant filed the election which
would result in such payment or deferral, (ii) at a time when the Company's
employee benefit plans are being operated in conformity with Rule 16b-3 as in
effect on and after May 1, 1991, and (iii) at a time that Rule 16b-3 imposes a
requirement that participant-directed transactions occur more than six months
after the participant's making of an irrevocable election in order for such
transactions to be exempt from Section 16(b) liability, then such fees instead
shall be paid in cash on a non-deferred basis.
(g) NONFORFEITABILITY. The interest of each Participant in any fees paid
in the form of Shares or Deferred Shares (and any deferral account relating
thereto) at all times will be nonforfeitable.
8. ADJUSTMENT PROVISIONS.
-6-
<PAGE>
(a) CORPORATE TRANSACTIONS AND EVENTS. In the event any dividend or other
distribution (whether in the form of cash, Shares or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, exchange of Shares or other
securities of the Company, extraordinary dividend (whether in the form of cash,
Shares, or other property), liquidation, dissolution, or other similar corporate
transaction or event affects the Shares such that an adjustment is appropriate
in order to prevent dilution or enlargement of each Participant's rights under
the Plan, then an adjustment shall be made, in a manner that is proportionate to
the change to the Shares and otherwise equitable, in (i) the number and kind of
Shares remaining reserved and available for issuance under Section 3, (ii) the
number and kind of Shares to be subject to each automatic grant of an Option
under Section 6, (iii) the number and kind of Shares issuable upon exercise of
outstanding Options, and/or the exercise price per Share thereof (provided that
no fractional Shares will be issued upon exercise of any Option), (iv) the kind
of Shares to be issued in lieu of fees under Section 7, and (v) the number and
kind of Shares to be issued upon settlement of Deferred Shares under Section 7;
provided, however, that no adjustment shall be made if the resolutions of the
Board of Directors authorizing the transactions which otherwise would cause an
adjustment to be made hereunder provide that no adjustment shall be made as the
result of such transaction. In addition, the Board of Directors is authorized to
make such adjustments in recognition of unusual or non-recurring events
(including, without limitation, events described in the preceding sentence)
affecting the Company or any subsidiary or the financial statements of the
Company or any subsidiary, or in response to changes in applicable laws,
regulations or accounting principles. The foregoing notwithstanding, no
adjustment may be made hereunder except as will be necessary to maintain the
proportionate interest of the Participant under the Plan and to preserve,
without exceeding, the value of outstanding Options and potential grants of
Options and the value of outstanding Deferred Shares.
(b) INSUFFICIENT NUMBER OF SHARES. If at any date an insufficient number
of Shares are available under the Plan for the automatic grant of Options or the
receipt of fees in the form of Shares or deferral of fees in the form of
Deferred Shares at that date, Options will first be automatically granted
proportionately to each eligible director, to the extent Shares are then
available (provided that no fractional Shares will be issued upon exercise of
any Option) and otherwise as provided under Section 6, and then, if any Shares
remain available, fees shall be paid in the form of Shares or deferred in the
form of Deferred Shares proportionately among directors then eligible to
participate to the extent Shares are then available and otherwise as provided
under Section 7.
9. CHANGES TO THE PLAN. The Board of Directors may amend, alter, suspend,
discontinue, or terminate the Plan or authority to grant Options or pay fees in
the form of Shares or Deferred Shares under the Plan without the consent of
stockholders or Participants, except that any amendment or alteration will be
subject to the approval of the Company's stockholders at or before the next
annual meeting of stockholders for which the record date is after the date of
such Board
-7-
<PAGE>
action if such stockholder approval is required by any federal or state law or
regulation or the rules of any stock exchange or automated quotation system as
then in effect, and the Board may otherwise determine to submit other such
amendments or alterations to stockholders for approval; PROVIDED, HOWEVER, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant with respect to any previously granted
Option or any previous payment of fees in the form of Shares or Deferred Shares.
10. GENERAL PROVISIONS.
(a) AGREEMENTS. Options, Deferred Shares, and any other right or
obligation under the Plan may be evidenced by agreements or other documents
executed by the Company and the Participant incorporating the terms and
conditions set forth in the Plan, together with such other terms and conditions
not inconsistent with the Plan, as the Board of Directors may from time to time
approve.
(b) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company will not be
obligated to issue or deliver Shares in connection with any Option, in payment
of any directors' fees, or in settlement of Deferred Shares in a transaction
subject to the registration requirements of the Securities Act of 1933, as
amended, or any other federal or state securities law, any requirement under any
listing agreement between the Company and any stock exchange or automated
quotation system, or any other law, regulation, or contractual obligation of the
Company, until the Company is satisfied that such laws, regulations, and other
obligations of the Company have been complied with in full. Certificates
representing Shares issued under the Plan will be subject to such stop-transfer
orders and other restrictions as may be applicable under such laws, regulations,
and other obligations of the Company, including any requirement that a legend or
legends be placed thereon.
(c) LIMITATIONS ON TRANSFERABILITY. Options, Deferred Shares, and any
other right under the Plan will not be transferable by a Participant except by
will or the laws of descent and distribution (or to a designated beneficiary in
the event of a Participant's death), and will be exercisable during the lifetime
of the Participant only by such Participant or his or her guardian or legal
representative; PROVIDED, HOWEVER, that Options and Deferred Shares (and rights
relating thereto) may be transferred to one or more trusts or other
beneficiaries during the lifetime of the Participant for purposes of the
Participant's estate planning or at the Participant's death, and such
transferees may exercise rights thereunder in accordance with the terms thereof,
but only if and to the extent then permitted under Rule 16b-3 and consistent
with the registration of the offer and sale of Shares related thereto on Form
S-8, Form S-3, or such other registration form of the Securities and Exchange
Commission as may then be filed and effective with respect to the Plan. The
Company
-8-
<PAGE>
may rely upon the beneficiary designation last filed in accordance with this
Section 10(c). Options, Deferred Shares, and other rights under the Plan may not
be pledged, mortgaged, hypothecated, or otherwise encumbered, and shall not be
subject to the claims of creditors of any Participant.
(d) NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained in the Plan or
any agreement hereunder will confer upon any Participant any right to continue
to serve as a director of the Company.
(e) NO STOCKHOLDER RIGHTS CONFERRED. Nothing contained in the Plan or any
agreement hereunder will confer upon any Participant (or any person or entity
claiming rights by or through a Participant) any rights of a stockholder of the
Company unless and until Shares are in fact issued to such Participant (or
person) or, in the case an Option, such Option is validly exercised in
accordance with Section 6.
(f) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board of Directors nor its submission to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other compensatory arrangements for directors as it may deem
desirable.
(g) GOVERNING LAW. The validity, construction, and effect of the Plan and
any agreement hereunder will be determined in accordance with the laws of the
State of Delaware, without giving effect to principles of conflicts of laws, and
applicable federal law.
11. STOCKHOLDER APPROVAL, EFFECTIVE DATE, AND PLAN TERMINATION. The Plan will be
effective as of the date of its adoption by the Board, subject to stockholder
approval prior to the commencement of the Initial Public Offering, and, unless
earlier terminated by action of the Board of Directors, shall terminate at such
time as no Shares remain available for issuance under the Plan and the Company
and Participants have no further rights or obligations under the Plan.
-9-
EXHIBIT 10.3
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 10th day of September, 1997
by and among
HOMEUSA, INC.
MCDONALD HOMES ACQUISITION CORP.
(a subsidiary of HomeUSA, Inc.)
MCDONALD HOMES, INC.
and
the STOCKHOLDERS named herein
-2-
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER........................5
1.2 EFFECTIVE TIME OF THE MERGER.....................................6
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS
OF SURVIVING CORPORATION.........................................6
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, HOME AND NEWCO..........................................6
1.5 EFFECT OF MERGER.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 MANNER OF CONVERSION.............................................8
3. DELIVERY OF MERGER CONSIDERATION.......................................9
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS..................................................10
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS..............................................10
5.1 DUE ORGANIZATION................................................10
5.2 AUTHORIZATION...................................................10
5.3 CAPITAL STOCK OF THE COMPANY....................................11
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........11
5.5 NO BONUS SHARES.................................................11
5.6 SUBSIDIARIES....................................................11
5.7 PREDECESSOR STATUS; ETC.........................................11
5.8 SPIN-OFF BY THE COMPANY.........................................11
5.9 FINANCIAL STATEMENTS............................................12
5.10 LIABILITIES AND OBLIGATIONS.....................................12
5.11 ACCOUNTS AND NOTES RECEIVABLE...................................12
5.12 PERMITS AND INTANGIBLES.........................................13
5.13 ENVIRONMENTAL MATTERS...........................................13
5.14 PERSONAL PROPERTY...............................................14
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.......14
-i-
<PAGE>
5.16 REAL PROPERTY...................................................15
5.17 INSURANCE.......................................................15
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS....16
5.19 EMPLOYEE PLANS..................................................16
5.20 COMPLIANCE WITH ERISA...........................................17
5.21 CONFORMITY WITH LAW; LITIGATION.................................18
5.22 TAXES...........................................................18
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC.......................19
5.24 GOVERNMENT CONTRACTS............................................19
5.25 ABSENCE OF CHANGES..............................................20
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY............................21
5.27 VALIDITY OF OBLIGATIONS.........................................21
5.28 RELATIONS WITH GOVERNMENTS......................................21
5.29 DISCLOSURE......................................................22
5.30 PROHIBITED ACTIVITIES...........................................22
5.31 DEALER AGREEMENTS AND RELATED MATTERS...........................23
5.32 NO RETAIL FINANCING.............................................23
5.33 NO WARRANTIES OR INSURANCE......................................24
5.34 NO INTERESTS IN OTHER BUSINESSES................................24
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS............24
5.35 AUTHORITY; OWNERSHIP............................................24
5.36 PREEMPTIVE RIGHTS...............................................24
5.37 NO INTENTION TO DISPOSE OF HOME STOCK...........................24
6. REPRESENTATIONS OF HOME AND NEWCO.....................................25
6.1 DUE ORGANIZATION................................................25
6.2 AUTHORIZATION...................................................25
6.3 CAPITAL STOCK OF HOME AND NEWCO.................................25
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........25
6.5 SUBSIDIARIES....................................................26
6.6 FINANCIAL STATEMENTS............................................26
6.7 LIABILITIES AND OBLIGATIONS.....................................26
6.8 CONFORMITY WITH LAW; LITIGATION.................................26
6.9 NO VIOLATIONS...................................................26
6.10 VALIDITY OF OBLIGATIONS.........................................27
6.11 HOME STOCK......................................................27
6.12 NO SIDE AGREEMENTS..............................................28
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS....................28
6.14 TAXES...........................................................28
6.15 ABSENCE OF CHANGES..............................................28
6.16 DISCLOSURE......................................................29
-ii-
<PAGE>
6.17 PRIVATE OFFERING................................................30
7. COVENANTS PRIOR TO CLOSING............................................30
7.1 ACCESS AND COOPERATION; DUE DILIGENCE...........................30
7.2 CONDUCT OF BUSINESS PENDING CLOSING.............................30
7.3 PROHIBITED ACTIVITIES...........................................31
7.4 NO SHOP.........................................................33
7.5 NOTICE TO BARGAINING AGENTS.....................................33
7.6 AGREEMENTS......................................................33
7.7 NOTIFICATION OF CERTAIN MATTERS.................................33
7.8 AMENDMENT OF SCHEDULES..........................................34
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT............35
7.10 FINAL FINANCIAL STATEMENTS......................................35
7.11 FURTHER ASSURANCES..............................................35
7.12 AUTHORIZED CAPITAL..............................................35
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS
ACT OF 1976 (THE "HART-SCOTT-RODINO ACT").......................36
7.14 STOCKHOLDERS OF HOME............................................36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.......36
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......36
8.2 SATISFACTION....................................................37
8.3 NO LITIGATION...................................................37
8.4 OPINION OF COUNSEL..............................................37
8.5 REGISTRATION STATEMENT..........................................37
8.6 CONSENTS AND APPROVALS..........................................37
8.7 GOOD STANDING CERTIFICATES......................................37
8.8 NO MATERIAL ADVERSE CHANGE......................................38
8.9 CLOSING OF IPO..................................................38
8.10 SECRETARY'S CERTIFICATE.........................................38
8.11 EMPLOYMENT AGREEMENTS...........................................38
8.12 TAX MATTERS.....................................................38
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME AND NEWCO.................38
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......39
9.2 NO LITIGATION...................................................39
9.3 SECRETARY'S CERTIFICATE.........................................39
9.4 NO MATERIAL ADVERSE EFFECT......................................39
9.5 STOCKHOLDERS' RELEASE...........................................39
9.6 SATISFACTION....................................................40
-iii-
<PAGE>
9.7 TERMINATION OF RELATED PARTY AGREEMENTS.........................40
9.8 OPINION OF COUNSEL..............................................40
9.9 CONSENTS AND APPROVALS..........................................40
9.10 GOOD STANDING CERTIFICATES......................................40
9.11 REGISTRATION STATEMENT..........................................40
9.12 EMPLOYMENT AGREEMENTS...........................................40
9.13 CLOSING OF IPO..................................................40
9.14 FIRPTA CERTIFICATE..............................................41
10. COVENANTS OF HOME AND THE STOCKHOLDERS AFTER CLOSING..................41
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.......41
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT....................41
10.3 PREPARATION AND FILING OF TAX RETURNS...........................41
10.4 DIRECTORS.......................................................42
11. INDEMNIFICATION.......................................................42
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS.....................42
11.2 INDEMNIFICATION BY HOME.........................................43
11.3 THIRD PERSON CLAIMS.............................................44
11.4 EXCLUSIVE REMEDY................................................45
11.5 LIMITATIONS ON INDEMNIFICATION..................................45
12. TERMINATION OF AGREEMENT..............................................46
12.1 TERMINATION.....................................................46
12.2 LIABILITIES IN EVENT OF TERMINATION.............................47
13. NONCOMPETITION........................................................47
13.1 PROHIBITED ACTIVITIES...........................................47
13.2 DAMAGES.........................................................48
13.3 REASONABLE RESTRAINT............................................48
13.4 SEVERABILITY; REFORMATION.......................................48
13.5 INDEPENDENT COVENANT............................................49
13.6 MATERIALITY.....................................................49
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................49
14.1 STOCKHOLDERS....................................................49
14.2 HOME AND NEWCO..................................................50
14.3 DAMAGES.........................................................50
14.4 SURVIVAL........................................................50
15. TRANSFER RESTRICTIONS.................................................50
-iv-
<PAGE>
15.1 TRANSFER RESTRICTIONS...........................................50
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................51
16.1 COMPLIANCE WITH LAW.............................................51
16.2 ECONOMIC RISK; SOPHISTICATION...................................51
17. REGISTRATION RIGHTS...................................................52
17.1 PIGGYBACK REGISTRATION RIGHTS...................................52
17.2 DEMAND REGISTRATION RIGHTS......................................53
17.3 REGISTRATION PROCEDURES.........................................53
17.4 INDEMNIFICATION.................................................55
17.5 UNDERWRITING AGREEMENT..........................................56
17.6 RULE 144 REPORTING..............................................56
18. GENERAL...............................................................56
18.1 COOPERATION.....................................................56
18.2 SUCCESSORS AND ASSIGNS..........................................57
18.3 ENTIRE AGREEMENT................................................57
18.4 COUNTERPARTS....................................................57
18.5 BROKERS AND AGENTS..............................................57
18.6 EXPENSES........................................................57
18.7 NOTICES.........................................................58
18.8 GOVERNING LAW...................................................59
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................59
18.10 EXERCISE OF RIGHTS AND REMEDIES.................................59
18.11 TIME............................................................59
18.12 REFORMATION AND SEVERABILITY....................................59
18.13 REMEDIES CUMULATIVE.............................................60
18.14 CAPTIONS........................................................60
18.15 AMENDMENTS AND WAIVERS..........................................60
-v-
<PAGE>
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Certificate of Incorporation and By-Laws of Home
Annex IV - Certificate of Incorporation and By-Laws of Newco
Annex V - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex VI - Form of Opinion of Andrews & Kurth, LLP
Annex VII - Form of Key Employee Employment Agreement
-vi-
<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes 5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Dealer Agreements
5.32 No Retail Financing
5.33 No Warranties or Insurance
5.34 No Interests in Other Businesses
5.35 Authority; Ownership
6.9 No Violations
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
10.1 Guaranties
13.1 Lots Excluded from Noncompete
-vii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 10th day of September, 1997, by and among HomeUSA, Inc., a Delaware
corporation ("Home"), MCDONALD HOMES ACQUISITION CORP., a Delaware corporation
("Newco"), MCDONALD HOMES, INC., an Oklahoma corporation (the "Company"), and
FRANK MCDONALD, GREG MATLOCK, EDWARD SMALL, JAMES HOLDER and JEFFREY CONWAY (the
"Stockholders"). The Stockholders are all the stockholders of the Company.
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on September
8, 1997 solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of Home, a corporation organized
and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of Newco and the Company
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective Stockholders that Newco
merge with and into the Company pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation;
WHEREAS, Home is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional retail manufactured housing
companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"Home Plan of Organization;"
WHEREAS, the Stockholders and the Boards of Directors and the
stockholders of Home, each of the Other Founding Companies and each of the
subsidiaries of Home that are parties to the Other Agreements have
approved and adopted the Home Plan of Organization as an integrated plan
pursuant to which the Stockholders and the stockholders of each of the
other Founding Companies will transfer the capital stock of each of the
Founding Companies to Home and the Stockholders of each of the other
Founding Companies will acquire the stock of Home (but not cash or other
property) as a tax-free transfer of property under Section 351 of the
Code;
-1-
<PAGE>
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the Home Plan of Organization in
order to transfer the capital stock of the Company to Home;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" shall mean Newco and each of the other Delaware
companies wholly-owned by Home prior to the Funding and Consummation Date.
"Affiliates" means, with respect to any Person, any Person or entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean June 30, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
-2-
<PAGE>
"Draft Registration Statement" means the draft dated September 5, 1997 of
the Registration Statement, and any corrections thereto and supplemental
information delivered by Home to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to Home.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Cooper's Mobile Homes, Inc., a Washington corporation, Home USA,
Inc., a Washington corporation, and Pac West Mgmt., Inc., a Washington
corporation.
CSF&T, Inc. (dba AAA Homes), a Mississippi corporation, AAA Homes,
L.L.C., a Louisiana limited liability company, and Fordham Insurance
Agency, Inc., a Mississippi corporation.
First American Homes, Inc., an Alabama corporation, D & S, Inc., an
Alabama corporation, and Son Development Corporation, an Alabama
corporation.
Home Folks Housing Center, Inc., a Kentucky corporation.
McDonald Homes, Inc., an Oklahoma corporation.
Mobile World, Inc., a Texas corporation, and Showcase of Homes,
Inc., a Texas corporation.
Patrick Home Center, Inc., a Mississippi corporation.
Universal Housing, Inc., a Tennessee corporation, Shaffer & Webb
Insurance Agency, Inc., a Tennessee corporation, and Universal Housing of
East TN, Inc., a Tennessee corporation.
Willmax Homes of Colorado LLC, a Colorado limited liability company.
"Funding and Consummation Date" has the meaning set forth in Section 4.
-3-
<PAGE>
"IPO" means the initial public offering of Home Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Company" means the actual knowledge of the executive
officers of the Company.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of Newco with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"Home" has the meaning set forth in the first paragraph of this Agreement.
"Home Charter Documents" has the meaning set forth in Section 6.1.
"Home Stock" means the common stock, par value $.01 per share, of Home.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by Home and the Underwriters of
the public offering price of the shares of Home Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Home Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
-4-
<PAGE>
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Oklahoma.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to Home to be held for filing with the Secretary of State of the State
of Delaware and the Secretary of State (or other appropriate authority) of the
State of Incorporation on or effective as of the Funding and Consummation Date.
-5-
<PAGE>
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into the Company in accordance with the Articles
of Merger, the separate existence of Newco shall cease, the Company shall be the
surviving party in the Merger and the Company is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation
until changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such By-laws shall be the By-laws of the Surviving Corporation
until they shall thereafter be duly amended (and such By-laws shall be
amended from time to time, if necessary, to comply with applicable state
law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the Company
immediately prior to the Effective Time of the Merger, provided that Cary
N. Vollintine shall become an additional director of the Surviving
Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of the
Company shall be increased, if necessary, to accommodate the addition of
such additional director; the Board of Directors of the Surviving
Corporation shall hold office subject to the provisions of the laws of the
State of Incorporation and of the Certificate of Incorporation and By-laws
of the Surviving Corporation; and
(iv) the officers of the Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger Michael Loy shall become an additional Vice
President of the Surviving Corporation, such officers to serve, subject to
the provisions of the Certificate of Incorporation and By-laws of the
Surviving Corporation, until their respective successors are duly elected
and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
HOME AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company,
Home and Newco as of the date of this Agreement are as follows:
-6-
<PAGE>
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof,
the authorized capital stock of Home will consist of 50,000,000 shares of
Home Stock, of which the number of issued and outstanding shares will be
set forth in the Registration Statement, 5,000,000 shares of preferred
stock, $.01 par value, of which no shares will be issued and outstanding,
and 5,000,000 shares of Restricted Voting Common Stock, $.01 par value
(the "Restricted Common Stock"), all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement;
and
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred
(100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, franchises, privileges, rights and immunities of
the Company shall continue unaffected and unimpaired by the Merger and the
corporate franchises, existence and rights of Newco shall be merged with and
into the Company, and the Company, as the Surviving Corporation, shall be fully
vested therewith. At the Effective Time of the Merger, the separate existence of
Newco shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and Newco shall be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Company and Newco; and the title to any real estate, or
interest therein, whether by deed or otherwise, under the laws of the State of
Incorporation vested in the Company and Newco, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the Company and Newco and any claim existing, or
action or proceeding pending, by or against the Company or Newco may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in their place. Neither the rights of creditors nor any liens
upon the property of the Company or Newco shall be impaired by the Merger, and
all debts, liabilities and duties of the Company and Newco shall attach to the
Surviving
-7-
<PAGE>
Corporation, and may be enforced against such Surviving Corporation to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) Home Stock and cash and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of Home Stock set forth on Annex I hereto (adjusted as
set forth on such Annex I) with respect to such holder and (2) the right
to receive the amount of cash set forth on Annex I hereto with respect to
such holder (adjusted as set forth on such Annex I);
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of Home Stock
or other consideration shall be delivered or paid in exchange therefor;
and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger
and without any action on the part of Home, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All Home Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding Home
Stock by reason of the provisions of the Certificate of Incorporation of Home or
as otherwise provided by the Delaware GCL. All Home Stock received by the
Stockholders shall be issued and delivered to the Stockholders free and clear of
any liens, claims or encumbrances of any kind or nature. All voting rights of
such Home Stock received by the Stockholders shall be fully exercisable by the
Stockholders and the Stockholders shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, Home shall have no
class of capital stock issued and outstanding other than the Home Stock and the
Restricted Voting Common Stock.
-8-
<PAGE>
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
number of shares of Home Stock and the amount of cash described on Annex I
hereto, said cash to be payable by certified check or wire transfer.
3.2 The Stockholders shall deliver to Home at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The
Stockholders agree promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such Company Stock or with respect to the stock powers accompanying
any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to Home for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and certified check(s) referred to in
Section 3 hereof, each of which actions shall only be taken upon the Funding and
Consummation Date as herein provided. In the event that there is no Funding and
Consummation Date and this Agreement automatically terminates as provided in
this Section 4 the Articles of Merger shall not be filed and shall be returned
to the Stockholders. The taking of the actions described in clauses (i) and (ii)
above (the "Closing") shall take place on the closing date (the "Closing Date")
at the offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares, the delivery of a certified check or checks in an amount
equal to the cash portion of the consideration which the Stockholders shall be
entitled to receive pursuant to the Merger referred to in Section 3 hereof and
(z) the closing with respect to the IPO shall occur and be completed. The date
on which the actions described in the preceding clauses (x), (y) and (z) occurs
shall be referred to as the "Funding and Consummation Date." During the period
from the Closing Date to the Funding and Consummation Date, this Agreement may
only be terminated by the parties if the underwriting agreement in respect of
the IPO is terminated pursuant to the terms of such underwriting agreement. This
Agreement shall also in any event automatically terminate if the Funding and
Consummation Date has not occurred within 15 business days following the Closing
Date. Time is of the essence.
-9-
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
Each of the Company and the Stockholders severally (based on their
relative ownership of the Company Stock on the date hereof) represent and
warrant that all of the following representations and warranties in this Section
5(A) are true at the date of this Agreement and, subject to Section 7.8 hereof,
shall be true at the time of Closing and the Funding and Consummation Date, and
that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that the warranties and representations set
forth in Section 5.22 hereof shall survive until such time as the limitations
period has run for all tax periods ended on or prior to the Funding and
Consummation Date, which shall be deemed to be the Expiration Date for Section
5.22. For purposes of this Section 5, the term "Company" shall mean and refer to
the Company and all of its subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company taken as a whole (as used herein with respect to the Company, or
with respect to any other Person, a "Material Adverse Effect"). Schedule 5.1
sets forth a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and correct copies of (i) the
Certificate of Incorporation and By-laws, each as amended, of the Company (the
"Charter Documents"), and (ii) the stock records of the Company, are all
attached to Schedule 5.1. The Company has delivered complete and correct copies
of all minutes of meetings, written consents and other evidence, if any, of
deliberations of or actions taken by the Company's Board of Directors and
stockholders during the last five years.
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the Company
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
-10-
<PAGE>
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Annex II. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Stockholders and further, such shares were offered, issued, sold and delivered
by the Company in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Merger and/or the Home Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the Home Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
-11-
<PAGE>
5.9 FINANCIAL STATEMENTS. Complete and correct copies of the following
financial statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31, 1996 and
1995 and the related statements of operations, stockholder's equity and
cash flows for the years ended December 31, 1996, 1995 and 1994, together
with the related notes and schedules (such balance sheets, the related
statements of operations, stockholder's equity and cash flows and the
related notes and schedules are referred to herein as the "Year-end
Financial Statements"); and
(ii) the balance sheet (the "Interim Balance Sheet") of the Company
as of June 30, 1997 (the "Balance Sheet Date") and the related statements
of operations, stockholder's equity and cash flows for the six-month
periods ended June 30, 1997 and 1996, together with the related notes and
schedules (such balance sheets, the related statements of operations,
stockholder's equity and cash flows and the related notes and schedules
are referred to herein as the "Interim Financial Statements"). The
Year-end Financial Statements and the Interim Financial Statements are
collectively called the "Financial Statements".
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all liabilities of the Company of a
nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
best knowledge of the Company and the Stockholders, except as set forth on
Schedule 5.10, since the Balance Sheet Date the Company has not incurred any
material liabilities of any kind, character or description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than liabilities
incurred in the ordinary course of business. The Company has also delivered to
Home on Schedule 5.10, in the case of those contingent liabilities related to
pending or threatened litigation, or other liabilities which are not fixed, a
good faith and reasonable estimate of the maximum amount which the Company
reasonably expects will be payable and the amount, if any, accrued or reserved
for each such potential liability on the Company's Financial Statements; in the
case of any such liability for which no estimate has been provided, the estimate
for purposes of this Agreement shall be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholders, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are
-12-
<PAGE>
collectible in the amounts shown on Schedule 5.11, net of reserves reflected in
the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to Home an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, including any trademarks,
trade names, patents, patent applications and copyrights owned or held by the
Company or any of its employees (including interests in software or other
technology systems, programs and intellectual property) (it being understood and
agreed that a list of environmental permits and other environmental approvals is
set forth on Schedule 5.13). At or prior to the Closing, all such trademarks,
trade names, patents, patent applications, copyrights and other intellectual
property will be assigned or licensed to the Company for no additional
consideration. To the best knowledge of the Company, the Licenses and other
rights listed on Schedules 5.12 and 5.13 are valid, and the Company has not
received any notice that any person intends to cancel, terminate or not renew
any such License or other right. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Licenses and other rights listed on Schedules 5.12 and 5.13 and
is not in violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the Company. Except as
specifically provided in Schedule 5.12, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to the Company by, any such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have any Material Adverse Effect on the Company or its
business, (i) the Company has complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to any of them or any of their respective properties, assets,
operations and businesses relating to environmental protection (collectively
"Environmental Laws") including, without limitation, Environmental Laws relating
to air, water, land and the generation, storage, use, handling, transportation,
treatment or disposal of Hazardous Wastes, Hazardous Materials and Hazardous
Substances (as such terms are defined in any applicable Environmental Law), as
well as petroleum and petroleum products (collectively "Hazardous Materials"),
(ii) the Company has obtained and adhered to all necessary permits and other
approvals necessary to treat, transport, store, dispose of and otherwise handle
Hazardous Materials, a list of all of which permits and approvals is set forth
on Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the Company where Hazardous Materials have been treated, stored,
disposed of or otherwise handled. There have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and to the best
-13-
<PAGE>
knowledge of the Company and the Stockholders, there is no on-site or off-site
location to which the Company has transported or disposed of Hazardous Materials
or arranged for the transportation of Hazardous Materials which is the subject
of any Federal, state, local or foreign enforcement action or any other
investigation which could lead to any claim against the Company, Home or Newco
for any clean-up cost, remedial work, damage to natural resources, property
damage or personal injury, including, but not limited to, any claim under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, the Resource Conservation and Recovery Act, the Hazardous Materials
Transportation Act or comparable state or local statutes or regulations. The
Company has no contingent liability in connection with any release of any
Hazardous Materials into the environment that would have a Material Adverse
Effect.
5.14 PERSONAL PROPERTY. The Company has delivered to Home an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company, (y) all other personal property owned by the
Company with an individual value in excess of $25,000 (i) as of the Balance
Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material
leases and agreements in respect of personal property, including, in the case of
each of (x), (y) and (z), (1) true, complete and correct copies of all such
leases and (2) an indication as to which assets are currently owned, or were
formerly owned, by Stockholders, relatives of Stockholders, or Affiliates of the
Company. Except as set forth on Schedule 5.14, (i) all material personal
property used by the Company in its business is either owned by the Company or
leased by the Company pursuant to a lease included on Schedule 5.14, (ii) all of
the personal property listed on Schedule 5.14 is in good working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 5% or more of the
Company's annual revenues for any period covered by any of the Financial
Statements. Except to the extent set forth on Schedule 5.15, none of such
customers have canceled or substantially reduced or, to the knowledge of the
Company, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by the Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to Home. For purposes of this Section 5.17, Material Contracts
includes contracts between the Company and significant customers, joint venture
or partnership agreements, contracts with any labor organization, strategic
alliances, options to purchase land and other contracts which
-14-
<PAGE>
are not terminable on sixty days or less notice and involve payments by the
Company in any twelve month period in excess of $25,000. The Company has also
indicated on Schedule 5.15 a summary description of all plans or projects
involving the opening of new operations, expansion of existing operations, the
acquisition of any personal property, business or assets requiring, in any
event, the payment of more than $25,000 by the Company during any 12-month
period.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on terms reasonably acceptable to Home and leased
back by the Company on terms no less favorable to the Company than those
available from an unaffiliated party and otherwise reasonably acceptable to Home
at or prior to the Closing Date. The Company has good and insurable title to any
real property owned by it that is not shown on Schedule 5.16 as property
intended to be sold or distributed prior to the Closing Date, subject to no
mortgage, pledge, lien, conditional sales agreement, encumbrance or charge,
except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
5.17 INSURANCE. The Company has delivered to Home (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the best knowledge of the Company provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect and shall, to the best knowledge of the
Company,
-15-
<PAGE>
remain in full force and effect through the Funding and Consummation Date. Since
January 1, 1995, no insurance carried by the Company has been canceled by the
insurer and the Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The Company has provided to Home
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the best knowledge of the Company, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the best of the Company's knowledge, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years. The Company believes its relationship
with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to Home an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on the Benefit Plans Schedule, and the Company is not required to contribute
-16-
<PAGE>
to any retirement plan pursuant to the provisions of any collective bargaining
agreement establishing the terms and conditions or employment of any of the
Company's or any subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code are, and have been so qualified and have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination letters are
attached to the Benefit Plans Schedule. Except as disclosed on the Benefit Plans
Schedule, all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or tax returns) have
been timely filed or distributed, and copies thereof are included as part of the
Benefit Plans Schedule. Neither Stockholders, any such plan listed in the
Benefit Plans Schedule, nor the Company has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No such Plan listed in the Benefit Plans Schedule has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and the Company has not incurred any liability for
excise tax or penalty due to the Internal Revenue Service nor any liability to
the Pension Benefit Guaranty Corporation. The Stockholders further represent
that except as set forth on the Benefit Plans Schedule hereto:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
the Benefit Plans Schedule;
-17-
<PAGE>
(iv) the Company has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the Company could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such
liability) with respect to any plan now or heretofore maintained or
contributed to by any entity other than the Company that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and, to the Knowledge of the
Company and the Stockholders, there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, orders, approvals,
variances, rules and regulations, including without limitation to the extent
applicable all regulations promulgated by the Department of Housing and Urban
Development under the National Manufactured Housing Construction and Safety
Standards Act, as amended, or otherwise, and all laws and regulations affecting
the sale of manufactured housing, on credit or otherwise, including the Federal
Consumer Credit Protection Act, the Federal Fair Credit Reporting Act, the
Federal Equal Credit Opportunity Act, the Consumer Credit Protection Act, the
Fair Debt Collection Practices Act and the regulations promulgated under the
foregoing, and all state and local laws and regulations of similar effect, and
including all such orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, except where any such noncompliance, individually or in
the aggregate, would not have a Material Adverse Effect.
5.22 TAXES. The Company has timely filed all requisite Federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other taxes (including penalties and interest) for any period
or periods prior to and including the Balance Sheet Date and no notice of any
claim for taxes, whether pending or threatened, has been received. All tax,
including interest and penalties (whether or not shown on any tax return) owed
by the Company or any of the Company's Subsidiaries has been paid. The
-18-
<PAGE>
amounts shown as accruals for taxes on the Company Financial Statements are
sufficient for the payment of all taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before that date.
Copies of (i) any tax examinations, (ii) extensions of statutory limitations and
(iii) the federal and local income tax returns and franchise tax returns of the
Company for their last three (3) fiscal years, or such shorter period of time as
any of them shall have existed, are attached hereto as Schedule 5.22 or have
otherwise been delivered to Home. The Company has disclosed to Home when its
taxable year ends. The Company uses the accrual method of accounting for income
tax purposes, and the Company's methods of accounting have not changed in the
past five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five years
been a party to any tax sharing agreement or agreement of similar effect. The
Company is not and has not during the last five years been a member of any
consolidated group. Except as described on Schedule 5.22, the Company has not
received, been denied, or applied for any private letter ruling during the last
five years.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the best
knowledge of the Company, any other party thereto, is in default under any
lease, instrument, agreement, license, or permit set forth on Schedule 5.12,
5.13, 5.14, 5.15 or 5.16, or any other Material Contract (as defined in Section
5.15) to which it is a party or by which its properties are bound (the "Material
Documents") in any manner that could result in a Material Adverse Effect; and,
except as set forth in Schedule 5.23, (a) the rights and benefits of the Company
under the Material Documents will not be materially adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
Material Documents or the Charter Documents. Except as set forth on Schedule
5.23, none of the Material Documents requires notice to, or the consent or
approval of, any governmental agency or other third party with respect to any of
the transactions contemplated hereby in order to remain in full force and
effect, and consummation of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the Company, Home or
Newco of the name of any other party to such Material Document, and none of the
Material Documents prohibits or restricts the Company from freely providing
services to any other customer or potential customer of the Company, Home, Newco
or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
-19-
<PAGE>
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any
grant by the Company of any options, warrants, calls, conversion rights or
commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
(v) any material increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the Company
to any of its officers, directors, Stockholders, employees, consultants or
agents, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the Company;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of Company to any person,
including, without limitation, the Stockholders and their Affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
-20-
<PAGE>
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
(xii) any amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(xiii) any transaction by the Company outside the ordinary course of
its business;
(xiv) any cancellation or termination by the Company of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the Company
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
Home an accurate schedule (which is set forth on Schedule 5.26) as of the date
of this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.28 RELATIONS WITH GOVERNMENTS. Except for legal contributions to
candidates for political office, neither the Company nor any Affiliate of the
Company acting on behalf of the
-21-
<PAGE>
Company has given or offered anything of value to any governmental official,
political party or candidate for government office, nor has it or any of them
otherwise taken any action which would cause the Company to be in violation of
the Foreign Corrupt Practices Act of 1977, as amended or any law of similar
effect.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished to Home by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements herein and
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing does not apply to statements
contained in or omitted from any of such documents made or omitted in reliance
upon information furnished in writing by Home. If, prior to the 25th day after
the date of the final prospectus of Home utilized in connection with the IPO,
the Company or the Stockholders become aware of any fact or circumstance which
would affect the accuracy of a representation or warranty of Company or
Stockholders in this Agreement in any material respect, the Company and the
Stockholders shall immediately give notice of such fact or circumstance to Home.
Subject to the provisions of Section 7.8, such notification shall not relieve
either the Company or the Stockholders of their respective obligations under
this Agreement, and, subject to the provisions of Section 7.8, at the sole
option of Home, the truth and accuracy in all material respects of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on the
Funding and Consummation Date, shall be a precondition to the consummation of
this transaction.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that a Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither Home or any of its officers, directors, agents or representatives
nor any Underwriter shall have any liability to the Company, the Stockholders or
any other person affiliated or associated with the Company for any failure of
the Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Stockholders to enter
into this Agreement, or to vote in favor of or consent to the proposed Merger,
has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to Home or the prospective IPO. Notwithstanding the foregoing, Home has
agreed and herein acknowledges its agreement to use its reasonable efforts to
consummate the Home Plan of Organization and IPO as contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
Company has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
-22-
<PAGE>
5.31 DEALER AGREEMENTS AND RELATED MATTERS. Schedule 5.31 sets forth a
complete and accurate list of:
(i) all agreements of any nature (including "Dealer Agreements",
"Home Center Agreements", "Retailer Agreements", "Exclusive Retailer
Agreements", "General Conditions", "Action Plans" and other documents)
between the Company and any dealer, manufacturer, wholesaler or other
distributor (collectively, "Manufacturers") of manufactured housing units
(collectively, "Dealer Agreements"); and
(ii) all volume incentive, rebate and other similar programs of any
Manufacturer (collectively, "Dealer Programs") in which the Company is now
or has within the last three years been a participant.
Schedule 5.31 identifies the Manufacturer that is a party to each such Dealer
Agreement or that sponsors each such Dealer Program, and also identifies the
Company's sales locations subject to or affected by each such Dealer Agreement
and each such Dealer Program. Complete and accurate copies of all Dealer
Agreements and all Dealer Programs listed on Schedule 5.31 are attached to
Schedule 5.31. Except as set forth on Schedule 5.31, the Company is now and for
the last three years has been in compliance in all material respects with all
applicable provisions of the Dealer Agreements and Dealer Programs identified on
Schedule 5.31 and any similar agreements to which the Company has been a party
during the last three years. To the extent that the Company is required by any
Dealer Agreement or Dealer Program to take or refrain from taking specified
actions in order to qualify for the benefits offered thereby (such as the
benefits of an exclusive retailer agreement), the Company is in compliance in
all material respects with all such requirements (it being understood that the
Company is not hereby representing that it qualifies for the highest level of
incentive discounts or rebates offered by such Dealer Agreements or Dealer
Programs). Except as set forth on Schedule 5.31, within the last three years, no
Manufacturer has asserted any claim or right to any refund of any incentive
payment or rebate or other payment or discount granted to the Company by any
such Manufacturer, or any right to offset any amount against any future payment
due or otherwise due to the Company, and no circumstances exist that would
entitle any Manufacturer to make any such claim against the Company. During the
last three years, the Company has accurately calculated and reported to each
Manufacturer with which the Company has done business all financial and sales
data that the Company is required to report to each such Manufacturer, whether
in connection with volume incentive or rebate plans or otherwise.
5.32 NO RETAIL FINANCING. Except as set forth on Schedule 5.32, the
Company does not finance the sale to the Company's customers of manufactured
housing units or related products or services (collectively, "Product"), and is
not liable, directly or indirectly, contingently or otherwise, to any
Manufacturer or any financing source for all or any portion of the purchase
price of any Product that has been sold by the Company or delivered by the
Company to a retail purchaser.
-23-
<PAGE>
5.33 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule 5.33, the
Company has not made any express warranties regarding any Products and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any payment
to or perform any service for any person other than routine matters described as
"Retailer Responsibilities", "Retailer General Installation and Home Delivery
Guidelines" and the like in the Dealer Agreements listed on Schedule 5.31.
5.34 NO INTERESTS IN OTHER BUSINESSES. Except as set forth on Schedule
5.34, neither the Company nor any Stockholder, nor any affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's sales of Product.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each Stockholder severally represents and warrants that the
representations and warranties set forth below as and to the extent relating to
such Stockholder are true as of the date of this Agreement and, subject to
Section 7.8 hereof, shall be true at the time of Closing and on the Funding and
Consummation Date, and that the representations and warranties set forth in
Sections 5.35 and 5.36 shall survive until the first anniversary of the Funding
and Consummation Date, which shall be the Expiration Date for purposes of
Sections 5.35 and 5.36.
5.35 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.35, such Company Stock is owned free and clear of all liens, security
interests, pledges, charges, voting agreements, voting trusts, restrictions,
encumbrances and claims of every kind.
5.36 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Home Stock
that such Stockholder has or may have had. Nothing herein, however, shall limit
or restrict the rights of any Stockholder to acquire Home Stock pursuant to (i)
this Agreement or (ii) any option granted by Home.
5.37 NO INTENTION TO DISPOSE OF HOME STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of Home Stock received as described in Section 3.1.
-24-
<PAGE>
6. REPRESENTATIONS OF HOME AND NEWCO
Home and Newco jointly and severally represent and warrant that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at the time
of Closing and the Funding and Consummation Date, and that such representations
and warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that the warranties and representations set forth in Section 6.14 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 6.14.
6.1 DUE ORGANIZATION. Home and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. Home and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws of Home and Newco (the "Home Charter Documents") are
all attached hereto as Annexes III and IV.
6.2 AUTHORIZATION. (i) The respective representatives of Home and Newco
executing this Agreement have the authority to enter into and bind Home and
Newco to the terms of this Agreement and (ii) Home and Newco have the full legal
right, power and authority to enter into this Agreement and consummate the
Merger. All corporate acts and other proceedings required to have been taken by
Home and Newco to authorize the execution, delivery and performance of this
Agreement and the consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF HOME AND NEWCO. The authorized capital stock of Home
and Newco is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding shares of the capital stock of Newco are owned by
Home. All of the issued and outstanding shares of the capital stock of Home and
Newco have been duly authorized and validly issued, are fully paid and
nonassessable, and further, such shares were offered, issued, sold and delivered
by Home and Newco in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of Home
or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in the Draft Registration Statement,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates Home or Newco to issue any of their respective authorized but
unissued capital stock; and (ii) neither Home nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity
-25-
<PAGE>
securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of Home.
6.5 SUBSIDIARIES. Newco has no subsidiaries. Home has no subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither Home
nor Newco presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, and
neither Home nor Newco, directly or indirectly, is a participant in any joint
venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of Home included in the
Draft Registration Statement (the "Home Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon),
and the balance sheet included therein presents fairly the financial position of
Home as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, Home and Newco have no material liabilities, contingent
or otherwise, except as set forth in or contemplated by this Agreement and the
Other Agreements and except for fees incurred in connection with the
transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement, neither Home nor Newco is in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them which would have a Material Adverse
Effect; and except to the extent set forth in Schedule 6.8, there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
Home or Newco, threatened against or affecting, Home or Newco, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. Home and Newco
have conducted and are conducting their respective businesses in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations and are not in violation of
any of the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. Neither Home nor Newco is in violation of any Home
Charter Document. None of Home, Newco, or, to the knowledge of Home and Newco,
any other party
-26-
<PAGE>
thereto, is in default under any lease, instrument, agreement, license, or
permit to which Home or Newco is a party, or by which Home or Newco, or any of
their respective properties, are bound (collectively, the "Home Documents"); and
(a) the rights and benefits of Home and Newco under the Home Documents will not
be adversely affected by the transactions contemplated hereby and (b) the
execution and delivery of this Agreement by Home and Newco and the performance
of their obligations hereunder do not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not, conflict
with, or result in any violation or default (with or without notice or lapse of
time, or both), under or give rise to a right of termination, cancellation, or
acceleration of any obligation or to loss of a material benefit under, or result
in the creation of any lien upon any of the assets of Home or any Newco under,
any provision of (i) the Certificate of Incorporation or Bylaws of Home or the
comparable governing instruments of any Newco, (ii) any note, bond, mortgage,
indenture or deed of trust or any license, lease, contract, commitment,
agreement or arrangement to which Home and any Newco is a party or by which any
of their respective properties or assets are bound or (iii) any judgment, order,
decree or law, ordinance, rule or regulation, applicable to Home or any Newco or
their respective properties or assets. The execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the Home
Documents or the Home Charter Documents. Except as set forth on Schedule 6.9,
none of the Home Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by Home and Newco and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective Boards of Directors of
Home and Newco and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of Home
and Newco.
6.11 HOME STOCK. At the time of issuance thereof and delivery to the
Stockholders, the Home Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid and legally issued shares of Home, fully
paid and nonassessable, and with the exception of restrictions upon resale set
forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
Home Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. The Home Stock issued and delivered to the
Stockholders shall at the time of such issuance and delivery be free and clear
of any liens, claims or encumbrances of any kind or character. The shares of
Home Stock to be issued to the Stockholders pursuant to this Agreement will not
be registered under the 1933 Act, except as provided in Section 17 hereof.
-27-
<PAGE>
6.12 NO SIDE AGREEMENTS. Neither Home nor Newco has entered or will enter
into any agreement with any of the Founding Companies or any of the Stockholders
of the Founding Companies or Home other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Home was formed in July
1996 and has conducted only limited operations since that time. Neither Home nor
Newco has conducted any material business since the date of its inception,
except in connection with this Agreement, the Other Agreements and the IPO.
Except as described in the Draft Registration Statement, neither Home nor Newco
owns or has at any time owned any real property or any material personal
property or is a party to any other agreement other than the Other Agreements
and the agreements contemplated thereby and to such agreements as will be filed
as Exhibits to the Registration Statement.
6.14 TAXES.Home and Newco have timely filed all requisite federal, state
and other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and there are no examinations in progress or
claims against Home for federal, state and other taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for taxes, whether pending or threatened, has
been received. All taxes which Home or any Newco has been required to collect or
withhold have been duly and timely collected and withheld and have been set
aside in accounts for such purposes, or have been duly and timely paid to the
proper governmental authority. All tax, including interest and penalties
(whether or not shown on any tax return) owed by Home, any member of an
affiliated or consolidated group which includes or included Home, or with
respect to any payment made or deemed made by Home herein has been paid. The
amounts shown as accruals for taxes on Home Financial Statements are sufficient
for the payment of all taxes of the kinds indicated (including penalties and
interest) for all fiscal periods ended on or before that date. Home and Newco
have not entered into any tax sharing agreement or similar arrangement. Home is
not an investment company as defined in Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Home or
Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
Home or Newco;
-28-
<PAGE>
(iii) any change in the authorized capital of Home or Newco or their
outstanding securities or any change in their ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of Home or
Newco;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of Home or Newco;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Home or Newco to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Home or Newco;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of Home or Newco or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of Home or Newco;
(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which Home or Newco is a
party;
(xi) any transaction by Home or Newco outside the ordinary course of
its business;
(xii) any other distribution of property or assets by Home or Newco
other than in the ordinary course of business.
6.16 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Stockholders, together with this Agreement and the information furnished
to the Company and the Stockholders in connection herewith, does not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing does not apply
to statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished by the Company or the Stockholders.
-29-
<PAGE>
6.17 PRIVATE OFFERING. (a) Neither Home, any of its Affiliates nor anyone
on its or their behalf, has issued, sold, or offered any securities of Home to
any person under circumstances that would cause the issuance and sale of the
Home Stock to the Stockholders pursuant to this Agreement, to be subject to the
registration requirements of the 1933 Act.
(b) The offering of shares of Home Stock pursuant to the Home Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of Home and the Other Founding Companies
access to all of the Company's sites, properties, books and records and will
furnish Home with such additional financial and operating data and other
information as to the business and properties of the Company as Home or the
Other Founding Companies may from time to time reasonably request. The Company
will cooperate with Home and the Other Founding Companies, its representatives,
auditors and counsel in the preparation of any documents or other materials
which may be required in connection with any documents or materials required by
this Agreement. Home, Newco, the Stockholders and the Company will treat all
information obtained in connection with the negotiation and performance of this
Agreement or the due diligence investigations conducted with respect to the
Other Founding Companies as confidential in accordance with the provisions of
Section 14 hereof. In addition, Home will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
such Other Founding Company, its Stockholders, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, Home will afford to the officers and authorized representatives of the
Company access to all of Home's and Newco's sites, properties, books and records
and will furnish the Company with such additional financial and operating data
and other information as to the business and properties of Home and Newco as the
Company may from time to time reasonably request. Home and Newco will cooperate
with the Company, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The Company will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
-30-
<PAGE>
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order
and condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or
rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and
maintain its relationships with suppliers, customers and others having
business relations with the Company;
(vi) use its reasonable efforts to maintain compliance with all
material permits, laws, rules and regulations, consent orders, and all
other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent
of Home (which consent shall not be unreasonably withheld), provided that
debt and/or lease instruments may be replaced without the consent of Home
if such replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of Home, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
-31-
<PAGE>
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock
except for distributions permitted as described on Annex I hereto;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the businesses of the Company, (2) (A) liens for taxes either not yet due
or being contested in good faith and by appropriate proceedings (and for
which contested taxes adequate reserves have been established and are
being maintained) or (B) materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the Company; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
-32-
<PAGE>
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Home or its
authorized agents relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, the Company
or a merger, consolidation or business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Home on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by Home or reflected in Schedule 7.6) terminate (i) any
Stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to Home. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to Home of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of any Stockholder or the Company to comply with or satisfy
any material covenant, condition or agreement to be complied with or satisfied
by such person hereunder. Home and Newco shall give prompt notice to the Company
of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of Home or Newco contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any failure of Home or Newco to
comply with or satisfy any material covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.7 shall not be deemed to (i) modify the
-33-
<PAGE>
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.8, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless Home and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by Home or Newco that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, Home shall give the Company notice promptly after
it has knowledge thereof. If Home and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been deemed
given by Home or any Founding Company if no response is received within 24 hours
following receipt of notice of such amendment or supplement (or sooner if
required by the circumstances under which such consent is requested), but the
Company does not give its consent, the Company may terminate this Agreement
pursuant to Section 12.1(iv) hereof. In the event that the Company seeks to
amend or supplement a Schedule pursuant to this Section 7.8, and Home and a
majority of the Other Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. In the event that Home or Newco seeks to amend
or supplement a Schedule pursuant to this Section 7.8 and a majority of the
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. No party to this Agreement shall be liable to any other party if
this Agreement shall be terminated pursuant to the provisions of this Section
7.8. No amendment of or supplement to a Schedule shall be made later than 24
hours prior to the anticipated effectiveness of the Registration Statement.
-34-
<PAGE>
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to Home and the Underwriters
all of the information concerning the Company and the Stockholders required for
inclusion in, and will cooperate with Home and the Underwriters in the
preparation of, the Registration Statement and the prospectus included therein
(including audited and unaudited financial statements, prepared in accordance
with generally accepted accounting principles, in form suitable for inclusion in
the Registration Statement). The Company and the Stockholders agree promptly to
advise Home if at any time during the period in which a prospectus relating to
the offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the Company or the
Stockholders becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the Company or the Stockholders, the Company
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
Company and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and Home shall have had sufficient time to review
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, Home
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the Home Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
-35-
<PAGE>
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the Hart-
Scott-Rodino Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
(ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by Home and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart- Scott-Rodino Act to be
made. If filings under the Hart-Scott-Rodino Act are required, the costs and
expenses thereof (including legal fees and costs and filing fees) shall be borne
by Home. The obligation of each party to consummate the transactions
contemplated by this Agreement is subject to the expiration or termination of
the waiting period under the Hart-Scott-Rodino Act, if applicable.
7.14 STOCKHOLDERS OF HOME. Promptly after a request by the Company, Home
will deliver to the Company a list of the stockholders of Home as of the date of
this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of Stockholders and the Company with respect to actions to
be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. The obligations of
the Stockholders and the Company with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have not been satisfied,
the Stockholders (acting in unison) shall have the right to terminate this
Agreement, or in the alternative, waive any condition not so satisfied. Any act
or action of the Stockholders in consummating the Closing or delivering
certificates representing Company Stock as of the Funding and Consummation Date
shall constitute a waiver of any conditions not so satisfied. However, no such
waiver shall be deemed to affect the survival of the representations and
warranties of Home and Newco contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Home and Newco contained in Section 6 shall be
true and correct in all material respects as of the Closing Date and the Funding
and Consummation Date as though such representations and warranties had been
made as of that time; all of the terms, covenants and conditions of this
Agreement to be complied with and performed by Home and Newco on or before the
Closing Date and the Funding and Consummation Date shall have been duly complied
with and
-36-
<PAGE>
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Funding and Consummation Date, respectively, and
signed by the President or any Vice President of Home shall have been delivered
to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform Home in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the Company as a result of which
the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for Home, dated the Closing Date, in the form annexed hereto as Annex V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of Home Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of the Company as a result of which the Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. Home and Newco each shall have delivered
to the Company a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which Home or Newco is authorized to do business, showing that each of
Home and Newco is in good standing and authorized to do business
-37-
<PAGE>
and that all state franchise and/or income tax returns and taxes for Home and
Newco, respectively, for all periods prior to the Closing have been filed and
paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to Home or Newco which would constitute a Material Adverse
Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of Home and of Newco, certifying the truth and correctness of attached copies of
the Home's and Newco's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the Stockholders of Home and Newco
approving Home's and Newco's entering into this Agreement and the consummation
of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the Home Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for Home Stock (but not cash or other property) pursuant to the Home
Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME AND NEWCO
The obligations of Home and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of Home and
Newco with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, Home and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
-38-
<PAGE>
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Funding and Consummation Date with the same effect as
though such representations and warranties had been made on and as of such date;
all of the terms, covenants and conditions of this Agreement to be complied with
or performed by the Stockholders and the Company on or before the Closing Date
or the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to Home certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of Home as a result of which the
management of Home (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. Home shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the Company
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to Home
an instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholders against the Company and Home and (ii)
obligations of the Company and Home to the Stockholders, except for (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the Stockholders, (y) continuing obligations to Stockholders
relating to their employment by the Company and (z) obligations arising under
this Agreement or the transactions contemplated hereby. In the event that the
Funding and Consummation Date does not occur, then the release instrument
referenced herein shall be void and of no further force or effect.
-39-
<PAGE>
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to Home.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 or otherwise approved by Home, all existing agreements between the
Company and the Stockholders (and entities controlled by the Stockholders) other
than real property leases shall have been canceled effective prior to or as of
the Closing Date, and all real property leases between the Company and the
Stockholders (and any entity controlled by the Stockholders) shall have been
amended in a manner reasonably satisfactory to Home.
9.8 OPINION OF COUNSEL. Home shall have received an opinion from Counsel
to the Company and the Stockholders, dated the Closing Date, substantially in
the form annexed hereto as Annex VI.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Home as a result of which Home deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to Home
a certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
state of incorporation and, unless waived by Home, in each state in which the
Company is authorized to do business, showing the Company is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for the Company for all periods prior to the Closing have been
filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
-40-
<PAGE>
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to Home a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF HOME AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. Home shall
use reasonable efforts to have the Stockholders released from any and all
guarantees of the Company's indebtedness identified on Schedule 10.1. In the
event that Home cannot obtain such releases from the lenders of any such
guaranteed indebtedness identified on Schedule 10.1 on or prior to 120 days
subsequent to the Funding and Consummation Date, Home shall promptly pay off or
otherwise refinance or retire such indebtedness. From and after the Funding and
Consummation Date and until such time as all of such indebtedness is paid off,
refinanced or retired, Home shall maintain unencumbered funds in amounts
sufficient to provide for such pay off, refinancing or retirement, provided that
Home may use such funds for other purposes, in its sole discretion, with the
prior written consent of each Stockholder who has not as of that time been
released from his or her guarantee as described above and whose indebtedness as
described above has not as of that time been paid off, refinanced or retired.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, Home shall not and shall not permit any of its subsidiaries
to undertake any act that would jeopardize the tax-free status of the
organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all or
part of the Home Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of the
Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or
before the Funding and Consummation Date, and shall permit Home to review
all such Tax Returns prior to such filings. Unless the Company is a C
corporation, the Stockholders shall pay or cause to be paid all Tax
liabilities (in excess of all amounts already paid with respect thereto or
properly accrued or reserved with respect thereto on the Company Financial
Statements) shown by such Returns to be due.
(ii) Home shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
-41-
<PAGE>
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs
of filing such Returns.
(iv) Each of the Company, Newco, Home and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of Home, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders, Home and Newco each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, severally (based on their relative ownership of
the Company Stock on the date hereof), will indemnify, defend, protect and hold
harmless Home, Newco, the Company and the Surviving Corporation at all times,
from and after the date of this Agreement until the Expiration Date (provided
that for purposes of Section 11.1(iii) below, the Expiration Date shall be the
date on which the applicable statute of limitations expires), from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by Home,
Newco, the Company or the Surviving Corporation as a result of or arising from
(i) any breach of the representations and warranties of the Stockholders or the
Company set forth herein or on the schedules or certificates delivered in
connection herewith, (ii) any breach of any agreement on the
-42-
<PAGE>
part of the Stockholders or the Company under this Agreement, or (iii) any
liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement of a material fact relating to the Company or the Stockholders, and
provided to Home or its counsel by the Company or the Stockholders (but in the
case of the Stockholders, only if such statement was provided in writing)
contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholders required to be stated therein or
necessary to make the statements therein not misleading, provided, however, that
such indemnity shall not inure to the benefit of Home, Newco, the Company or the
Surviving Corporation to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the Stockholders provided, in writing, corrected
information to Home counsel and to Home for inclusion in the final prospectus,
and such information was not so included or properly delivered, and provided
further, that no Stockholder shall be liable for any indemnification obligation
pursuant to this Section 11.1 to the extent attributable to a breach of any
representation, warranty or agreement made herein individually by any other
Stockholder.
Home and Newco acknowledge and agree that other than the representations
and warranties of Company or Stockholders specifically contained in this
Agreement, there are no representations or warranties of Company or
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
Home and Newco further acknowledge and agree that, should the Closing
occur, their sole and exclusive remedy with respect to any and all claims
relating to this Agreement and the transactions contemplated in this Agreement,
shall be pursuant to the indemnification provisions set forth in this Section
11. Home and Newco hereby waive, from and after the Closing, to the fullest
extent permitted under applicable law, any and all rights, claims and causes of
action they or any indemnified person may have against the Company or any
Stockholder relating to this Agreement or the transactions arising under or
based upon any federal, state, local or foreign statute, law, rule, regulation
or otherwise.
11.2 INDEMNIFICATION BY HOME. Home covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by the
Stockholders as a result of or arising from (i) any breach by Home or Newco of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
Home or Newco under this Agreement, (iii) any liabilities which the Stockholders
may incur due to Home's or Newco's failure to be responsible for the liabilities
and
-43-
<PAGE>
obligations of the Company as provided in Section 1 hereof (except to the extent
that Home or Newco has claims against the Stockholders by reason of such
liabilities); or (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to Home, Newco or any of the Other Founding Companies contained in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, or arising out
of or based upon any omission or alleged omission to state therein a material
fact relating to Home or Newco or any of the Other Founding Companies required
to be stated therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing Indemnified Party, Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently pursues
such defense, the Indemnifying Party shall not be liable for any additional
legal expenses incurred by the Indemnified Party in connection with any defense
or settlement of such asserted liability, except (i) as set forth in the
preceding sentence and (ii) to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be reimbursed by
the Indemnifying Party for reasonable additional legal expenses and
out-of-pocket expenses. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be
-44-
<PAGE>
limited to the amount so offered in settlement by said Third Person. Upon
agreement as to such settlement between said Third Person and the Indemnifying
Party, the Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment.
If the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party,
provided that, nothing herein shall be construed to limit the right of a party,
in a proper case, to seek injunctive relief for a breach of this Agreement. Any
indemnity payment under this Section 11 shall be treated as an adjustment to the
exchange consideration for tax purposes unless a final determination (which
shall include the execution of a Form 870-AD or successor form) with respect to
the indemnified party or any of its affiliate causes any such payment not to be
treated as an adjustment to the exchange consideration for U.S. Federal Income
Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. Home, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 shall not assert any claim for indemnification hereunder against
the Stockholders until such time as, and solely to the extent that, the
aggregate of all claims which such persons may have against such the
Stockholders shall exceed the greater of (a) 1.0% of the sum of (i) the cash
paid to Stockholders plus (ii) the value of the Home Stock delivered to
Stockholders (calculated as provided in this Section 11.5) or (b) $50,000 (the
"Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against Home or Newco until such time as, and solely
to the extent that, the aggregate of all claims which Stockholders may have
against Home or Newco shall exceed the Indemnification Threshold.
-45-
<PAGE>
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the Home Stock received by a Stockholder, Home Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such stockholder in connection with the Merger, valued as described
immediately above, but shall also have the right to satisfy any such obligation
in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of Home and the
Company;
(ii) by the Stockholders or the Company (acting through its board of
directors), on the one hand, or by Home (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
March 31, 1998, unless the failure of such transactions to be consummated
is due to the willful failure of the party seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the
extent required to be performed by it prior to or on the Funding and
Consummation Date;
(iii) by the Stockholders or Company, on the one hand, or by Home,
on the other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely performance of any
of the covenants or agreements contained herein, and the curing of such
default shall not have been made on or before the Funding and Consummation
Date or by the Stockholders or the Company, if the conditions set forth in
Section 8 hereof have not been satisfied or waived as of the Closing Date
or the Funding and Consummation Date, as applicable, or by Home, if the
conditions set forth in Section 9 hereof have not been satisfied or waived
as of the Closing Date or the Funding and Consummation Date, as
applicable;
(iv) pursuant to Section 7.8 hereof; or
-46-
<PAGE>
(v) pursuant to Section 4 hereof;
provided, however, that during the period from the Closing Date to the Funding
and Consummation Date, this Agreement may be terminated only if the underwriting
agreement relating to the IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, for a period of
five (5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any retail (new or used, but excluding used home lots
or other activities listed on Schedule 13.1 hereto) manufactured housing
business or operation or related services business (including the
ownership or management of manufactured housing subdivisions, lots or
parks, but excluding any such subdivisions, lots or parks or other
activities listed on Schedule 13.1 hereto) in direct competition with Home
or any of the subsidiaries thereof, within 100 miles of where the Company
or any of its subsidiaries conducted business prior to the effectiveness
of the Merger (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Home or any subsidiary thereof for the purpose
or with the intent of enticing such employee away from or out of the
employ of Home or any subsidiary thereof;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to the Funding and Consummation
Date, a customer of Home or any subsidiary thereof, of the Company or of
any of the Other Founding Companies within the Territory for the purpose
of soliciting or selling products or services in direct competition with
Home within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the retail
manufactured housing business, which
-47-
<PAGE>
candidate, to the actual knowledge of such Stockholder after due inquiry,
was called upon by Home or any subsidiary thereof or for which, to the
actual knowledge of such Stockholder after due inquiry, Home or any
subsidiary thereof made an acquisition analysis, for the purpose of
acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the
Company to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the Company has in
the past disclosed such information to the public for valid business
reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit (i) any Stockholder from acquiring as a passive investment not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange or over-the-counter, or (ii) any of
the activities listed on Schedule 13.1 hereto.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
Home as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Home for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Home in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of Home and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of Home; but it is also the intent of Home and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities; business and locations of Home and its subsidiaries throughout the
term of this covenant. During the term of this covenant, if Home or one of its
subsidiaries engages in new activities, enters a new business or establishes new
locations for its current activities or business in addition to or other than
the activities or business it is currently conducting in the locations currently
established therefor (provided such activities or business are related to the
business or operations of the retail manufactured housing business), then the
Stockholders will be precluded from soliciting the customers or employees of
such new activities or business or from such new location and from directly
competing with such new activities or business within 100 miles of its
then-established operating location(s) through the term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties
-48-
<PAGE>
that such restrictions be enforced to the fullest extent which the court deems
reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Home or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by Home of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or Home, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or Home's respective businesses. The Stockholders agree that they
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of Home, (b) following the Closing,
such information may be disclosed by the Stockholders as is required in the
course of performing their duties for Home or the Surviving Corporation and (c)
to counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1, unless (i) such
information becomes known to the public generally through no fault of the
Stockholders, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii), the Stockholders shall, if
possible, give prior written notice thereof to Home and provide Home with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by any of the Stockholders of the provisions of this Section 14.1, Home
shall be entitled to an injunction restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Home from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
Stockholders shall have none of the above-mentioned restrictions on their
ability to disseminate confidential information with respect to the Company.
Each Stockholder further agrees that in the event the transactions contemplated
herein are not consummated (i) neither the Company nor any Stockholder can
thereafter use any confidential information of the Other Founding
-49-
<PAGE>
Companies for any purpose and (ii) upon written request of any Other Founding
Company to the Company, the Company and Stockholders will return all
confidential information pertaining to such Other Founding Company to such Other
Founding Company.
14.2 HOME AND NEWCO. Home and Newco recognize and acknowledge that they
had in the past and currently have access to certain confidential information of
the Company, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company's business. Home and
Newco agree that, prior to the Closing, or if the Transactions contemplated by
this Agreement are not consummated, they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
the Company, (b) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.2, (c) to the Other Founding Companies and their representatives pursuant to
Section 7.1(a), unless (i) such information becomes known to the public
generally through no fault of Home or Newco, (ii) disclosure is required by law
or the order of any governmental authority under color of law, provided, that
prior to disclosing any information pursuant to this clause (ii), Home and Newco
shall, if possible, give prior written notice thereof to the Company and the
Stockholders and provide the Company and the Stockholders with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably believes
that such disclosure is required in connection with the defense of a lawsuit
against the disclosing party, and (d) to the public to the extent necessary or
advisable in connection with the filing of the Registration Statement and the
IPO and the securities laws applicable thereto and to the operation of Home as a
publicly held entity after the IPO. In the event of a breach or threatened
breach by Home or Newco of the provisions of this Section 14.2, the Company and
the Stockholders shall be entitled to an injunction restraining Home and Newco
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the Company and the Stockholders from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by Home, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1
-50-
<PAGE>
(or trusts for the benefit of the Stockholders or family members, the trustees
of which so agree), for a period of one year from the Closing, except pursuant
to Section 17 hereof, none of the Stockholders shall sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of any
shares of Home Stock received by the Stockholders in the Merger. The
certificates evidencing the Home Stock delivered to the Stockholders pursuant to
Section 3 of this Agreement will bear a legend substantially in the form set
forth below and containing such other information as Home may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
Home Stock to be delivered to the Stockholders pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The Home Stock to be acquired by such Stockholders pursuant to this
Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the shares of Home Stock issued to
such Stockholders will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the Home Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the Home Stock to be acquired pursuant to this
Agreement and can afford
-51-
<PAGE>
to sustain a total loss of such investment and have such knowledge and
experience in financial and business matters that they are capable of evaluating
the merits and risks of the proposed investment in the Home Stock. The
Stockholders party hereto have had an adequate opportunity to ask questions and
receive answers from the officers of Home concerning any and all matters
relating to the transactions described herein including, without limitation, the
background and experience of the current and proposed officers and directors of
Home, the plans for the operations of the business of Home, the business,
operations and financial condition of the Founding Companies other than the
Company, and any plans for additional acquisitions and the like. The
Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever Home proposes to register any Home Stock for its own or others account
under the 1933 Act for a public offering, other than (i) any shelf or other
registration of shares to be used as consideration for acquisitions of
additional businesses by Home and (ii) registrations relating to employee
benefit plans, Home shall give each of the Stockholders prompt written notice of
its intent to do so. Upon the written request of any of the Stockholders given
within 30 days after receipt of such notice, Home shall cause to be included in
such registration all of the Home Stock issued to the Stockholders pursuant to
this Agreement (including any stock issued as (or issuable upon the conversion
or exchange of any convertible security, warrant, right or other security which
is issued by Home as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Home Stock) which any such Stockholder
requests, provided that Home shall have the right to reduce the number of shares
included in such registration to the extent that inclusion of such shares could,
in the written opinion of tax counsel to Home or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as a tax-free organization under Section 351 of the Code.
In addition, if Home is advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 17.1 that the number of shares
to be sold by persons other than Home is greater than the number of such shares
which can be offered without adversely affecting the offering, Home may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares held by such person) to a number deemed satisfactory
by such managing underwriter, provided, that, for each such offering made by
Home after the IPO, such reduction shall be made first by reducing the number of
shares to be sold by persons other than Home, the Stockholders and the
stockholders of the Other Founding Companies (collectively, the Stockholders and
the stockholders of the other Founding Companies being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
-52-
<PAGE>
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of Home Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements which have not been
previously registered or sold and which are not entitled to be sold under Rule
144(k) (or any similar or successor provision) promulgated under the 1933 Act
may request in writing that Home file a registration statement under the 1933
Act covering the registration of the shares of Home Stock issued to the
Stockholders pursuant to this Agreement and the Other Agreements (including any
stock issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by Home as) a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Home Stock) then held by such Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the receipt of such request,
Home shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from any Stockholder, file and use its best efforts to cause
to become effective a registration statement covering all such shares. Home
shall be obligated to effect only one Demand Registration for all Founding
Stockholders and will keep such Demand Registration current and effective for
not less than 120 days (or such shorter period as is required to sell all of the
shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of Home's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which
Home would otherwise be required to make such filing pursuant to the foregoing
paragraph.
If at the time of any request by the Founding Stockholders for a Demand
Registration Home has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' Home
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless Home is no longer proceeding
diligently to effect such registration; provided that Home shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by Home
as a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever Home is required to register shares
of Home Stock pursuant to Sections 17.1 and 17.2, Home will, as expeditiously as
possible:
-53-
<PAGE>
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, Home will
furnish a representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that Home shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of Home Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
Home are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that Home is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, Home will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by Home.
-54-
<PAGE>
17.4 INDEMNIFICATION.
(a) In connection with any demand registration, Home shall indemnify, to
the extent permitted by law, each Stockholder (an "Indemnified Party") against
all losses, claims, damages, liabilities and expenses arising out of or
resulting from any untrue or alleged untrue statement of material fact contained
in any registration statement, prospectus or preliminary prospectus or
associated term sheet or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading except insofar as the same are caused by or contained in
or omitted from any information furnished in writing to Home by such Indemnified
Party expressly for use therein or by any Indemnified Parties' failure to
deliver a copy of the registration statement or prospectus or any amendment or
supplements thereto after Home has furnished such Indemnified Party with a
sufficient number of copies of the same.
(b) In connection with any demand registration, each Stockholder shall
furnish to Home in writing such information as is reasonably requested by Home
for use in any such registration statement or prospectus and will indemnify, to
the extent permitted by law, Home, its directors and officers and each person
who controls Home (within the meaning of the 1933 Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or alleged
untrue statement or material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement or prospectus
or any amendment thereof or supplement thereto necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
omission is contained in information so furnished in writing by such Stockholder
specifically for use in preparing the registration statement. Notwithstanding
the foregoing, the liability of a Stockholder under this Section 17.5 shall be
limited to an amount equal to the net proceeds actually received by such
Stockholder from the sale of the relevant shares covered by the registration
statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified parties' reasonable
judgment, a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. Any failure to give prompt notice shall deprive a party of
its right to indemnification hereunder only to the extent that such failure
shall have adversely effected the indemnifying party. If the defense of any
claim is assumed, the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled or elects not,
to assume the defense of a claim, will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party, a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
-55-
<PAGE>
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, Home and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of Home's size and investment stature,
including indemnification.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of Home stock
to the public without registration, Home agrees to use its best efforts to:
(i) make and keep public information regarding Home available as
those terms are understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of Home under the 1933 Act and the 1934 Act at any time
after it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted Home Common
Stock, furnish to each Stockholder forthwith upon written request a
written statement by Home as to its compliance with the reporting
requirements of Rule 144 (at any time from and after 90 days following the
effective date of the Registration Statement, and of the 1933 Act and the
1934 Act (any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
Home, and such other reports and documents so filed as a Stockholder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Stockholder to sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders, Home and Newco shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The Company will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the Company
cooperate with Home on and after the Funding and Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any tax
return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Funding
and Consummation Date.
-56-
<PAGE>
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Home, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and Home and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and Home,
acting through their respective officers or trustees, duly authorized by their
respective Boards of Directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the Company shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, Home will pay the fees, expenses and disbursements of Home
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by Home under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other
person or entity retained by Home or by Notre Capital Ventures II, L.L.C., and
the costs of preparing the Registration Statement. Each Stockholder shall pay
all sales, use, transfer, real property transfer, recording, gains, stock
transfer and other similar taxes and fees ("Transfer Taxes") imposed in
connection with the Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. Each Stockholder shall file all necessary documentation and
Returns with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or Home, will pay all taxes due upon
receipt of the consideration payable pursuant to Section 2 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks,
-57-
<PAGE>
with respect to which the Stockholders are relying solely on the opinion
contemplated by Section 8.12 hereof.
(b) In the event that the Funding and Consummation Date occurs, then
Home will reimburse the Stockholders and the stockholders of Other Founding
Companies for incremental and direct accounting costs and expenses incurred by
them in connection with the Merger and IPO and such additional accounting and
legal expenses incurred by them in connection therewith as may be approved by
Home.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to Home, or Newco, addressed to them at:
Home USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: Cary N. Vollintine
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
-58-
<PAGE>
with copies to Local Counsel:
Bob Curry
Conner & Winters
2400 First Place Tower
Tulsa, OK 74103
(c) If to the Company, addressed to it at:
McDonald Homes, Inc.
10159 E. 11th Street, Suite 420
Tulsa, OK 74128
Attn: Frank C. McDonald
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
-59-
<PAGE>
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of Home, Newco, the Company and Stockholders who hold or who
will hold at least 50% of the Home Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving Home Stock in connection with the Merger and each future holder
of such Home Stock.
-60-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
HOMEUSA, INC.
By: ________________________
Cary N. Vollintine
Chief Executive Officer
MCDONALD HOMES ACQUISITION CORP.
By: ________________________
Name: ___________________
Title: __________________
MCDONALD HOMES, INC.
By: ________________________
Name: ___________________
Title: __________________
-61-
<PAGE>
Stockholders:
____________________________
Frank McDonald
____________________________
Greg Matlock
____________________________
Edward Small
____________________________
James Holder
____________________________
Jeffrey Conway
-62-
<PAGE>
SCHEDULE 6.9
None.
-63-
EXHIBIT 10.4
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 10th day of September, 1997
by and among
HOMEUSA, INC.
UNIVERSAL HOUSING ACQUISITION CORP.
UNIVERSAL HOUSING OF EAST TENNESSEE ACQUISITION CORP.
SHAFFER & WEBB INSURANCE AGENCY ACQUISITION CORP.
(each a subsidiary of HomeUSA, Inc.)
UNIVERSAL HOUSING, INC.
UNIVERSAL HOUSING OF EAST TN., INC.
SHAFFER & WEBB INSURANCE AGENCY, INC.
and
the STOCKHOLDERS named herein
-2-
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 Delivery and Filing of Articles of Merger........................5
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-laws and Board of
Directors of Surviving Corporation...............................6
1.4 Certain Information With Respect to the Capital Stock of the
Company, Home and Newco..........................................7
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 Manner of Conversion.............................................8
3. DELIVERY OF MERGER CONSIDERATION.......................................9
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS..................................................10
(A) Representations and Warranties of the
Company and the Stockholders..............................10
5.1 Due Organization................................................10
5.2 Authorization...................................................11
5.3 Capital Stock of the Company....................................11
5.4 Transactions in Capital Stock, Organization Accounting..........11
5.5 No Bonus Shares.................................................11
5.6 Subsidiaries....................................................11
5.7 Predecessor Status; etc.........................................11
5.8 Spin-off by the Company.........................................12
5.9 Financial Statements............................................12
5.10 Liabilities and Obligations.....................................12
5.11 Accounts and Notes Receivable...................................13
5.12 Permits and Intangibles.........................................13
5.13 Environmental Matters...........................................13
5.14 Personal Property...............................................14
5.15 Significant Customers; Material Contracts and Commitments.......14
-i-
<PAGE>
5.16 Real Property...................................................15
5.17 Insurance.......................................................16
5.18 Compensation; Employment Agreements; Organized Labor Matters....16
5.19 Employee Plans..................................................16
5.20 Compliance with ERISA...........................................17
5.21 Conformity with Law; Litigation.................................18
5.22 Taxes...........................................................19
5.23 No Violations; No Consents Required, Etc.......................19
5.24 Government Contracts............................................20
5.25 Absence of Changes..............................................20
5.26 Deposit Accounts; Powers of Attorney............................21
5.27 Validity of Obligations.........................................22
5.28 Relations with Governments......................................22
5.29 Disclosure......................................................22
5.30 Prohibited Activities...........................................23
5.31 Dealer Agreements and Related Matters...........................23
5.32 No Retail Financing.............................................24
5.33 No Warranties or Insurance......................................24
5.34 No Interests In Other Businesses................................24
(B) Representations and Warranties of Stockholders......24
5.35 Authority; Ownership............................................24
5.36 Preemptive Rights...............................................25
5.37 No Intention to Dispose of Home Stock...........................25
6. REPRESENTATIONS OF HOME AND NEWCO.....................................25
6.1 Due Organization................................................25
6.2 Authorization...................................................25
6.3 Capital Stock of Home and Newco.................................25
6.4 Transactions in Capital Stock, Organization Accounting..........26
6.5 Subsidiaries....................................................26
6.6 Financial Statements............................................26
6.7 Liabilities and Obligations.....................................26
6.8 Conformity with Law; Litigation.................................26
6.9 No Violations...................................................27
6.10 Validity of Obligations.........................................27
6.11 Home Stock......................................................28
6.12 No Side Agreements..............................................28
6.13 Business; Real Property; Material Agreements....................28
6.14 Taxes...........................................................28
6.15 Absence of Changes..............................................29
-ii-
<PAGE>
6.16 Disclosure......................................................30
6.17 Private Offering................................................30
7. COVENANTS PRIOR TO CLOSING............................................30
7.1 Access and Cooperation; Due Diligence...........................30
7.2 Conduct of Business Pending Closing.............................31
7.3 Prohibited Activities...........................................32
7.4 No Shop.........................................................33
7.5 Notice to Bargaining Agents.....................................33
7.6 Agreements......................................................33
7.7 Notification of Certain Matters.................................34
7.8 Amendment of Schedules..........................................34
7.9 Cooperation in Preparation of Registration Statement............35
7.10 Final Financial Statements......................................35
7.11 Further Assurances..............................................36
7.12 Authorized Capital..............................................36
7.13 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott-Rodino Act").......................36
7.14 Stockholders of Home............................................36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF
STOCKHOLDERS AND COMPANY..............................................36
8.1 Representations and Warranties; Performance of Obligations......37
8.2 Satisfaction....................................................37
8.3 No Litigation...................................................37
8.4 Opinion of Counsel..............................................37
8.5 Registration Statement..........................................37
8.6 Consents and Approvals..........................................38
8.7 Good Standing Certificates......................................38
8.8 No Material Adverse Change......................................38
8.9 Closing of IPO..................................................38
8.10 Secretary's Certificate.........................................38
8.11 Employment Agreements...........................................38
8.12 Tax Matters.....................................................38
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME AND NEWCO.................39
9.1 Representations and Warranties; Performance of Obligations......39
9.2 No Litigation...................................................39
9.3 Secretary's Certificate.........................................39
9.4 No Material Adverse Effect......................................39
9.5 Stockholders' Release...........................................40
-iii-
<PAGE>
9.6 Satisfaction....................................................40
9.7 Termination of Related Party Agreements.........................40
9.8 Opinion of Counsel..............................................40
9.9 Consents and Approvals..........................................40
9.10 Good Standing Certificates......................................40
9.11 Registration Statement..........................................41
9.12 Employment Agreements...........................................41
9.13 Closing of IPO..................................................41
9.14 FIRPTA Certificate..............................................41
10. COVENANTS OF HOME AND THE STOCKHOLDERS AFTER CLOSING..................41
10.1 Release From Guarantees; Repayment of Certain Obligations.......41
10.2 Preservation of Tax and Accounting Treatment....................41
10.3 Preparation and Filing of Tax Returns...........................42
10.4 Directors.......................................................42
11. INDEMNIFICATION.......................................................43
11.1 General Indemnification by the Stockholders.....................43
11.2 Indemnification by Home.........................................44
11.3 Third Person Claims.............................................44
11.4 Exclusive Remedy................................................45
11.5 Limitations on Indemnification..................................46
12. TERMINATION OF AGREEMENT..............................................46
12.1 Termination.....................................................46
12.2 Liabilities in Event of Termination.............................47
13. NONCOMPETITION........................................................47
13.1 Prohibited Activities...........................................47
13.2 Damages.........................................................48
13.3 Reasonable Restraint............................................48
13.4 Severability; Reformation.......................................49
13.5 Independent Covenant............................................49
13.6 Materiality.....................................................49
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................49
14.1 Stockholders....................................................49
14.2 Home and Newco..................................................50
14.3 Damages.........................................................51
14.4 Survival........................................................51
-iv-
<PAGE>
15. TRANSFER RESTRICTIONS.................................................51
15.1 Transfer Restrictions...........................................51
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................51
16.1 Compliance with Law.............................................51
16.2 Economic Risk; Sophistication...................................52
17. REGISTRATION RIGHTS...................................................52
17.1 Piggyback Registration Rights...................................52
17.2 Demand Registration Rights......................................53
17.3 Registration Procedures.........................................54
17.4 Indemnification.................................................55
17.5 Underwriting Agreement..........................................56
17.6 Rule 144 Reporting..............................................56
18. GENERAL...............................................................57
18.1 Cooperation.....................................................57
18.2 Successors and Assigns..........................................57
18.3 Entire Agreement................................................57
18.4 Counterparts....................................................57
18.5 Brokers and Agents..............................................57
18.6 Expenses........................................................57
18.7 Notices.........................................................58
18.8 Governing Law...................................................59
18.9 Survival of Representations and Warranties......................59
18.10 Exercise of Rights and Remedies.................................59
18.11 Time............................................................60
18.12 Reformation and Severability....................................60
18.13 Remedies Cumulative.............................................60
18.14 Captions........................................................60
18.15 Amendments and Waivers..........................................60
-v-
<PAGE>
APPENDICES AND ANNEXES
Appendix I - Mergers
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Certificate of Incorporation and By-Laws of Home
Annex IV - Certificate of Incorporation and By-Laws of Newco
Annex V - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex VI - Form of Opinion of Andrews & Kurth, LLP
Annex VII - Form of Key Employee Employment Agreement
-vi-
<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes 5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Dealer Agreements
5.32 No Retail Financing
5.33 No Warranties or Insurance
5.34 No Interests in Other Businesses
5.35 Authority; Ownership
6.9 No Violations
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
10.1 Guaranties
13.1 Lots Excluded from Noncompete
-vii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 10th day of September, 1997, by and among HOMEUSA, INC., a Delaware
corporation ("Home"), UNIVERSAL HOUSING ACQUISITION CORP., UNIVERSAL HOUSING OF
EAST TENNESSEE ACQUISITION CORP., and SHAFFER & WEBB INSURANCE AGENCY
ACQUISITION CORP., each of which is a Delaware corporation (collectively,
"Newco", and individually, "each Newco"), UNIVERSAL HOUSING, INC., UNIVERSAL
HOUSING OF EAST TN., INC. and SHAFFER & WEBB INSURANCE AGENCY, INC., each of
which is a Tennessee corporation (collectively, the "Company", and individually,
"each Company"), and LARRY T. SHAFFER, JR., DAVID L. BRANSON, LARRY F. DALTON,
and LARRY T. SHAFFER, SR. (the "Stockholders"). The Stockholders are all the
stockholders of the Company.
RECITALS
WHEREAS, each Newco is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on
September 8, 1997 solely for the purpose of completing the transactions
set forth herein, and is a wholly-owned subsidiary of Home, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of each Newco and each
Company (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of
the Constituent Corporations and their respective Stockholders that each
Newco merge with and into each Company as set forth on Appendix I hereto
pursuant to this Agreement and the applicable provisions of the laws of
the State of Delaware and the State or States of Incorporation;
WHEREAS, Home is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional retail manufactured housing
companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"Home Plan of Organization;"
WHEREAS, the Stockholders and the Boards of Directors and the
stockholders of Home, each of the Other Founding Companies and each of the
subsidiaries of Home that are parties to the Other Agreements have
approved and adopted the Home Plan of Organization as an integrated plan
pursuant to which the Stockholders and the stockholders of each of the
-1-
<PAGE>
other Founding Companies will transfer the capital stock of each of the
Founding Companies to Home and the Stockholders of each of the other
Founding Companies will acquire the stock of Home (but not cash or other
property) as a tax-free transfer of property under Section 351 of the
Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of each
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the Home Plan of Organization in
order to transfer the capital stock of such Company to Home;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means each Company, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" shall mean each Newco and each of the other
Delaware companies wholly-owned by Home prior to the Funding and Consummation
Date.
"Affiliates" means, with respect to any Person, any Person or entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Mergers in such forms as may be required by the laws of the
State of Delaware and the State or States of Incorporation.
"Balance Sheet Date" shall mean June 30, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
-2-
<PAGE>
"Company Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the draft dated September 5, 1997 of
the Registration Statement, and any corrections thereto and supplemental
information delivered by Home to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to Home.
"Effective Time of the Merger" shall mean the time as of which each Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Cooper's Mobile Homes, Inc., a Washington corporation, Home USA,
Inc., a Washington corporation, and Pac West Mgmt., Inc., a Washington
corporation.
CSF&T, Inc. (dba AAA Homes), a Mississippi corporation, AAA Homes,
L.L.C., a Louisiana limited liability company, and Fordham Insurance
Agency, Inc., a Mississippi corporation.
First American Homes, Inc., an Alabama corporation, D & S, Inc., an
Alabama corporation, and Son Development Corporation, an Alabama
corporation.
Home Folks Housing Center, Inc., a Kentucky corporation.
McDonald Homes, Inc., an Oklahoma corporation.
Mobile World, Inc., a Texas corporation, and Showcase of Homes,
Inc., a Texas corporation.
Patrick Home Center, Inc., a Mississippi corporation.
Universal Housing, Inc., a Tennessee corporation, Shaffer & Webb
Insurance Agency, Inc., a Tennessee corporation, and Universal Housing of
East TN, Inc., a Tennessee corporation.
Willmax Homes of Colorado LLC, a Colorado limited liability company.
-3-
<PAGE>
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of Home Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Company" means the actual knowledge of the executive
officers of the Company.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of each Newco with and into each Company as set
forth on Appendix I hereto pursuant to this Agreement and the applicable
provisions of the laws of the State of Delaware and the laws of the State or
States of Incorporation.
"Home" has the meaning set forth in the first paragraph of this Agreement.
"Home Charter Documents" has the meaning set forth in Section 6.1.
"Home Stock" means the common stock, par value $.01 per share, of Home.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by Home and the Underwriters of
the public offering price of the shares of Home Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Home Stock to be issued in
the IPO and all amendments thereto.
-4-
<PAGE>
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Tennessee.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean each Company as the surviving party in
each Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to Home to be held for filing with the
-5-
<PAGE>
Secretary of State of the State of Delaware and the Secretary of State (or other
appropriate authority) of the State or States of Incorporation on or effective
as of the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
each Newco shall be merged with and into each Company as set forth on Appendix I
hereto in accordance with the respective Articles of Merger, the separate
existence of each Newco shall cease, each Company shall be the surviving party
in the respective Merger and each Company is sometimes hereinafter referred to
as the Surviving Corporation. The Mergers will be effected in a single
transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of each Company then in effect
shall be the Certificate of Incorporation of the respective Surviving
Corporation until changed as provided by law;
(ii) the By-laws of each Newco then in effect shall become the
By-laws of the respective Surviving Corporation; and subsequent to the
Effective Time of each Merger, such By-laws shall be the By-laws of the
respective Surviving Corporation until they shall there after be duly
amended (and such By-laws shall be amended from time to time, if
necessary, to comply with applicable state law);
(iii) the Board of Directors of the respective Surviving Corporation
shall consist of the persons who are on the Board of Directors of each
Company immediately prior to the Effective Time of the Mergers, provided
that Cary N. Vollintine shall become an additional director of each
Surviving Corporation effective as of the Effective Time of the Merger,
and the number of directors constituting the entire Board of Directors of
each Surviving Corporation shall be increased, if necessary, to
accommodate the addition of such additional director; the Board of
Directors of each Surviving Corporation shall hold office subject to the
provisions of the laws of the State or States of Incorporation and of the
Certificate of Incorporation and By-laws of the respective Surviving
Corporation; and
(iv) the officers of each Company immediately prior to the Effective
Time of the Mergers shall continue as the officers of the respective
Surviving Corporation in the same capacity or capacities, and effective
upon the Effective Time of the Mergers Michael Loy shall become an
additional Vice President of each Surviving Corporation, such officers to
serve, subject to the provisions of the Certificate of Incorporation and
By-laws of the respective Surviving Corporation, until their respective
successors are duly elected and qualified.
-6-
<PAGE>
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
HOME AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of each Company,
Home and each Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of each Company is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof,
the authorized capital stock of Home will consist of 50,000,000 shares of
Home Stock, of which the number of issued and outstanding shares will be
set forth in the Registration Statement, 5,000,000 shares of preferred
stock, $.01 par value, of which no shares will be issued and outstanding,
and 5,000,000 shares of Restricted Voting Common Stock, $.01 par value
(the "Restricted Common Stock"), all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement;
and
(iii) as of the date of this Agreement, the authorized capital stock
of each Newco consists of 1,000 shares of Newco Stock, of which one
hundred (100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Mergers, the effect of
each Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State or States of Incorporation. Except as herein specifically set forth, the
identity, existence, purposes, powers, franchises, privileges, rights and
immunities of each Company shall continue unaffected and unimpaired by the
Mergers and the corporate franchises, existence and rights of each Newco shall
be merged with and into the respective Company, and the respective Company, as
the Surviving Corporation, shall be fully vested therewith. At the Effective
Time of the Mergers, the separate existence of each Newco shall cease and, in
accordance with the terms of this Agreement, the respective Surviving
Corporation shall possess all the rights, privileges, immunities and franchises,
of a public, as well as of a private, nature, and all property, real, personal
and mixed, and all debts due on whatever account, including subscriptions to
shares, and all taxes, including those due and owing and those accrued, and all
other choses in action, and all and every other interest of or belonging to or
due to the respective Company and respective Newco shall be transferred to, and
vested in, the respective Surviving Corporation without further act or deed; and
all property, rights and privileges, powers and franchises and all and every
other interest shall be thereafter as effectually the property of the respective
Surviving Corporation as they were of the respective Company and respective
Newco; and the title to any real estate, or interest therein, whether by deed or
otherwise, under the laws of the State or States of Incorporation vested in the
respective Company and respective Newco, shall not revert or be in any way
impaired by reason of the Mergers. Except as otherwise provided herein, the
respective
-7-
<PAGE>
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the respective Company and respective Newco and
any claim existing, or action or proceeding pending, by or against the
respective Company or respective Newco may be prosecuted as if the Merger had
not taken place, or the respective Surviving Corporation may be substituted in
their place. Neither the rights of creditors nor any liens upon the property of
the respective Company or respective Newco shall be impaired by the Merger, and
all debts, liabilities and duties of the respective Company and respective Newco
shall attach to the respective Surviving Corporation, and may be enforced
against such Surviving Corporation to the same extent as if said debts,
liabilities and duties had been incurred or contracted by such Surviving
Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) Home Stock and cash and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of Home Stock set forth on Annex I hereto (adjusted as
set forth on such Annex I) with respect to such holder and (2) the right
to receive the amount of cash set forth on Annex I hereto with respect to
such holder (adjusted as set forth on such Annex I);
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of Home Stock
or other consideration shall be delivered or paid in exchange therefor;
and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger
and without any action on the part of Home, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All Home Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding Home
Stock by reason of the provisions of the Certificate of Incorporation of Home or
as otherwise provided by the Delaware GCL. All Home Stock received
-8-
<PAGE>
by the Stockholders shall be issued and delivered to the Stockholders free and
clear of any liens, claims or encumbrances of any kind or nature. All voting
rights of such Home Stock received by the Stockholders shall be fully
exercisable by the Stockholders and the Stockholders shall not be deprived nor
restricted in exercising those rights. At the Effective Time of the Merger, Home
shall have no class of capital stock issued and outstanding other than the Home
Stock and the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
number of shares of Home Stock and the amount of cash described on Annex I
hereto, said cash to be payable by certified check or wire transfer.
3.2 The Stockholders shall deliver to Home at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The
Stockholders agree promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such Company Stock or with respect to the stock powers accompanying
any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to Home for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and certified check(s) referred to in
Section 3 hereof, each of which actions shall only be taken upon the Funding and
Consummation Date as herein provided. In the event that there is no Funding and
Consummation Date and this Agreement automatically terminates as provided in
this Section 4 the Articles of Merger shall not be filed and shall be returned
to the Stockholders. The taking of the actions described in clauses (i) and (ii)
above (the "Closing") shall take place on the closing date (the "Closing Date")
at the offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares, the delivery of a certified check or checks in an amount
equal to the cash portion of the consideration which the Stockholders shall be
entitled to receive pursuant to the Merger referred to in Section 3 hereof and
(z) the closing with respect to the IPO shall occur
-9-
<PAGE>
and be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occurs shall be referred to as the "Funding and
Consummation Date." During the period from the Closing Date to the Funding and
Consummation Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall also in any event
automatically terminate if the Funding and Consummation Date has not occurred
within 15 business days following the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
Each Company, and the Stockholders severally (based on their relative
ownership of the Company Stock on the date hereof) represent and warrant that
all of the following representations and warranties in this Section 5(A) are
true at the date of this Agreement and, subject to Section 7.8 hereof, shall be
true at the time of Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the warranties and representations set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Funding and Consummation Date, which shall
be deemed to be the Expiration Date for Section 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
their subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company taken as a whole (as used herein with respect to the Company, or
with respect to any other Person, a "Material Adverse Effect"). Schedule 5.1
sets forth a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and correct copies of (i) the
Certificate of Incorporation and By-laws, each as amended, of the Company (the
"Charter Documents"), and (ii) the stock records of the Company, are all
attached to Schedule 5.1. The Company has delivered complete and correct copies
of all minutes of meetings, written consents and other evidence, if any, of
deliberations of or actions taken by the Company's Board of Directors and
stockholders during the last five years.
-10-
<PAGE>
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the Company
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Annex II. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Stockholders and further, such shares were offered, issued, sold and delivered
by the Company in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Merger and/or the Home Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the Home Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the
-11-
<PAGE>
Company previously acquired material assets, in any case, from the earliest date
upon which any Stockholder acquired his or her stock in any Company. Except as
disclosed on Schedule 5.7, the Company has not been, within such period of time,
a subsidiary or division of another corporation or a part of an acquisition
which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Complete and correct copies of the following
financial statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31, 1996 and
1995 and the related statements of operations, stockholder's equity and
cash flows for the years ended December 31, 1996, 1995 and 1994, together
with the related notes and schedules (such balance sheets, the related
statements of operations, stockholder's equity and cash flows and the
related notes and schedules are referred to herein as the "Year-end
Financial Statements"); and
(ii) the balance sheet (the "Interim Balance Sheet") of the Company
as of June 30, 1997 (the "Balance Sheet Date") and the related statements
of operations, stockholder's equity and cash flows for the six-month
periods ended June 30, 1997 and 1996, together with the related notes and
schedules (such balance sheets, the related statements of operations,
stockholder's equity and cash flows and the related notes and schedules
are referred to herein as the "Interim Financial Statements"). The
Year-end Financial Statements and the Interim Financial Statements are
collectively called the "Financial Statements".
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all liabilities of the Company of a
nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
best knowledge of the Company and the Stockholders, except as set forth on
Schedule 5.10, since the Balance Sheet Date the Company has not incurred any
material liabilities of any kind, character or description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than liabilities
incurred in the ordinary course of business. The Company has also delivered to
Home on Schedule 5.10, in the case of those contingent liabilities related to
pending or threatened litigation, or other liabilities which are not fixed, a
good faith and reasonable estimate of the maximum amount which the Company
reasonably expects will be payable and the amount,
-12-
<PAGE>
if any, accrued or reserved for each such potential liability on the Company's
Financial Statements; in the case of any such liability for which no estimate
has been provided, the estimate for purposes of this Agreement shall be deemed
to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholders, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to Home an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, including any trademarks,
trade names, patents, patent applications and copyrights owned or held by the
Company or any of its employees (including interests in software or other
technology systems, programs and intellectual property) (it being understood and
agreed that a list of environmental permits and other environmental approvals is
set forth on Schedule 5.13). At or prior to the Closing, all such trademarks,
trade names, patents, patent applications, copyrights and other intellectual
property will be assigned or licensed to the Company for no additional
consideration. To the best knowledge of the Company, the Licenses and other
rights listed on Schedules 5.12 and 5.13 are valid, and the Company has not
received any notice that any person intends to cancel, terminate or not renew
any such License or other right. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Licenses and other rights listed on Schedules 5.12 and 5.13 and
is not in violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the Company. Except as
specifically provided in Schedule 5.12, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to the Company by, any such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have any Material Adverse Effect on the Company or its
business, (i) the Company has complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to any of them or any of their respective properties, assets,
operations and businesses relating to environmental protection (collectively
"Environmental Laws") including, without limitation, Environmental Laws relating
to air, water, land and the generation, storage, use, handling, transportation,
treatment or disposal of Hazardous Wastes, Hazardous Materials and Hazardous
Substances (as such terms are defined in any
-13-
<PAGE>
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (ii) the Company has obtained and adhered
to all necessary permits and other approvals necessary to treat, transport,
store, dispose of and otherwise handle Hazardous Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled. There
have been no releases or threats of releases (as these terms are defined in
Environmental Laws) of any Hazardous Materials at, from, in or on any property
owned or operated by the Company except as permitted by Environmental Laws, and
to the best knowledge of the Company and the Stockholders, there is no on-site
or off-site location to which the Company has transported or disposed of
Hazardous Materials or arranged for the transportation of Hazardous Materials
which is the subject of any Federal, state, local or foreign enforcement action
or any other investigation which could lead to any claim against the Company,
Home or Newco for any clean-up cost, remedial work, damage to natural resources,
property damage or personal injury, including, but not limited to, any claim
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, the Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act or comparable state or local statutes or
regulations. The Company has no contingent liability in connection with any
release of any Hazardous Materials into the environment that would have a
Material Adverse Effect.
5.14 PERSONAL PROPERTY. The Company has delivered to Home an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company, (y) all other personal property owned by the
Company with an individual value in excess of $25,000 (i) as of the Balance
Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material
leases and agreements in respect of personal property, including, in the case of
each of (x), (y) and (z), (1) true, complete and correct copies of all such
leases and (2) an indication as to which assets are currently owned, or were
formerly owned, by Stockholders, relatives of Stockholders, or Affiliates of the
Company. Except as set forth on Schedule 5.14, (i) all material personal
property used by the Company in its business is either owned by the Company or
leased by the Company pursuant to a lease included on Schedule 5.14, (ii) all of
the personal property listed on Schedule 5.14 is in good working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 5% or more of the
Company's annual revenues for any period covered by any of the Financial
Statements. Except to the extent set forth on Schedule 5.15, none of such
customers have canceled or substantially reduced or, to the knowledge of the
Company, are
-14-
<PAGE>
currently attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to Home. For purposes of this Section 5.17, Material Contracts
includes contracts between the Company and significant customers, joint venture
or partnership agreements, contracts with any labor organization, strategic
alliances, options to purchase land and other contracts which are not terminable
on sixty days or less notice and involve payments by the Company in any twelve
month period in excess of $25,000. The Company has also indicated on Schedule
5.15 a summary description of all plans or projects involving the opening of new
operations, expansion of existing operations, the acquisition of any personal
property, business or assets requiring, in any event, the payment of more than
$25,000 by the Company during any 12-month period.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on terms reasonably acceptable to Home and leased
back by the Company on terms no less favorable to the Company than those
available from an unaffiliated party and otherwise reasonably acceptable to Home
at or prior to the Closing Date. The Company has good and insurable title to any
real property owned by it that is not shown on Schedule 5.16 as property
intended to be sold or distributed prior to the Closing Date, subject to no
mortgage, pledge, lien, conditional sales agreement, encumbrance or charge,
except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, all
-15-
<PAGE>
of such leases included on Schedule 5.16 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their respective terms.
5.17 INSURANCE. The Company has delivered to Home (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the best knowledge of the Company provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect and shall, to the best knowledge of the
Company, remain in full force and effect through the Funding and Consummation
Date. Since January 1, 1995, no insurance carried by the Company has been
canceled by the insurer and the Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The Company has provided to Home
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the best knowledge of the Company, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the best of the Company's knowledge, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years. The Company believes its relationship
with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to Home an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee
-16-
<PAGE>
benefit plans, if any, described on the Benefit Plans Schedule, the Company does
not sponsor, maintain or contribute to any plan program, fund or arrangement
that constitutes an "employee pension benefit plan", and the Company has no
obligation to contribute to or accrue or pay any benefits under any deferred
compensation or retirement funding arrangement on behalf of any employee or
employees (such as, for example, and without limitation, any individual
retirement account or annuity, any "excess benefit plan" (within the meaning of
Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) or any non-qualified deferred compensation arrangement). For the
purposes of this Agreement, the term "employee pension benefit plan" shall have
the same meaning as is given that term in Section 3(2) of ERISA. The Company has
not sponsored, maintained or contributed to any employee pension benefit plan
other than the plans set forth on the Benefit Plans Schedule, and the Company is
not required to contribute to any retirement plan pursuant to the provisions of
any collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's or any subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code are, and have been so qualified and have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination letters are
attached to the Benefit Plans Schedule. Except as disclosed on the Benefit Plans
Schedule, all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or tax returns) have
been timely filed or distributed, and copies thereof are included as part of the
Benefit Plans Schedule. Neither Stockholders, any such plan listed in the
Benefit Plans Schedule, nor the Company has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No such Plan listed in the Benefit Plans Schedule has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and the Company has not incurred any liability for
excise tax or penalty due to the Internal Revenue Service nor any liability to
the Pension Benefit Guaranty
-17-
<PAGE>
Corporation. The Stockholders further represent that except as set forth on the
Benefit Plans Schedule hereto:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
the Benefit Plans Schedule;
(iv) the Company has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the Company could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such
liability) with respect to any plan now or heretofore maintained or
contributed to by any entity other than the Company that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and, to the Knowledge of the
Company and the Stockholders, there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, orders, approvals,
variances, rules and regulations, including without limitation to the extent
applicable all regulations promulgated by the Department of Housing and Urban
Development under the National Manufactured Housing Construction and Safety
Standards Act, as amended, or otherwise, and all laws and regulations affecting
the sale of manufactured housing, on credit or otherwise, including the Federal
Consumer Credit Protection Act, the Federal
-18-
<PAGE>
Fair Credit Reporting Act, the Federal Equal Credit Opportunity Act, the
Consumer Credit Protection Act, the Fair Debt Collection Practices Act and the
regulations promulgated under the foregoing, and all state and local laws and
regulations of similar effect, and including all such orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, except where any
such noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. The Company has timely filed all requisite Federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other taxes (including penalties and interest) for any period
or periods prior to and including the Balance Sheet Date and no notice of any
claim for taxes, whether pending or threatened, has been received. All tax,
including interest and penalties (whether or not shown on any tax return) owed
by the Company or any of the Company's Subsidiaries has been paid. The amounts
shown as accruals for taxes on the Company Financial Statements are sufficient
for the payment of all taxes of the kinds indicated (including penalties and
interest) for all fiscal periods ended on or before that date. Copies of (i) any
tax examinations, (ii) extensions of statutory limitations and (iii) the federal
and local income tax returns and franchise tax returns of the Company for their
last three (3) fiscal years, or such shorter period of time as any of them shall
have existed, are attached hereto as Schedule 5.22 or have otherwise been
delivered to Home. The Company has disclosed to Home when its taxable year ends.
The Company uses the accrual method of accounting for income tax purposes, and
the Company's methods of accounting have not changed in the past five years. The
Company is not an investment Company as defined in Section 351(e)(1) of the
Code. The Company is not and has not during the last five years been a party to
any tax sharing agreement or agreement of similar effect. The Company is not and
has not during the last five years been a member of any consolidated group.
Except as described on Schedule 5.22, the Company has not received, been denied,
or applied for any private letter ruling during the last five years.
The Stockholders made a valid election under the provisions of Subchapter
S of the Code and the Company has not, within the past five years, been taxed
under the provisions of Subchapter C of the Code. The Stockholders shall pay,
and they hereby indemnify Home, the Company and Newco against, all income taxes
payable for all periods though and including the Closing Date.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the best
knowledge of the Company, any other party thereto, is in default under any
lease, instrument, agreement, license, or permit set forth on Schedule 5.12,
5.13, 5.14, 5.15 or 5.16, or any other Material Contract (as defined in Section
5.15) to which it is a party or by which its properties are bound (the "Material
Documents") in any manner that could result in a Material Adverse Effect; and,
except as set forth in Schedule 5.23, (a) the rights and benefits of the Company
under the Material Documents will not be materially adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
-19-
<PAGE>
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
Material Documents or the Charter Documents. Except as set forth on Schedule
5.23, none of the Material Documents requires notice to, or the consent or
approval of, any governmental agency or other third party with respect to any of
the transactions contemplated hereby in order to remain in full force and
effect, and consummation of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the Company, Home or
Newco of the name of any other party to such Material Document, and none of the
Material Documents prohibits or restricts the Company from freely providing
services to any other customer or potential customer of the Company, Home, Newco
or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any
grant by the Company of any options, warrants, calls, conversion rights or
commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
(v) any material increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the Company
to any of its officers, directors, Stockholders, employees, consultants or
agents, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the Company;
-20-
<PAGE>
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of Company to any person,
including, without limitation, the Stockholders and their Affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
(xii) any amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(xiii) any transaction by the Company outside the ordinary course of
its business;
(xiv) any cancellation or termination by the Company of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the Company
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
Home an accurate schedule (which is set forth on Schedule 5.26) as of the date
of this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
-21-
<PAGE>
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.28 RELATIONS WITH GOVERNMENTS. Except for legal contributions to
candidates for political office, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office, nor has it or any of them otherwise taken any action which would cause
the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended or any law of similar effect.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished to Home by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements herein and
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing does not apply to statements
contained in or omitted from any of such documents made or omitted in reliance
upon information furnished in writing by Home. If, prior to the 25th day after
the date of the final prospectus of Home utilized in connection with the IPO,
the Company or the Stockholders become aware of any fact or circumstance which
would affect the accuracy of a representation or warranty of Company or
Stockholders in this Agreement in any material respect, the Company and the
Stockholders shall immediately give notice of such fact or circumstance to Home.
Subject to the provisions of Section 7.8, such notification shall not relieve
either the Company or the Stockholders of their respective obligations under
this Agreement, and, subject to the provisions of Section 7.8, at the sole
option of Home, the truth and accuracy in all material respects of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on the
Funding and Consummation Date, shall be a precondition to the consummation of
this transaction.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that a Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither Home or any of its officers, directors, agents or representatives
nor any Underwriter
-22-
<PAGE>
shall have any liability to the Company, the Stockholders or any other person
affiliated or associated with the Company for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or to
occur at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed Merger, has been or
will be made independent of, and without reliance upon, any statements, opinions
or other communications, or due diligence investigations which have been or will
be made or performed by any prospective Underwriter, relative to Home or the
prospective IPO. Notwithstanding the foregoing, Home has agreed and herein
acknowledges its agreement to use its reasonable efforts to consummate the Home
Plan of Organization and IPO as contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
Company has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 DEALER AGREEMENTS AND RELATED MATTERS. Schedule 5.31 sets forth a
complete and accurate list of:
(i) all agreements of any nature (including "Dealer Agreements",
"Home Center Agreements", "Retailer Agreements", "Exclusive Retailer
Agreements", "General Conditions", "Action Plans" and other documents)
between the Company and any dealer, manufacturer, wholesaler or other
distributor (collectively, "Manufacturers") of manufactured housing units
(collectively, "Dealer Agreements"); and
(ii) all volume incentive, rebate and other similar programs of any
Manufacturer (collectively, "Dealer Programs") in which the Company is now
or has within the last three years been a participant.
Schedule 5.31 identifies the Manufacturer that is a party to each such Dealer
Agreement or that sponsors each such Dealer Program, and also identifies the
Company's sales locations subject to or affected by each such Dealer Agreement
and each such Dealer Program. Complete and accurate copies of all Dealer
Agreements and all Dealer Programs listed on Schedule 5.31 are attached to
Schedule 5.31. Except as set forth on Schedule 5.31, the Company is now and for
the last three years has been in compliance in all material respects with all
applicable provisions of the Dealer Agreements and Dealer Programs identified on
Schedule 5.31 and any similar agreements to which the Company has been a party
during the last three years. To the extent that the Company is required by any
Dealer Agreement or Dealer Program to take or refrain from taking specified
actions in order to qualify for the benefits offered thereby (such as the
benefits of an exclusive retailer agreement), the Company is in compliance in
all material respects with all such requirements (it being understood that the
Company is not hereby representing that it qualifies for the highest level of
incentive discounts or rebates offered by such Dealer Agreements or Dealer
Programs). Except as set forth on Schedule 5.31, within the last three years, no
Manufacturer has asserted any claim or
-23-
<PAGE>
right to any refund of any incentive payment or rebate or other payment or
discount granted to the Company by any such Manufacturer, or any right to offset
any amount against any future payment due or otherwise due to the Company, and
no circumstances exist that would entitle any Manufacturer to make any such
claim against the Company. During the last three years, the Company has
accurately calculated and reported to each Manufacturer with which the Company
has done business all financial and sales data that the Company is required to
report to each such Manufacturer, whether in connection with volume incentive or
rebate plans or otherwise.
5.32 NO RETAIL FINANCING. Except as set forth on Schedule 5.32, the
Company does not finance the sale to the Company's customers of manufactured
housing units or related products or services (collectively, "Product"), and is
not liable, directly or indirectly, contingently or otherwise, to any
Manufacturer or any financing source for all or any portion of the purchase
price of any Product that has been sold by the Company or delivered by the
Company to a retail purchaser.
5.33 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule 5.33, the
Company has not made any express warranties regarding any Products and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any payment
to or perform any service for any person other than routine matters described as
"Retailer Responsibilities", "Retailer General Installation and Home Delivery
Guidelines" and the like in the Dealer Agreements listed on Schedule 5.31.
5.34 NO INTERESTS IN OTHER BUSINESSES. Except as set forth on Schedule
5.34, neither the Company nor any Stockholder, nor any affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's sales of Product.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each Stockholder severally represents and warrants that the
representations and warranties set forth below as and to the extent relating to
such Stockholder are true as of the date of this Agreement and, subject to
Section 7.8 hereof, shall be true at the time of Closing and on the Funding and
Consummation Date, and that the representations and warranties set forth in
Sections 5.35 and 5.36 shall survive until the first anniversary of the Funding
and Consummation Date, which shall be the Expiration Date for purposes of
Sections 5.35 and 5.36.
5.35 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.35, such Company Stock is owned free and clear of all liens,
-24-
<PAGE>
security interests, pledges, charges, voting agreements, voting trusts,
restrictions, encumbrances and claims of every kind.
5.36 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Home Stock
that such Stockholder has or may have had. Nothing herein, however, shall limit
or restrict the rights of any Stockholder to acquire Home Stock pursuant to (i)
this Agreement or (ii) any option granted by Home.
5.37 NO INTENTION TO DISPOSE OF HOME STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of Home Stock received as described in Section 3.1.
6. REPRESENTATIONS OF HOME AND NEWCO
Home and Newco jointly and severally represent and warrant that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at the time
of Closing and the Funding and Consummation Date, and that such representations
and warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that the warranties and representations set forth in Section 6.14 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 6.14.
6.1 DUE ORGANIZATION. Home and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. Home and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws of Home and Newco (the "Home Charter Documents") are
all attached hereto as Annexes III and IV.
6.2 AUTHORIZATION. (i) The respective representatives of Home and Newco
executing this Agreement have the authority to enter into and bind Home and
Newco to the terms of this Agreement and (ii) Home and Newco have the full legal
right, power and authority to enter into this Agreement and consummate the
Merger. All corporate acts and other proceedings required to have been taken by
Home and Newco to authorize the execution, delivery and performance of this
Agreement and the consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF HOME AND NEWCO. The authorized capital stock of Home
and Newco is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding
-25-
<PAGE>
shares of the capital stock of Newco are owned by Home. All of the issued and
outstanding shares of the capital stock of Home and Newco have been duly
authorized and validly issued, are fully paid and nonassessable, and further,
such shares were offered, issued, sold and delivered by Home and Newco in
compliance with all applicable state and Federal laws concerning the issuance of
securities. Further, none of such shares were issued in violation of the
preemptive rights of any past or present stockholder of Home or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in the Draft Registration Statement,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates Home or Newco to issue any of their respective authorized but
unissued capital stock; and (ii) neither Home nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of Home.
6.5 SUBSIDIARIES. Newco has no subsidiaries. Home has no subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither Home
nor Newco presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, and
neither Home nor Newco, directly or indirectly, is a participant in any joint
venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of Home included in the
Draft Registration Statement (the "Home Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon),
and the balance sheet included therein presents fairly the financial position of
Home as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, Home and Newco have no material liabilities, contingent
or otherwise, except as set forth in or contemplated by this Agreement and the
Other Agreements and except for fees incurred in connection with the
transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement, neither Home nor Newco is in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them which would have a Material Adverse
Effect; and except to the extent set forth in Schedule 6.8, there are no
material
-26-
<PAGE>
claims, actions, suits or proceedings, pending or, to the knowledge of Home or
Newco, threatened against or affecting, Home or Newco, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
either of them and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. Home and Newco have conducted and are
conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation of any of
the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. Neither Home nor Newco is in violation of any Home
Charter Document. None of Home, Newco, or, to the knowledge of Home and Newco,
any other party thereto, is in default under any lease, instrument, agreement,
license, or permit to which Home or Newco is a party, or by which Home or Newco,
or any of their respective properties, are bound (collectively, the "Home
Documents"); and (a) the rights and benefits of Home and Newco under the Home
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution and delivery of this Agreement by Home and Newco and the
performance of their obligations hereunder do not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof will not,
conflict with, or result in any violation or default (with or without notice or
lapse of time, or both), under or give rise to a right of termination,
cancellation, or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any lien upon any of the assets of Home or
any Newco under, any provision of (i) the Certificate of Incorporation or Bylaws
of Home or the comparable governing instruments of any Newco, (ii) any note,
bond, mortgage, indenture or deed of trust or any license, lease, contract,
commitment, agreement or arrangement to which Home and any Newco is a party or
by which any of their respective properties or assets are bound or (iii) any
judgment, order, decree or law, ordinance, rule or regulation, applicable to
Home or any Newco or their respective properties or assets. The execution of
this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
material violation or breach or constitute a default under, any of the terms or
provisions of the Home Documents or the Home Charter Documents. Except as set
forth on Schedule 6.9, none of the Home Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by Home and Newco and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective Boards of Directors of
Home and Newco and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of Home
and Newco.
-27-
<PAGE>
6.11 HOME STOCK. At the time of issuance thereof and delivery to the
Stockholders, the Home Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid and legally issued shares of Home, fully
paid and nonassessable, and with the exception of restrictions upon resale set
forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
Home Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. The Home Stock issued and delivered to the
Stockholders shall at the time of such issuance and delivery be free and clear
of any liens, claims or encumbrances of any kind or character. The shares of
Home Stock to be issued to the Stockholders pursuant to this Agreement will not
be registered under the 1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither Home nor Newco has entered or will enter
into any agreement with any of the Founding Companies or any of the Stockholders
of the Founding Companies or Home other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Home was formed in July
1996 and has conducted only limited operations since that time. Neither Home nor
Newco has conducted any material business since the date of its inception,
except in connection with this Agreement, the Other Agreements and the IPO.
Except as described in the Draft Registration Statement, neither Home nor Newco
owns or has at any time owned any real property or any material personal
property or is a party to any other agreement other than the Other Agreements
and the agreements contemplated thereby and to such agreements as will be filed
as Exhibits to the Registration Statement.
6.14 TAXES.Home and Newco have timely filed all requisite federal, state
and other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and there are no examinations in progress or
claims against Home for federal, state and other taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for taxes, whether pending or threatened, has
been received. All taxes which Home or any Newco has been required to collect or
withhold have been duly and timely collected and withheld and have been set
aside in accounts for such purposes, or have been duly and timely paid to the
proper governmental authority. All tax, including interest and penalties
(whether or not shown on any tax return) owed by Home, any member of an
affiliated or consolidated group which includes or included Home, or with
respect to any payment made or deemed made by Home herein has been paid. The
amounts shown as accruals for taxes on Home Financial Statements are sufficient
for the payment of all taxes of the kinds indicated (including penalties and
interest) for all fiscal periods ended on or before that date. Home and Newco
have not entered into any tax sharing
-28-
<PAGE>
agreement or similar arrangement. Home is not an investment company as defined
in Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Home or
Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
Home or Newco;
(iii) any change in the authorized capital of Home or Newco or their
outstanding securities or any change in their ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of Home or
Newco;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of Home or Newco;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Home or Newco to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Home or Newco;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of Home or Newco or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of Home or Newco;
(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which Home or Newco is a
party;
-29-
<PAGE>
(xi) any transaction by Home or Newco outside the ordinary course of
its business;
(xii) any other distribution of property or assets by Home or Newco
other than in the ordinary course of business.
6.16 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Stockholders, together with this Agreement and the information furnished
to the Company and the Stockholders in connection herewith, does not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing does not apply
to statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished by the Company or the Stockholders.
6.17 PRIVATE OFFERING. (a) Neither Home, any of its Affiliates nor anyone
on its or their behalf, has issued, sold, or offered any securities of Home to
any person under circumstances that would cause the issuance and sale of the
Home Stock to the Stockholders pursuant to this Agreement, to be subject to the
registration requirements of the 1933 Act.
(b) The offering of shares of Home Stock pursuant to the Home Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of Home and the Other Founding Companies
access to all of the Company's sites, properties, books and records and will
furnish Home with such additional financial and operating data and other
information as to the business and properties of the Company as Home or the
Other Founding Companies may from time to time reasonably request. The Company
will cooperate with Home and the Other Founding Companies, its representatives,
auditors and counsel in the preparation of any documents or other materials
which may be required in connection with any documents or materials required by
this Agreement. Home, Newco, the Stockholders and the Company will treat all
information obtained in connection with the negotiation and performance of this
Agreement or the due diligence investigations conducted with respect to the
Other Founding Companies as confidential in accordance with the provisions of
Section 14 hereof. In addition, Home will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
such Other Founding Company, its Stockholders, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
-30-
<PAGE>
(b) Between the date of this Agreement and the Funding and Consummation
Date, Home will afford to the officers and authorized representatives of the
Company access to all of Home's and Newco's sites, properties, books and records
and will furnish the Company with such additional financial and operating data
and other information as to the business and properties of Home and Newco as the
Company may from time to time reasonably request. Home and Newco will cooperate
with the Company, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The Company will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order
and condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or
rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and
maintain its relationships with suppliers, customers and others having
business relations with the Company;
(vi) use its reasonable efforts to maintain compliance with all
material permits, laws, rules and regulations, consent orders, and all
other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent
of Home (which consent shall not be unreasonably withheld), provided that
debt and/or lease instruments may be replaced without the consent of Home
if such replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced; and
-31-
<PAGE>
(viii)maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of Home, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock
except for distributions permitted as described on Annex I hereto;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the businesses of the Company, (2) (A) liens for taxes either not yet due
or being contested in good faith and by appropriate proceedings (and for
which contested taxes adequate reserves have been established and are
being maintained) or (B) materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
-32-
<PAGE>
(viii)merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the Company; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Home or its
authorized agents relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, the Company
or a merger, consolidation or business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Home on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by Home or reflected in Schedule 7.6) terminate (i) any
Stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms
-33-
<PAGE>
thereof, which terms have been disclosed to Home. Such termination agreements
are listed on Schedule 7.6 and copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to Home of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of any Stockholder or the Company to comply with or satisfy
any material covenant, condition or agreement to be complied with or satisfied
by such person hereunder. Home and Newco shall give prompt notice to the Company
of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of Home or Newco contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any failure of Home or Newco to
comply with or satisfy any material covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii) modify the conditions set forth in
Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless Home and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by Home or Newco that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, Home shall give the Company notice promptly after
it has knowledge thereof. If Home
-34-
<PAGE>
and a majority of the Founding Companies consent to such amendment or
supplement, which consent shall have been deemed given by Home or any Founding
Company if no response is received within 24 hours following receipt of notice
of such amendment or supplement (or sooner if required by the circumstances
under which such consent is requested), but the Company does not give its
consent, the Company may terminate this Agreement pursuant to Section 12.1(iv)
hereof. In the event that the Company seeks to amend or supplement a Schedule
pursuant to this Section 7.8, and Home and a majority of the Other Founding
Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i) hereof.
In the event that Home or Newco seeks to amend or supplement a Schedule pursuant
to this Section 7.8 and a majority of the Founding Companies do not consent to
such amendment or supplement, this Agreement shall be deemed terminated by
mutual consent as set forth in Section 12.1(i) hereof. No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to Home and the Underwriters
all of the information concerning the Company and the Stockholders required for
inclusion in, and will cooperate with Home and the Underwriters in the
preparation of, the Registration Statement and the prospectus included therein
(including audited and unaudited financial statements, prepared in accordance
with generally accepted accounting principles, in form suitable for inclusion in
the Registration Statement). The Company and the Stockholders agree promptly to
advise Home if at any time during the period in which a prospectus relating to
the offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the Company or the
Stockholders becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the Company or the Stockholders, the Company
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
Company and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and Home shall have had sufficient time to review
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in
-35-
<PAGE>
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted therein). Except as
noted in such financial statements, all of such financial statements will
present fairly the results of operations of the Company for the periods
indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, Home
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the Home Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the Hart-
Scott-Rodino Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
(ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by Home and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart- Scott-Rodino Act to be
made. If filings under the Hart-Scott-Rodino Act are required, the costs and
expenses thereof (including legal fees and costs and filing fees) shall be borne
by Home. The obligation of each party to consummate the transactions
contemplated by this Agreement is subject to the expiration or termination of
the waiting period under the Hart-Scott-Rodino Act, if applicable.
7.14 STOCKHOLDERS OF HOME. Promptly after a request by the Company, Home
will deliver to the Company a list of the stockholders of Home as of the date of
this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY
The obligations of Stockholders and the Company with respect to actions to
be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. The obligations of
the Stockholders and the Company with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9
-36-
<PAGE>
and 8.12. As of the Closing Date or, with respect to the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the Funding and Consummation Date,
if any such conditions have not been satisfied, the Stockholders (acting in
unison) shall have the right to terminate this Agreement, or in the alternative,
waive any condition not so satisfied. Any act or action of the Stockholders in
consummating the Closing or delivering certificates representing Company Stock
as of the Funding and Consummation Date shall constitute a waiver of any
conditions not so satisfied. However, no such waiver shall be deemed to affect
the survival of the representations and warranties of Home and Newco contained
in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Home and Newco contained in Section 6 shall be
true and correct in all material respects as of the Closing Date and the Funding
and Consummation Date as though such representations and warranties had been
made as of that time; all of the terms, covenants and conditions of this
Agreement to be complied with and performed by Home and Newco on or before the
Closing Date and the Funding and Consummation Date shall have been duly complied
with and performed in all material respects; and certificates to the foregoing
effect dated the Closing Date and the Funding and Consummation Date,
respectively, and signed by the President or any Vice President of Home shall
have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform Home in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the Company as a result of which
the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for Home, dated the Closing Date, in the form annexed hereto as Annex V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm
-37-
<PAGE>
commitment basis, subject to the conditions set forth in the underwriting
agreement, on terms such that the aggregate value of the cash and the number of
shares of Home Stock to be received by the Stockholders is not less than the
Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of the Company as a result of which the Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. Home and Newco each shall have delivered
to the Company a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which Home or Newco is authorized to do business, showing that each of
Home and Newco is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for Home and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to Home or Newco which would constitute a Material Adverse
Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of Home and of Newco, certifying the truth and correctness of attached copies of
the Home's and Newco's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the Stockholders of Home and Newco
approving Home's and Newco's entering into this Agreement and the consummation
of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the Home Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
-38-
<PAGE>
Company for Home Stock (but not cash or other property) pursuant to the Home
Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME AND NEWCO
The obligations of Home and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of Home and
Newco with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, Home and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Funding and Consummation Date with the same effect as
though such representations and warranties had been made on and as of such date;
all of the terms, covenants and conditions of this Agreement to be complied with
or performed by the Stockholders and the Company on or before the Closing Date
or the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to Home certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of Home as a result of which the
management of Home (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. Home shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall
-39-
<PAGE>
not have suffered any material loss or damages to any of its properties or
assets, whether or not covered by insurance, which change, loss or damage
materially affects or impairs the ability of the Company to conduct its
business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to Home
an instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholders against the Company and Home and (ii)
obligations of the Company and Home to the Stockholders, except for (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the Stockholders, (y) continuing obligations to Stockholders
relating to their employment by the Company and (z) obligations arising under
this Agreement or the transactions contemplated hereby. In the event that the
Funding and Consummation Date does not occur, then the release instrument
referenced herein shall be void and of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to Home.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 or otherwise approved by Home, all existing agreements between the
Company and the Stockholders (and entities controlled by the Stockholders) other
than real property leases shall have been canceled effective prior to or as of
the Closing Date, and all real property leases between the Company and the
Stockholders (and any entity controlled by the Stockholders) shall have been
amended in a manner reasonably satisfactory to Home.
9.8 OPINION OF COUNSEL. Home shall have received an opinion from Counsel
to the Company and the Stockholders, dated the Closing Date, substantially in
the form annexed hereto as Annex VI.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Home as a result of which Home deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to Home
a certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
state of incorporation and, unless waived by Home, in each state in which the
Company is authorized to do business, showing the Company is
-40-
<PAGE>
in good standing and authorized to do business and that all state franchise
and/or income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to Home a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF HOME AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. Home shall
use reasonable efforts to have the Stockholders released from any and all
guarantees of the Company's indebtedness identified on Schedule 10.1. In the
event that Home cannot obtain such releases from the lenders of any such
guaranteed indebtedness identified on Schedule 10.1 on or prior to 120 days
subsequent to the Funding and Consummation Date, Home shall promptly pay off or
otherwise refinance or retire such indebtedness. From and after the Funding and
Consummation Date and until such time as all of such indebtedness is paid off,
refinanced or retired, Home shall maintain unencumbered funds in amounts
sufficient to provide for such pay off, refinancing or retirement, provided that
Home may use such funds for other purposes, in its sole discretion, with the
prior written consent of each Stockholder who has not as of that time been
released from his or her guarantee as described above and whose indebtedness as
described above has not as of that time been paid off, refinanced or retired.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, Home shall not and shall not permit any of its subsidiaries
to undertake any act that would jeopardize the tax-free status of the
organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all or
part of the Home Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of the
Stockholders.
-41-
<PAGE>
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or
before the Funding and Consummation Date, and shall permit Home to review
all such Tax Returns prior to such filings. Unless the Company is a C
corporation, the Stockholders shall pay or cause to be paid all Tax
liabilities (in excess of all amounts already paid with respect thereto or
properly accrued or reserved with respect thereto on the Company Financial
Statements) shown by such Returns to be due.
(ii) Home shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs
of filing such Returns.
(iv) Each of the Company, Newco, Home and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of Home, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
-42-
<PAGE>
11. INDEMNIFICATION
The Stockholders, Home and Newco each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, severally (based on their relative ownership of
the Company Stock on the date hereof), will indemnify, defend, protect and hold
harmless Home, Newco, the Company and the Surviving Corporation at all times,
from and after the date of this Agreement until the Expiration Date (provided
that for purposes of Section 11.1(iii) below, the Expiration Date shall be the
date on which the applicable statute of limitations expires), from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by Home,
Newco, the Company or the Surviving Corporation as a result of or arising from
(i) any breach of the representations and warranties of the Stockholders or the
Company set forth herein or on the schedules or certificates delivered in
connection herewith, (ii) any breach of any agreement on the part of the
Stockholders or the Company under this Agreement, or (iii) any liability under
the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement of a
material fact relating to the Company or the Stockholders, and provided to Home
or its counsel by the Company or the Stockholders (but in the case of the
Stockholders, only if such statement was provided in writing) contained in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Company or the Stockholders required to be stated therein or necessary to make
the statements therein not misleading, provided, however, that such indemnity
shall not inure to the benefit of Home, Newco, the Company or the Surviving
Corporation to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and the Stockholders provided, in writing, corrected
information to Home counsel and to Home for inclusion in the final prospectus,
and such information was not so included or properly delivered, and provided
further, that no Stockholder shall be liable for any indemnification obligation
pursuant to this Section 11.1 to the extent attributable to a breach of any
representation, warranty or agreement made herein individually by any other
Stockholder.
Home and Newco acknowledge and agree that other than the representations
and warranties of Company or Stockholders specifically contained in this
Agreement, there are no representations or warranties of Company or
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
Home and Newco further acknowledge and agree that, should the Closing
occur, their sole and exclusive remedy with respect to any and all claims
relating to this Agreement and the
-43-
<PAGE>
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. Home and Newco hereby
waive, from and after the Closing, to the fullest extent permitted under
applicable law, any and all rights, claims and causes of action they or any
indemnified person may have against the Company or any Stockholder relating to
this Agreement or the transactions arising under or based upon any federal,
state, local or foreign statute, law, rule, regulation or otherwise.
11.2 INDEMNIFICATION BY HOME. Home covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by the
Stockholders as a result of or arising from (i) any breach by Home or Newco of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
Home or Newco under this Agreement, (iii) any liabilities which the Stockholders
may incur due to Home's or Newco's failure to be responsible for the liabilities
and obligations of the Company as provided in Section 1 hereof (except to the
extent that Home or Newco has claims against the Stockholders by reason of such
liabilities); or (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to Home, Newco or any of the Other Founding Companies contained in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, or arising out
of or based upon any omission or alleged omission to state therein a material
fact relating to Home or Newco or any of the Other Founding Companies required
to be stated therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records or information
-44-
<PAGE>
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party, provided
that if counsel to the Indemnifying Party shall have a conflict of interest that
prevents counsel for the Indemnifying Party from representing Indemnified Party,
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the Indemnified
Party for the amount paid in such settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no circumstances shall the Indemnified Party settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. All settlements hereunder
shall effect a complete release of the Indemnified Party, unless the Indemnified
Party otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party,
provided that, nothing herein shall be construed to limit the right of a party,
in a proper case, to seek injunctive relief for a breach of this Agreement. Any
indemnity payment under this Section 11 shall be treated as an adjustment to the
exchange consideration for tax purposes unless a final determination (which
shall include the
-45-
<PAGE>
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. Home, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 shall not assert any claim for indemnification hereunder against
the Stockholders until such time as, and solely to the extent that, the
aggregate of all claims which such persons may have against such the
Stockholders shall exceed the greater of (a) 1.0% of the sum of (i) the cash
paid to Stockholders plus (ii) the value of the Home Stock delivered to
Stockholders (calculated as provided in this Section 11.5) or (b) $50,000 (the
"Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against Home or Newco until such time as, and solely
to the extent that, the aggregate of all claims which Stockholders may have
against Home or Newco shall exceed the Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the Home Stock received by a Stockholder, Home Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such stockholder in connection with the Merger, valued as described
immediately above, but shall also have the right to satisfy any such obligation
in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of Home and the
Company;
(ii) by the Stockholders or the Company (acting through its board of
directors), on the one hand, or by Home (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
March 31, 1998, unless the failure of such transactions to be consummated
is due to the willful failure of the party seeking to terminate this
Agreement to perform any
-46-
<PAGE>
of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Funding and Consummation Date;
(iii) by the Stockholders or Company, on the one hand, or by Home,
on the other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely performance of any
of the covenants or agreements contained herein, and the curing of such
default shall not have been made on or before the Funding and Consummation
Date or by the Stockholders or the Company, if the conditions set forth in
Section 8 hereof have not been satisfied or waived as of the Closing Date
or the Funding and Consummation Date, as applicable, or by Home, if the
conditions set forth in Section 9 hereof have not been satisfied or waived
as of the Closing Date or the Funding and Consummation Date, as
applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that during the period from the Closing Date to the Funding
and Consummation Date, this Agreement may be terminated only if the underwriting
agreement relating to the IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, for a period of
five (5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any retail (new or used, but excluding used home lots
or other activities listed on Schedule 13.1 hereto) manufactured housing
business or operation or related services business (including the
ownership or management of manufactured housing subdivisions, lots or
parks, but excluding any such subdivisions, lots or parks or other
activities listed on Schedule 13.1 hereto) in direct competition with Home
-47-
<PAGE>
or any of the subsidiaries thereof, within 100 miles of where the Company
or any of its subsidiaries conducted business prior to the effectiveness
of the Merger (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Home or any subsidiary thereof for the purpose
or with the intent of enticing such employee away from or out of the
employ of Home or any subsidiary thereof;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to the Funding and Consummation
Date, a customer of Home or any subsidiary thereof, of the Company or of
any of the Other Founding Companies within the Territory for the purpose
of soliciting or selling products or services in direct competition with
Home within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the retail
manufactured housing business, which candidate, to the actual knowledge of
such Stockholder after due inquiry, was called upon by Home or any
subsidiary thereof or for which, to the actual knowledge of such
Stockholder after due inquiry, Home or any subsidiary thereof made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the
Company to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the Company has in
the past disclosed such information to the public for valid business
reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit (i) any Stockholder from acquiring as a passive investment not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange or over-the-counter, or (ii) any of
the activities listed on Schedule 13.1 hereto.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
Home as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Home for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Home in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of Home and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of Home; but it is also the intent of Home and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities; business and locations of
-48-
<PAGE>
Home and its subsidiaries throughout the term of this covenant. During the term
of this covenant, if Home or one of its subsidiaries engages in new activities,
enters a new business or establishes new locations for its current activities or
business in addition to or other than the activities or business it is currently
conducting in the locations currently established therefor (provided such
activities or business are related to the business or operations of the retail
manufactured housing business), then the Stockholders will be precluded from
soliciting the customers or employees of such new activities or business or from
such new location and from directly competing with such new activities or
business within 100 miles of its then-established operating location(s) through
the term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Home or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by Home of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or Home, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or Home's respective businesses. The Stockholders agree that they
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of Home, (b) following the Closing,
such information may be disclosed by the Stockholders as is required in the
course of performing their duties for Home or the Surviving Corporation and (c)
to counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1, unless (i) such
information becomes known to the public generally through no fault
-49-
<PAGE>
of the Stockholders, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii), the Stockholders shall, if
possible, give prior written notice thereof to Home and provide Home with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by any of the Stockholders of the provisions of this Section 14.1, Home
shall be entitled to an injunction restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Home from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
Stockholders shall have none of the above-mentioned restrictions on their
ability to disseminate confidential information with respect to the Company.
Each Stockholder further agrees that in the event the transactions contemplated
herein are not consummated (i) neither the Company nor any Stockholder can
thereafter use any confidential information of the Other Founding Companies for
any purpose and (ii) upon written request of any Other Founding Company to the
Company, the Company and Stockholders will return all confidential information
pertaining to such Other Founding Company to such Other Founding Company.
14.2 HOME AND NEWCO. Home and Newco recognize and acknowledge that they
had in the past and currently have access to certain confidential information of
the Company, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company's business. Home and
Newco agree that, prior to the Closing, or if the Transactions contemplated by
this Agreement are not consummated, they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
the Company, (b) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.2, (c) to the Other Founding Companies and their representatives pursuant to
Section 7.1(a), unless (i) such information becomes known to the public
generally through no fault of Home or Newco, (ii) disclosure is required by law
or the order of any governmental authority under color of law, provided, that
prior to disclosing any information pursuant to this clause (ii), Home and Newco
shall, if possible, give prior written notice thereof to the Company and the
Stockholders and provide the Company and the Stockholders with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably believes
that such disclosure is required in connection with the defense of a lawsuit
against the disclosing party, and (d) to the public to the extent necessary or
advisable in connection with the filing of the Registration Statement and the
IPO and the securities laws applicable thereto and to the operation of Home as a
publicly held entity after the IPO. In the event of a breach or threatened
breach by Home or Newco of the provisions of this Section 14.2, the Company and
the Stockholders shall be entitled to an injunction restraining Home and Newco
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the Company and the Stockholders from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
-50-
<PAGE>
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by Home, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or trusts for the benefit of the Stockholders or
family members, the trustees of which so agree), for a period of one year from
the Closing, except pursuant to Section 17 hereof, none of the Stockholders
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any shares of Home Stock received by the Stockholders in
the Merger. The certificates evidencing the Home Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as Home may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
Home Stock to be delivered to the Stockholders pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The Home Stock to be acquired by such Stockholders pursuant to this
Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the
-51-
<PAGE>
shares of Home Stock issued to such Stockholders will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all of the applicable provisions of the 1933 Act and
the rules and regulations of the SEC. All the Home Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the Home Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the proposed investment in the
Home Stock. The Stockholders party hereto have had an adequate opportunity to
ask questions and receive answers from the officers of Home concerning any and
all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of Home, the plans for the operations of the business of Home, the
business, operations and financial condition of the Founding Companies other
than the Company, and any plans for additional acquisitions and the like. The
Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever Home proposes to register any Home Stock for its own or others account
under the 1933 Act for a public offering, other than (i) any shelf or other
registration of shares to be used as consideration for acquisitions of
additional businesses by Home and (ii) registrations relating to employee
benefit plans, Home shall give each of the Stockholders prompt written notice of
its intent to do so. Upon the written request of any of the Stockholders given
within 30 days after receipt of such notice, Home shall cause to be included in
such registration all of the Home Stock issued to the Stockholders pursuant to
this Agreement (including any stock issued as (or issuable upon the conversion
or exchange of any convertible security, warrant, right or other security which
is issued by Home as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Home Stock) which any such Stockholder
requests, provided that Home shall have the right to reduce the number of shares
included in such registration to the extent that inclusion of such shares could,
in the written opinion of tax counsel to Home or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as a tax-free organization under Section 351 of the Code.
In addition, if Home is advised in writing in good faith
-52-
<PAGE>
by any managing underwriter of an underwritten offering of the securities being
offered pursuant to any registration statement under this Section 17.1 that the
number of shares to be sold by persons other than Home is greater than the
number of such shares which can be offered without adversely affecting the
offering, Home may reduce pro rata the number of shares offered for the accounts
of such persons (based upon the number of shares held by such person) to a
number deemed satisfactory by such managing underwriter, provided, that, for
each such offering made by Home after the IPO, such reduction shall be made
first by reducing the number of shares to be sold by persons other than Home,
the Stockholders and the stockholders of the Other Founding Companies
(collectively, the Stockholders and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of Home Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements which have not been
previously registered or sold and which are not entitled to be sold under Rule
144(k) (or any similar or successor provision) promulgated under the 1933 Act
may request in writing that Home file a registration statement under the 1933
Act covering the registration of the shares of Home Stock issued to the
Stockholders pursuant to this Agreement and the Other Agreements (including any
stock issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by Home as) a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Home Stock) then held by such Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the receipt of such request,
Home shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from any Stockholder, file and use its best efforts to cause
to become effective a registration statement covering all such shares. Home
shall be obligated to effect only one Demand Registration for all Founding
Stockholders and will keep such Demand Registration current and effective for
not less than 120 days (or such shorter period as is required to sell all of the
shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of Home's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which
Home would otherwise be required to make such filing pursuant to the foregoing
paragraph.
If at the time of any request by the Founding Stockholders for a Demand
Registration Home has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' Home
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless Home is no longer proceeding
diligently to effect such registration;
-53-
<PAGE>
provided that Home shall provide the Founding Stockholders the right to
participate in such public offering pursuant to, and subject to, Section 17.1
hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by Home
as a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever Home is required to register shares
of Home Stock pursuant to Sections 17.1 and 17.2, Home will, as expeditiously as
possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, Home will
furnish a representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that Home shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of Home Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
Home are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that Home is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a
-54-
<PAGE>
material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, Home will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by Home.
17.4 INDEMNIFICATION.
(a) In connection with any demand registration, Home shall indemnify, to
the extent permitted by law, each Stockholder (an "Indemnified Party") against
all losses, claims, damages, liabilities and expenses arising out of or
resulting from any untrue or alleged untrue statement of material fact contained
in any registration statement, prospectus or preliminary prospectus or
associated term sheet or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading except insofar as the same are caused by or contained in
or omitted from any information furnished in writing to Home by such Indemnified
Party expressly for use therein or by any Indemnified Parties' failure to
deliver a copy of the registration statement or prospectus or any amendment or
supplements thereto after Home has furnished such Indemnified Party with a
sufficient number of copies of the same.
(b) In connection with any demand registration, each Stockholder shall
furnish to Home in writing such information as is reasonably requested by Home
for use in any such registration statement or prospectus and will indemnify, to
the extent permitted by law, Home, its directors and officers and each person
who controls Home (within the meaning of the 1933 Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or alleged
untrue statement or material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement or prospectus
or any amendment thereof or supplement thereto necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
omission is contained in information so furnished in writing by such Stockholder
specifically for use in preparing the registration statement. Notwithstanding
the foregoing, the liability of a Stockholder under this Section 17.5 shall be
limited to an amount equal to the net proceeds actually received by such
Stockholder from the sale of the relevant shares covered by the registration
statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified parties' reasonable
judgment, a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume
-55-
<PAGE>
the defense of such claim with counsel reasonably satisfactory to the
indemnified party. Any failure to give prompt notice shall deprive a party of
its right to indemnification hereunder only to the extent that such failure
shall have adversely effected the indemnifying party. If the defense of any
claim is assumed, the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled or elects not,
to assume the defense of a claim, will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party, a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, Home and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of Home's size and investment stature,
including indemnification.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of Home stock
to the public without registration, Home agrees to use its best efforts to:
(i) make and keep public information regarding Home available as
those terms are understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of Home under the 1933 Act and the 1934 Act at any time
after it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted Home Common
Stock, furnish to each Stockholder forthwith upon written request a
written statement by Home as to its compliance with the reporting
requirements of Rule 144 (at any time from and after 90 days following the
effective date of the Registration Statement, and of the 1933 Act and the
1934 Act (any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
Home, and such other reports and documents so filed as a Stockholder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Stockholder to sell any such shares without registration.
-56-
<PAGE>
18. GENERAL
18.1 COOPERATION. The Company, Stockholders, Home and Newco shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The Company will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the Company
cooperate with Home on and after the Funding and Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any tax
return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Funding
and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Home, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and Home and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and Home,
acting through their respective officers or trustees, duly authorized by their
respective Boards of Directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the Company shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, Home will pay the fees, expenses and disbursements of Home
and its agents,
-57-
<PAGE>
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by Home under this Agreement, including the fees and expenses of
Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other person or
entity retained by Home or by Notre Capital Ventures II, L.L.C., and the costs
of preparing the Registration Statement. Each Stockholder shall pay all sales,
use, transfer, real property transfer, recording, gains, stock transfer and
other similar taxes and fees ("Transfer Taxes") imposed in connection with the
Merger, other than Transfer Taxes, if any, imposed by the State of Delaware.
Each Stockholder shall file all necessary documentation and Returns with respect
to such Transfer Taxes. In addition, each Stockholder acknowledges that he, and
not the Company or Home, will pay all taxes due upon receipt of the
consideration payable pursuant to Section 2 hereof. The Stockholders acknowledge
that the risks of the transactions contemplated hereby include tax risks, with
respect to which the Stockholders are relying solely on the opinion contemplated
by Section 8.12 hereof.
(b) In the event that the Funding and Consummation Date occurs, then
Home will reimburse the Stockholders and the stockholders of Other Founding
Companies for incremental and direct accounting costs and expenses incurred by
them in connection with the Merger and IPO and such additional accounting and
legal expenses incurred by them in connection therewith as may be approved by
Home.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to Home, or Newco, addressed to them at:
Home USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: Cary N. Vollintine
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
-58-
<PAGE>
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(c) If to the Company, addressed to it at:
Universal Housing, Inc.
1804 Highway 45 Bypass
Suite 605
Jackson, TN 38305
Attn: Larry Shaffer
with copies to:
Larry A. Butler
Spragins, Barnett, Cobb & Butler PLC
Elks Building, 110 East Baltimore
P. O. Box 2004
Jackson, TN 38302-2004
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
-59-
<PAGE>
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of Home, Newco, the Company and Stockholders who hold or who
will hold at least 50% of the Home Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving Home Stock in connection with the Merger and each future holder
of such Home Stock.
-60-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
HOMEUSA, INC.
By: _________________________
Cary N. Vollintine
Chief Executive Officer
UNIVERSAL HOUSING ACQUISITION CORP.
By: _________________________
Name: ____________________
Title: ___________________
UNIVERSAL HOUSING OF EAST TENNESSEE
ACQUISITION CORP.
By: _________________________
Name: ____________________
Title: ___________________
SHAFFER & WEBB INSURANCE AGENCY
ACQUISITION CORP.
By: _________________________
Name: ____________________
Title: ___________________
-61-
<PAGE>
UNIVERSAL HOUSING, INC.
By: _________________________
Name: ____________________
Title: ___________________
UNIVERSAL HOUSING OF EAST TN., INC.
By: _________________________
Name: ____________________
Title: ___________________
SHAFFER & WEBB INSURANCE AGENCY, INC.
By: _________________________
Name: ____________________
Title: ___________________
-62-
<PAGE>
STOCKHOLDERS:
____________________________
LARRY T. SHAFFER, JR.
____________________________
DAVID L. BRANSON
____________________________
LARRY F. DALTON
____________________________
LARRY T. SHAFFER, SR.
-63-
<PAGE>
SCHEDULE 6.9
None.
-64-
EXHIBIT 10.5
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 10th day of September, 1997
by and among
HOMEUSA, INC.
FIRST AMERICAN HOMES ACQUISITION CORP.
D&S ACQUISITION CORP.
SON DEVELOPMENT ACQUISITION CORP.
(each a subsidiary of HomeUSA, Inc.)
FIRST AMERICAN HOMES, INC.
D & S, INC.
SON DEVELOPMENT CORPORATION
and
the STOCKHOLDERS named herein
-2-
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 Delivery and Filing of Articles of Merger........................5
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-laws and
Board of Directors of Surviving Corporation......................6
1.4 Certain Information With Respect to the Capital Stock
of the Company, Home and Newco...................................7
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 Manner of Conversion.............................................8
3. DELIVERY OF MERGER CONSIDERATION.......................................9
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS..................................................10
(A) Representations and Warranties of the Company
and the Stockholders......................................10
5.1 Due Organization................................................10
5.2 Authorization...................................................11
5.3 Capital Stock of the Company....................................11
5.4 Transactions in Capital Stock, Organization Accounting..........11
5.5 No Bonus Shares.................................................11
5.6 Subsidiaries....................................................11
5.7 Predecessor Status; etc.........................................11
5.8 Spin-off by the Company.........................................12
5.9 Financial Statements............................................12
5.10 Liabilities and Obligations.....................................12
5.11 Accounts and Notes Receivable...................................13
5.12 Permits and Intangibles.........................................13
5.13 Environmental Matters...........................................13
5.14 Personal Property...............................................14
5.15 Significant Customers; Material Contracts and Commitments.......14
-i-
<PAGE>
5.16 Real Property...................................................15
5.17 Insurance.......................................................16
5.18 Compensation; Employment Agreements; Organized Labor Matters....16
5.19 Employee Plans..................................................16
5.20 Compliance with ERISA...........................................17
5.21 Conformity with Law; Litigation.................................18
5.22 Taxes...........................................................19
5.23 No Violations; No Consents Required, Etc.......................19
5.24 Government Contracts............................................20
5.25 Absence of Changes..............................................20
5.26 Deposit Accounts; Powers of Attorney............................21
5.27 Validity of Obligations.........................................22
5.28 Relations with Governments......................................22
5.29 Disclosure......................................................22
5.30 Prohibited Activities...........................................23
5.31 Dealer Agreements and Related Matters...........................23
5.32 No Retail Financing.............................................24
5.33 No Warranties or Insurance......................................24
5.34 No Interests In Other Businesses................................24
(B) Representations and Warranties of Stockholders......24
5.35 Authority; Ownership............................................24
5.36 Preemptive Rights...............................................25
5.37 No Intention to Dispose of Home Stock...........................25
6. REPRESENTATIONS OF HOME AND NEWCO.....................................25
6.1 Due Organization................................................25
6.2 Authorization...................................................25
6.3 Capital Stock of Home and Newco.................................25
6.4 Transactions in Capital Stock, Organization Accounting..........26
6.5 Subsidiaries....................................................26
6.6 Financial Statements............................................26
6.7 Liabilities and Obligations.....................................26
6.8 Conformity with Law; Litigation.................................26
6.9 No Violations...................................................27
6.10 Validity of Obligations.........................................27
6.11 Home Stock......................................................28
6.12 No Side Agreements..............................................28
6.13 Business; Real Property; Material Agreements....................28
6.14 Taxes...........................................................28
6.15 Absence of Changes..............................................29
-ii-
<PAGE>
6.16 Disclosure......................................................30
6.17 Private Offering................................................30
7. COVENANTS PRIOR TO CLOSING............................................30
7.1 Access and Cooperation; Due Diligence...........................30
7.2 Conduct of Business Pending Closing.............................31
7.3 Prohibited Activities...........................................32
7.4 No Shop.........................................................33
7.5 Notice to Bargaining Agents.....................................33
7.6 Agreements......................................................33
7.7 Notification of Certain Matters.................................34
7.8 Amendment of Schedules..........................................34
7.9 Cooperation in Preparation of Registration Statement............35
7.10 Final Financial Statements......................................35
7.11 Further Assurances..............................................36
7.12 Authorized Capital..............................................36
7.13 Compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "Hart-Scott-Rodino Act")..........36
7.14 Stockholders of Home............................................36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF
STOCKHOLDERS AND COMPANY..............................................36
8.1 Representations and Warranties; Performance of Obligations......37
8.2 Satisfaction....................................................37
8.3 No Litigation...................................................37
8.4 Opinion of Counsel..............................................37
8.5 Registration Statement..........................................37
8.6 Consents and Approvals..........................................38
8.7 Good Standing Certificates......................................38
8.8 No Material Adverse Change......................................38
8.9 Closing of IPO..................................................38
8.10 Secretary's Certificate.........................................38
8.11 Employment Agreements...........................................38
8.12 Tax Matters.....................................................38
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME AND NEWCO.................39
9.1 Representations and Warranties; Performance of Obligations......39
9.2 No Litigation...................................................39
9.3 Secretary's Certificate.........................................39
9.4 No Material Adverse Effect......................................39
9.5 Stockholders' Release...........................................40
-iii-
<PAGE>
9.6 Satisfaction....................................................40
9.7 Termination of Related Party Agreements.........................40
9.8 Opinion of Counsel..............................................40
9.9 Consents and Approvals..........................................40
9.10 Good Standing Certificates......................................40
9.11 Registration Statement..........................................41
9.12 Employment Agreements...........................................41
9.13 Closing of IPO..................................................41
9.14 FIRPTA Certificate..............................................41
10. COVENANTS OF HOME AND THE STOCKHOLDERS AFTER CLOSING..................41
10.1 Release From Guarantees; Repayment of Certain Obligations.......41
10.2 Preservation of Tax and Accounting Treatment....................41
10.3 Preparation and Filing of Tax Returns...........................42
10.4 Directors.......................................................42
11. INDEMNIFICATION.......................................................43
11.1 General Indemnification by the Stockholders.....................43
11.2 Indemnification by Home.........................................44
11.3 Third Person Claims.............................................44
11.4 Exclusive Remedy................................................45
11.5 Limitations on Indemnification..................................46
12. TERMINATION OF AGREEMENT..............................................46
12.1 Termination.....................................................46
12.2 Liabilities in Event of Termination.............................47
13. NONCOMPETITION........................................................47
13.1 Prohibited Activities...........................................47
13.2 Damages.........................................................48
13.3 Reasonable Restraint............................................48
13.4 Severability; Reformation.......................................49
13.5 Independent Covenant............................................49
13.6 Materiality.....................................................49
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................49
14.1 Stockholders....................................................49
14.2 Home and Newco..................................................50
14.3 Damages.........................................................51
14.4 Survival........................................................51
-iv-
<PAGE>
15. TRANSFER RESTRICTIONS.................................................51
15.1 Transfer Restrictions...........................................51
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................51
16.1 Compliance with Law.............................................51
16.2 Economic Risk; Sophistication...................................52
17. REGISTRATION RIGHTS...................................................52
17.1 Piggyback Registration Rights...................................52
17.2 Demand Registration Rights......................................53
17.3 Registration Procedures.........................................54
17.4 Indemnification.................................................55
17.5 Underwriting Agreement..........................................56
17.6 Rule 144 Reporting..............................................56
18. GENERAL...............................................................57
18.1 Cooperation.....................................................57
18.2 Successors and Assigns..........................................57
18.3 Entire Agreement................................................57
18.4 Counterparts....................................................57
18.5 Brokers and Agents..............................................57
18.6 Expenses........................................................57
18.7 Notices.........................................................58
18.8 Governing Law...................................................59
18.9 Survival of Representations and Warranties......................59
18.10 Exercise of Rights and Remedies.................................59
18.11 Time............................................................60
18.12 Reformation and Severability....................................60
18.13 Remedies Cumulative.............................................60
18.14 Captions........................................................60
18.15 Amendments and Waivers..........................................60
-v-
<PAGE>
APPENDICES AND ANNEXES
Appendix I - Mergers
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Certificate of Incorporation and By-Laws of Home
Annex IV - Certificate of Incorporation and By-Laws of Newco
Annex V - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex VI - Form of Opinion of Andrews & Kurth, LLP
Annex VII - Form of Key Employee Employment Agreement
-vi-
<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes 5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Dealer Agreements
5.32 No Retail Financing
5.33 No Warranties or Insurance
5.34 No Interests in Other Businesses
5.35 Authority; Ownership
6.9 No Violations
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
10.1 Guaranties
13.1 Lots Excluded from Noncompete
-vii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 10th day of September, 1997, by and among HOMEUSA, INC., a Delaware
corporation ("Home"), FIRST AMERICAN HOMES ACQUISITION CORP., D&S ACQUISITION
CORP. and SON DEVELOPMENT ACQUISITION CORP., each of which is a Delaware
corporation (collectively, "Newco", and individually, "each Newco"), FIRST
AMERICAN HOMES, INC., D & S, INC. and SON DEVELOPMENT CORPORATION, each of which
is an Alabama corporation (collectively, the "Company", and individually, "each
Company"), and JOSEPH R. COPELAND and ROGER D. MILLER (the "Stockholders"). The
Stockholders are all the stockholders of the Company.
RECITALS
WHEREAS, each Newco is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on
September 8, 1997 solely for the purpose of completing the transactions
set forth herein, and is a wholly-owned subsidiary of Home, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of each Newco and each
Company (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of
the Constituent Corporations and their respective Stockholders that each
Newco merge with and into each Company as set forth on Appendix I hereto
pursuant to this Agreement and the applicable provisions of the laws of
the State of Delaware and the State or States of Incorporation;
WHEREAS, Home is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional retail manufactured housing
companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"Home Plan of Organization;"
WHEREAS, the Stockholders and the Boards of Directors and the
stockholders of Home, each of the Other Founding Companies and each of the
subsidiaries of Home that are parties to the Other Agreements have
approved and adopted the Home Plan of Organization as an integrated plan
pursuant to which the Stockholders and the stockholders of each of the
other Founding Companies will transfer the capital stock of each of the
Founding Companies
-1-
<PAGE>
to Home and the Stockholders of each of the other Founding Companies will
acquire the stock of Home (but not cash or other property) as a tax-free
transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of each
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the Home Plan of Organization in
order to transfer the capital stock of such Company to Home;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means each Company, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" shall mean each Newco and each of the other
Delaware companies wholly-owned by Home prior to the Funding and Consummation
Date.
"Affiliates" means, with respect to any Person, any Person or entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Mergers in such forms as may be required by the laws of the
State of Delaware and the State or States of Incorporation.
"Balance Sheet Date" shall mean June 30, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
-2-
<PAGE>
"Company Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the draft dated September 5, 1997 of
the Registration Statement, and any corrections thereto and supplemental
information delivered by Home to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to Home.
"Effective Time of the Merger" shall mean the time as of which each Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Cooper's Mobile Homes, Inc., a Washington corporation, Home USA,
Inc., a Washington corporation, and Pac West Mgmt., Inc., a Washington
corporation.
CSF&T, Inc. (dba AAA Homes), a Mississippi corporation, AAA Homes,
L.L.C., a Louisiana limited liability company, and Fordham Insurance
Agency, Inc., a Mississippi corporation.
First American Homes, Inc., an Alabama corporation, D & S, Inc., an
Alabama corporation, and Son Development Corporation, an Alabama
corporation.
Home Folks Housing Center, Inc., a Kentucky corporation.
McDonald Homes, Inc., an Oklahoma corporation.
Mobile World, Inc., a Texas corporation, and Showcase of Homes,
Inc., a Texas corporation.
Patrick Home Center, Inc., a Mississippi corporation.
Universal Housing, Inc., a Tennessee corporation, Shaffer & Webb
Insurance Agency, Inc., a Tennessee corporation, and Universal Housing of
East TN, Inc., a Tennessee corporation.
Willmax Homes of Colorado LLC, a Colorado limited liability company.
-3-
<PAGE>
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of Home Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Company" means the actual knowledge of the executive
officers of the Company.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of each Newco with and into each Company as set
forth on Appendix I hereto pursuant to this Agreement and the applicable
provisions of the laws of the State of Delaware and the laws of the State or
States of Incorporation.
"Home" has the meaning set forth in the first paragraph of this Agreement.
"Home Charter Documents" has the meaning set forth in Section 6.1.
"Home Stock" means the common stock, par value $.01 per share, of Home.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by Home and the Underwriters of
the public offering price of the shares of Home Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Home Stock to be issued in
the IPO and all amendments thereto.
-4-
<PAGE>
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Alabama.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean each Company as the surviving party in
each Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to Home to be held for filing with the
-5-
<PAGE>
Secretary of State of the State of Delaware and the Secretary of State (or other
appropriate authority) of the State or States of Incorporation on or effective
as of the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
each Newco shall be merged with and into each Company as set forth on Appendix I
hereto in accordance with the respective Articles of Merger, the separate
existence of each Newco shall cease, each Company shall be the surviving party
in the respective Merger and each Company is sometimes hereinafter referred to
as the Surviving Corporation. The Mergers will be effected in a single
transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of each Company then in effect
shall be the Certificate of Incorporation of the respective Surviving
Corporation until changed as provided by law;
(ii) the By-laws of each Newco then in effect shall become the
By-laws of the respective Surviving Corporation; and subsequent to the
Effective Time of each Merger, such By-laws shall be the By-laws of the
respective Surviving Corporation until they shall there after be duly
amended (and such By-laws shall be amended from time to time, if
necessary, to comply with applicable state law);
(iii) the Board of Directors of the respective Surviving Corporation
shall consist of the persons who are on the Board of Directors of each
Company immediately prior to the Effective Time of the Mergers, provided
that Cary N. Vollintine shall become an additional director of each
Surviving Corporation effective as of the Effective Time of the Merger,
and the number of directors constituting the entire Board of Directors of
each Surviving Corporation shall be increased, if necessary, to
accommodate the addition of such additional director; the Board of
Directors of each Surviving Corporation shall hold office subject to the
provisions of the laws of the State or States of Incorporation and of the
Certificate of Incorporation and By-laws of the respective Surviving
Corporation; and
(iv) the officers of each Company immediately prior to the Effective
Time of the Mergers shall continue as the officers of the respective
Surviving Corporation in the same capacity or capacities, and effective
upon the Effective Time of the Mergers Michael Loy shall become an
additional Vice President of each Surviving Corporation, such officers to
serve, subject to the provisions of the Certificate of Incorporation and
By-laws of the respective Surviving Corporation, until their respective
successors are duly elected and qualified.
-6-
<PAGE>
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
HOME AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of each Company,
Home and each Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of each Company is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof,
the authorized capital stock of Home will consist of 50,000,000 shares of
Home Stock, of which the number of issued and outstanding shares will be
set forth in the Registration Statement, 5,000,000 shares of preferred
stock, $.01 par value, of which no shares will be issued and outstanding,
and 5,000,000 shares of Restricted Voting Common Stock, $.01 par value
(the "Restricted Common Stock"), all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement;
and
(iii) as of the date of this Agreement, the authorized capital stock
of each Newco consists of 1,000 shares of Newco Stock, of which one
hundred (100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Mergers, the effect of
each Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State or States of Incorporation. Except as herein specifically set forth, the
identity, existence, purposes, powers, franchises, privileges, rights and
immunities of each Company shall continue unaffected and unimpaired by the
Mergers and the corporate franchises, existence and rights of each Newco shall
be merged with and into the respective Company, and the respective Company, as
the Surviving Corporation, shall be fully vested therewith. At the Effective
Time of the Mergers, the separate existence of each Newco shall cease and, in
accordance with the terms of this Agreement, the respective Surviving
Corporation shall possess all the rights, privileges, immunities and franchises,
of a public, as well as of a private, nature, and all property, real, personal
and mixed, and all debts due on whatever account, including subscriptions to
shares, and all taxes, including those due and owing and those accrued, and all
other choses in action, and all and every other interest of or belonging to or
due to the respective Company and respective Newco shall be transferred to, and
vested in, the respective Surviving Corporation without further act or deed; and
all property, rights and privileges, powers and franchises and all and every
other interest shall be thereafter as effectually the property of the respective
Surviving Corporation as they were of the respective Company and respective
Newco; and the title to any real estate, or interest therein, whether by deed or
otherwise, under the laws of the State or States of Incorporation vested in the
respective Company and respective Newco, shall not revert or be in any way
impaired by reason of the Mergers. Except as otherwise provided herein, the
respective
-7-
<PAGE>
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the respective Company and respective Newco and
any claim existing, or action or proceeding pending, by or against the
respective Company or respective Newco may be prosecuted as if the Merger had
not taken place, or the respective Surviving Corporation may be substituted in
their place. Neither the rights of creditors nor any liens upon the property of
the respective Company or respective Newco shall be impaired by the Merger, and
all debts, liabilities and duties of the respective Company and respective Newco
shall attach to the respective Surviving Corporation, and may be enforced
against such Surviving Corporation to the same extent as if said debts,
liabilities and duties had been incurred or contracted by such Surviving
Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) Home Stock and cash and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of Home Stock set forth on Annex I hereto (adjusted as
set forth on such Annex I) with respect to such holder and (2) the right
to receive the amount of cash set forth on Annex I hereto with respect to
such holder (adjusted as set forth on such Annex I);
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of Home Stock
or other consideration shall be delivered or paid in exchange therefor;
and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger
and without any action on the part of Home, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All Home Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding Home
Stock by reason of the provisions of the Certificate of Incorporation of Home or
as otherwise provided by the Delaware GCL. All Home Stock received
-8-
<PAGE>
by the Stockholders shall be issued and delivered to the Stockholders free and
clear of any liens, claims or encumbrances of any kind or nature. All voting
rights of such Home Stock received by the Stockholders shall be fully
exercisable by the Stockholders and the Stockholders shall not be deprived nor
restricted in exercising those rights. At the Effective Time of the Merger, Home
shall have no class of capital stock issued and outstanding other than the Home
Stock and the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
number of shares of Home Stock and the amount of cash described on Annex I
hereto, said cash to be payable by certified check or wire transfer.
3.2 The Stockholders shall deliver to Home at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The
Stockholders agree promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such Company Stock or with respect to the stock powers accompanying
any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to Home for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and certified check(s) referred to in
Section 3 hereof, each of which actions shall only be taken upon the Funding and
Consummation Date as herein provided. In the event that there is no Funding and
Consummation Date and this Agreement automatically terminates as provided in
this Section 4 the Articles of Merger shall not be filed and shall be returned
to the Stockholders. The taking of the actions described in clauses (i) and (ii)
above (the "Closing") shall take place on the closing date (the "Closing Date")
at the offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares, the delivery of a certified check or checks in an amount
equal to the cash portion of the consideration which the Stockholders shall be
entitled to receive pursuant to the Merger referred to in Section 3 hereof and
(z) the closing with respect to the IPO shall occur
-9-
<PAGE>
and be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occurs shall be referred to as the "Funding and
Consummation Date." During the period from the Closing Date to the Funding and
Consummation Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall also in any event
automatically terminate if the Funding and Consummation Date has not occurred
within 15 business days following the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
Each Company, and the Stockholders severally (based on their relative
ownership of the Company Stock on the date hereof) represent and warrant that
all of the following representations and warranties in this Section 5(A) are
true at the date of this Agreement and, subject to Section 7.8 hereof, shall be
true at the time of Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the warranties and representations set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Funding and Consummation Date, which shall
be deemed to be the Expiration Date for Section 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
their subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company taken as a whole (as used herein with respect to the Company, or
with respect to any other Person, a "Material Adverse Effect"). Schedule 5.1
sets forth a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and correct copies of (i) the
Certificate of Incorporation and By-laws, each as amended, of the Company (the
"Charter Documents"), and (ii) the stock records of the Company, are all
attached to Schedule 5.1. The Company has delivered complete and correct copies
of all minutes of meetings, written consents and other evidence, if any, of
deliberations of or actions taken by the Company's Board of Directors and
stockholders during the last five years.
-10-
<PAGE>
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the Company
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Annex II. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Stockholders and further, such shares were offered, issued, sold and delivered
by the Company in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Merger and/or the Home Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the Home Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the
-11-
<PAGE>
Company previously acquired material assets, in any case, from the earliest date
upon which any Stockholder acquired his or her stock in any Company. Except as
disclosed on Schedule 5.7, the Company has not been, within such period of time,
a subsidiary or division of another corporation or a part of an acquisition
which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Complete and correct copies of the following
financial statements are attached hereto as Schedule 5.9:
(i) the balance sheet of the Company as of December 31, 1996 and the
related statements of operations, stockholder's equity and cash flows for
the year ended December 31, 1996, together with the related notes and
schedules (such balance sheets, the related statements of operations,
stockholder's equity and cash flows and the related notes and schedules
are referred to herein as the "Year-end Financial Statements"); and
(ii) the balance sheet (the "Interim Balance Sheet") of the Company
as of June 30, 1997 (the "Balance Sheet Date") and the related statements
of operations, stockholder's equity and cash flows for the six-month
periods ended June 30, 1997 and 1996, together with the related notes and
schedules (such balance sheets, the related statements of operations,
stockholder's equity and cash flows and the related notes and schedules
are referred to herein as the "Interim Financial Statements"). The
Year-end Financial Statements and the Interim Financial Statements are
collectively called the "Financial Statements".
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all liabilities of the Company of a
nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
best knowledge of the Company and the Stockholders, except as set forth on
Schedule 5.10, since the Balance Sheet Date the Company has not incurred any
material liabilities of any kind, character or description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than liabilities
incurred in the ordinary course of business. The Company has also delivered to
Home on Schedule 5.10, in the case of those contingent liabilities related to
pending or threatened litigation, or other liabilities which are not fixed, a
good faith and reasonable estimate of the maximum amount which the Company
reasonably expects will be payable and the amount, if any, accrued or reserved
for each such potential liability on the Company's Financial Statements;
-12-
<PAGE>
in the case of any such liability for which no estimate has been provided, the
estimate for purposes of this Agreement shall be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholders, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to Home an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, including any trademarks,
trade names, patents, patent applications and copyrights owned or held by the
Company or any of its employees (including interests in software or other
technology systems, programs and intellectual property) (it being understood and
agreed that a list of environmental permits and other environmental approvals is
set forth on Schedule 5.13). At or prior to the Closing, all such trademarks,
trade names, patents, patent applications, copyrights and other intellectual
property will be assigned or licensed to the Company for no additional
consideration. To the best knowledge of the Company, the Licenses and other
rights listed on Schedules 5.12 and 5.13 are valid, and the Company has not
received any notice that any person intends to cancel, terminate or not renew
any such License or other right. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Licenses and other rights listed on Schedules 5.12 and 5.13 and
is not in violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the Company. Except as
specifically provided in Schedule 5.12, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to the Company by, any such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have any Material Adverse Effect on the Company or its
business, (i) the Company has complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to any of them or any of their respective properties, assets,
operations and businesses relating to environmental protection (collectively
"Environmental Laws") including, without limitation, Environmental Laws relating
to air, water, land and the generation, storage, use, handling, transportation,
treatment or disposal of Hazardous Wastes, Hazardous Materials and Hazardous
Substances (as such terms are defined in any applicable Environmental Law), as
well as petroleum and petroleum products (collectively
-13-
<PAGE>
"Hazardous Materials"), (ii) the Company has obtained and adhered to all
necessary permits and other approvals necessary to treat, transport, store,
dispose of and otherwise handle Hazardous Materials, a list of all of which
permits and approvals is set forth on Schedule 5.13, and has reported to the
appropriate authorities, to the extent required by all Environmental Laws, all
past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled. There
have been no releases or threats of releases (as these terms are defined in
Environmental Laws) of any Hazardous Materials at, from, in or on any property
owned or operated by the Company except as permitted by Environmental Laws, and
to the best knowledge of the Company and the Stockholders, there is no on-site
or off-site location to which the Company has transported or disposed of
Hazardous Materials or arranged for the transportation of Hazardous Materials
which is the subject of any Federal, state, local or foreign enforcement action
or any other investigation which could lead to any claim against the Company,
Home or Newco for any clean-up cost, remedial work, damage to natural resources,
property damage or personal injury, including, but not limited to, any claim
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, the Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act or comparable state or local statutes or
regulations. The Company has no contingent liability in connection with any
release of any Hazardous Materials into the environment that would have a
Material Adverse Effect.
5.14 PERSONAL PROPERTY. The Company has delivered to Home an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company, (y) all other personal property owned by the
Company with an individual value in excess of $25,000 (i) as of the Balance
Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material
leases and agreements in respect of personal property, including, in the case of
each of (x), (y) and (z), (1) true, complete and correct copies of all such
leases and (2) an indication as to which assets are currently owned, or were
formerly owned, by Stockholders, relatives of Stockholders, or Affiliates of the
Company. Except as set forth on Schedule 5.14, (i) all material personal
property used by the Company in its business is either owned by the Company or
leased by the Company pursuant to a lease included on Schedule 5.14, (ii) all of
the personal property listed on Schedule 5.14 is in good working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 5% or more of the
Company's annual revenues for any period covered by any of the Financial
Statements. Except to the extent set forth on Schedule 5.15, none of such
customers have canceled or substantially reduced or, to the knowledge of the
Company, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by the Company.
-14-
<PAGE>
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to Home. For purposes of this Section 5.17, Material Contracts
includes contracts between the Company and significant customers, joint venture
or partnership agreements, contracts with any labor organization, strategic
alliances, options to purchase land and other contracts which are not terminable
on sixty days or less notice and involve payments by the Company in any twelve
month period in excess of $25,000. The Company has also indicated on Schedule
5.15 a summary description of all plans or projects involving the opening of new
operations, expansion of existing operations, the acquisition of any personal
property, business or assets requiring, in any event, the payment of more than
$25,000 by the Company during any 12-month period.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on terms reasonably acceptable to Home and leased
back by the Company on terms no less favorable to the Company than those
available from an unaffiliated party and otherwise reasonably acceptable to Home
at or prior to the Closing Date. The Company has good and insurable title to any
real property owned by it that is not shown on Schedule 5.16 as property
intended to be sold or distributed prior to the Closing Date, subject to no
mortgage, pledge, lien, conditional sales agreement, encumbrance or charge,
except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
-15-
<PAGE>
5.17 INSURANCE. The Company has delivered to Home (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the best knowledge of the Company provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect and shall, to the best knowledge of the
Company, remain in full force and effect through the Funding and Consummation
Date. Since January 1, 1995, no insurance carried by the Company has been
canceled by the insurer and the Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The Company has provided to Home
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the best knowledge of the Company, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the best of the Company's knowledge, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years. The Company believes its relationship
with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to Home an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
-16-
<PAGE>
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on the Benefit Plans Schedule, and the Company is not required to contribute to
any retirement plan pursuant to the provisions of any collective bargaining
agreement establishing the terms and conditions or employment of any of the
Company's or any subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code are, and have been so qualified and have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination letters are
attached to the Benefit Plans Schedule. Except as disclosed on the Benefit Plans
Schedule, all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or tax returns) have
been timely filed or distributed, and copies thereof are included as part of the
Benefit Plans Schedule. Neither Stockholders, any such plan listed in the
Benefit Plans Schedule, nor the Company has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No such Plan listed in the Benefit Plans Schedule has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and the Company has not incurred any liability for
excise tax or penalty due to the Internal Revenue Service nor any liability to
the Pension Benefit Guaranty Corporation. The Stockholders further represent
that except as set forth on the Benefit Plans Schedule hereto:
-17-
<PAGE>
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
the Benefit Plans Schedule;
(iv) the Company has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the Company could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such
liability) with respect to any plan now or heretofore maintained or
contributed to by any entity other than the Company that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and, to the Knowledge of the
Company and the Stockholders, there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, orders, approvals,
variances, rules and regulations, including without limitation to the extent
applicable all regulations promulgated by the Department of Housing and Urban
Development under the National Manufactured Housing Construction and Safety
Standards Act, as amended, or otherwise, and all laws and regulations affecting
the sale of manufactured housing, on credit or otherwise, including the Federal
Consumer Credit Protection Act, the Federal Fair Credit Reporting Act, the
Federal Equal Credit Opportunity Act, the Consumer Credit Protection Act, the
Fair Debt Collection Practices Act and the regulations promulgated under the
foregoing, and all state and local laws and regulations of similar effect, and
including all such orders
-18-
<PAGE>
and other governmental approvals set forth on Schedules 5.12 and 5.13, except
where any such noncompliance, individually or in the aggregate, would not have a
Material Adverse Effect.
5.22 TAXES. The Company has timely filed all requisite Federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other taxes (including penalties and interest) for any period
or periods prior to and including the Balance Sheet Date and no notice of any
claim for taxes, whether pending or threatened, has been received. All tax,
including interest and penalties (whether or not shown on any tax return) owed
by the Company or any of the Company's Subsidiaries has been paid. The amounts
shown as accruals for taxes on the Company Financial Statements are sufficient
for the payment of all taxes of the kinds indicated (including penalties and
interest) for all fiscal periods ended on or before that date. Copies of (i) any
tax examinations, (ii) extensions of statutory limitations and (iii) the federal
and local income tax returns and franchise tax returns of the Company for their
last three (3) fiscal years, or such shorter period of time as any of them shall
have existed, are attached hereto as Schedule 5.22 or have otherwise been
delivered to Home. The Company has disclosed to Home when its taxable year ends.
The Company uses the accrual method of accounting for income tax purposes, and
the Company's methods of accounting have not changed in the past five years. The
Company is not an investment Company as defined in Section 351(e)(1) of the
Code. The Company is not and has not during the last five years been a party to
any tax sharing agreement or agreement of similar effect. The Company is not and
has not during the last five years been a member of any consolidated group.
Except as described on Schedule 5.22, the Company has not received, been denied,
or applied for any private letter ruling during the last five years.
The Stockholders of D&S, Inc. and Son Development Corporation made valid
elections under the provisions of Subchapter S of the Code and such Companies
have not, within the past five years, been taxed under the provisions of
Subchapter C of the Code. The Stockholders of such Companies shall pay, and they
hereby indemnify Home, the Company and Newco against, all income taxes payable
with respect to income of such Companies for all periods though and including
the Closing Date.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the best
knowledge of the Company, any other party thereto, is in default under any
lease, instrument, agreement, license, or permit set forth on Schedule 5.12,
5.13, 5.14, 5.15 or 5.16, or any other Material Contract (as defined in Section
5.15) to which it is a party or by which its properties are bound (the "Material
Documents") in any manner that could result in a Material Adverse Effect; and,
except as set forth in Schedule 5.23, (a) the rights and benefits of the Company
under the Material Documents will not be materially adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated
-19-
<PAGE>
hereby will not result in any material violation or breach or constitute a
default under, any of the terms or provisions of the Material Documents or the
Charter Documents. Except as set forth on Schedule 5.23, none of the Material
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions contemplated
hereby in order to remain in full force and effect, and consummation of the
transactions contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit. Except as
set forth on Schedule 5.23, none of the Material Documents prohibits the use or
publication by the Company, Home or Newco of the name of any other party to such
Material Document, and none of the Material Documents prohibits or restricts the
Company from freely providing services to any other customer or potential
customer of the Company, Home, Newco or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any
grant by the Company of any options, warrants, calls, conversion rights or
commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
(v) any material increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the Company
to any of its officers, directors, Stockholders, employees, consultants or
agents, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the Company;
-20-
<PAGE>
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of Company to any person,
including, without limitation, the Stockholders and their Affiliates;
(viii)any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
(xii) any amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(xiii)any transaction by the Company outside the ordinary course of
its business;
(xiv) any cancellation or termination by the Company of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the Company
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
Home an accurate schedule (which is set forth on Schedule 5.26) as of the date
of this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
-21-
<PAGE>
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.28 RELATIONS WITH GOVERNMENTS. Except for legal contributions to
candidates for political office, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office, nor has it or any of them otherwise taken any action which would cause
the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended or any law of similar effect.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished to Home by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements herein and
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing does not apply to statements
contained in or omitted from any of such documents made or omitted in reliance
upon information furnished in writing by Home. If, prior to the 25th day after
the date of the final prospectus of Home utilized in connection with the IPO,
the Company or the Stockholders become aware of any fact or circumstance which
would affect the accuracy of a representation or warranty of Company or
Stockholders in this Agreement in any material respect, the Company and the
Stockholders shall immediately give notice of such fact or circumstance to Home.
Subject to the provisions of Section 7.8, such notification shall not relieve
either the Company or the Stockholders of their respective obligations under
this Agreement, and, subject to the provisions of Section 7.8, at the sole
option of Home, the truth and accuracy in all material respects of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on the
Funding and Consummation Date, shall be a precondition to the consummation of
this transaction.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that a Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither Home or any of its officers, directors, agents or representatives
nor any Underwriter
-22-
<PAGE>
shall have any liability to the Company, the Stockholders or any other person
affiliated or associated with the Company for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or to
occur at all; and (iii) that the decision of Stockholders to enter into this
Agreement, or to vote in favor of or consent to the proposed Merger, has been or
will be made independent of, and without reliance upon, any statements, opinions
or other communications, or due diligence investigations which have been or will
be made or performed by any prospective Underwriter, relative to Home or the
prospective IPO. Notwithstanding the foregoing, Home has agreed and herein
acknowledges its agreement to use its reasonable efforts to consummate the Home
Plan of Organization and IPO as contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
Company has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 DEALER AGREEMENTS AND RELATED MATTERS. Schedule 5.31 sets forth a
complete and accurate list of:
(i) all agreements of any nature (including "Dealer Agreements",
"Home Center Agreements", "Retailer Agreements", "Exclusive Retailer
Agreements", "General Conditions", "Action Plans" and other documents)
between the Company and any dealer, manufacturer, wholesaler or other
distributor (collectively, "Manufacturers") of manufactured housing units
(collectively, "Dealer Agreements"); and
(ii) all volume incentive, rebate and other similar programs of any
Manufacturer (collectively, "Dealer Programs") in which the Company is now
or has within the last three years been a participant.
Schedule 5.31 identifies the Manufacturer that is a party to each such Dealer
Agreement or that sponsors each such Dealer Program, and also identifies the
Company's sales locations subject to or affected by each such Dealer Agreement
and each such Dealer Program. Complete and accurate copies of all Dealer
Agreements and all Dealer Programs listed on Schedule 5.31 are attached to
Schedule 5.31. Except as set forth on Schedule 5.31, the Company is now and for
the last three years has been in compliance in all material respects with all
applicable provisions of the Dealer Agreements and Dealer Programs identified on
Schedule 5.31 and any similar agreements to which the Company has been a party
during the last three years. To the extent that the Company is required by any
Dealer Agreement or Dealer Program to take or refrain from taking specified
actions in order to qualify for the benefits offered thereby (such as the
benefits of an exclusive retailer agreement), the Company is in compliance in
all material respects with all such requirements (it being understood that the
Company is not hereby representing that it qualifies for the highest level of
incentive discounts or rebates offered by such Dealer Agreements or Dealer
Programs). Except as set forth on Schedule 5.31, within the last three years, no
Manufacturer has asserted any claim or
-23-
<PAGE>
right to any refund of any incentive payment or rebate or other payment or
discount granted to the Company by any such Manufacturer, or any right to offset
any amount against any future payment due or otherwise due to the Company, and
no circumstances exist that would entitle any Manufacturer to make any such
claim against the Company. During the last three years, the Company has
accurately calculated and reported to each Manufacturer with which the Company
has done business all financial and sales data that the Company is required to
report to each such Manufacturer, whether in connection with volume incentive or
rebate plans or otherwise.
5.32 NO RETAIL FINANCING. Except as set forth on Schedule 5.32, the
Company does not finance the sale to the Company's customers of manufactured
housing units or related products or services (collectively, "Product"), and is
not liable, directly or indirectly, contingently or otherwise, to any
Manufacturer or any financing source for all or any portion of the purchase
price of any Product that has been sold by the Company or delivered by the
Company to a retail purchaser.
5.33 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule 5.33, the
Company has not made any express warranties regarding any Products and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any payment
to or perform any service for any person other than routine matters described as
"Retailer Responsibilities", "Retailer General Installation and Home Delivery
Guidelines" and the like in the Dealer Agreements listed on Schedule 5.31.
5.34 NO INTERESTS IN OTHER BUSINESSES. Except as set forth on Schedule
5.34, neither the Company nor any Stockholder, nor any affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's sales of Product.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each Stockholder severally represents and warrants that the
representations and warranties set forth below as and to the extent relating to
such Stockholder are true as of the date of this Agreement and, subject to
Section 7.8 hereof, shall be true at the time of Closing and on the Funding and
Consummation Date, and that the representations and warranties set forth in
Sections 5.35 and 5.36 shall survive until the first anniversary of the Funding
and Consummation Date, which shall be the Expiration Date for purposes of
Sections 5.35 and 5.36.
5.35 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.35, such Company Stock is owned free and clear of all liens,
-24-
<PAGE>
security interests, pledges, charges, voting agreements, voting trusts,
restrictions, encumbrances and claims of every kind.
5.36 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Home Stock
that such Stockholder has or may have had. Nothing herein, however, shall limit
or restrict the rights of any Stockholder to acquire Home Stock pursuant to (i)
this Agreement or (ii) any option granted by Home.
5.37 NO INTENTION TO DISPOSE OF HOME STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of Home Stock received as described in Section 3.1.
6. REPRESENTATIONS OF HOME AND NEWCO
Home and Newco jointly and severally represent and warrant that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at the time
of Closing and the Funding and Consummation Date, and that such representations
and warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that the warranties and representations set forth in Section 6.14 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 6.14.
6.1 DUE ORGANIZATION. Home and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. Home and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws of Home and Newco (the "Home Charter Documents") are
all attached hereto as Annexes III and IV.
6.2 AUTHORIZATION. (i) The respective representatives of Home and Newco
executing this Agreement have the authority to enter into and bind Home and
Newco to the terms of this Agreement and (ii) Home and Newco have the full legal
right, power and authority to enter into this Agreement and consummate the
Merger. All corporate acts and other proceedings required to have been taken by
Home and Newco to authorize the execution, delivery and performance of this
Agreement and the consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF HOME AND NEWCO. The authorized capital stock of Home
and Newco is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding
-25-
<PAGE>
shares of the capital stock of Newco are owned by Home. All of the issued and
outstanding shares of the capital stock of Home and Newco have been duly
authorized and validly issued, are fully paid and nonassessable, and further,
such shares were offered, issued, sold and delivered by Home and Newco in
compliance with all applicable state and Federal laws concerning the issuance of
securities. Further, none of such shares were issued in violation of the
preemptive rights of any past or present stockholder of Home or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in the Draft Registration Statement,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates Home or Newco to issue any of their respective authorized but
unissued capital stock; and (ii) neither Home nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of Home.
6.5 SUBSIDIARIES. Newco has no subsidiaries. Home has no subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither Home
nor Newco presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, and
neither Home nor Newco, directly or indirectly, is a participant in any joint
venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of Home included in the
Draft Registration Statement (the "Home Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon),
and the balance sheet included therein presents fairly the financial position of
Home as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, Home and Newco have no material liabilities, contingent
or otherwise, except as set forth in or contemplated by this Agreement and the
Other Agreements and except for fees incurred in connection with the
transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement, neither Home nor Newco is in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them which would have a Material Adverse
Effect; and except to the extent set forth in Schedule 6.8, there are no
material
-26-
<PAGE>
claims, actions, suits or proceedings, pending or, to the knowledge of Home or
Newco, threatened against or affecting, Home or Newco, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
either of them and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. Home and Newco have conducted and are
conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation of any of
the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. Neither Home nor Newco is in violation of any Home
Charter Document. None of Home, Newco, or, to the knowledge of Home and Newco,
any other party thereto, is in default under any lease, instrument, agreement,
license, or permit to which Home or Newco is a party, or by which Home or Newco,
or any of their respective properties, are bound (collectively, the "Home
Documents"); and (a) the rights and benefits of Home and Newco under the Home
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution and delivery of this Agreement by Home and Newco and the
performance of their obligations hereunder do not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof will not,
conflict with, or result in any violation or default (with or without notice or
lapse of time, or both), under or give rise to a right of termination,
cancellation, or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any lien upon any of the assets of Home or
any Newco under, any provision of (i) the Certificate of Incorporation or Bylaws
of Home or the comparable governing instruments of any Newco, (ii) any note,
bond, mortgage, indenture or deed of trust or any license, lease, contract,
commitment, agreement or arrangement to which Home and any Newco is a party or
by which any of their respective properties or assets are bound or (iii) any
judgment, order, decree or law, ordinance, rule or regulation, applicable to
Home or any Newco or their respective properties or assets. The execution of
this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
material violation or breach or constitute a default under, any of the terms or
provisions of the Home Documents or the Home Charter Documents. Except as set
forth on Schedule 6.9, none of the Home Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by Home and Newco and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective Boards of Directors of
Home and Newco and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of Home
and Newco.
-27-
<PAGE>
6.11 HOME STOCK. At the time of issuance thereof and delivery to the
Stockholders, the Home Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid and legally issued shares of Home, fully
paid and nonassessable, and with the exception of restrictions upon resale set
forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
Home Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. The Home Stock issued and delivered to the
Stockholders shall at the time of such issuance and delivery be free and clear
of any liens, claims or encumbrances of any kind or character. The shares of
Home Stock to be issued to the Stockholders pursuant to this Agreement will not
be registered under the 1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither Home nor Newco has entered or will enter
into any agreement with any of the Founding Companies or any of the Stockholders
of the Founding Companies or Home other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Home was formed in July
1996 and has conducted only limited operations since that time. Neither Home nor
Newco has conducted any material business since the date of its inception,
except in connection with this Agreement, the Other Agreements and the IPO.
Except as described in the Draft Registration Statement, neither Home nor Newco
owns or has at any time owned any real property or any material personal
property or is a party to any other agreement other than the Other Agreements
and the agreements contemplated thereby and to such agreements as will be filed
as Exhibits to the Registration Statement.
6.14 TAXES. Home and Newco have timely filed all requisite federal, state
and other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and there are no examinations in progress or
claims against Home for federal, state and other taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for taxes, whether pending or threatened, has
been received. All taxes which Home or any Newco has been required to collect or
withhold have been duly and timely collected and withheld and have been set
aside in accounts for such purposes, or have been duly and timely paid to the
proper governmental authority. All tax, including interest and penalties
(whether or not shown on any tax return) owed by Home, any member of an
affiliated or consolidated group which includes or included Home, or with
respect to any payment made or deemed made by Home herein has been paid. The
amounts shown as accruals for taxes on Home Financial Statements are sufficient
for the payment of all taxes of the kinds indicated (including penalties and
interest) for all fiscal periods ended on or before that date. Home and Newco
have not entered into any tax sharing
-28-
<PAGE>
agreement or similar arrangement. Home is not an investment company as defined
in Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Home or
Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
Home or Newco;
(iii) any change in the authorized capital of Home or Newco or their
outstanding securities or any change in their ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of Home or
Newco;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of Home or Newco;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Home or Newco to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Home or Newco;
(viii)any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of Home or Newco or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of Home or Newco;
(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which Home or Newco is a
party;
-29-
<PAGE>
(xi) any transaction by Home or Newco outside the ordinary course of
its business;
(xii) any other distribution of property or assets by Home or Newco
other than in the ordinary course of business.
6.16 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Stockholders, together with this Agreement and the information furnished
to the Company and the Stockholders in connection herewith, does not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing does not apply
to statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished by the Company or the Stockholders.
6.17 PRIVATE OFFERING. (a) Neither Home, any of its Affiliates nor anyone
on its or their behalf, has issued, sold, or offered any securities of Home to
any person under circumstances that would cause the issuance and sale of the
Home Stock to the Stockholders pursuant to this Agreement, to be subject to the
registration requirements of the 1933 Act.
(b) The offering of shares of Home Stock pursuant to the Home Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of Home and the Other Founding Companies
access to all of the Company's sites, properties, books and records and will
furnish Home with such additional financial and operating data and other
information as to the business and properties of the Company as Home or the
Other Founding Companies may from time to time reasonably request. The Company
will cooperate with Home and the Other Founding Companies, its representatives,
auditors and counsel in the preparation of any documents or other materials
which may be required in connection with any documents or materials required by
this Agreement. Home, Newco, the Stockholders and the Company will treat all
information obtained in connection with the negotiation and performance of this
Agreement or the due diligence investigations conducted with respect to the
Other Founding Companies as confidential in accordance with the provisions of
Section 14 hereof. In addition, Home will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
such Other Founding Company, its Stockholders, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
-30-
<PAGE>
(b) Between the date of this Agreement and the Funding and Consummation
Date, Home will afford to the officers and authorized representatives of the
Company access to all of Home's and Newco's sites, properties, books and records
and will furnish the Company with such additional financial and operating data
and other information as to the business and properties of Home and Newco as the
Company may from time to time reasonably request. Home and Newco will cooperate
with the Company, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The Company will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order
and condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or
rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and
maintain its relationships with suppliers, customers and others having
business relations with the Company;
(vi) use its reasonable efforts to maintain compliance with all
material permits, laws, rules and regulations, consent orders, and all
other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent
of Home (which consent shall not be unreasonably withheld), provided that
debt and/or lease instruments may be replaced without the consent of Home
if such replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced; and
-31-
<PAGE>
(viii)maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of Home, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock
except for distributions permitted as described on Annex I hereto;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the businesses of the Company, (2) (A) liens for taxes either not yet due
or being contested in good faith and by appropriate proceedings (and for
which contested taxes adequate reserves have been established and are
being maintained) or (B) materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
-32-
<PAGE>
(viii)merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the Company; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Home or its
authorized agents relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, the Company
or a merger, consolidation or business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Home on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by Home or reflected in Schedule 7.6) terminate (i) any
Stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms
-33-
<PAGE>
thereof, which terms have been disclosed to Home. Such termination agreements
are listed on Schedule 7.6 and copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to Home of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of any Stockholder or the Company to comply with or satisfy
any material covenant, condition or agreement to be complied with or satisfied
by such person hereunder. Home and Newco shall give prompt notice to the Company
of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of Home or Newco contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any failure of Home or Newco to
comply with or satisfy any material covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii) modify the conditions set forth in
Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless Home and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by Home or Newco that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, Home shall give the Company notice promptly after
it has knowledge thereof. If Home
-34-
<PAGE>
and a majority of the Founding Companies consent to such amendment or
supplement, which consent shall have been deemed given by Home or any Founding
Company if no response is received within 24 hours following receipt of notice
of such amendment or supplement (or sooner if required by the circumstances
under which such consent is requested), but the Company does not give its
consent, the Company may terminate this Agreement pursuant to Section 12.1(iv)
hereof. In the event that the Company seeks to amend or supplement a Schedule
pursuant to this Section 7.8, and Home and a majority of the Other Founding
Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i) hereof.
In the event that Home or Newco seeks to amend or supplement a Schedule pursuant
to this Section 7.8 and a majority of the Founding Companies do not consent to
such amendment or supplement, this Agreement shall be deemed terminated by
mutual consent as set forth in Section 12.1(i) hereof. No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to Home and the Underwriters
all of the information concerning the Company and the Stockholders required for
inclusion in, and will cooperate with Home and the Underwriters in the
preparation of, the Registration Statement and the prospectus included therein
(including audited and unaudited financial statements, prepared in accordance
with generally accepted accounting principles, in form suitable for inclusion in
the Registration Statement). The Company and the Stockholders agree promptly to
advise Home if at any time during the period in which a prospectus relating to
the offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the Company or the
Stockholders becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the Company or the Stockholders, the Company
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
Company and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and Home shall have had sufficient time to review
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in
-35-
<PAGE>
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted therein). Except as
noted in such financial statements, all of such financial statements will
present fairly the results of operations of the Company for the periods
indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, Home
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the Home Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
(ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by Home and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott-Rodino Act to be
made. If filings under the Hart-Scott-Rodino Act are required, the costs and
expenses thereof (including legal fees and costs and filing fees) shall be borne
by Home. The obligation of each party to consummate the transactions
contemplated by this Agreement is subject to the expiration or termination of
the waiting period under the Hart-Scott-Rodino Act, if applicable.
7.14 STOCKHOLDERS OF HOME. Promptly after a request by the Company, Home
will deliver to the Company a list of the stockholders of Home as of the date of
this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY
The obligations of Stockholders and the Company with respect to actions to
be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. The obligations of
the Stockholders and the Company with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9
-36-
<PAGE>
and 8.12. As of the Closing Date or, with respect to the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the Funding and Consummation Date,
if any such conditions have not been satisfied, the Stockholders (acting in
unison) shall have the right to terminate this Agreement, or in the alternative,
waive any condition not so satisfied. Any act or action of the Stockholders in
consummating the Closing or delivering certificates representing Company Stock
as of the Funding and Consummation Date shall constitute a waiver of any
conditions not so satisfied. However, no such waiver shall be deemed to affect
the survival of the representations and warranties of Home and Newco contained
in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Home and Newco contained in Section 6 shall be
true and correct in all material respects as of the Closing Date and the Funding
and Consummation Date as though such representations and warranties had been
made as of that time; all of the terms, covenants and conditions of this
Agreement to be complied with and performed by Home and Newco on or before the
Closing Date and the Funding and Consummation Date shall have been duly complied
with and performed in all material respects; and certificates to the foregoing
effect dated the Closing Date and the Funding and Consummation Date,
respectively, and signed by the President or any Vice President of Home shall
have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform Home in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the Company as a result of which
the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for Home, dated the Closing Date, in the form annexed hereto as Annex V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm
-37-
<PAGE>
commitment basis, subject to the conditions set forth in the underwriting
agreement, on terms such that the aggregate value of the cash and the number of
shares of Home Stock to be received by the Stockholders is not less than the
Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of the Company as a result of which the Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. Home and Newco each shall have delivered
to the Company a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which Home or Newco is authorized to do business, showing that each of
Home and Newco is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for Home and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to Home or Newco which would constitute a Material Adverse
Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of Home and of Newco, certifying the truth and correctness of attached copies of
the Home's and Newco's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the Stockholders of Home and Newco
approving Home's and Newco's entering into this Agreement and the consummation
of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the Home Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
-38-
<PAGE>
Company for Home Stock (but not cash or other property) pursuant to the Home
Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME AND NEWCO
The obligations of Home and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of Home and
Newco with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, Home and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Funding and Consummation Date with the same effect as
though such representations and warranties had been made on and as of such date;
all of the terms, covenants and conditions of this Agreement to be complied with
or performed by the Stockholders and the Company on or before the Closing Date
or the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to Home certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of Home as a result of which the
management of Home (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. Home shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall
-39-
<PAGE>
not have suffered any material loss or damages to any of its properties or
assets, whether or not covered by insurance, which change, loss or damage
materially affects or impairs the ability of the Company to conduct its
business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to Home
an instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholders against the Company and Home and (ii)
obligations of the Company and Home to the Stockholders, except for (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the Stockholders, (y) continuing obligations to Stockholders
relating to their employment by the Company and (z) obligations arising under
this Agreement or the transactions contemplated hereby. In the event that the
Funding and Consummation Date does not occur, then the release instrument
referenced herein shall be void and of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to Home.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 or otherwise approved by Home, all existing agreements between the
Company and the Stockholders (and entities controlled by the Stockholders) other
than real property leases shall have been canceled effective prior to or as of
the Closing Date, and all real property leases between the Company and the
Stockholders (and any entity controlled by the Stockholders) shall have been
amended in a manner reasonably satisfactory to Home.
9.8 OPINION OF COUNSEL. Home shall have received an opinion from Counsel
to the Company and the Stockholders, dated the Closing Date, substantially in
the form annexed hereto as Annex VI.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Home as a result of which Home deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to Home
a certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
state of incorporation and, unless waived by Home, in each state in which the
Company is authorized to do business, showing the Company is
-40-
<PAGE>
in good standing and authorized to do business and that all state franchise
and/or income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to Home a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF HOME AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. Home shall
use reasonable efforts to have the Stockholders released from any and all
guarantees of the Company's indebtedness identified on Schedule 10.1. In the
event that Home cannot obtain such releases from the lenders of any such
guaranteed indebtedness identified on Schedule 10.1 on or prior to 120 days
subsequent to the Funding and Consummation Date, Home shall promptly pay off or
otherwise refinance or retire such indebtedness. From and after the Funding and
Consummation Date and until such time as all of such indebtedness is paid off,
refinanced or retired, Home shall maintain unencumbered funds in amounts
sufficient to provide for such pay off, refinancing or retirement, provided that
Home may use such funds for other purposes, in its sole discretion, with the
prior written consent of each Stockholder who has not as of that time been
released from his or her guarantee as described above and whose indebtedness as
described above has not as of that time been paid off, refinanced or retired.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, Home shall not and shall not permit any of its subsidiaries
to undertake any act that would jeopardize the tax-free status of the
organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all or
part of the Home Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of the
Stockholders.
-41-
<PAGE>
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or
before the Funding and Consummation Date, and shall permit Home to review
all such Tax Returns prior to such filings. Unless the Company is a C
corporation, the Stockholders shall pay or cause to be paid all Tax
liabilities (in excess of all amounts already paid with respect thereto or
properly accrued or reserved with respect thereto on the Company Financial
Statements) shown by such Returns to be due.
(ii) Home shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs
of filing such Returns.
(iv) Each of the Company, Newco, Home and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of Home, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
-42-
<PAGE>
11. INDEMNIFICATION
The Stockholders, Home and Newco each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, severally (based on their relative ownership of
the Company Stock on the date hereof), will indemnify, defend, protect and hold
harmless Home, Newco, the Company and the Surviving Corporation at all times,
from and after the date of this Agreement until the Expiration Date (provided
that for purposes of Section 11.1(iii) below, the Expiration Date shall be the
date on which the applicable statute of limitations expires), from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by Home,
Newco, the Company or the Surviving Corporation as a result of or arising from
(i) any breach of the representations and warranties of the Stockholders or the
Company set forth herein or on the schedules or certificates delivered in
connection herewith, (ii) any breach of any agreement on the part of the
Stockholders or the Company under this Agreement, or (iii) any liability under
the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement of a
material fact relating to the Company or the Stockholders, and provided to Home
or its counsel by the Company or the Stockholders (but in the case of the
Stockholders, only if such statement was provided in writing) contained in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Company or the Stockholders required to be stated therein or necessary to make
the statements therein not misleading, provided, however, that such indemnity
shall not inure to the benefit of Home, Newco, the Company or the Surviving
Corporation to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and the Stockholders provided, in writing, corrected
information to Home counsel and to Home for inclusion in the final prospectus,
and such information was not so included or properly delivered, and provided
further, that no Stockholder shall be liable for any indemnification obligation
pursuant to this Section 11.1 to the extent attributable to a breach of any
representation, warranty or agreement made herein individually by any other
Stockholder.
Home and Newco acknowledge and agree that other than the representations
and warranties of Company or Stockholders specifically contained in this
Agreement, there are no representations or warranties of Company or
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
Home and Newco further acknowledge and agree that, should the Closing
occur, their sole and exclusive remedy with respect to any and all claims
relating to this Agreement and the
-43-
<PAGE>
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. Home and Newco hereby
waive, from and after the Closing, to the fullest extent permitted under
applicable law, any and all rights, claims and causes of action they or any
indemnified person may have against the Company or any Stockholder relating to
this Agreement or the transactions arising under or based upon any federal,
state, local or foreign statute, law, rule, regulation or otherwise.
11.2 INDEMNIFICATION BY HOME. Home covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by the
Stockholders as a result of or arising from (i) any breach by Home or Newco of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
Home or Newco under this Agreement, (iii) any liabilities which the Stockholders
may incur due to Home's or Newco's failure to be responsible for the liabilities
and obligations of the Company as provided in Section 1 hereof (except to the
extent that Home or Newco has claims against the Stockholders by reason of such
liabilities); or (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to Home, Newco or any of the Other Founding Companies contained in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, or arising out
of or based upon any omission or alleged omission to state therein a material
fact relating to Home or Newco or any of the Other Founding Companies required
to be stated therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records or information
-44-
<PAGE>
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party, provided
that if counsel to the Indemnifying Party shall have a conflict of interest that
prevents counsel for the Indemnifying Party from representing Indemnified Party,
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the Indemnified
Party for the amount paid in such settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no circumstances shall the Indemnified Party settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. All settlements hereunder
shall effect a complete release of the Indemnified Party, unless the Indemnified
Party otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party,
provided that, nothing herein shall be construed to limit the right of a party,
in a proper case, to seek injunctive relief for a breach of this Agreement. Any
indemnity payment under this Section 11 shall be treated as an adjustment to the
exchange consideration for tax purposes unless a final determination (which
shall include the
-45-
<PAGE>
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. Home, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 shall not assert any claim for indemnification hereunder against
the Stockholders until such time as, and solely to the extent that, the
aggregate of all claims which such persons may have against such the
Stockholders shall exceed the greater of (a) 1.0% of the sum of (i) the cash
paid to Stockholders plus (ii) the value of the Home Stock delivered to
Stockholders (calculated as provided in this Section 11.5) or (b) $50,000 (the
"Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against Home or Newco until such time as, and solely
to the extent that, the aggregate of all claims which Stockholders may have
against Home or Newco shall exceed the Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the Home Stock received by a Stockholder, Home Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such stockholder in connection with the Merger, valued as described
immediately above, but shall also have the right to satisfy any such obligation
in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of Home and the
Company;
(ii) by the Stockholders or the Company (acting through its board of
directors), on the one hand, or by Home (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
March 31, 1998, unless the failure of such transactions to be consummated
is due to the willful failure of the party seeking to terminate this
Agreement to perform any
-46-
<PAGE>
of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Funding and Consummation Date;
(iii) by the Stockholders or Company, on the one hand, or by Home,
on the other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely performance of any
of the covenants or agreements contained herein, and the curing of such
default shall not have been made on or before the Funding and Consummation
Date or by the Stockholders or the Company, if the conditions set forth in
Section 8 hereof have not been satisfied or waived as of the Closing Date
or the Funding and Consummation Date, as applicable, or by Home, if the
conditions set forth in Section 9 hereof have not been satisfied or waived
as of the Closing Date or the Funding and Consummation Date, as
applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that during the period from the Closing Date to the Funding
and Consummation Date, this Agreement may be terminated only if the underwriting
agreement relating to the IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, for a period of
five (5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any retail (new or used, but excluding used home lots
or other activities listed on Schedule 13.1 hereto) manufactured housing
business or operation or related services business (including the
ownership or management of manufactured housing subdivisions, lots or
parks, but excluding any such subdivisions, lots or parks or other
activities listed on Schedule 13.1 hereto) in direct competition with Home
-47-
<PAGE>
or any of the subsidiaries thereof, within 100 miles of where the Company
or any of its subsidiaries conducted business prior to the effectiveness
of the Merger (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Home or any subsidiary thereof for the purpose
or with the intent of enticing such employee away from or out of the
employ of Home or any subsidiary thereof;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to the Funding and Consummation
Date, a customer of Home or any subsidiary thereof, of the Company or of
any of the Other Founding Companies within the Territory for the purpose
of soliciting or selling products or services in direct competition with
Home within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the retail
manufactured housing business, which candidate, to the actual knowledge of
such Stockholder after due inquiry, was called upon by Home or any
subsidiary thereof or for which, to the actual knowledge of such
Stockholder after due inquiry, Home or any subsidiary thereof made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the
Company to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the Company has in
the past disclosed such information to the public for valid business
reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit (i) any Stockholder from acquiring as a passive investment not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange or over-the-counter, or (ii) any of
the activities listed on Schedule 13.1 hereto.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
Home as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Home for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Home in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of Home and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of Home; but it is also the intent of Home and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities; business and locations of
-48-
<PAGE>
Home and its subsidiaries throughout the term of this covenant. During the term
of this covenant, if Home or one of its subsidiaries engages in new activities,
enters a new business or establishes new locations for its current activities or
business in addition to or other than the activities or business it is currently
conducting in the locations currently established therefor (provided such
activities or business are related to the business or operations of the retail
manufactured housing business), then the Stockholders will be precluded from
soliciting the customers or employees of such new activities or business or from
such new location and from directly competing with such new activities or
business within 100 miles of its then-established operating location(s) through
the term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Home or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by Home of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or Home, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or Home's respective businesses. The Stockholders agree that they
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of Home, (b) following the Closing,
such information may be disclosed by the Stockholders as is required in the
course of performing their duties for Home or the Surviving Corporation and (c)
to counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1, unless (i) such
information becomes known to the public generally through no fault
-49-
<PAGE>
of the Stockholders, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii), the Stockholders shall, if
possible, give prior written notice thereof to Home and provide Home with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by any of the Stockholders of the provisions of this Section 14.1, Home
shall be entitled to an injunction restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Home from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
Stockholders shall have none of the above-mentioned restrictions on their
ability to disseminate confidential information with respect to the Company.
Each Stockholder further agrees that in the event the transactions contemplated
herein are not consummated (i) neither the Company nor any Stockholder can
thereafter use any confidential information of the Other Founding Companies for
any purpose and (ii) upon written request of any Other Founding Company to the
Company, the Company and Stockholders will return all confidential information
pertaining to such Other Founding Company to such Other Founding Company.
14.2 HOME AND NEWCO. Home and Newco recognize and acknowledge that they
had in the past and currently have access to certain confidential information of
the Company, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company's business. Home and
Newco agree that, prior to the Closing, or if the Transactions contemplated by
this Agreement are not consummated, they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
the Company, (b) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.2, (c) to the Other Founding Companies and their representatives pursuant to
Section 7.1(a), unless (i) such information becomes known to the public
generally through no fault of Home or Newco, (ii) disclosure is required by law
or the order of any governmental authority under color of law, provided, that
prior to disclosing any information pursuant to this clause (ii), Home and Newco
shall, if possible, give prior written notice thereof to the Company and the
Stockholders and provide the Company and the Stockholders with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably believes
that such disclosure is required in connection with the defense of a lawsuit
against the disclosing party, and (d) to the public to the extent necessary or
advisable in connection with the filing of the Registration Statement and the
IPO and the securities laws applicable thereto and to the operation of Home as a
publicly held entity after the IPO. In the event of a breach or threatened
breach by Home or Newco of the provisions of this Section 14.2, the Company and
the Stockholders shall be entitled to an injunction restraining Home and Newco
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the Company and the Stockholders from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
-50-
<PAGE>
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by Home, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or trusts for the benefit of the Stockholders or
family members, the trustees of which so agree), for a period of one year from
the Closing, except pursuant to Section 17 hereof, none of the Stockholders
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any shares of Home Stock received by the Stockholders in
the Merger. The certificates evidencing the Home Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as Home may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
Home Stock to be delivered to the Stockholders pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The Home Stock to be acquired by such Stockholders pursuant to this
Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the
-51-
<PAGE>
shares of Home Stock issued to such Stockholders will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all of the applicable provisions of the 1933 Act and
the rules and regulations of the SEC. All the Home Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the Home Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the proposed investment in the
Home Stock. The Stockholders party hereto have had an adequate opportunity to
ask questions and receive answers from the officers of Home concerning any and
all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of Home, the plans for the operations of the business of Home, the
business, operations and financial condition of the Founding Companies other
than the Company, and any plans for additional acquisitions and the like. The
Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever Home proposes to register any Home Stock for its own or others account
under the 1933 Act for a public offering, other than (i) any shelf or other
registration of shares to be used as consideration for acquisitions of
additional businesses by Home and (ii) registrations relating to employee
benefit plans, Home shall give each of the Stockholders prompt written notice of
its intent to do so. Upon the written request of any of the Stockholders given
within 30 days after receipt of such notice, Home shall cause to be included in
such registration all of the Home Stock issued to the Stockholders pursuant to
this Agreement (including any stock issued as (or issuable upon the conversion
or exchange of any convertible security, warrant, right or other security which
is issued by Home as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Home Stock) which any such Stockholder
requests, provided that Home shall have the right to reduce the number of shares
included in such registration to the extent that inclusion of such shares could,
in the written opinion of tax counsel to Home or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as a tax-free organization under Section 351 of the Code.
In addition, if Home is advised in writing in good faith
-52-
<PAGE>
by any managing underwriter of an underwritten offering of the securities being
offered pursuant to any registration statement under this Section 17.1 that the
number of shares to be sold by persons other than Home is greater than the
number of such shares which can be offered without adversely affecting the
offering, Home may reduce pro rata the number of shares offered for the accounts
of such persons (based upon the number of shares held by such person) to a
number deemed satisfactory by such managing underwriter, provided, that, for
each such offering made by Home after the IPO, such reduction shall be made
first by reducing the number of shares to be sold by persons other than Home,
the Stockholders and the stockholders of the Other Founding Companies
(collectively, the Stockholders and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of Home Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements which have not been
previously registered or sold and which are not entitled to be sold under Rule
144(k) (or any similar or successor provision) promulgated under the 1933 Act
may request in writing that Home file a registration statement under the 1933
Act covering the registration of the shares of Home Stock issued to the
Stockholders pursuant to this Agreement and the Other Agreements (including any
stock issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by Home as) a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Home Stock) then held by such Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the receipt of such request,
Home shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from any Stockholder, file and use its best efforts to cause
to become effective a registration statement covering all such shares. Home
shall be obligated to effect only one Demand Registration for all Founding
Stockholders and will keep such Demand Registration current and effective for
not less than 120 days (or such shorter period as is required to sell all of the
shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of Home's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which
Home would otherwise be required to make such filing pursuant to the foregoing
paragraph.
If at the time of any request by the Founding Stockholders for a Demand
Registration Home has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' Home
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless Home is no longer proceeding
diligently to effect such registration;
-53-
<PAGE>
provided that Home shall provide the Founding Stockholders the right to
participate in such public offering pursuant to, and subject to, Section 17.1
hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by Home
as a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever Home is required to register shares
of Home Stock pursuant to Sections 17.1 and 17.2, Home will, as expeditiously as
possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, Home will
furnish a representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that Home shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of Home Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
Home are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that Home is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a
-54-
<PAGE>
material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, Home will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by Home.
17.4 INDEMNIFICATION.
(a) In connection with any demand registration, Home shall indemnify, to
the extent permitted by law, each Stockholder (an "Indemnified Party") against
all losses, claims, damages, liabilities and expenses arising out of or
resulting from any untrue or alleged untrue statement of material fact contained
in any registration statement, prospectus or preliminary prospectus or
associated term sheet or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading except insofar as the same are caused by or contained in
or omitted from any information furnished in writing to Home by such Indemnified
Party expressly for use therein or by any Indemnified Parties' failure to
deliver a copy of the registration statement or prospectus or any amendment or
supplements thereto after Home has furnished such Indemnified Party with a
sufficient number of copies of the same.
(b) In connection with any demand registration, each Stockholder shall
furnish to Home in writing such information as is reasonably requested by Home
for use in any such registration statement or prospectus and will indemnify, to
the extent permitted by law, Home, its directors and officers and each person
who controls Home (within the meaning of the 1933 Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or alleged
untrue statement or material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement or prospectus
or any amendment thereof or supplement thereto necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
omission is contained in information so furnished in writing by such Stockholder
specifically for use in preparing the registration statement. Notwithstanding
the foregoing, the liability of a Stockholder under this Section 17.5 shall be
limited to an amount equal to the net proceeds actually received by such
Stockholder from the sale of the relevant shares covered by the registration
statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified parties' reasonable
judgment, a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume
-55-
<PAGE>
the defense of such claim with counsel reasonably satisfactory to the
indemnified party. Any failure to give prompt notice shall deprive a party of
its right to indemnification hereunder only to the extent that such failure
shall have adversely effected the indemnifying party. If the defense of any
claim is assumed, the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled or elects not,
to assume the defense of a claim, will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party, a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, Home and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of Home's size and investment stature,
including indemnification.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of Home stock
to the public without registration, Home agrees to use its best efforts to:
(i) make and keep public information regarding Home available as
those terms are understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of Home under the 1933 Act and the 1934 Act at any time
after it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted Home Common
Stock, furnish to each Stockholder forthwith upon written request a
written statement by Home as to its compliance with the reporting
requirements of Rule 144 (at any time from and after 90 days following the
effective date of the Registration Statement, and of the 1933 Act and the
1934 Act (any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
Home, and such other reports and documents so filed as a Stockholder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Stockholder to sell any such shares without registration.
-56-
<PAGE>
18. GENERAL
18.1 COOPERATION. The Company, Stockholders, Home and Newco shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The Company will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the Company
cooperate with Home on and after the Funding and Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any tax
return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Funding
and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Home, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and Home and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and Home,
acting through their respective officers or trustees, duly authorized by their
respective Boards of Directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the Company shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, Home will pay the fees, expenses and disbursements of Home
and its agents,
-57-
<PAGE>
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by Home under this Agreement, including the fees and expenses of
Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other person or
entity retained by Home or by Notre Capital Ventures II, L.L.C., and the costs
of preparing the Registration Statement. Each Stockholder shall pay all sales,
use, transfer, real property transfer, recording, gains, stock transfer and
other similar taxes and fees ("Transfer Taxes") imposed in connection with the
Merger, other than Transfer Taxes, if any, imposed by the State of Delaware.
Each Stockholder shall file all necessary documentation and Returns with respect
to such Transfer Taxes. In addition, each Stockholder acknowledges that he, and
not the Company or Home, will pay all taxes due upon receipt of the
consideration payable pursuant to Section 2 hereof. The Stockholders acknowledge
that the risks of the transactions contemplated hereby include tax risks, with
respect to which the Stockholders are relying solely on the opinion contemplated
by Section 8.12 hereof.
(b) In the event that the Funding and Consummation Date occurs, then
Home will reimburse the Stockholders and the stockholders of Other Founding
Companies for incremental and direct accounting costs and expenses incurred by
them in connection with the Merger and IPO and such additional accounting and
legal expenses incurred by them in connection therewith as may be approved by
Home.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to Home, or Newco, addressed to them at:
Home USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: Cary N. Vollintine
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
-58-
<PAGE>
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(c) If to the Company, addressed to it at:
First American Homes, Inc.
2730 Ross Clark Circle
Dothan, AL 36301
Attn: Joe Copeland
with copies to:
R. Eugene Clenney
Johnston, Hinesley, Flowers & Clenney, PC
291 North Oates Street/P. O. Box 2246
Dothan, AL 36303
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
-59-
<PAGE>
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of Home, Newco, the Company and Stockholders who hold or who
will hold at least 50% of the Home Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving Home Stock in connection with the Merger and each future holder
of such Home Stock.
-60-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
HOMEUSA, INC.
By:
Cary N. Vollintine
Chief Executive Officer
FIRST AMERICAN HOMES ACQUISITION CORP.
By:
Name:
Title:
D&S ACQUISITION CORP.
By:
Name:
Title:
SON DEVELOPMENT ACQUISITION CORP.
By:
Name:
Title:
-61-
<PAGE>
FIRST AMERICAN HOMES, INC.
By:
Name:
Title:
D & S, INC.
By:
Name:
Title:
SON DEVELOPMENT CORPORATION
By:
Name:
Title:
-62-
<PAGE>
STOCKHOLDERS:
JOSEPH R. COPELAND
ROGER D. MILLER
-63-
<PAGE>
SCHEDULE 6.9
None.
-64-
EXHIBIT 10.6
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 10th day of September, 1997
by and among
HOMEUSA, INC.
MOBILE WORLD ACQUISITION CORP.
SHOWCASE OF HOMES ACQUISITION CORP.
(each a subsidiary of HomeUSA, Inc.)
MOBILE WORLD, INC.
SHOWCASE OF HOMES, INC.
and
the STOCKHOLDERS named herein
-2-
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 Delivery and Filing of Articles of Merger........................5
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-laws and
Board of Directors of Surviving Corporation......................6
1.4 Certain Information With Respect to the Capital Stock
of the Company, Home and Newco...................................6
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 Manner of Conversion.............................................8
3. DELIVERY OF MERGER CONSIDERATION.......................................9
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS..................................................10
(A) Representations and Warranties of the Company and the
Stockholders..............................................10
5.1 Due Organization................................................10
5.2 Authorization...................................................10
5.3 Capital Stock of the Company....................................11
5.4 Transactions in Capital Stock, Organization Accounting..........11
5.5 No Bonus Shares.................................................11
5.6 Subsidiaries....................................................11
5.7 Predecessor Status; etc.........................................11
5.8 Spin-off by the Company.........................................12
5.9 Financial Statements............................................12
5.10 Liabilities and Obligations.....................................12
5.11 Accounts and Notes Receivable...................................13
5.12 Permits and Intangibles.........................................13
5.13 Environmental Matters...........................................13
5.14 Personal Property...............................................14
5.15 Significant Customers; Material Contracts and Commitments.......14
5.16 Real Property...................................................15
-i-
<PAGE>
5.17 Insurance.......................................................15
5.18 Compensation; Employment Agreements; Organized Labor Matters....16
5.19 Employee Plans..................................................16
5.20 Compliance with ERISA...........................................17
5.21 Conformity with Law; Litigation.................................18
5.22 Taxes...........................................................19
5.23 No Violations; No Consents Required, Etc.......................19
5.24 Government Contracts............................................20
5.25 Absence of Changes..............................................20
5.26 Deposit Accounts; Powers of Attorney............................21
5.27 Validity of Obligations.........................................21
5.28 Relations with Governments......................................22
5.29 Disclosure......................................................22
5.30 Prohibited Activities...........................................23
5.31 Dealer Agreements and Related Matters...........................23
5.32 No Retail Financing.............................................24
5.33 No Warranties or Insurance......................................24
5.34 No Interests In Other Businesses................................24
(B) Representations and Warranties of Stockholders......24
5.35 Authority; Ownership............................................24
5.36 Preemptive Rights...............................................24
5.37 No Intention to Dispose of Home Stock...........................25
6. REPRESENTATIONS OF HOME AND NEWCO.....................................25
6.1 Due Organization................................................25
6.2 Authorization...................................................25
6.3 Capital Stock of Home and Newco.................................25
6.4 Transactions in Capital Stock, Organization Accounting..........26
6.5 Subsidiaries....................................................26
6.6 Financial Statements............................................26
6.7 Liabilities and Obligations.....................................26
6.8 Conformity with Law; Litigation.................................26
6.9 No Violations...................................................27
6.10 Validity of Obligations.........................................27
6.11 Home Stock......................................................27
6.12 No Side Agreements..............................................28
6.13 Business; Real Property; Material Agreements....................28
6.14 Taxes...........................................................28
6.15 Absence of Changes..............................................28
6.16 Disclosure......................................................29
6.17 Private Offering................................................30
-ii-
<PAGE>
7. COVENANTS PRIOR TO CLOSING............................................30
7.1 Access and Cooperation; Due Diligence...........................30
7.2 Conduct of Business Pending Closing.............................31
7.3 Prohibited Activities...........................................31
7.4 No Shop.........................................................33
7.5 Notice to Bargaining Agents.....................................33
7.6 Agreements......................................................33
7.7 Notification of Certain Matters.................................33
7.8 Amendment of Schedules..........................................34
7.9 Cooperation in Preparation of Registration Statement............35
7.10 Final Financial Statements......................................35
7.11 Further Assurances..............................................35
7.12 Authorized Capital..............................................36
7.13 Compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "Hart-Scott-Rodino Act")..........36
7.14 Stockholders of Home............................................36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF
STOCKHOLDERS AND COMPANY..............................................36
8.1 Representations and Warranties; Performance of Obligations......37
8.2 Satisfaction....................................................37
8.3 No Litigation...................................................37
8.4 Opinion of Counsel..............................................37
8.5 Registration Statement..........................................37
8.6 Consents and Approvals..........................................37
8.7 Good Standing Certificates......................................38
8.8 No Material Adverse Change......................................38
8.9 Closing of IPO..................................................38
8.10 Secretary's Certificate.........................................38
8.11 Employment Agreements...........................................38
8.12 Tax Matters.....................................................38
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME AND NEWCO.................38
9.1 Representations and Warranties; Performance of Obligations......39
9.2 No Litigation...................................................39
9.3 Secretary's Certificate.........................................39
9.4 No Material Adverse Effect......................................39
9.5 Stockholders' Release...........................................39
9.6 Satisfaction....................................................40
9.7 Termination of Related Party Agreements.........................40
-iii-
<PAGE>
9.8 Opinion of Counsel..............................................40
9.9 Consents and Approvals..........................................40
9.10 Good Standing Certificates......................................40
9.11 Registration Statement..........................................40
9.12 Employment Agreements...........................................40
9.13 Closing of IPO..................................................41
9.14 FIRPTA Certificate..............................................41
10. COVENANTS OF HOME AND THE STOCKHOLDERS AFTER CLOSING..................41
10.1 Release From Guarantees; Repayment of Certain Obligations.......41
10.2 Preservation of Tax and Accounting Treatment....................41
10.3 Preparation and Filing of Tax Returns...........................41
10.4 Directors.......................................................42
11. INDEMNIFICATION.......................................................42
11.1 General Indemnification by the Stockholders.....................42
11.2 Indemnification by Home.........................................43
11.3 Third Person Claims.............................................44
11.4 Exclusive Remedy................................................45
11.5 Limitations on Indemnification..................................45
12. TERMINATION OF AGREEMENT..............................................46
12.1 Termination.....................................................46
12.2 Liabilities in Event of Termination.............................47
13. NONCOMPETITION........................................................47
13.1 Prohibited Activities...........................................47
13.2 Damages.........................................................48
13.3 Reasonable Restraint............................................48
13.4 Severability; Reformation.......................................48
13.5 Independent Covenant............................................49
13.6 Materiality.....................................................49
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................49
14.1 Stockholders....................................................49
14.2 Home and Newco..................................................50
14.3 Damages.........................................................50
14.4 Survival........................................................50
15. TRANSFER RESTRICTIONS.................................................50
15.1 Transfer Restrictions...........................................50
-iv-
<PAGE>
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................51
16.1 Compliance with Law.............................................51
16.2 Economic Risk; Sophistication...................................51
17. REGISTRATION RIGHTS...................................................52
17.1 Piggyback Registration Rights...................................52
17.2 Demand Registration Rights......................................53
17.3 Registration Procedures.........................................53
17.4 Indemnification.................................................55
17.5 Underwriting Agreement..........................................56
17.6 Rule 144 Reporting..............................................56
18. GENERAL...............................................................56
18.1 Cooperation.....................................................56
18.2 Successors and Assigns..........................................57
18.3 Entire Agreement................................................57
18.4 Counterparts....................................................57
18.5 Brokers and Agents..............................................57
18.6 Expenses........................................................57
18.7 Notices.........................................................58
18.8 Governing Law...................................................59
18.9 Survival of Representations and Warranties......................59
18.10 Exercise of Rights and Remedies.................................59
18.11 Time............................................................59
18.12 Reformation and Severability....................................59
18.13 Remedies Cumulative.............................................60
18.14 Captions........................................................60
18.15 Amendments and Waivers..........................................60
-v-
<PAGE>
APPENDICES AND ANNEXES
Appendix I - Mergers
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Certificate of Incorporation and By-Laws of Home
Annex IV - Certificate of Incorporation and By-Laws of Newco
Annex V - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex VI - Form of Opinion of Andrews & Kurth, LLP
Annex VII - Form of Key Employee Employment Agreement
-vi-
<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes 5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Dealer Agreements
5.32 No Retail Financing
5.33 No Warranties or Insurance
5.34 No Interests in Other Businesses
5.35 Authority; Ownership
6.9 No Violations
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
10.1 Guaranties
13.1 Lots Excluded from Noncompete
-vii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 10th day of September, 1997, by and among HOMEUSA, INC., a Delaware
corporation ("Home"), MOBILE WORLD ACQUISITION CORP. and SHOWCASE OF HOMES
ACQUISITION CORP., each of which is a Delaware corporation (collectively,
"Newco", and individually, "each Newco"), MOBILE WORLD, INC. and SHOWCASE OF
HOMES, INC., each of which is a Texas corporation (collectively, the "Company",
and individually, "each Company"), and STANLEY POISSO, PAULA POISSO SPARAGE,
BILLY DAVID POISSO and CAROLYN DENISE POISSO (the "Stockholders"). The
Stockholders are all the stockholders of the Company.
RECITALS
WHEREAS, each Newco is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on
September 8, 1997 solely for the purpose of completing the transactions
set forth herein, and is a wholly-owned subsidiary of Home, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of each Newco and each
Company (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of
the Constituent Corporations and their respective Stockholders that each
Newco merge with and into each Company as set forth on Appendix I hereto
pursuant to this Agreement and the applicable provisions of the laws of
the State of Delaware and the State or States of Incorporation;
WHEREAS, Home is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional retail manufactured housing
companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"Home Plan of Organization;"
WHEREAS, the Stockholders and the Boards of Directors and the
stockholders of Home, each of the Other Founding Companies and each of the
subsidiaries of Home that are parties to the Other Agreements have
approved and adopted the Home Plan of Organization as an integrated plan
pursuant to which the Stockholders and the stockholders of each of the
other Founding Companies will transfer the capital stock of each of the
Founding Companies to Home and the Stockholders of each of the other
Founding Companies will acquire the
-1-
<PAGE>
stock of Home (but not cash or other property) as a tax-free transfer of
property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of each
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the Home Plan of Organization in
order to transfer the capital stock of such Company to Home;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means each Company, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" shall mean each Newco and each of the other
Delaware companies wholly-owned by Home prior to the Funding and Consummation
Date.
"Affiliates" means, with respect to any Person, any Person or entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Mergers in such forms as may be required by the laws of the
State of Delaware and the State or States of Incorporation.
"Balance Sheet Date" shall mean June 30, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
-2-
<PAGE>
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the draft dated September 5, 1997 of
the Registration Statement, and any corrections thereto and supplemental
information delivered by Home to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to Home.
"Effective Time of the Merger" shall mean the time as of which each Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Cooper's Mobile Homes, Inc., a Washington corporation, Home USA,
Inc., a Washington corporation, and Pac West Mgmt., Inc., a Washington
corporation.
CSF&T, Inc. (dba AAA Homes), a Mississippi corporation, AAA Homes,
L.L.C., a Louisiana limited liability company, and Fordham Insurance
Agency, Inc., a Mississippi corporation.
First American Homes, Inc., an Alabama corporation, D & S, Inc., an
Alabama corporation, and Son Development Corporation, an Alabama
corporation.
Home Folks Housing Center, Inc., a Kentucky corporation.
McDonald Homes, Inc., an Oklahoma corporation.
Mobile World, Inc., a Texas corporation, and Showcase of Homes,
Inc., a Texas corporation.
Patrick Home Center, Inc., a Mississippi corporation.
Universal Housing, Inc., a Tennessee corporation, Shaffer & Webb
Insurance Agency, Inc., a Tennessee corporation, and Universal Housing of
East TN, Inc., a Tennessee corporation.
Willmax Homes of Colorado LLC, a Colorado limited liability company.
"Funding and Consummation Date" has the meaning set forth in Section 4.
-3-
<PAGE>
"IPO" means the initial public offering of Home Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Company" means the actual knowledge of the executive
officers of the Company.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of each Newco with and into each Company as set
forth on Appendix I hereto pursuant to this Agreement and the applicable
provisions of the laws of the State of Delaware and the laws of the State or
States of Incorporation.
"Home" has the meaning set forth in the first paragraph of this Agreement.
"Home Charter Documents" has the meaning set forth in Section 6.1.
"Home Stock" means the common stock, par value $.01 per share, of Home.
"Newco" has the meaning set forth in the first paragraph of this Agreement
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by Home and the Underwriters of
the public offering price of the shares of Home Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Home Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
-4-
<PAGE>
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Texas.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean each Company as the surviving party in
each Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to Home to be held for filing with the Secretary of State of the State
of Delaware and the Secretary of State (or other appropriate authority) of the
State or States of Incorporation on or effective as of the Funding and
Consummation Date.
-5-
<PAGE>
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
each Newco shall be merged with and into each Company as set forth on Appendix I
hereto in accordance with the respective Articles of Merger, the separate
existence of each Newco shall cease, each Company shall be the surviving party
in the respective Merger and each Company is sometimes hereinafter referred to
as the Surviving Corporation. The Mergers will be effected in a single
transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of each Company then in effect
shall be the Certificate of Incorporation of the respective Surviving
Corporation until changed as provided by law;
(ii) the By-laws of each Newco then in effect shall become the
By-laws of the respective Surviving Corporation; and subsequent to the
Effective Time of each Merger, such By-laws shall be the By-laws of the
respective Surviving Corporation until they shall there after be duly
amended (and such By-laws shall be amended from time to time, if
necessary, to comply with applicable state law);
(iii) the Board of Directors of the respective Surviving Corporation
shall consist of the persons who are on the Board of Directors of each
Company immediately prior to the Effective Time of the Mergers, provided
that Cary N. Vollintine shall become an additional director of each
Surviving Corporation effective as of the Effective Time of the Merger,
and the number of directors constituting the entire Board of Directors of
each Surviving Corporation shall be increased, if necessary, to
accommodate the addition of such additional director; the Board of
Directors of each Surviving Corporation shall hold office subject to the
provisions of the laws of the State or States of Incorporation and of the
Certificate of Incorporation and By-laws of the respective Surviving
Corporation; and
(iv) the officers of each Company immediately prior to the Effective
Time of the Mergers shall continue as the officers of the respective
Surviving Corporation in the same capacity or capacities, and effective
upon the Effective Time of the Mergers Michael Loy shall become an
additional Vice President of each Surviving Corporation, such officers to
serve, subject to the provisions of the Certificate of Incorporation and
By-laws of the respective Surviving Corporation, until their respective
successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
HOME AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of each Company,
Home and each Newco as of the date of this Agreement are as follows:
-6-
<PAGE>
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of each Company is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof,
the authorized capital stock of Home will consist of 50,000,000 shares of
Home Stock, of which the number of issued and outstanding shares will be
set forth in the Registration Statement, 5,000,000 shares of preferred
stock, $.01 par value, of which no shares will be issued and outstanding,
and 5,000,000 shares of Restricted Voting Common Stock, $.01 par value
(the "Restricted Common Stock"), all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement;
and
(iii) as of the date of this Agreement, the authorized capital stock
of each Newco consists of 1,000 shares of Newco Stock, of which one
hundred (100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Mergers, the effect of
each Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State or States of Incorporation. Except as herein specifically set forth, the
identity, existence, purposes, powers, franchises, privileges, rights and
immunities of each Company shall continue unaffected and unimpaired by the
Mergers and the corporate franchises, existence and rights of each Newco shall
be merged with and into the respective Company, and the respective Company, as
the Surviving Corporation, shall be fully vested therewith. At the Effective
Time of the Mergers, the separate existence of each Newco shall cease and, in
accordance with the terms of this Agreement, the respective Surviving
Corporation shall possess all the rights, privileges, immunities and franchises,
of a public, as well as of a private, nature, and all property, real, personal
and mixed, and all debts due on whatever account, including subscriptions to
shares, and all taxes, including those due and owing and those accrued, and all
other choses in action, and all and every other interest of or belonging to or
due to the respective Company and respective Newco shall be transferred to, and
vested in, the respective Surviving Corporation without further act or deed; and
all property, rights and privileges, powers and franchises and all and every
other interest shall be thereafter as effectually the property of the respective
Surviving Corporation as they were of the respective Company and respective
Newco; and the title to any real estate, or interest therein, whether by deed or
otherwise, under the laws of the State or States of Incorporation vested in the
respective Company and respective Newco, shall not revert or be in any way
impaired by reason of the Mergers. Except as otherwise provided herein, the
respective Surviving Corporation shall thenceforth be responsible and liable for
all the liabilities and obligations of the respective Company and respective
Newco and any claim existing, or action or proceeding pending, by or against the
respective Company or respective Newco may be prosecuted as if the Merger had
not taken place, or the respective Surviving Corporation may be substituted in
their place. Neither the rights of creditors nor any liens upon the property of
the respective Company
-7-
<PAGE>
or respective Newco shall be impaired by the Merger, and all debts, liabilities
and duties of the respective Company and respective Newco shall attach to the
respective Surviving Corporation, and may be enforced against such Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) Home Stock and cash and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of Home Stock set forth on Annex I hereto (adjusted as
set forth on such Annex I) with respect to such holder and (2) the right
to receive the amount of cash set forth on Annex I hereto with respect to
such holder (adjusted as set forth on such Annex I);
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of Home Stock
or other consideration shall be delivered or paid in exchange therefor;
and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger
and without any action on the part of Home, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All Home Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding Home
Stock by reason of the provisions of the Certificate of Incorporation of Home or
as otherwise provided by the Delaware GCL. All Home Stock received by the
Stockholders shall be issued and delivered to the Stockholders free and clear of
any liens, claims or encumbrances of any kind or nature. All voting rights of
such Home Stock received by the Stockholders shall be fully exercisable by the
Stockholders and the Stockholders shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, Home shall
-8-
<PAGE>
have no class of capital stock issued and outstanding other than the Home Stock
and the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
number of shares of Home Stock and the amount of cash described on Annex I
hereto, said cash to be payable by certified check or wire transfer.
3.2 The Stockholders shall deliver to Home at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The
Stockholders agree promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such Company Stock or with respect to the stock powers accompanying
any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to Home for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and certified check(s) referred to in
Section 3 hereof, each of which actions shall only be taken upon the Funding and
Consummation Date as herein provided. In the event that there is no Funding and
Consummation Date and this Agreement automatically terminates as provided in
this Section 4 the Articles of Merger shall not be filed and shall be returned
to the Stockholders. The taking of the actions described in clauses (i) and (ii)
above (the "Closing") shall take place on the closing date (the "Closing Date")
at the offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares, the delivery of a certified check or checks in an amount
equal to the cash portion of the consideration which the Stockholders shall be
entitled to receive pursuant to the Merger referred to in Section 3 hereof and
(z) the closing with respect to the IPO shall occur and be completed. The date
on which the actions described in the preceding clauses (x), (y) and (z) occurs
shall be referred to as the "Funding and Consummation Date." During the period
from the Closing Date to the Funding and Consummation Date, this Agreement may
only be terminated by the parties if the underwriting agreement in respect of
the IPO is terminated pursuant to the terms
-9-
<PAGE>
of such underwriting agreement. This Agreement shall also in any event
automatically terminate if the Funding and Consummation Date has not occurred
within 15 business days following the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
Each Company, and the Stockholders severally (based on their relative
ownership of the Company Stock on the date hereof) represent and warrant that
all of the following representations and warranties in this Section 5(A) are
true at the date of this Agreement and, subject to Section 7.8 hereof, shall be
true at the time of Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the warranties and representations set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Funding and Consummation Date, which shall
be deemed to be the Expiration Date for Section 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
their subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company taken as a whole (as used herein with respect to the Company, or
with respect to any other Person, a "Material Adverse Effect"). Schedule 5.1
sets forth a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and correct copies of (i) the
Certificate of Incorporation and By-laws, each as amended, of the Company (the
"Charter Documents"), and (ii) the stock records of the Company, are all
attached to Schedule 5.1. The Company has delivered complete and correct copies
of all minutes of meetings, written consents and other evidence, if any, of
deliberations of or actions taken by the Company's Board of Directors and
stockholders during the last five years.
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders approve this Agreement and the
transactions contemplated
-10-
<PAGE>
hereby in all respects, and copies of all such resolutions, certified by the
Secretary or an Assistant Secretary of the Company as being in full force and
effect on the date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Annex II. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Stockholders and further, such shares were offered, issued, sold and delivered
by the Company in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Merger and/or the Home Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the Home Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
-11-
<PAGE>
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Complete and correct copies of the following
financial statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31, 1996 and
1995 and the related statements of operations, stockholder's equity and
cash flows for the years ended December 31, 1996, 1995 and 1994, together
with the related notes and schedules (such balance sheets, the related
statements of operations, stockholder's equity and cash flows and the
related notes and schedules are referred to herein as the "Year-end
Financial Statements"); and
(ii) the balance sheet (the "Interim Balance Sheet") of the Company
as of June 30, 1997 (the "Balance Sheet Date") and the related statements
of operations, stockholder's equity and cash flows for the six-month
periods ended June 30, 1997 and 1996, together with the related notes and
schedules (such balance sheets, the related statements of operations,
stockholder's equity and cash flows and the related notes and schedules
are referred to herein as the "Interim Financial Statements"). The
Year-end Financial Statements and the Interim Financial Statements are
collectively called the "Financial Statements".
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all liabilities of the Company of a
nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
best knowledge of the Company and the Stockholders, except as set forth on
Schedule 5.10, since the Balance Sheet Date the Company has not incurred any
material liabilities of any kind, character or description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than liabilities
incurred in the ordinary course of business. The Company has also delivered to
Home on Schedule 5.10, in the case of those contingent liabilities related to
pending or threatened litigation, or other liabilities which are not fixed, a
good faith and reasonable estimate of the maximum amount which the Company
reasonably expects will be payable and the amount, if any, accrued or reserved
for each such potential liability on the Company's Financial Statements; in the
case of any such liability for which no estimate has been provided, the estimate
for purposes of this Agreement shall be deemed to be zero.
-12-
<PAGE>
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholders, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to Home an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, including any trademarks,
trade names, patents, patent applications and copyrights owned or held by the
Company or any of its employees (including interests in software or other
technology systems, programs and intellectual property) (it being understood and
agreed that a list of environmental permits and other environmental approvals is
set forth on Schedule 5.13). At or prior to the Closing, all such trademarks,
trade names, patents, patent applications, copyrights and other intellectual
property will be assigned or licensed to the Company for no additional
consideration. To the best knowledge of the Company, the Licenses and other
rights listed on Schedules 5.12 and 5.13 are valid, and the Company has not
received any notice that any person intends to cancel, terminate or not renew
any such License or other right. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Licenses and other rights listed on Schedules 5.12 and 5.13 and
is not in violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the Company. Except as
specifically provided in Schedule 5.12, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to the Company by, any such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have any Material Adverse Effect on the Company or its
business, (i) the Company has complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to any of them or any of their respective properties, assets,
operations and businesses relating to environmental protection (collectively
"Environmental Laws") including, without limitation, Environmental Laws relating
to air, water, land and the generation, storage, use, handling, transportation,
treatment or disposal of Hazardous Wastes, Hazardous Materials and Hazardous
Substances (as such terms are defined in any applicable Environmental Law), as
well as petroleum and petroleum products (collectively "Hazardous Materials"),
(ii) the Company has obtained and adhered to all necessary permits and other
approvals necessary to treat, transport, store, dispose of and otherwise handle
Hazardous Materials, a list of all of which permits and approvals is set forth
on Schedule 5.13, and has reported
-13-
<PAGE>
to the appropriate authorities, to the extent required by all Environmental
Laws, all past and present sites owned and operated by the Company where
Hazardous Materials have been treated, stored, disposed of or otherwise handled.
There have been no releases or threats of releases (as these terms are defined
in Environmental Laws) of any Hazardous Materials at, from, in or on any
property owned or operated by the Company except as permitted by Environmental
Laws, and to the best knowledge of the Company and the Stockholders, there is no
on-site or off-site location to which the Company has transported or disposed of
Hazardous Materials or arranged for the transportation of Hazardous Materials
which is the subject of any Federal, state, local or foreign enforcement action
or any other investigation which could lead to any claim against the Company,
Home or Newco for any clean-up cost, remedial work, damage to natural resources,
property damage or personal injury, including, but not limited to, any claim
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, the Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act or comparable state or local statutes or
regulations. The Company has no contingent liability in connection with any
release of any Hazardous Materials into the environment that would have a
Material Adverse Effect.
5.14 PERSONAL PROPERTY. The Company has delivered to Home an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company, (y) all other personal property owned by the
Company with an individual value in excess of $25,000 (i) as of the Balance
Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material
leases and agreements in respect of personal property, including, in the case of
each of (x), (y) and (z), (1) true, complete and correct copies of all such
leases and (2) an indication as to which assets are currently owned, or were
formerly owned, by Stockholders, relatives of Stockholders, or Affiliates of the
Company. Except as set forth on Schedule 5.14, (i) all material personal
property used by the Company in its business is either owned by the Company or
leased by the Company pursuant to a lease included on Schedule 5.14, (ii) all of
the personal property listed on Schedule 5.14 is in good working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 5% or more of the
Company's annual revenues for any period covered by any of the Financial
Statements. Except to the extent set forth on Schedule 5.15, none of such
customers have canceled or substantially reduced or, to the knowledge of the
Company, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by the Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed
-14-
<PAGE>
on Schedules 5.10, 5.14 or 5.16, (a) in existence as of the Balance Sheet Date
and (b) entered into since the Balance Sheet Date, and in each case has
delivered true, complete and correct copies of such agreements to Home. For
purposes of this Section 5.17, Material Contracts includes contracts between the
Company and significant customers, joint venture or partnership agreements,
contracts with any labor organization, strategic alliances, options to purchase
land and other contracts which are not terminable on sixty days or less notice
and involve payments by the Company in any twelve month period in excess of
$25,000. The Company has also indicated on Schedule 5.15 a summary description
of all plans or projects involving the opening of new operations, expansion of
existing operations, the acquisition of any personal property, business or
assets requiring, in any event, the payment of more than $25,000 by the Company
during any 12-month period.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on terms reasonably acceptable to Home and leased
back by the Company on terms no less favorable to the Company than those
available from an unaffiliated party and otherwise reasonably acceptable to Home
at or prior to the Closing Date. The Company has good and insurable title to any
real property owned by it that is not shown on Schedule 5.16 as property
intended to be sold or distributed prior to the Closing Date, subject to no
mortgage, pledge, lien, conditional sales agreement, encumbrance or charge,
except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
5.17 INSURANCE. The Company has delivered to Home (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete
-15-
<PAGE>
and correct copies of all insurance policies currently in effect. Such insurance
policies evidence all of the insurance that the Company is required to carry
pursuant to all of its contracts and other agreements and pursuant to all
applicable laws, and to the best knowledge of the Company provide adequate
coverage against the risks involved in the Company's business. All of such
insurance policies are currently in full force and effect and shall, to the best
knowledge of the Company, remain in full force and effect through the Funding
and Consummation Date. Since January 1, 1995, no insurance carried by the
Company has been canceled by the insurer and the Company has not been denied
coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The Company has provided to Home
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the best knowledge of the Company, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the best of the Company's knowledge, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years. The Company believes its relationship
with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to Home an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee
-16-
<PAGE>
Retirement Income Security Act of 1974, as amended ("ERISA")) or any
non-qualified deferred compensation arrangement). For the purposes of this
Agreement, the term "employee pension benefit plan" shall have the same meaning
as is given that term in Section 3(2) of ERISA. The Company has not sponsored,
maintained or contributed to any employee pension benefit plan other than the
plans set forth on the Benefit Plans Schedule, and the Company is not required
to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's or any subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code are, and have been so qualified and have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination letters are
attached to the Benefit Plans Schedule. Except as disclosed on the Benefit Plans
Schedule, all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or tax returns) have
been timely filed or distributed, and copies thereof are included as part of the
Benefit Plans Schedule. Neither Stockholders, any such plan listed in the
Benefit Plans Schedule, nor the Company has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No such Plan listed in the Benefit Plans Schedule has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and the Company has not incurred any liability for
excise tax or penalty due to the Internal Revenue Service nor any liability to
the Pension Benefit Guaranty Corporation. The Stockholders further represent
that except as set forth on the Benefit Plans Schedule hereto:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
-17-
<PAGE>
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
the Benefit Plans Schedule;
(iv) the Company has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the Company could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such
liability) with respect to any plan now or heretofore maintained or
contributed to by any entity other than the Company that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and, to the Knowledge of the
Company and the Stockholders, there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, orders, approvals,
variances, rules and regulations, including without limitation to the extent
applicable all regulations promulgated by the Department of Housing and Urban
Development under the National Manufactured Housing Construction and Safety
Standards Act, as amended, or otherwise, and all laws and regulations affecting
the sale of manufactured housing, on credit or otherwise, including the Federal
Consumer Credit Protection Act, the Federal Fair Credit Reporting Act, the
Federal Equal Credit Opportunity Act, the Consumer Credit Protection Act, the
Fair Debt Collection Practices Act and the regulations promulgated under the
foregoing, and all state and local laws and regulations of similar effect, and
including all such orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, except where any such noncompliance, individually or in
the aggregate, would not have a Material Adverse Effect.
-18-
<PAGE>
5.22 TAXES. The Company has timely filed all requisite Federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other taxes (including penalties and interest) for any period
or periods prior to and including the Balance Sheet Date and no notice of any
claim for taxes, whether pending or threatened, has been received. All tax,
including interest and penalties (whether or not shown on any tax return) owed
by the Company or any of the Company's Subsidiaries has been paid. The amounts
shown as accruals for taxes on the Company Financial Statements are sufficient
for the payment of all taxes of the kinds indicated (including penalties and
interest) for all fiscal periods ended on or before that date. Copies of (i) any
tax examinations, (ii) extensions of statutory limitations and (iii) the federal
and local income tax returns and franchise tax returns of the Company for their
last three (3) fiscal years, or such shorter period of time as any of them shall
have existed, are attached hereto as Schedule 5.22 or have otherwise been
delivered to Home. The Company has disclosed to Home when its taxable year ends.
The Company uses the accrual method of accounting for income tax purposes, and
the Company's methods of accounting have not changed in the past five years. The
Company is not an investment Company as defined in Section 351(e)(1) of the
Code. The Company is not and has not during the last five years been a party to
any tax sharing agreement or agreement of similar effect. The Company is not and
has not during the last five years been a member of any consolidated group.
Except as described on Schedule 5.22, the Company has not received, been denied,
or applied for any private letter ruling during the last five years.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the best
knowledge of the Company, any other party thereto, is in default under any
lease, instrument, agreement, license, or permit set forth on Schedule 5.12,
5.13, 5.14, 5.15 or 5.16, or any other Material Contract (as defined in Section
5.15) to which it is a party or by which its properties are bound (the "Material
Documents") in any manner that could result in a Material Adverse Effect; and,
except as set forth in Schedule 5.23, (a) the rights and benefits of the Company
under the Material Documents will not be materially adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
Material Documents or the Charter Documents. Except as set forth on Schedule
5.23, none of the Material Documents requires notice to, or the consent or
approval of, any governmental agency or other third party with respect to any of
the transactions contemplated hereby in order to remain in full force and
effect, and consummation of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the Company, Home or
Newco of the name of any other party to such Material Document, and none of the
Material Documents prohibits or restricts the Company
-19-
<PAGE>
from freely providing services to any other customer or potential customer of
the Company, Home, Newco or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any
grant by the Company of any options, warrants, calls, conversion rights or
commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
(v) any material increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the Company
to any of its officers, directors, Stockholders, employees, consultants or
agents, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the Company;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of Company to any person,
including, without limitation, the Stockholders and their Affiliates;
(viii)any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
-20-
<PAGE>
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
(xii) any amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(xiii)any transaction by the Company outside the ordinary course of
its business;
(xiv) any cancellation or termination by the Company of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the Company
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
Home an accurate schedule (which is set forth on Schedule 5.26) as of the date
of this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly
-21-
<PAGE>
authorized by all necessary corporate action and is a legal, valid and binding
obligation of the Company.
5.28 RELATIONS WITH GOVERNMENTS. Except for legal contributions to
candidates for political office, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office, nor has it or any of them otherwise taken any action which would cause
the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended or any law of similar effect.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished to Home by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements herein and
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing does not apply to statements
contained in or omitted from any of such documents made or omitted in reliance
upon information furnished in writing by Home. If, prior to the 25th day after
the date of the final prospectus of Home utilized in connection with the IPO,
the Company or the Stockholders become aware of any fact or circumstance which
would affect the accuracy of a representation or warranty of Company or
Stockholders in this Agreement in any material respect, the Company and the
Stockholders shall immediately give notice of such fact or circumstance to Home.
Subject to the provisions of Section 7.8, such notification shall not relieve
either the Company or the Stockholders of their respective obligations under
this Agreement, and, subject to the provisions of Section 7.8, at the sole
option of Home, the truth and accuracy in all material respects of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on the
Funding and Consummation Date, shall be a precondition to the consummation of
this transaction.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that a Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither Home or any of its officers, directors, agents or representatives
nor any Underwriter shall have any liability to the Company, the Stockholders or
any other person affiliated or associated with the Company for any failure of
the Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Stockholders to enter
into this Agreement, or to vote in favor of or consent to the proposed Merger,
has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to Home or the prospective IPO. Notwithstanding the foregoing, Home has
-22-
<PAGE>
agreed and herein acknowledges its agreement to use its reasonable efforts to
consummate the Home Plan of Organization and IPO as contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
Company has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 DEALER AGREEMENTS AND RELATED MATTERS. Schedule 5.31 sets forth a
complete and accurate list of:
(i) all agreements of any nature (including "Dealer Agreements",
"Home Center Agreements", "Retailer Agreements", "Exclusive Retailer
Agreements", "General Conditions", "Action Plans" and other documents)
between the Company and any dealer, manufacturer, wholesaler or other
distributor (collectively, "Manufacturers") of manufactured housing units
(collectively, "Dealer Agreements"); and
(ii) all volume incentive, rebate and other similar programs of any
Manufacturer (collectively, "Dealer Programs") in which the Company is now
or has within the last three years been a participant.
Schedule 5.31 identifies the Manufacturer that is a party to each such Dealer
Agreement or that sponsors each such Dealer Program, and also identifies the
Company's sales locations subject to or affected by each such Dealer Agreement
and each such Dealer Program. Complete and accurate copies of all Dealer
Agreements and all Dealer Programs listed on Schedule 5.31 are attached to
Schedule 5.31. Except as set forth on Schedule 5.31, the Company is now and for
the last three years has been in compliance in all material respects with all
applicable provisions of the Dealer Agreements and Dealer Programs identified on
Schedule 5.31 and any similar agreements to which the Company has been a party
during the last three years. To the extent that the Company is required by any
Dealer Agreement or Dealer Program to take or refrain from taking specified
actions in order to qualify for the benefits offered thereby (such as the
benefits of an exclusive retailer agreement), the Company is in compliance in
all material respects with all such requirements (it being understood that the
Company is not hereby representing that it qualifies for the highest level of
incentive discounts or rebates offered by such Dealer Agreements or Dealer
Programs). Except as set forth on Schedule 5.31, within the last three years, no
Manufacturer has asserted any claim or right to any refund of any incentive
payment or rebate or other payment or discount granted to the Company by any
such Manufacturer, or any right to offset any amount against any future payment
due or otherwise due to the Company, and no circumstances exist that would
entitle any Manufacturer to make any such claim against the Company. During the
last three years, the Company has accurately calculated and reported to each
Manufacturer with which the Company has done business all financial and sales
data that the Company is required to report to each such Manufacturer, whether
in connection with volume incentive or rebate plans or otherwise.
-23-
<PAGE>
5.32 NO RETAIL FINANCING. Except as set forth on Schedule 5.32, the
Company does not finance the sale to the Company's customers of manufactured
housing units or related products or services (collectively, "Product"), and is
not liable, directly or indirectly, contingently or otherwise, to any
Manufacturer or any financing source for all or any portion of the purchase
price of any Product that has been sold by the Company or delivered by the
Company to a retail purchaser.
5.33 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule 5.33, the
Company has not made any express warranties regarding any Products and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any payment
to or perform any service for any person other than routine matters described as
"Retailer Responsibilities", "Retailer General Installation and Home Delivery
Guidelines" and the like in the Dealer Agreements listed on Schedule 5.31.
5.34 NO INTERESTS IN OTHER BUSINESSES. Except as set forth on Schedule
5.34, neither the Company nor any Stockholder, nor any affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's sales of Product.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each Stockholder severally represents and warrants that the
representations and warranties set forth below as and to the extent relating to
such Stockholder are true as of the date of this Agreement and, subject to
Section 7.8 hereof, shall be true at the time of Closing and on the Funding and
Consummation Date, and that the representations and warranties set forth in
Sections 5.35 and 5.36 shall survive until the first anniversary of the Funding
and Consummation Date, which shall be the Expiration Date for purposes of
Sections 5.35 and 5.36.
5.35 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.35, such Company Stock is owned free and clear of all liens, security
interests, pledges, charges, voting agreements, voting trusts, restrictions,
encumbrances and claims of every kind.
5.36 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Home Stock
that such Stockholder has or may have had. Nothing herein, however, shall limit
or restrict the rights of any Stockholder to acquire Home Stock pursuant to (i)
this Agreement or (ii) any option granted by Home.
-24-
<PAGE>
5.37 NO INTENTION TO DISPOSE OF HOME STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of Home Stock received as described in Section 3.1.
6. REPRESENTATIONS OF HOME AND NEWCO
Home and Newco jointly and severally represent and warrant that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at the time
of Closing and the Funding and Consummation Date, and that such representations
and warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that the warranties and representations set forth in Section 6.14 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 6.14.
6.1 DUE ORGANIZATION. Home and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. Home and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws of Home and Newco (the "Home Charter Documents") are
all attached hereto as Annexes III and IV.
6.2 AUTHORIZATION. (i) The respective representatives of Home and Newco
executing this Agreement have the authority to enter into and bind Home and
Newco to the terms of this Agreement and (ii) Home and Newco have the full legal
right, power and authority to enter into this Agreement and consummate the
Merger. All corporate acts and other proceedings required to have been taken by
Home and Newco to authorize the execution, delivery and performance of this
Agreement and the consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF HOME AND NEWCO. The authorized capital stock of Home
and Newco is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding shares of the capital stock of Newco are owned by
Home. All of the issued and outstanding shares of the capital stock of Home and
Newco have been duly authorized and validly issued, are fully paid and
nonassessable, and further, such shares were offered, issued, sold and delivered
by Home and Newco in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of Home
or Newco.
-25-
<PAGE>
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in the Draft Registration Statement,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates Home or Newco to issue any of their respective authorized but
unissued capital stock; and (ii) neither Home nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of Home.
6.5 SUBSIDIARIES. Newco has no subsidiaries. Home has no subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither Home
nor Newco presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, and
neither Home nor Newco, directly or indirectly, is a participant in any joint
venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of Home included in the
Draft Registration Statement (the "Home Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon),
and the balance sheet included therein presents fairly the financial position of
Home as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, Home and Newco have no material liabilities, contingent
or otherwise, except as set forth in or contemplated by this Agreement and the
Other Agreements and except for fees incurred in connection with the
transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement, neither Home nor Newco is in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them which would have a Material Adverse
Effect; and except to the extent set forth in Schedule 6.8, there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
Home or Newco, threatened against or affecting, Home or Newco, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. Home and Newco
have conducted and are conducting their respective businesses in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, permits,
-26-
<PAGE>
licenses, orders, approvals, variances, rules and regulations and are not in
violation of any of the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. Neither Home nor Newco is in violation of any Home
Charter Document. None of Home, Newco, or, to the knowledge of Home and Newco,
any other party thereto, is in default under any lease, instrument, agreement,
license, or permit to which Home or Newco is a party, or by which Home or Newco,
or any of their respective properties, are bound (collectively, the "Home
Documents"); and (a) the rights and benefits of Home and Newco under the Home
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution and delivery of this Agreement by Home and Newco and the
performance of their obligations hereunder do not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof will not,
conflict with, or result in any violation or default (with or without notice or
lapse of time, or both), under or give rise to a right of termination,
cancellation, or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any lien upon any of the assets of Home or
any Newco under, any provision of (i) the Certificate of Incorporation or Bylaws
of Home or the comparable governing instruments of any Newco, (ii) any note,
bond, mortgage, indenture or deed of trust or any license, lease, contract,
commitment, agreement or arrangement to which Home and any Newco is a party or
by which any of their respective properties or assets are bound or (iii) any
judgment, order, decree or law, ordinance, rule or regulation, applicable to
Home or any Newco or their respective properties or assets. The execution of
this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
material violation or breach or constitute a default under, any of the terms or
provisions of the Home Documents or the Home Charter Documents. Except as set
forth on Schedule 6.9, none of the Home Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by Home and Newco and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective Boards of Directors of
Home and Newco and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of Home
and Newco.
6.11 HOME STOCK. At the time of issuance thereof and delivery to the
Stockholders, the Home Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid and legally issued shares of Home, fully
paid and nonassessable, and with the exception of restrictions upon resale set
forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
Home Stock issued and outstanding as of the date hereof by
-27-
<PAGE>
reason of the provisions of the Delaware GCL. The Home Stock issued and
delivered to the Stockholders shall at the time of such issuance and delivery be
free and clear of any liens, claims or encumbrances of any kind or character.
The shares of Home Stock to be issued to the Stockholders pursuant to this
Agreement will not be registered under the 1933 Act, except as provided in
Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither Home nor Newco has entered or will enter
into any agreement with any of the Founding Companies or any of the Stockholders
of the Founding Companies or Home other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Home was formed in July
1996 and has conducted only limited operations since that time. Neither Home nor
Newco has conducted any material business since the date of its inception,
except in connection with this Agreement, the Other Agreements and the IPO.
Except as described in the Draft Registration Statement, neither Home nor Newco
owns or has at any time owned any real property or any material personal
property or is a party to any other agreement other than the Other Agreements
and the agreements contemplated thereby and to such agreements as will be filed
as Exhibits to the Registration Statement.
6.14 TAXES. Home and Newco have timely filed all requisite federal, state
and other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and there are no examinations in progress or
claims against Home for federal, state and other taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for taxes, whether pending or threatened, has
been received. All taxes which Home or any Newco has been required to collect or
withhold have been duly and timely collected and withheld and have been set
aside in accounts for such purposes, or have been duly and timely paid to the
proper governmental authority. All tax, including interest and penalties
(whether or not shown on any tax return) owed by Home, any member of an
affiliated or consolidated group which includes or included Home, or with
respect to any payment made or deemed made by Home herein has been paid. The
amounts shown as accruals for taxes on Home Financial Statements are sufficient
for the payment of all taxes of the kinds indicated (including penalties and
interest) for all fiscal periods ended on or before that date. Home and Newco
have not entered into any tax sharing agreement or similar arrangement. Home is
not an investment company as defined in Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
-28-
<PAGE>
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Home or
Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
Home or Newco;
(iii) any change in the authorized capital of Home or Newco or their
outstanding securities or any change in their ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of Home or
Newco;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of Home or Newco;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Home or Newco to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Home or Newco;
(viii)any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of Home or Newco or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of Home or Newco;
(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which Home or Newco is a
party;
(xi) any transaction by Home or Newco outside the ordinary course of
its business;
(xii) any other distribution of property or assets by Home or Newco
other than in the ordinary course of business.
6.16 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Stockholders, together with this Agreement and the information furnished
to the Company and the
-29-
<PAGE>
Stockholders in connection herewith, does not contain an untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing does not apply to statements
contained in or omitted from any of such documents made or omitted in reliance
upon information furnished by the Company or the Stockholders.
6.17 PRIVATE OFFERING. (a) Neither Home, any of its Affiliates nor anyone
on its or their behalf, has issued, sold, or offered any securities of Home to
any person under circumstances that would cause the issuance and sale of the
Home Stock to the Stockholders pursuant to this Agreement, to be subject to the
registration requirements of the 1933 Act.
(b) The offering of shares of Home Stock pursuant to the Home Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of Home and the Other Founding Companies
access to all of the Company's sites, properties, books and records and will
furnish Home with such additional financial and operating data and other
information as to the business and properties of the Company as Home or the
Other Founding Companies may from time to time reasonably request. The Company
will cooperate with Home and the Other Founding Companies, its representatives,
auditors and counsel in the preparation of any documents or other materials
which may be required in connection with any documents or materials required by
this Agreement. Home, Newco, the Stockholders and the Company will treat all
information obtained in connection with the negotiation and performance of this
Agreement or the due diligence investigations conducted with respect to the
Other Founding Companies as confidential in accordance with the provisions of
Section 14 hereof. In addition, Home will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
such Other Founding Company, its Stockholders, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, Home will afford to the officers and authorized representatives of the
Company access to all of Home's and Newco's sites, properties, books and records
and will furnish the Company with such additional financial and operating data
and other information as to the business and properties of Home and Newco as the
Company may from time to time reasonably request. Home and Newco will cooperate
with the Company, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The Company will cause all
information obtained in connection with the
-30-
<PAGE>
negotiation and performance of this Agreement to be treated as confidential in
accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order
and condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or
rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and
maintain its relationships with suppliers, customers and others having
business relations with the Company;
(vi) use its reasonable efforts to maintain compliance with all
material permits, laws, rules and regulations, consent orders, and all
other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent
of Home (which consent shall not be unreasonably withheld), provided that
debt and/or lease instruments may be replaced without the consent of Home
if such replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced; and
(viii)maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of Home, which consent will not be unreasonably
withheld:
-31-
<PAGE>
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock
except for distributions permitted as described on Annex I hereto;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the businesses of the Company, (2) (A) liens for taxes either not yet due
or being contested in good faith and by appropriate proceedings (and for
which contested taxes adequate reserves have been established and are
being maintained) or (B) materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii)merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
-32-
<PAGE>
(x) amend or terminate any material agreement, permit, license or
other right of the Company; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Home or its
authorized agents relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, the Company
or a merger, consolidation or business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Home on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by Home or reflected in Schedule 7.6) terminate (i) any
Stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to Home. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to Home of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of any Stockholder or the Company to comply with or satisfy
any material covenant, condition or agreement to be complied with or satisfied
by such person hereunder.
-33-
<PAGE>
Home and Newco shall give prompt notice to the Company of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of Home or Newco contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of Home or Newco to comply with or satisfy any material
covenant, condition or agreement to be complied with or satisfied by it
hereunder. The delivery of any notice pursuant to this Section 7.7 shall not be
deemed to (i) modify the representations or warranties hereunder of the party
delivering such notice, which modification may only be made pursuant to Section
7.8, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless Home and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by Home or Newco that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, Home shall give the Company notice promptly after
it has knowledge thereof. If Home and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been deemed
given by Home or any Founding Company if no response is received within 24 hours
following receipt of notice of such amendment or supplement (or sooner if
required by the circumstances under which such consent is requested), but the
Company does not give its consent, the Company may terminate this Agreement
pursuant to Section 12.1(iv) hereof. In the event that the Company seeks to
amend or supplement a Schedule pursuant to this Section 7.8, and Home and a
majority of the Other Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. In the event that Home or Newco seeks to amend
or supplement a Schedule pursuant
-34-
<PAGE>
to this Section 7.8 and a majority of the Founding Companies do not consent to
such amendment or supplement, this Agreement shall be deemed terminated by
mutual consent as set forth in Section 12.1(i) hereof. No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to Home and the Underwriters
all of the information concerning the Company and the Stockholders required for
inclusion in, and will cooperate with Home and the Underwriters in the
preparation of, the Registration Statement and the prospectus included therein
(including audited and unaudited financial statements, prepared in accordance
with generally accepted accounting principles, in form suitable for inclusion in
the Registration Statement). The Company and the Stockholders agree promptly to
advise Home if at any time during the period in which a prospectus relating to
the offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the Company or the
Stockholders becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the Company or the Stockholders, the Company
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
Company and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and Home shall have had sufficient time to review
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
-35-
<PAGE>
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, Home
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the Home Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
(ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by Home and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott-Rodino Act to be
made. If filings under the Hart-Scott-Rodino Act are required, the costs and
expenses thereof (including legal fees and costs and filing fees) shall be borne
by Home. The obligation of each party to consummate the transactions
contemplated by this Agreement is subject to the expiration or termination of
the waiting period under the Hart-Scott-Rodino Act, if applicable.
7.14 STOCKHOLDERS OF HOME. Promptly after a request by the Company, Home
will deliver to the Company a list of the stockholders of Home as of the date of
this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY
The obligations of Stockholders and the Company with respect to actions to
be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. The obligations of
the Stockholders and the Company with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have not been satisfied,
the Stockholders (acting in unison) shall have the right to terminate this
Agreement, or in the alternative, waive any condition not so satisfied. Any act
or action of the Stockholders in consummating the Closing or delivering
certificates representing Company Stock as of the Funding and Consummation Date
shall constitute a waiver of any conditions not so satisfied. However, no such
waiver shall be deemed to affect the survival of the representations and
warranties of Home and Newco contained in Section 6 hereof.
-36-
<PAGE>
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Home and Newco contained in Section 6 shall be
true and correct in all material respects as of the Closing Date and the Funding
and Consummation Date as though such representations and warranties had been
made as of that time; all of the terms, covenants and conditions of this
Agreement to be complied with and performed by Home and Newco on or before the
Closing Date and the Funding and Consummation Date shall have been duly complied
with and performed in all material respects; and certificates to the foregoing
effect dated the Closing Date and the Funding and Consummation Date,
respectively, and signed by the President or any Vice President of Home shall
have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform Home in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the Company as a result of which
the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for Home, dated the Closing Date, in the form annexed hereto as Annex V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of Home Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken
-37-
<PAGE>
any other action or made any request of the Company as a result of which the
Company deems it inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. Home and Newco each shall have delivered
to the Company a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which Home or Newco is authorized to do business, showing that each of
Home and Newco is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for Home and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to Home or Newco which would constitute a Material Adverse
Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of Home and of Newco, certifying the truth and correctness of attached copies of
the Home's and Newco's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the Stockholders of Home and Newco
approving Home's and Newco's entering into this Agreement and the consummation
of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the Home Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for Home Stock (but not cash or other property) pursuant to the Home
Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME AND NEWCO
The obligations of Home and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of Home and
Newco with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
-38-
<PAGE>
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, Home and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Funding and Consummation Date with the same effect as
though such representations and warranties had been made on and as of such date;
all of the terms, covenants and conditions of this Agreement to be complied with
or performed by the Stockholders and the Company on or before the Closing Date
or the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to Home certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of Home as a result of which the
management of Home (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. Home shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the Company
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to Home
an instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholders against the Company and Home and (ii)
obligations of the Company and Home to the Stockholders, except for (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
-39-
<PAGE>
obligations to the Stockholders, (y) continuing obligations to Stockholders
relating to their employment by the Company and (z) obligations arising under
this Agreement or the transactions contemplated hereby. In the event that the
Funding and Consummation Date does not occur, then the release instrument
referenced herein shall be void and of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to Home.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 or otherwise approved by Home, all existing agreements between the
Company and the Stockholders (and entities controlled by the Stockholders) other
than real property leases shall have been canceled effective prior to or as of
the Closing Date, and all real property leases between the Company and the
Stockholders (and any entity controlled by the Stockholders) shall have been
amended in a manner reasonably satisfactory to Home.
9.8 OPINION OF COUNSEL. Home shall have received an opinion from Counsel
to the Company and the Stockholders, dated the Closing Date, substantially in
the form annexed hereto as Annex VI.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Home as a result of which Home deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to Home
a certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
state of incorporation and, unless waived by Home, in each state in which the
Company is authorized to do business, showing the Company is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for the Company for all periods prior to the Closing have been
filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
-40-
<PAGE>
9.13 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to Home a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF HOME AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. Home shall
use reasonable efforts to have the Stockholders released from any and all
guarantees of the Company's indebtedness identified on Schedule 10.1. In the
event that Home cannot obtain such releases from the lenders of any such
guaranteed indebtedness identified on Schedule 10.1 on or prior to 120 days
subsequent to the Funding and Consummation Date, Home shall promptly pay off or
otherwise refinance or retire such indebtedness. From and after the Funding and
Consummation Date and until such time as all of such indebtedness is paid off,
refinanced or retired, Home shall maintain unencumbered funds in amounts
sufficient to provide for such pay off, refinancing or retirement, provided that
Home may use such funds for other purposes, in its sole discretion, with the
prior written consent of each Stockholder who has not as of that time been
released from his or her guarantee as described above and whose indebtedness as
described above has not as of that time been paid off, refinanced or retired.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, Home shall not and shall not permit any of its subsidiaries
to undertake any act that would jeopardize the tax-free status of the
organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all or
part of the Home Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of the
Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or
before the Funding and Consummation Date, and shall permit Home to review
all such Tax Returns prior to such filings. Unless the Company is a C
corporation, the Stockholders shall pay or cause to be paid all Tax
liabilities (in excess of all amounts already paid with respect thereto or
properly accrued or reserved with respect thereto on the Company Financial
Statements) shown by such Returns to be due.
-41-
<PAGE>
(ii) Home shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs
of filing such Returns.
(iv) Each of the Company, Newco, Home and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of Home, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders, Home and Newco each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, severally (based on their relative ownership of
the Company Stock on the date hereof), will indemnify, defend, protect and hold
harmless Home, Newco, the Company and the Surviving Corporation at all times,
from and after the date of this Agreement until the Expiration Date (provided
that for purposes of Section 11.1(iii) below, the Expiration Date shall be the
date on which the applicable statute of limitations expires), from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by Home,
-42-
<PAGE>
Newco, the Company or the Surviving Corporation as a result of or arising from
(i) any breach of the representations and warranties of the Stockholders or the
Company set forth herein or on the schedules or certificates delivered in
connection herewith, (ii) any breach of any agreement on the part of the
Stockholders or the Company under this Agreement, or (iii) any liability under
the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement of a
material fact relating to the Company or the Stockholders, and provided to Home
or its counsel by the Company or the Stockholders (but in the case of the
Stockholders, only if such statement was provided in writing) contained in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Company or the Stockholders required to be stated therein or necessary to make
the statements therein not misleading, provided, however, that such indemnity
shall not inure to the benefit of Home, Newco, the Company or the Surviving
Corporation to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and the Stockholders provided, in writing, corrected
information to Home counsel and to Home for inclusion in the final prospectus,
and such information was not so included or properly delivered, and provided
further, that no Stockholder shall be liable for any indemnification obligation
pursuant to this Section 11.1 to the extent attributable to a breach of any
representation, warranty or agreement made herein individually by any other
Stockholder.
Home and Newco acknowledge and agree that other than the representations
and warranties of Company or Stockholders specifically contained in this
Agreement, there are no representations or warranties of Company or
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
Home and Newco further acknowledge and agree that, should the Closing
occur, their sole and exclusive remedy with respect to any and all claims
relating to this Agreement and the transactions contemplated in this Agreement,
shall be pursuant to the indemnification provisions set forth in this Section
11. Home and Newco hereby waive, from and after the Closing, to the fullest
extent permitted under applicable law, any and all rights, claims and causes of
action they or any indemnified person may have against the Company or any
Stockholder relating to this Agreement or the transactions arising under or
based upon any federal, state, local or foreign statute, law, rule, regulation
or otherwise.
11.2 INDEMNIFICATION BY HOME. Home covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by the
Stockholders as a result of or arising from (i) any breach by Home or Newco of
their representations
-43-
<PAGE>
and warranties set forth herein or on the schedules or certificates attached
hereto, (ii) any breach of any agreement on the part of Home or Newco under this
Agreement, (iii) any liabilities which the Stockholders may incur due to Home's
or Newco's failure to be responsible for the liabilities and obligations of the
Company as provided in Section 1 hereof (except to the extent that Home or Newco
has claims against the Stockholders by reason of such liabilities); or (iv) any
liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact relating to Home, Newco
or any of the Other Founding Companies contained in any preliminary prospectus,
the Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to Home
or Newco or any of the Other Founding Companies required to be stated therein or
necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing Indemnified Party, Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently pursues
such defense, the Indemnifying Party shall not be liable for any additional
legal expenses incurred by the Indemnified Party in connection with any defense
or settlement of such asserted liability, except (i) as set forth in the
preceding sentence and (ii) to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be reimbursed by
the Indemnifying Party for reasonable additional legal expenses and
out-of-pocket
-44-
<PAGE>
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim and the Indemnified Party refuses to
consent to such settlement, then the Indemnifying Party's liability under this
Section with respect to such Third Person claim shall be limited to the amount
so offered in settlement by said Third Person. Upon agreement as to such
settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment.
If the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party,
provided that, nothing herein shall be construed to limit the right of a party,
in a proper case, to seek injunctive relief for a breach of this Agreement. Any
indemnity payment under this Section 11 shall be treated as an adjustment to the
exchange consideration for tax purposes unless a final determination (which
shall include the execution of a Form 870-AD or successor form) with respect to
the indemnified party or any of its affiliate causes any such payment not to be
treated as an adjustment to the exchange consideration for U.S. Federal Income
Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. Home, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 shall not assert any claim for indemnification hereunder against
the Stockholders until such time as, and solely to the extent that, the
aggregate of all claims which such persons may have against such the
Stockholders shall exceed the greater of (a) 1.0% of the sum of (i) the cash
paid to Stockholders plus (ii) the value of the Home Stock delivered to
Stockholders (calculated as provided in this Section 11.5) or (b) $50,000 (the
"Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against Home or Newco until such time as, and solely
to the extent that, the aggregate of all claims which Stockholders may have
against Home or Newco shall exceed the Indemnification Threshold.
-45-
<PAGE>
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the Home Stock received by a Stockholder, Home Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such stockholder in connection with the Merger, valued as described
immediately above, but shall also have the right to satisfy any such obligation
in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of Home and the
Company;
(ii) by the Stockholders or the Company (acting through its board of
directors), on the one hand, or by Home (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
March 31, 1998, unless the failure of such transactions to be consummated
is due to the willful failure of the party seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the
extent required to be performed by it prior to or on the Funding and
Consummation Date;
(iii) by the Stockholders or Company, on the one hand, or by Home,
on the other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely performance of any
of the covenants or agreements contained herein, and the curing of such
default shall not have been made on or before the Funding and Consummation
Date or by the Stockholders or the Company, if the conditions set forth in
Section 8 hereof have not been satisfied or waived as of the Closing Date
or the Funding and Consummation Date, as applicable, or by Home, if the
conditions set forth in Section 9 hereof have not been satisfied or waived
as of the Closing Date or the Funding and Consummation Date, as
applicable;
(iv) pursuant to Section 7.8 hereof; or
-46-
<PAGE>
(v) pursuant to Section 4 hereof;
provided, however, that during the period from the Closing Date to the Funding
and Consummation Date, this Agreement may be terminated only if the underwriting
agreement relating to the IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, for a period of
five (5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any retail (new or used, but excluding used home lots
or other activities listed on Schedule 13.1 hereto) manufactured housing
business or operation or related services business (including the
ownership or management of manufactured housing subdivisions, lots or
parks, but excluding any such subdivisions, lots or parks or other
activities listed on Schedule 13.1 hereto) in direct competition with Home
or any of the subsidiaries thereof, within 100 miles of where the Company
or any of its subsidiaries conducted business prior to the effectiveness
of the Merger (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Home or any subsidiary thereof for the purpose
or with the intent of enticing such employee away from or out of the
employ of Home or any subsidiary thereof;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to the Funding and Consummation
Date, a customer of Home or any subsidiary thereof, of the Company or of
any of the Other Founding Companies within the Territory for the purpose
of soliciting or selling products or services in direct competition with
Home within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the retail
manufactured housing business, which
-47-
<PAGE>
candidate, to the actual knowledge of such Stockholder after due inquiry,
was called upon by Home or any subsidiary thereof or for which, to the
actual knowledge of such Stockholder after due inquiry, Home or any
subsidiary thereof made an acquisition analysis, for the purpose of
acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the
Company to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the Company has in
the past disclosed such information to the public for valid business
reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit (i) any Stockholder from acquiring as a passive investment not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange or over-the-counter, or (ii) any of
the activities listed on Schedule 13.1 hereto.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
Home as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Home for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Home in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of Home and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of Home; but it is also the intent of Home and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities; business and locations of Home and its subsidiaries throughout the
term of this covenant. During the term of this covenant, if Home or one of its
subsidiaries engages in new activities, enters a new business or establishes new
locations for its current activities or business in addition to or other than
the activities or business it is currently conducting in the locations currently
established therefor (provided such activities or business are related to the
business or operations of the retail manufactured housing business), then the
Stockholders will be precluded from soliciting the customers or employees of
such new activities or business or from such new location and from directly
competing with such new activities or business within 100 miles of its
then-established operating location(s) through the term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties
-48-
<PAGE>
that such restrictions be enforced to the fullest extent which the court deems
reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Home or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by Home of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or Home, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or Home's respective businesses. The Stockholders agree that they
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of Home, (b) following the Closing,
such information may be disclosed by the Stockholders as is required in the
course of performing their duties for Home or the Surviving Corporation and (c)
to counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1, unless (i) such
information becomes known to the public generally through no fault of the
Stockholders, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii), the Stockholders shall, if
possible, give prior written notice thereof to Home and provide Home with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by any of the Stockholders of the provisions of this Section 14.1, Home
shall be entitled to an injunction restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Home from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
Stockholders shall have none of the above-mentioned restrictions on their
ability to disseminate confidential information with respect to the Company.
Each Stockholder further agrees that in the event the transactions contemplated
herein are not consummated (i) neither the Company nor any Stockholder can
thereafter use any confidential information of the Other Founding
-49-
<PAGE>
Companies for any purpose and (ii) upon written request of any Other Founding
Company to the Company, the Company and Stockholders will return all
confidential information pertaining to such Other Founding Company to such Other
Founding Company.
14.2 HOME AND NEWCO. Home and Newco recognize and acknowledge that they
had in the past and currently have access to certain confidential information of
the Company, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company's business. Home and
Newco agree that, prior to the Closing, or if the Transactions contemplated by
this Agreement are not consummated, they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
the Company, (b) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.2, (c) to the Other Founding Companies and their representatives pursuant to
Section 7.1(a), unless (i) such information becomes known to the public
generally through no fault of Home or Newco, (ii) disclosure is required by law
or the order of any governmental authority under color of law, provided, that
prior to disclosing any information pursuant to this clause (ii), Home and Newco
shall, if possible, give prior written notice thereof to the Company and the
Stockholders and provide the Company and the Stockholders with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably believes
that such disclosure is required in connection with the defense of a lawsuit
against the disclosing party, and (d) to the public to the extent necessary or
advisable in connection with the filing of the Registration Statement and the
IPO and the securities laws applicable thereto and to the operation of Home as a
publicly held entity after the IPO. In the event of a breach or threatened
breach by Home or Newco of the provisions of this Section 14.2, the Company and
the Stockholders shall be entitled to an injunction restraining Home and Newco
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the Company and the Stockholders from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by Home, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1
-50-
<PAGE>
(or trusts for the benefit of the Stockholders or family members, the trustees
of which so agree), for a period of one year from the Closing, except pursuant
to Section 17 hereof, none of the Stockholders shall sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of any
shares of Home Stock received by the Stockholders in the Merger. The
certificates evidencing the Home Stock delivered to the Stockholders pursuant to
Section 3 of this Agreement will bear a legend substantially in the form set
forth below and containing such other information as Home may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
Home Stock to be delivered to the Stockholders pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The Home Stock to be acquired by such Stockholders pursuant to this
Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the shares of Home Stock issued to
such Stockholders will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the Home Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the Home Stock to be acquired pursuant to this
Agreement and can afford
-51-
<PAGE>
to sustain a total loss of such investment and have such knowledge and
experience in financial and business matters that they are capable of evaluating
the merits and risks of the proposed investment in the Home Stock. The
Stockholders party hereto have had an adequate opportunity to ask questions and
receive answers from the officers of Home concerning any and all matters
relating to the transactions described herein including, without limitation, the
background and experience of the current and proposed officers and directors of
Home, the plans for the operations of the business of Home, the business,
operations and financial condition of the Founding Companies other than the
Company, and any plans for additional acquisitions and the like. The
Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever Home proposes to register any Home Stock for its own or others account
under the 1933 Act for a public offering, other than (i) any shelf or other
registration of shares to be used as consideration for acquisitions of
additional businesses by Home and (ii) registrations relating to employee
benefit plans, Home shall give each of the Stockholders prompt written notice of
its intent to do so. Upon the written request of any of the Stockholders given
within 30 days after receipt of such notice, Home shall cause to be included in
such registration all of the Home Stock issued to the Stockholders pursuant to
this Agreement (including any stock issued as (or issuable upon the conversion
or exchange of any convertible security, warrant, right or other security which
is issued by Home as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Home Stock) which any such Stockholder
requests, provided that Home shall have the right to reduce the number of shares
included in such registration to the extent that inclusion of such shares could,
in the written opinion of tax counsel to Home or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as a tax-free organization under Section 351 of the Code.
In addition, if Home is advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 17.1 that the number of shares
to be sold by persons other than Home is greater than the number of such shares
which can be offered without adversely affecting the offering, Home may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares held by such person) to a number deemed satisfactory
by such managing underwriter, provided, that, for each such offering made by
Home after the IPO, such reduction shall be made first by reducing the number of
shares to be sold by persons other than Home, the Stockholders and the
stockholders of the Other Founding Companies (collectively, the Stockholders and
the stockholders of the other Founding Companies being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
-52-
<PAGE>
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of Home Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements which have not been
previously registered or sold and which are not entitled to be sold under Rule
144(k) (or any similar or successor provision) promulgated under the 1933 Act
may request in writing that Home file a registration statement under the 1933
Act covering the registration of the shares of Home Stock issued to the
Stockholders pursuant to this Agreement and the Other Agreements (including any
stock issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by Home as) a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Home Stock) then held by such Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the receipt of such request,
Home shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from any Stockholder, file and use its best efforts to cause
to become effective a registration statement covering all such shares. Home
shall be obligated to effect only one Demand Registration for all Founding
Stockholders and will keep such Demand Registration current and effective for
not less than 120 days (or such shorter period as is required to sell all of the
shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of Home's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which
Home would otherwise be required to make such filing pursuant to the foregoing
paragraph.
If at the time of any request by the Founding Stockholders for a Demand
Registration Home has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' Home
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless Home is no longer proceeding
diligently to effect such registration; provided that Home shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by Home
as a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever Home is required to register shares
of Home Stock pursuant to Sections 17.1 and 17.2, Home will, as expeditiously as
possible:
-53-
<PAGE>
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, Home will
furnish a representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that Home shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of Home Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
Home are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that Home is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, Home will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by Home.
-54-
<PAGE>
17.4 INDEMNIFICATION.
(a) In connection with any demand registration, Home shall indemnify, to
the extent permitted by law, each Stockholder (an "Indemnified Party") against
all losses, claims, damages, liabilities and expenses arising out of or
resulting from any untrue or alleged untrue statement of material fact contained
in any registration statement, prospectus or preliminary prospectus or
associated term sheet or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading except insofar as the same are caused by or contained in
or omitted from any information furnished in writing to Home by such Indemnified
Party expressly for use therein or by any Indemnified Parties' failure to
deliver a copy of the registration statement or prospectus or any amendment or
supplements thereto after Home has furnished such Indemnified Party with a
sufficient number of copies of the same.
(b) In connection with any demand registration, each Stockholder shall
furnish to Home in writing such information as is reasonably requested by Home
for use in any such registration statement or prospectus and will indemnify, to
the extent permitted by law, Home, its directors and officers and each person
who controls Home (within the meaning of the 1933 Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or alleged
untrue statement or material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement or prospectus
or any amendment thereof or supplement thereto necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
omission is contained in information so furnished in writing by such Stockholder
specifically for use in preparing the registration statement. Notwithstanding
the foregoing, the liability of a Stockholder under this Section 17.5 shall be
limited to an amount equal to the net proceeds actually received by such
Stockholder from the sale of the relevant shares covered by the registration
statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified parties' reasonable
judgment, a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. Any failure to give prompt notice shall deprive a party of
its right to indemnification hereunder only to the extent that such failure
shall have adversely effected the indemnifying party. If the defense of any
claim is assumed, the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled or elects not,
to assume the defense of a claim, will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party, a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
-55-
<PAGE>
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, Home and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of Home's size and investment stature,
including indemnification.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of Home stock
to the public without registration, Home agrees to use its best efforts to:
(i) make and keep public information regarding Home available as
those terms are understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of Home under the 1933 Act and the 1934 Act at any time
after it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted Home Common
Stock, furnish to each Stockholder forthwith upon written request a
written statement by Home as to its compliance with the reporting
requirements of Rule 144 (at any time from and after 90 days following the
effective date of the Registration Statement, and of the 1933 Act and the
1934 Act (any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
Home, and such other reports and documents so filed as a Stockholder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Stockholder to sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders, Home and Newco shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The Company will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the Company
cooperate with Home on and after the Funding and Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any tax
return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Funding
and Consummation Date.
-56-
<PAGE>
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Home, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and Home and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and Home,
acting through their respective officers or trustees, duly authorized by their
respective Boards of Directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the Company shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, Home will pay the fees, expenses and disbursements of Home
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by Home under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other
person or entity retained by Home or by Notre Capital Ventures II, L.L.C., and
the costs of preparing the Registration Statement. Each Stockholder shall pay
all sales, use, transfer, real property transfer, recording, gains, stock
transfer and other similar taxes and fees ("Transfer Taxes") imposed in
connection with the Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. Each Stockholder shall file all necessary documentation and
Returns with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or Home, will pay all taxes due upon
receipt of the consideration payable pursuant to Section 2 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks,
-57-
<PAGE>
with respect to which the Stockholders are relying solely on the opinion
contemplated by Section 8.12 hereof.
(b) In the event that the Funding and Consummation Date occurs, then
Home will reimburse the Stockholders and the stockholders of Other Founding
Companies for incremental and direct accounting costs and expenses incurred by
them in connection with the Merger and IPO and such additional accounting and
legal expenses incurred by them in connection therewith as may be approved by
Home.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to Home, or Newco, addressed to them at:
Home USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: Cary N. Vollintine
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
-58-
<PAGE>
(c) If to the Company, addressed to it at:
Mobile World, Inc.
101 Lemonwood
San Antonio, TX 78213
Attn: Stan Poisso
with copies to:
P. Keith O'Gorman
Burns, O'Gorman, Black & Weyland LLC
750 Rittiman Road
San Antonio, TX 78209-5596
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
-59-
<PAGE>
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of Home, Newco, the Company and Stockholders who hold or who
will hold at least 50% of the Home Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving Home Stock in connection with the Merger and each future holder
of such Home Stock.
-60-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
HOMEUSA, INC.
By:
Cary N. Vollintine
Chief Executive Officer
MOBILE WORLD ACQUISITION CORP.
By:
Name:
Title:
SHOWCASE OF HOMES ACQUISITION CORP.
By:
Name:
Title:
MOBILE WORLD, INC.
By:
Name:
Title:
-61-
<PAGE>
SHOWCASE OF HOMES, INC.
By:
Name:
Title:
-62-
<PAGE>
STOCKHOLDERS:
STANLEY POISSO
PAULA POISSO SPARAGE
BILLY DAVID POISSO
CAROLYN DENISE POISSO
-63-
<PAGE>
SCHEDULE 6.9
None.
-64-
EXHIBIT 10.7
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 10th day of September, 1997
by and among
HOMEUSA, INC.
PATRICK HOME CENTER ACQUISITION CORP.
(a subsidiary of HomeUSA, Inc.)
PATRICK HOME CENTER, INC.
and
the STOCKHOLDER named herein
-2-
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER........................5
1.2 EFFECTIVE TIME OF THE MERGER.....................................6
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS
OF SURVIVING CORPORATION.........................................6
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, HOME AND NEWCO..........................................6
1.5 EFFECT OF MERGER.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 MANNER OF CONVERSION.............................................8
3. DELIVERY OF MERGER CONSIDERATION.......................................9
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDER.............................................10
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDER.....................................10
5.1 DUE ORGANIZATION................................................10
5.2 AUTHORIZATION...................................................10
5.3 CAPITAL STOCK OF THE COMPANY....................................11
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........11
5.5 NO BONUS SHARES.................................................11
5.6 SUBSIDIARIES....................................................11
5.7 PREDECESSOR STATUS; ETC.........................................11
5.8 SPIN-OFF BY THE COMPANY.........................................11
5.9 FINANCIAL STATEMENTS............................................12
5.10 LIABILITIES AND OBLIGATIONS.....................................12
5.11 ACCOUNTS AND NOTES RECEIVABLE...................................12
5.12 PERMITS AND INTANGIBLES.........................................13
5.13 ENVIRONMENTAL MATTERS...........................................13
5.14 PERSONAL PROPERTY...............................................14
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.......14
-i-
<PAGE>
5.16 REAL PROPERTY...................................................15
5.17 INSURANCE.......................................................15
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS....16
5.19 EMPLOYEE PLANS..................................................16
5.20 COMPLIANCE WITH ERISA...........................................17
5.21 CONFORMITY WITH LAW; LITIGATION.................................18
5.22 TAXES...........................................................18
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC.......................19
5.24 GOVERNMENT CONTRACTS............................................20
5.25 ABSENCE OF CHANGES..............................................20
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY............................21
5.27 VALIDITY OF OBLIGATIONS.........................................21
5.28 RELATIONS WITH GOVERNMENTS......................................21
5.29 DISCLOSURE......................................................22
5.30 PROHIBITED ACTIVITIES...........................................22
5.31 DEALER AGREEMENTS AND RELATED MATTERS...........................23
5.32 NO RETAIL FINANCING.............................................23
5.33 NO WARRANTIES OR INSURANCE......................................24
5.34 NO INTERESTS IN OTHER BUSINESSES................................24
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER.24
5.35 AUTHORITY; OWNERSHIP............................................24
5.36 PREEMPTIVE RIGHTS...............................................24
5.37 NO INTENTION TO DISPOSE OF HOME STOCK...........................24
6. REPRESENTATIONS OF HOME AND NEWCO.....................................25
6.1 DUE ORGANIZATION................................................25
6.2 AUTHORIZATION...................................................25
6.3 CAPITAL STOCK OF HOME AND NEWCO.................................25
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........25
6.5 SUBSIDIARIES....................................................26
6.6 FINANCIAL STATEMENTS............................................26
6.7 LIABILITIES AND OBLIGATIONS.....................................26
6.8 CONFORMITY WITH LAW; LITIGATION.................................26
6.9 NO VIOLATIONS...................................................26
6.10 VALIDITY OF OBLIGATIONS.........................................27
6.11 HOME STOCK......................................................27
6.12 NO SIDE AGREEMENTS..............................................28
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS....................28
6.14 TAXES...........................................................28
6.15 ABSENCE OF CHANGES..............................................28
6.16 DISCLOSURE......................................................29
-ii-
<PAGE>
6.17 PRIVATE OFFERING................................................30
7. COVENANTS PRIOR TO CLOSING............................................30
7.1 ACCESS AND COOPERATION; DUE DILIGENCE...........................30
7.2 CONDUCT OF BUSINESS PENDING CLOSING.............................30
7.3 PROHIBITED ACTIVITIES...........................................31
7.4 NO SHOP.........................................................33
7.5 NOTICE TO BARGAINING AGENTS.....................................33
7.6 AGREEMENTS......................................................33
7.7 NOTIFICATION OF CERTAIN MATTERS.................................33
7.8 AMENDMENT OF SCHEDULES..........................................34
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT............35
7.10 FINAL FINANCIAL STATEMENTS......................................35
7.11 FURTHER ASSURANCES..............................................35
7.12 AUTHORIZED CAPITAL..............................................35
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS
ACT OF 1976 (THE "HART-SCOTT-RODINO ACT").......................36
7.14 STOCKHOLDERS OF HOME............................................36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER AND
COMPANY...............................................................36
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......36
8.2 SATISFACTION....................................................37
8.3 NO LITIGATION...................................................37
8.4 OPINION OF COUNSEL..............................................37
8.5 REGISTRATION STATEMENT..........................................37
8.6 CONSENTS AND APPROVALS..........................................37
8.7 GOOD STANDING CERTIFICATES......................................37
8.8 NO MATERIAL ADVERSE CHANGE......................................38
8.9 CLOSING OF IPO..................................................38
8.10 SECRETARY'S CERTIFICATE.........................................38
8.11 EMPLOYMENT AGREEMENTS...........................................38
8.12 TAX MATTERS.....................................................38
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME AND NEWCO.................38
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......39
9.2 NO LITIGATION...................................................39
9.3 SECRETARY'S CERTIFICATE.........................................39
9.4 NO MATERIAL ADVERSE EFFECT......................................39
9.5 STOCKHOLDER'S RELEASE...........................................39
9.6 SATISFACTION....................................................40
-iii-
<PAGE>
9.7 TERMINATION OF RELATED PARTY AGREEMENTS.........................40
9.8 OPINION OF COUNSEL..............................................40
9.9 CONSENTS AND APPROVALS..........................................40
9.10 GOOD STANDING CERTIFICATES......................................40
9.11 REGISTRATION STATEMENT..........................................40
9.12 EMPLOYMENT AGREEMENTS...........................................40
9.13 CLOSING OF IPO..................................................40
9.14 FIRPTA CERTIFICATE..............................................41
10. COVENANTS OF HOME AND THE STOCKHOLDER AFTER CLOSING...................41
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.......41
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT....................41
10.3 PREPARATION AND FILING OF TAX RETURNS...........................41
10.4 DIRECTORS.......................................................42
11. INDEMNIFICATION.......................................................42
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDER......................42
11.2 INDEMNIFICATION BY HOME.........................................43
11.3 THIRD PERSON CLAIMS.............................................44
11.4 EXCLUSIVE REMEDY................................................45
11.5 LIMITATIONS ON INDEMNIFICATION..................................45
12. TERMINATION OF AGREEMENT..............................................46
12.1 TERMINATION.....................................................46
12.2 LIABILITIES IN EVENT OF TERMINATION.............................47
13. NONCOMPETITION........................................................47
13.1 PROHIBITED ACTIVITIES...........................................47
13.2 DAMAGES.........................................................48
13.3 REASONABLE RESTRAINT............................................48
13.4 SEVERABILITY; REFORMATION.......................................48
13.5 INDEPENDENT COVENANT............................................49
13.6 MATERIALITY.....................................................49
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................49
14.1 STOCKHOLDER.....................................................49
14.2 HOME AND NEWCO..................................................50
14.3 DAMAGES.........................................................50
14.4 SURVIVAL........................................................50
15. TRANSFER RESTRICTIONS.................................................50
-iv-
<PAGE>
15.1 TRANSFER RESTRICTIONS...........................................50
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................51
16.1 COMPLIANCE WITH LAW.............................................51
16.2 ECONOMIC RISK; SOPHISTICATION...................................51
17. REGISTRATION RIGHTS...................................................52
17.1 PIGGYBACK REGISTRATION RIGHTS...................................52
17.2 DEMAND REGISTRATION RIGHTS......................................52
17.3 REGISTRATION PROCEDURES.........................................53
17.4 INDEMNIFICATION.................................................54
17.5 UNDERWRITING AGREEMENT..........................................55
17.6 RULE 144 REPORTING..............................................56
18. GENERAL...............................................................56
18.1 COOPERATION.....................................................56
18.2 SUCCESSORS AND ASSIGNS..........................................56
18.3 ENTIRE AGREEMENT................................................56
18.4 COUNTERPARTS....................................................57
18.5 BROKERS AND AGENTS..............................................57
18.6 EXPENSES........................................................57
18.7 NOTICES.........................................................58
18.8 GOVERNING LAW...................................................59
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................59
18.10 EXERCISE OF RIGHTS AND REMEDIES.................................59
18.11 TIME............................................................59
18.12 REFORMATION AND SEVERABILITY....................................59
18.13 REMEDIES CUMULATIVE.............................................59
18.14 CAPTIONS........................................................60
18.15 AMENDMENTS AND WAIVERS..........................................60
-v-
<PAGE>
ANNEXES
Annex - Consideration to Be Paid to Stockholder
Annex II - Stockholder and Stock Ownership of the Company
Annex III - Certificate of Incorporation and By-Laws of Home
Annex IV - Certificate of Incorporation and By-Laws of Newco
Annex V - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex VI - Form of Opinion of Andrews & Kurth, LLP
Annex VII - Form of Key Employee Employment Agreement
-vi-
<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes 5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Dealer Agreements
5.32 No Retail Financing
5.33 No Warranties or Insurance
5.34 No Interests in Other Businesses
5.35 Authority; Ownership
6.9 No Violations
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
10.1 Guaranties
13.1 Lots Excluded from Noncompete
-vii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 10th day of September, 1997, by and among HomeUSA, Inc., a Delaware
corporation ("Home"), PATRICK HOME CENTER ACQUISITION CORP., a Delaware
corporation ("Newco"), PATRICK HOME CENTER, INC., a Mississippi corporation (the
"Company"), and Harold K. Patrick (the "Stockholder"). The Stockholder is the
only stockholder of the Company.
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on September
8, 1997 solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of Home, a corporation organized
and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of Newco and the Company
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that Newco
merge with and into the Company pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation;
WHEREAS, Home is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional retail manufactured housing
companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"Home Plan of Organization;"
WHEREAS, the Stockholder and the Boards of Directors and the
stockholders of Home, each of the Other Founding Companies and each of the
subsidiaries of Home that are parties to the Other Agreements have
approved and adopted the Home Plan of Organization as an integrated plan
pursuant to which the Stockholder and the stockholders of each of the
other Founding Companies will transfer the capital stock of each of the
Founding Companies to Home and the stockholders of each of the other
Founding Companies will acquire the stock of Home (but not cash or other
property) as a tax-free transfer of property under Section 351 of the
Code;
-1-
<PAGE>
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the Home Plan of Organization in
order to transfer the capital stock of the Company to Home;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" shall mean Newco and each of the other Delaware
companies wholly-owned by Home prior to the Funding and Consummation Date.
"Affiliates" means, with respect to any Person, any Person or entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean June 30, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
-2-
<PAGE>
"Draft Registration Statement" means the draft dated September 5, 1997 of
the Registration Statement, and any corrections thereto and supplemental
information delivered by Home to the Company for delivery to the Stockholder
prior to the time this Agreement is delivered to Home.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Cooper's Mobile Homes, Inc., a Washington corporation, Home USA,
Inc., a Washington corporation, and Pac West Mgmt., Inc., a Washington
corporation.
CSF&T, Inc. (dba AAA Homes), a Mississippi corporation, AAA Homes,
L.L.C., a Louisiana limited liability company, and Fordham Insurance
Agency, Inc., a Mississippi corporation.
First American Homes, Inc., an Alabama corporation, D & S, Inc., an
Alabama corporation, and Son Development Corporation, an Alabama
corporation.
Home Folks Housing Center, Inc., a Kentucky corporation.
McDonald Homes, Inc., an Oklahoma corporation.
Mobile World, Inc., a Texas corporation, and Showcase of Homes,
Inc., a Texas corporation.
Patrick Home Center, Inc., a Mississippi corporation.
Universal Housing, Inc., a Tennessee corporation, Shaffer & Webb
Insurance Agency, Inc., a Tennessee corporation, and Universal Housing of
East TN, Inc., a Tennessee corporation.
Willmax Homes of Colorado LLC, a Colorado limited liability company.
"Funding and Consummation Date" has the meaning set forth in Section 4.
-3-
<PAGE>
"IPO" means the initial public offering of Home Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Company" means the actual knowledge of the executive
officers of the Company.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of Newco with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"Home" has the meaning set forth in the first paragraph of this Agreement.
"Home Charter Documents" has the meaning set forth in Section 6.1.
"Home Stock" means the common stock, par value $.01 per share, of Home.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by Home and the Underwriters of
the public offering price of the shares of Home Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Home Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
-4-
<PAGE>
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Mississippi.
"Stockholder" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to Home to be held for filing with the Secretary of State of the State
of Delaware and the Secretary of State (or other appropriate authority) of the
State of Incorporation on or effective as of the Funding and Consummation Date.
-5-
<PAGE>
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into the Company in accordance with the Articles
of Merger, the separate existence of Newco shall cease, the Company shall be the
surviving party in the Merger and the Company is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation
until changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such By-laws shall be the By-laws of the Surviving Corporation
until they shall thereafter be duly amended (and such By-laws shall be
amended from time to time, if necessary, to comply with applicable state
law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the Company
immediately prior to the Effective Time of the Merger, provided that Cary
N. Vollintine shall become an additional director of the Surviving
Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of the
Company shall be increased, if necessary, to accommodate the addition of
such additional director; the Board of Directors of the Surviving
Corporation shall hold office subject to the provisions of the laws of the
State of Incorporation and of the Certificate of Incorporation and By-laws
of the Surviving Corporation; and
(iv) the officers of the Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger Michael Loy shall become an additional Vice
President of the Surviving Corporation, such officers to serve, subject to
the provisions of the Certificate of Incorporation and By-laws of the
Surviving Corporation, until their respective successors are duly elected
and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
HOME AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company,
Home and Newco as of the date of this Agreement are as follows:
-6-
<PAGE>
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof,
the authorized capital stock of Home will consist of 50,000,000 shares of
Home Stock, of which the number of issued and outstanding shares will be
set forth in the Registration Statement, 5,000,000 shares of preferred
stock, $.01 par value, of which no shares will be issued and outstanding,
and 5,000,000 shares of Restricted Voting Common Stock, $.01 par value
(the "Restricted Common Stock"), all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement;
and
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred
(100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, franchises, privileges, rights and immunities of
the Company shall continue unaffected and unimpaired by the Merger and the
corporate franchises, existence and rights of Newco shall be merged with and
into the Company, and the Company, as the Surviving Corporation, shall be fully
vested therewith. At the Effective Time of the Merger, the separate existence of
Newco shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and Newco shall be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Company and Newco; and the title to any real estate, or
interest therein, whether by deed or otherwise, under the laws of the State of
Incorporation vested in the Company and Newco, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the Company and Newco and any claim existing, or
action or proceeding pending, by or against the Company or Newco may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in their place. Neither the rights of creditors nor any liens
upon the property of the Company or Newco shall be impaired by the Merger, and
all debts, liabilities and duties of the Company and Newco shall attach to the
Surviving
-7-
<PAGE>
Corporation, and may be enforced against such Surviving Corporation to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) Home Stock and cash and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of Home Stock set forth on Annex I hereto (adjusted as
set forth on such Annex I) with respect to such holder and (2) the right
to receive the amount of cash set forth on Annex I hereto with respect to
such holder (adjusted as set forth on such Annex I);
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of Home Stock
or other consideration shall be delivered or paid in exchange therefor;
and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger
and without any action on the part of Home, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All Home Stock received by the Stockholder pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding Home
Stock by reason of the provisions of the Certificate of Incorporation of Home or
as otherwise provided by the Delaware GCL. All Home Stock received by the
Stockholder shall be issued and delivered to the Stockholder free and clear of
any liens, claims or encumbrances of any kind or nature. All voting rights of
such Home Stock received by the Stockholder shall be fully exercisable by the
Stockholder and the Stockholder shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, Home shall have no
class of capital stock issued and outstanding other than the Home Stock and the
Restricted Voting Common Stock.
-8-
<PAGE>
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholder, who is the
holder of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
number of shares of Home Stock and the amount of cash described on Annex I
hereto, said cash to be payable by certified check or wire transfer.
3.2 The Stockholder shall deliver to Home at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholder, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholder's expense, affixed and canceled. The
Stockholder agrees promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such Company Stock or with respect to the stock powers accompanying
any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to Home for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and certified check(s) referred to in
Section 3 hereof, each of which actions shall only be taken upon the Funding and
Consummation Date as herein provided. In the event that there is no Funding and
Consummation Date and this Agreement automatically terminates as provided in
this Section 4 the Articles of Merger shall not be filed and shall be returned
to the Stockholder. The taking of the actions described in clauses (i) and (ii)
above (the "Closing") shall take place on the closing date (the "Closing Date")
at the offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares, the delivery of a certified check or checks in an amount
equal to the cash portion of the consideration which the Stockholder shall be
entitled to receive pursuant to the Merger referred to in Section 3 hereof and
(z) the closing with respect to the IPO shall occur and be completed. The date
on which the actions described in the preceding clauses (x), (y) and (z) occurs
shall be referred to as the "Funding and Consummation Date." During the period
from the Closing Date to the Funding and Consummation Date, this Agreement may
only be terminated by the parties if the underwriting agreement in respect of
the IPO is terminated pursuant to the terms of such underwriting agreement. This
Agreement shall also in any event automatically terminate if the Funding and
Consummation Date has not occurred within 15 business days following the Closing
Date. Time is of the essence.
-9-
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER.
Each of the Company and the Stockholder represent and warrant that all of
the following representations and warranties in this Section 5(A) are true at
the date of this Agreement and, subject to Section 7.8 hereof, shall be true at
the time of Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the warranties and representations set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Funding and Consummation Date, which shall
be deemed to be the Expiration Date for Section 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of its
subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company taken as a whole (as used herein with respect to the Company, or
with respect to any other Person, a "Material Adverse Effect"). Schedule 5.1
sets forth a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and correct copies of (i) the
Certificate of Incorporation and By-laws, each as amended, of the Company (the
"Charter Documents"), and (ii) the stock records of the Company, are all
attached to Schedule 5.1. The Company has delivered complete and correct copies
of all minutes of meetings, written consents and other evidence, if any, of
deliberations of or actions taken by the Company's Board of Directors and
stockholders during the last five years.
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholder approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the Company
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
-10-
<PAGE>
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholder in the
amounts set forth in Annex II. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Stockholder and further, such shares were offered, issued, sold and delivered by
the Company in compliance with all applicable state and Federal laws concerning
the issuance of securities. Further, none of such shares were issued in
violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective stockholders has been altered or changed in
contemplation of the Merger and/or the Home Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the Home Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
-11-
<PAGE>
5.9 FINANCIAL STATEMENTS. Complete and correct copies of the following
financial statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31, 1996 and
the related statements of operations, stockholder's equity and cash flows
for the year ended December 31, 1996, together with the related notes and
schedules (such balance sheets, the related statements of operations,
stockholder's equity and cash flows and the related notes and schedules
are referred to herein as the "Year-end Financial Statements"); and
(ii) the balance sheet (the "Interim Balance Sheet") of the Company
as of June 30, 1997 (the "Balance Sheet Date") and the related statements
of operations, stockholder's equity and cash flows for the six-month
periods ended June 30, 1997 and 1996, together with the related notes and
schedules (such balance sheets, the related statements of operations,
stockholder's equity and cash flows and the related notes and schedules
are referred to herein as the "Interim Financial Statements"). The
Year-end Financial Statements and the Interim Financial Statements are
collectively called the "Financial Statements".
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all liabilities of the Company of a
nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
best knowledge of the Company and the Stockholder, except as set forth on
Schedule 5.10, since the Balance Sheet Date the Company has not incurred any
material liabilities of any kind, character or description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than liabilities
incurred in the ordinary course of business. The Company has also delivered to
Home on Schedule 5.10, in the case of those contingent liabilities related to
pending or threatened litigation, or other liabilities which are not fixed, a
good faith and reasonable estimate of the maximum amount which the Company
reasonably expects will be payable and the amount, if any, accrued or reserved
for each such potential liability on the Company's Financial Statements; in the
case of any such liability for which no estimate has been provided, the estimate
for purposes of this Agreement shall be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholder, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are
-12-
<PAGE>
collectible in the amounts shown on Schedule 5.11, net of reserves reflected in
the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to Home an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, including any trademarks,
trade names, patents, patent applications and copyrights owned or held by the
Company or any of its employees (including interests in software or other
technology systems, programs and intellectual property) (it being understood and
agreed that a list of environmental permits and other environmental approvals is
set forth on Schedule 5.13). At or prior to the Closing, all such trademarks,
trade names, patents, patent applications, copyrights and other intellectual
property will be assigned or licensed to the Company for no additional
consideration. To the best knowledge of the Company, the Licenses and other
rights listed on Schedules 5.12 and 5.13 are valid, and the Company has not
received any notice that any person intends to cancel, terminate or not renew
any such License or other right. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Licenses and other rights listed on Schedules 5.12 and 5.13 and
is not in violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the Company. Except as
specifically provided in Schedule 5.12, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to the Company by, any such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have any Material Adverse Effect on the Company or its
business, (i) the Company has complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to any of them or any of their respective properties, assets,
operations and businesses relating to environmental protection (collectively
"Environmental Laws") including, without limitation, Environmental Laws relating
to air, water, land and the generation, storage, use, handling, transportation,
treatment or disposal of Hazardous Wastes, Hazardous Materials and Hazardous
Substances (as such terms are defined in any applicable Environmental Law), as
well as petroleum and petroleum products (collectively "Hazardous Materials"),
(ii) the Company has obtained and adhered to all necessary permits and other
approvals necessary to treat, transport, store, dispose of and otherwise handle
Hazardous Materials, a list of all of which permits and approvals is set forth
on Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the Company where Hazardous Materials have been treated, stored,
disposed of or otherwise handled. There have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and to the best
-13-
<PAGE>
knowledge of the Company and the Stockholder, there is no on-site or off-site
location to which the Company has transported or disposed of Hazardous Materials
or arranged for the transportation of Hazardous Materials which is the subject
of any Federal, state, local or foreign enforcement action or any other
investigation which could lead to any claim against the Company, Home or Newco
for any clean-up cost, remedial work, damage to natural resources, property
damage or personal injury, including, but not limited to, any claim under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, the Resource Conservation and Recovery Act, the Hazardous Materials
Transportation Act or comparable state or local statutes or regulations. The
Company has no contingent liability in connection with any release of any
Hazardous Materials into the environment that would have a Material Adverse
Effect.
5.14 PERSONAL PROPERTY. The Company has delivered to Home an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company, (y) all other personal property owned by the
Company with an individual value in excess of $25,000 (i) as of the Balance
Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material
leases and agreements in respect of personal property, including, in the case of
each of (x), (y) and (z), (1) true, complete and correct copies of all such
leases and (2) an indication as to which assets are currently owned, or were
formerly owned, by Stockholder, relatives of Stockholder, or Affiliates of the
Company. Except as set forth on Schedule 5.14, (i) all material personal
property used by the Company in its business is either owned by the Company or
leased by the Company pursuant to a lease included on Schedule 5.14, (ii) all of
the personal property listed on Schedule 5.14 is in good working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 5% or more of the
Company's annual revenues for any period covered by any of the Financial
Statements. Except to the extent set forth on Schedule 5.15, none of such
customers have canceled or substantially reduced or, to the knowledge of the
Company, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by the Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to Home. For purposes of this Section 5.17, Material Contracts
includes contracts between the Company and significant customers, joint venture
or partnership agreements, contracts with any labor organization, strategic
alliances, options to purchase land and other contracts which
-14-
<PAGE>
are not terminable on sixty days or less notice and involve payments by the
Company in any twelve month period in excess of $25,000. The Company has also
indicated on Schedule 5.15 a summary description of all plans or projects
involving the opening of new operations, expansion of existing operations, the
acquisition of any personal property, business or assets requiring, in any
event, the payment of more than $25,000 by the Company during any 12-month
period.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on terms reasonably acceptable to Home and leased
back by the Company on terms no less favorable to the Company than those
available from an unaffiliated party and otherwise reasonably acceptable to Home
at or prior to the Closing Date. The Company has good and insurable title to any
real property owned by it that is not shown on Schedule 5.16 as property
intended to be sold or distributed prior to the Closing Date, subject to no
mortgage, pledge, lien, conditional sales agreement, encumbrance or charge,
except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholder or affiliates of the Company or Stockholder is
included in Schedule 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
5.17 INSURANCE. The Company has delivered to Home (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the best knowledge of the Company provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect and shall, to the best knowledge of the
Company,
-15-
<PAGE>
remain in full force and effect through the Funding and Consummation Date. Since
January 1, 1995, no insurance carried by the Company has been canceled by the
insurer and the Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The Company has provided to Home
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the best knowledge of the Company, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the best of the Company's knowledge, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years. The Company believes its relationship
with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholder has delivered to Home an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on the Benefit Plans Schedule, and the Company is not required to contribute
-16-
<PAGE>
to any retirement plan pursuant to the provisions of any collective bargaining
agreement establishing the terms and conditions or employment of any of the
Company's or any subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code are, and have been so qualified and have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination letters are
attached to the Benefit Plans Schedule. Except as disclosed on the Benefit Plans
Schedule, all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or tax returns) have
been timely filed or distributed, and copies thereof are included as part of the
Benefit Plans Schedule. Neither the Stockholder, any such plan listed in the
Benefit Plans Schedule, nor the Company has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No such Plan listed in the Benefit Plans Schedule has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and the Company has not incurred any liability for
excise tax or penalty due to the Internal Revenue Service nor any liability to
the Pension Benefit Guaranty Corporation. The Stockholder further represents
that except as set forth on the Benefit Plans Schedule hereto:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
the Benefit Plans Schedule;
-17-
<PAGE>
(iv) the Company has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the Company could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such
liability) with respect to any plan now or heretofore maintained or
contributed to by any entity other than the Company that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and, to the Knowledge of the
Company and the Stockholder, there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, orders, approvals,
variances, rules and regulations, including without limitation to the extent
applicable all regulations promulgated by the Department of Housing and Urban
Development under the National Manufactured Housing Construction and Safety
Standards Act, as amended, or otherwise, and all laws and regulations affecting
the sale of manufactured housing, on credit or otherwise, including the Federal
Consumer Credit Protection Act, the Federal Fair Credit Reporting Act, the
Federal Equal Credit Opportunity Act, the Consumer Credit Protection Act, the
Fair Debt Collection Practices Act and the regulations promulgated under the
foregoing, and all state and local laws and regulations of similar effect, and
including all such orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, except where any such noncompliance, individually or in
the aggregate, would not have a Material Adverse Effect.
5.22 TAXES. The Company has timely filed all requisite Federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other taxes (including penalties and interest) for any period
or periods prior to and including the Balance Sheet Date and no notice of any
claim for taxes, whether pending or threatened, has been received. All tax,
including interest and penalties (whether or not shown on any tax return) owed
by the Company or any of the Company's Subsidiaries has been paid. The
-18-
<PAGE>
amounts shown as accruals for taxes on the Company Financial Statements are
sufficient for the payment of all taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before that date.
Copies of (i) any tax examinations, (ii) extensions of statutory limitations and
(iii) the federal and local income tax returns and franchise tax returns of the
Company for their last three (3) fiscal years, or such shorter period of time as
any of them shall have existed, are attached hereto as Schedule 5.22 or have
otherwise been delivered to Home. The Company has disclosed to Home when its
taxable year ends. The Company uses the accrual method of accounting for income
tax purposes, and the Company's methods of accounting have not changed in the
past five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five years
been a party to any tax sharing agreement or agreement of similar effect. The
Company is not and has not during the last five years been a member of any
consolidated group. Except as described on Schedule 5.22, the Company has not
received, been denied, or applied for any private letter ruling during the last
five years.
The Stockholder made a valid election under the provisions of Subchapter S
of the Code and the Company has not, within the past five years, been taxed
under the provisions of Subchapter C of the Code. The Stockholder shall pay, and
hereby indemnifies Home, the Company and Newco against, all income taxes payable
for all periods though and including the Closing Date.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the best
knowledge of the Company, any other party thereto, is in default under any
lease, instrument, agreement, license, or permit set forth on Schedule 5.12,
5.13, 5.14, 5.15 or 5.16, or any other Material Contract (as defined in Section
5.15) to which it is a party or by which its properties are bound (the "Material
Documents") in any manner that could result in a Material Adverse Effect; and,
except as set forth in Schedule 5.23, (a) the rights and benefits of the Company
under the Material Documents will not be materially adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
Material Documents or the Charter Documents. Except as set forth on Schedule
5.23, none of the Material Documents requires notice to, or the consent or
approval of, any governmental agency or other third party with respect to any of
the transactions contemplated hereby in order to remain in full force and
effect, and consummation of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the Company, Home or
Newco of the name of any other party to such Material Document, and none of the
Material Documents prohibits or restricts the Company from freely providing
services to any other customer or potential customer of the Company, Home, Newco
or any Other Founding Company.
-19-
<PAGE>
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any
grant by the Company of any options, warrants, calls, conversion rights or
commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
(v) any material increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the Company
to any of its officers, directors, stockholders, employees, consultants or
agents, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the Company;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of Company to any person,
including, without limitation, the Stockholder and his Affiliates;
(viii)any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of the Stockholder or any Affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
-20-
<PAGE>
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
(xii) any amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(xiii)any transaction by the Company outside the ordinary course of
its business;
(xiv) any cancellation or termination by the Company of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the Company
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
Home an accurate schedule (which is set forth on Schedule 5.26) as of the date
of this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.28 RELATIONS WITH GOVERNMENTS. Except for legal contributions to
candidates for political office, neither the Company nor any Affiliate of the
Company acting on behalf of the
-21-
<PAGE>
Company has given or offered anything of value to any governmental official,
political party or candidate for government office, nor has it or any of them
otherwise taken any action which would cause the Company to be in violation of
the Foreign Corrupt Practices Act of 1977, as amended or any law of similar
effect.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished to Home by the Company and the Stockholder in
connection herewith, do not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements herein and
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing does not apply to statements
contained in or omitted from any of such documents made or omitted in reliance
upon information furnished in writing by Home. If, prior to the 25th day after
the date of the final prospectus of Home utilized in connection with the IPO,
the Company or the Stockholder becomes aware of any fact or circumstance which
would affect the accuracy of a representation or warranty of Company or the
Stockholder in this Agreement in any material respect, the Company and the
Stockholder shall immediately give notice of such fact or circumstance to Home.
Subject to the provisions of Section 7.8, such notification shall not relieve
either the Company or the Stockholder of their respective obligations under this
Agreement, and, subject to the provisions of Section 7.8, at the sole option of
Home, the truth and accuracy in all material respects of any and all warranties
and representations of the Company, or on behalf of the Company and of
Stockholder at the date of this Agreement and on the Closing Date and on the
Funding and Consummation Date, shall be a precondition to the consummation of
this transaction.
(b) The Company and the Stockholder acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that a Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither Home or any of its officers, directors, agents or representatives
nor any Underwriter shall have any liability to the Company, the Stockholder or
any other person affiliated or associated with the Company for any failure of
the Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Stockholder to enter
into this Agreement, or to vote in favor of or consent to the proposed Merger,
has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to Home or the prospective IPO. Notwithstanding the foregoing, Home has
agreed and herein acknowledges its agreement to use its reasonable efforts to
consummate the Home Plan of Organization and IPO as contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
Company has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
-22-
<PAGE>
5.31 DEALER AGREEMENTS AND RELATED MATTERS. Schedule 5.31 sets forth a
complete and accurate list of:
(i) all agreements of any nature (including "Dealer Agreements",
"Home Center Agreements", "Retailer Agreements", "Exclusive Retailer
Agreements", "General Conditions", "Action Plans" and other documents)
between the Company and any dealer, manufacturer, wholesaler or other
distributor (collectively, "Manufacturers") of manufactured housing units
(collectively, "Dealer Agreements"); and
(ii) all volume incentive, rebate and other similar programs of any
Manufacturer (collectively, "Dealer Programs") in which the Company is now
or has within the last three years been a participant.
Schedule 5.31 identifies the Manufacturer that is a party to each such Dealer
Agreement or that sponsors each such Dealer Program, and also identifies the
Company's sales locations subject to or affected by each such Dealer Agreement
and each such Dealer Program. Complete and accurate copies of all Dealer
Agreements and all Dealer Programs listed on Schedule 5.31 are attached to
Schedule 5.31. Except as set forth on Schedule 5.31, the Company is now and for
the last three years has been in compliance in all material respects with all
applicable provisions of the Dealer Agreements and Dealer Programs identified on
Schedule 5.31 and any similar agreements to which the Company has been a party
during the last three years. To the extent that the Company is required by any
Dealer Agreement or Dealer Program to take or refrain from taking specified
actions in order to qualify for the benefits offered thereby (such as the
benefits of an exclusive retailer agreement), the Company is in compliance in
all material respects with all such requirements (it being understood that the
Company is not hereby representing that it qualifies for the highest level of
incentive discounts or rebates offered by such Dealer Agreements or Dealer
Programs). Except as set forth on Schedule 5.31, within the last three years, no
Manufacturer has asserted any claim or right to any refund of any incentive
payment or rebate or other payment or discount granted to the Company by any
such Manufacturer, or any right to offset any amount against any future payment
due or otherwise due to the Company, and no circumstances exist that would
entitle any Manufacturer to make any such claim against the Company. During the
last three years, the Company has accurately calculated and reported to each
Manufacturer with which the Company has done business all financial and sales
data that the Company is required to report to each such Manufacturer, whether
in connection with volume incentive or rebate plans or otherwise.
5.32 NO RETAIL FINANCING. Except as set forth on Schedule 5.32, the
Company does not finance the sale to the Company's customers of manufactured
housing units or related products or services (collectively, "Product"), and is
not liable, directly or indirectly, contingently or otherwise, to any
Manufacturer or any financing source for all or any portion of the purchase
price of any Product that has been sold by the Company or delivered by the
Company to a retail purchaser.
-23-
<PAGE>
5.33 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule 5.33, the
Company has not made any express warranties regarding any Products and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any payment
to or perform any service for any person other than routine matters described as
"Retailer Responsibilities", "Retailer General Installation and Home Delivery
Guidelines" and the like in the Dealer Agreements listed on Schedule 5.31.
5.34 NO INTERESTS IN OTHER BUSINESSES. Except as set forth on Schedule
5.34, neither the Company nor any Stockholder, nor any affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's sales of Product.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
The Stockholder represents and warrants that the representations and
warranties set forth below as and to the extent relating to such Stockholder are
true as of the date of this Agreement and, subject to Section 7.8 hereof, shall
be true at the time of Closing and on the Funding and Consummation Date, and
that the representations and warranties set forth in Sections 5.35 and 5.36
shall survive until the first anniversary of the Funding and Consummation Date,
which shall be the Expiration Date for purposes of Sections 5.35 and 5.36.
5.35 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.35, such Company Stock is owned free and clear of all liens, security
interests, pledges, charges, voting agreements, voting trusts, restrictions,
encumbrances and claims of every kind.
5.36 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Home Stock
that such Stockholder has or may have had. Nothing herein, however, shall limit
or restrict the rights of any Stockholder to acquire Home Stock pursuant to (i)
this Agreement or (ii) any option granted by Home.
5.37 NO INTENTION TO DISPOSE OF HOME STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of Home Stock received as described in Section 3.1.
-24-
<PAGE>
6. REPRESENTATIONS OF HOME AND NEWCO
Home and Newco jointly and severally represent and warrant that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at the time
of Closing and the Funding and Consummation Date, and that such representations
and warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that the warranties and representations set forth in Section 6.14 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 6.14.
6.1 DUE ORGANIZATION. Home and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. Home and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws of Home and Newco (the "Home Charter Documents") are
all attached hereto as Annexes III and IV.
6.2 AUTHORIZATION. (i) The respective representatives of Home and Newco
executing this Agreement have the authority to enter into and bind Home and
Newco to the terms of this Agreement and (ii) Home and Newco have the full legal
right, power and authority to enter into this Agreement and consummate the
Merger. All corporate acts and other proceedings required to have been taken by
Home and Newco to authorize the execution, delivery and performance of this
Agreement and the consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF HOME AND NEWCO. The authorized capital stock of Home
and Newco is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding shares of the capital stock of Newco are owned by
Home. All of the issued and outstanding shares of the capital stock of Home and
Newco have been duly authorized and validly issued, are fully paid and
nonassessable, and further, such shares were offered, issued, sold and delivered
by Home and Newco in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of Home
or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in the Draft Registration Statement,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates Home or Newco to issue any of their respective authorized but
unissued capital stock; and (ii) neither Home nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity
-25-
<PAGE>
securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of Home.
6.5 SUBSIDIARIES. Newco has no subsidiaries. Home has no subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither Home
nor Newco presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, and
neither Home nor Newco, directly or indirectly, is a participant in any joint
venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of Home included in the
Draft Registration Statement (the "Home Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon),
and the balance sheet included therein presents fairly the financial position of
Home as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, Home and Newco have no material liabilities, contingent
or otherwise, except as set forth in or contemplated by this Agreement and the
Other Agreements and except for fees incurred in connection with the
transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement, neither Home nor Newco is in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them which would have a Material Adverse
Effect; and except to the extent set forth in Schedule 6.8, there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
Home or Newco, threatened against or affecting, Home or Newco, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. Home and Newco
have conducted and are conducting their respective businesses in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations and are not in violation of
any of the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. Neither Home nor Newco is in violation of any Home
Charter Document. None of Home, Newco, or, to the knowledge of Home and Newco,
any other party
-26-
<PAGE>
thereto, is in default under any lease, instrument, agreement, license, or
permit to which Home or Newco is a party, or by which Home or Newco, or any of
their respective properties, are bound (collectively, the "Home Documents"); and
(a) the rights and benefits of Home and Newco under the Home Documents will not
be adversely affected by the transactions contemplated hereby and (b) the
execution and delivery of this Agreement by Home and Newco and the performance
of their obligations hereunder do not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not, conflict
with, or result in any violation or default (with or without notice or lapse of
time, or both), under or give rise to a right of termination, cancellation, or
acceleration of any obligation or to loss of a material benefit under, or result
in the creation of any lien upon any of the assets of Home or any Newco under,
any provision of (i) the Certificate of Incorporation or Bylaws of Home or the
comparable governing instruments of any Newco, (ii) any note, bond, mortgage,
indenture or deed of trust or any license, lease, contract, commitment,
agreement or arrangement to which Home and any Newco is a party or by which any
of their respective properties or assets are bound or (iii) any judgment, order,
decree or law, ordinance, rule or regulation, applicable to Home or any Newco or
their respective properties or assets. The execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the Home
Documents or the Home Charter Documents. Except as set forth on Schedule 6.9,
none of the Home Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by Home and Newco and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective Boards of Directors of
Home and Newco and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of Home
and Newco.
6.11 HOME STOCK. At the time of issuance thereof and delivery to the
Stockholder, the Home Stock to be delivered to the Stockholder pursuant to this
Agreement will constitute valid and legally issued shares of Home, fully paid
and nonassessable, and with the exception of restrictions upon resale set forth
in Sections 15 and 16 hereof, will be identical in all substantive respects
(which do not include the form of certificate upon which it is printed or the
presence or absence of a CUSIP number on any such certificate) to the Home Stock
issued and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. The Home Stock issued and delivered to the Stockholder shall at
the time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of Home Stock to be issued to
the Stockholder pursuant to this Agreement will not be registered under the 1933
Act, except as provided in Section 17 hereof.
-27-
<PAGE>
6.12 NO SIDE AGREEMENTS. Neither Home nor Newco has entered or will enter
into any agreement with any of the Founding Companies or any of the stockholders
of the Founding Companies or Home other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Home was formed in July
1996 and has conducted only limited operations since that time. Neither Home nor
Newco has conducted any material business since the date of its inception,
except in connection with this Agreement, the Other Agreements and the IPO.
Except as described in the Draft Registration Statement, neither Home nor Newco
owns or has at any time owned any real property or any material personal
property or is a party to any other agreement other than the Other Agreements
and the agreements contemplated thereby and to such agreements as will be filed
as Exhibits to the Registration Statement.
6.14 TAXES.Home and Newco have timely filed all requisite federal, state
and other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and there are no examinations in progress or
claims against Home for federal, state and other taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for taxes, whether pending or threatened, has
been received. All taxes which Home or any Newco has been required to collect or
withhold have been duly and timely collected and withheld and have been set
aside in accounts for such purposes, or have been duly and timely paid to the
proper governmental authority. All tax, including interest and penalties
(whether or not shown on any tax return) owed by Home, any member of an
affiliated or consolidated group which includes or included Home, or with
respect to any payment made or deemed made by Home herein has been paid. The
amounts shown as accruals for taxes on Home Financial Statements are sufficient
for the payment of all taxes of the kinds indicated (including penalties and
interest) for all fiscal periods ended on or before that date. Home and Newco
have not entered into any tax sharing agreement or similar arrangement. Home is
not an investment company as defined in Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholder, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Home or
Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
Home or Newco;
-28-
<PAGE>
(iii) any change in the authorized capital of Home or Newco or their
outstanding securities or any change in their ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of Home or
Newco;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of Home or Newco;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Home or Newco to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Home or Newco;
(viii)any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of Home or Newco or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of Home or Newco;
(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which Home or Newco is a
party;
(xi) any transaction by Home or Newco outside the ordinary course of
its business;
(xii) any other distribution of property or assets by Home or Newco
other than in the ordinary course of business.
6.16 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Stockholder, together with this Agreement and the information furnished
to the Company and the Stockholder in connection herewith, does not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing does not apply
to statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished by the Company or the Stockholder.
-29-
<PAGE>
6.17 PRIVATE OFFERING. (a) Neither Home, any of its Affiliates nor anyone
on its or their behalf, has issued, sold, or offered any securities of Home to
any person under circumstances that would cause the issuance and sale of the
Home Stock to the Stockholder pursuant to this Agreement, to be subject to the
registration requirements of the 1933 Act.
(b) The offering of shares of Home Stock pursuant to the Home Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of Home and the Other Founding Companies
access to all of the Company's sites, properties, books and records and will
furnish Home with such additional financial and operating data and other
information as to the business and properties of the Company as Home or the
Other Founding Companies may from time to time reasonably request. The Company
will cooperate with Home and the Other Founding Companies, its representatives,
auditors and counsel in the preparation of any documents or other materials
which may be required in connection with any documents or materials required by
this Agreement. Home, Newco, the Stockholder and the Company will treat all
information obtained in connection with the negotiation and performance of this
Agreement or the due diligence investigations conducted with respect to the
Other Founding Companies as confidential in accordance with the provisions of
Section 14 hereof. In addition, Home will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
such Other Founding Company, its stockholders, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, Home will afford to the officers and authorized representatives of the
Company access to all of Home's and Newco's sites, properties, books and records
and will furnish the Company with such additional financial and operating data
and other information as to the business and properties of Home and Newco as the
Company may from time to time reasonably request. Home and Newco will cooperate
with the Company, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The Company will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
-30-
<PAGE>
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order
and condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or
rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and
maintain its relationships with suppliers, customers and others having
business relations with the Company;
(vi) use its reasonable efforts to maintain compliance with all
material permits, laws, rules and regulations, consent orders, and all
other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent
of Home (which consent shall not be unreasonably withheld), provided that
debt and/or lease instruments may be replaced without the consent of Home
if such replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced; and
(viii)maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of Home, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
-31-
<PAGE>
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock
except for distributions permitted as described on Annex I hereto;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the businesses of the Company, (2) (A) liens for taxes either not yet due
or being contested in good faith and by appropriate proceedings (and for
which contested taxes adequate reserves have been established and are
being maintained) or (B) materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii)merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the Company; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
-32-
<PAGE>
7.4 NO SHOP. Neither the Stockholder, the Company, nor any agent, officer,
director, trustee or any representative of any of the foregoing will, during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Funding and Consummation Date or the termination of this Agreement
in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Home or its
authorized agents relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, the Company
or a merger, consolidation or business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Home on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholder and the Company shall (except as otherwise
agreed to by Home or reflected in Schedule 7.6) terminate (i) any stockholders
agreements, voting agreements, voting trusts, options, warrants and employment
agreements between the Company and any employee listed on Schedule 9.12 hereto
and (ii) any existing agreement between the Company and any Stockholder, on or
prior to the Funding and Consummation Date provided that nothing herein shall
prohibit or prevent the Company from paying (either prior to or on the Closing
Date) notes or other obligations from the Company to the Stockholder in
accordance with the terms thereof, which terms have been disclosed to Home. Such
termination agreements are listed on Schedule 7.6 and copies thereof shall be
attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholder and the Company shall
give prompt notice to Home of (i) the occurrence or non-occurrence of any event
the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholder contained herein to
be untrue or inaccurate in any material respect at or prior to the Closing and
(ii) any failure of the Stockholder or the Company to comply with or satisfy any
material covenant, condition or agreement to be complied with or satisfied by
such person hereunder. Home and Newco shall give prompt notice to the Company of
(i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of Home or Newco contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any failure of Home or Newco to
comply with or satisfy any material covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.7 shall not be deemed to (i) modify the
-33-
<PAGE>
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.8, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless Home and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by Home or Newco that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, Home shall give the Company notice promptly after
it has knowledge thereof. If Home and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been deemed
given by Home or any Founding Company if no response is received within 24 hours
following receipt of notice of such amendment or supplement (or sooner if
required by the circumstances under which such consent is requested), but the
Company does not give its consent, the Company may terminate this Agreement
pursuant to Section 12.1(iv) hereof. In the event that the Company seeks to
amend or supplement a Schedule pursuant to this Section 7.8, and Home and a
majority of the Other Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. In the event that Home or Newco seeks to amend
or supplement a Schedule pursuant to this Section 7.8 and a majority of the
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. No party to this Agreement shall be liable to any other party if
this Agreement shall be terminated pursuant to the provisions of this Section
7.8. No amendment of or supplement to a Schedule shall be made later than 24
hours prior to the anticipated effectiveness of the Registration Statement.
-34-
<PAGE>
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholder shall furnish or cause to be furnished to Home and the Underwriters
all of the information concerning the Company and the Stockholder required for
inclusion in, and will cooperate with Home and the Underwriters in the
preparation of, the Registration Statement and the prospectus included therein
(including audited and unaudited financial statements, prepared in accordance
with generally accepted accounting principles, in form suitable for inclusion in
the Registration Statement). The Company and the Stockholder agree promptly to
advise Home if at any time during the period in which a prospectus relating to
the offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the Company or the
Stockholder becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the Company or the Stockholder, the Company
represents and warrants as to such information with respect to itself, and the
Stockholder represents and warrants, as to such information with respect to the
Company and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and Home shall have had sufficient time to review
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, Home
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the Home Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
-35-
<PAGE>
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
(ii) such compliance by the Stockholder and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by Home and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott-Rodino Act to be
made. If filings under the Hart-Scott-Rodino Act are required, the costs and
expenses thereof (including legal fees and costs and filing fees) shall be borne
by Home. The obligation of each party to consummate the transactions
contemplated by this Agreement is subject to the expiration or termination of
the waiting period under the Hart-Scott-Rodino Act, if applicable.
7.14 STOCKHOLDERS OF HOME. Promptly after a request by the Company, Home
will deliver to the Company a list of the stockholders of Home as of the date of
this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER AND
COMPANY
The obligations of Stockholder and the Company with respect to actions to
be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. The obligations of
the Stockholder and the Company with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have not been satisfied,
the Stockholder shall have the right to terminate this Agreement, or in the
alternative, waive any condition not so satisfied. Any act or action of the
Stockholder in consummating the Closing or delivering certificates representing
Company Stock as of the Funding and Consummation Date shall constitute a waiver
of any conditions not so satisfied. However, no such waiver shall be deemed to
affect the survival of the representations and warranties of Home and Newco
contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Home and Newco contained in Section 6 shall be
true and correct in all material respects as of the Closing Date and the Funding
and Consummation Date as though such representations and warranties had been
made as of that time; all of the terms, covenants and conditions of this
Agreement to be complied with and performed by Home and Newco on or before the
Closing Date and the Funding and Consummation Date shall have been duly complied
with and
-36-
<PAGE>
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Funding and Consummation Date, respectively, and
signed by the President or any Vice President of Home shall have been delivered
to the Stockholder.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholder and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholder shall have failed
to inform Home in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the Company as a result of which
the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for Home, dated the Closing Date, in the form annexed hereto as Annex V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of Home Stock to be received by the
Stockholder is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of the Company as a result of which the Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. Home and Newco each shall have delivered
to the Company a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which Home or Newco is authorized to do business, showing that each of
Home and Newco is in good standing and authorized to do business
-37-
<PAGE>
and that all state franchise and/or income tax returns and taxes for Home and
Newco, respectively, for all periods prior to the Closing have been filed and
paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to Home or Newco which would constitute a Material Adverse
Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of Home and of Newco, certifying the truth and correctness of attached copies of
the Home's and Newco's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the stockholders of Home and Newco
approving Home's and Newco's entering into this Agreement and the consummation
of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The Stockholder shall have received an opinion of Arthur
Andersen LLP or other tax advisor reasonably acceptable to the Stockholder that
the Home Plan of Organization will qualify as a tax-free transfer of property
under Section 351 of the Code and that the Stockholder will not recognize gain
to the extent the Stockholder exchanges stock of the Company for Home Stock (but
not cash or other property) pursuant to the Home Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME AND NEWCO
The obligations of Home and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of Home and
Newco with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, Home and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
-38-
<PAGE>
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholder and the Company contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Funding and Consummation Date with the same effect as
though such representations and warranties had been made on and as of such date;
all of the terms, covenants and conditions of this Agreement to be complied with
or performed by the Stockholder and the Company on or before the Closing Date or
the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholder shall
have delivered to Home certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of Home as a result of which the
management of Home (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. Home shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholder
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the Company
to conduct its business.
9.5 STOCKHOLDER'S RELEASE. The Stockholder shall have delivered to Home an
instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholder against the Company and Home and (ii)
obligations of the Company and Home to the Stockholder, except for (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the Stockholder, (y) continuing obligations to Stockholder
relating to his employment by the Company and (z) obligations arising under this
Agreement or the transactions contemplated hereby. In the event that the Funding
and Consummation Date does not occur, then the release instrument referenced
herein shall be void and of no further force or effect.
-39-
<PAGE>
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to Home.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 or otherwise approved by Home, all existing agreements between the
Company and the Stockholder (and entities controlled by the Stockholder) other
than real property leases shall have been canceled effective prior to or as of
the Closing Date, and all real property leases between the Company and the
Stockholder (and any entity controlled by the Stockholder) shall have been
amended in a manner reasonably satisfactory to Home.
9.8 OPINION OF COUNSEL. Home shall have received an opinion from Counsel
to the Company and the Stockholder, dated the Closing Date, substantially in the
form annexed hereto as Annex VI.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Home as a result of which Home deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to Home
a certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
state of incorporation and, unless waived by Home, in each state in which the
Company is authorized to do business, showing the Company is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for the Company for all periods prior to the Closing have been
filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. The Stockholder shall have delivered to Home a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
-40-
<PAGE>
10. COVENANTS OF HOME AND THE STOCKHOLDER AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. Home shall
use reasonable efforts to have the Stockholder released from any and all
guarantees of the Company's indebtedness identified on Schedule 10.1. In the
event that Home cannot obtain such releases from the lenders of any such
guaranteed indebtedness identified on Schedule 10.1 on or prior to 120 days
subsequent to the Funding and Consummation Date, Home shall promptly pay off or
otherwise refinance or retire such indebtedness. From and after the Funding and
Consummation Date and until such time as all of such indebtedness is paid off,
refinanced or retired, Home shall maintain unencumbered funds in amounts
sufficient to provide for such pay off, refinancing or retirement, provided that
Home may use such funds for other purposes, in its sole discretion, with the
prior written consent of each Stockholder who has not as of that time been
released from his or her guarantee as described above and whose indebtedness as
described above has not as of that time been paid off, refinanced or retired.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, Home shall not and shall not permit any of its subsidiaries
to undertake any act that would jeopardize the tax-free status of the
organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all or
part of the Home Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of the
Stockholder.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholder shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or
before the Funding and Consummation Date, and shall permit Home to review
all such Tax Returns prior to such filings. Unless the Company is a C
corporation, the Stockholder shall pay or cause to be paid all Tax
liabilities (in excess of all amounts already paid with respect thereto or
properly accrued or reserved with respect thereto on the Company Financial
Statements) shown by such Returns to be due.
(ii) Home shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund,
-41-
<PAGE>
determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all relevant
portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings
or other determinations by Taxing Authorities and relevant records
concerning the ownership and Tax basis of property, which such party may
possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any
documents or information so provided. Subject to the preceding sentence,
each party required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
(iv) Each of the Company, Newco, Home and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of Home, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholder, Home and Newco each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDER. The Stockholder covenants
and agrees that he will indemnify, defend, protect and hold harmless Home,
Newco, the Company and the Surviving Corporation at all times, from and after
the date of this Agreement until the Expiration Date (provided that for purposes
of Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by Home, Newco, the
Company or the Surviving Corporation as a result of or arising from (i) any
breach of the representations and warranties of the Stockholder or the Company
set forth herein or on the schedules or certificates delivered in connection
herewith, (ii) any breach of any agreement on the part of the Stockholder or the
Company under this Agreement, or (iii) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement of a material fact
relating to the Company or the Stockholder, and provided to Home or its counsel
by the Company or the Stockholder (but in the
-42-
<PAGE>
case of the Stockholder, only if such statement was provided in writing)
contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholder required to be stated therein or
necessary to make the statements therein not misleading, provided, however, that
such indemnity shall not inure to the benefit of Home, Newco, the Company or the
Surviving Corporation to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the Stockholder provided, in writing, corrected
information to Home counsel and to Home for inclusion in the final prospectus,
and such information was not so included or properly delivered, and provided
further, that no Stockholder shall be liable for any indemnification obligation
pursuant to this Section 11.1 to the extent attributable to a breach of any
representation, warranty or agreement made herein individually by any other
Stockholder.
Home and Newco acknowledge and agree that other than the representations
and warranties of Company or Stockholder specifically contained in this
Agreement, there are no representations or warranties of Company or Stockholder,
either express or implied, with respect to the transactions contemplated by this
Agreement, the Company or its assets, liabilities and business.
Home and Newco further acknowledge and agree that, should the Closing
occur, their sole and exclusive remedy with respect to any and all claims
relating to this Agreement and the transactions contemplated in this Agreement,
shall be pursuant to the indemnification provisions set forth in this Section
11. Home and Newco hereby waive, from and after the Closing, to the fullest
extent permitted under applicable law, any and all rights, claims and causes of
action they or any indemnified person may have against the Company or any
Stockholder relating to this Agreement or the transactions arising under or
based upon any federal, state, local or foreign statute, law, rule, regulation
or otherwise.
11.2 INDEMNIFICATION BY HOME. Home covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholder at all times from
and after the date of this Agreement until the Expiration Date, from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by the
Stockholder as a result of or arising from (i) any breach by Home or Newco of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
Home or Newco under this Agreement, (iii) any liabilities which the Stockholder
may incur due to Home's or Newco's failure to be responsible for the liabilities
and obligations of the Company as provided in Section 1 hereof (except to the
extent that Home or Newco has claims against the Stockholder by reason of such
liabilities); or (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to Home, Newco or any of the Other Founding Companies contained in
any preliminary
-43-
<PAGE>
prospectus, the Registration Statement or any prospectus forming a part thereof,
or any amendment thereof or supplement thereto, or arising out of or based upon
any omission or alleged omission to state therein a material fact relating to
Home or Newco or any of the Other Founding Companies required to be stated
therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing Indemnified Party, Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently pursues
such defense, the Indemnifying Party shall not be liable for any additional
legal expenses incurred by the Indemnified Party in connection with any defense
or settlement of such asserted liability, except (i) as set forth in the
preceding sentence and (ii) to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be reimbursed by
the Indemnifying Party for reasonable additional legal expenses and
out-of-pocket expenses. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person. Upon agreement as to
such settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to
-44-
<PAGE>
such claim and all additional costs of settlement or judgment. If the
Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party,
provided that, nothing herein shall be construed to limit the right of a party,
in a proper case, to seek injunctive relief for a breach of this Agreement. Any
indemnity payment under this Section 11 shall be treated as an adjustment to the
exchange consideration for tax purposes unless a final determination (which
shall include the execution of a Form 870-AD or successor form) with respect to
the indemnified party or any of its affiliate causes any such payment not to be
treated as an adjustment to the exchange consideration for U.S. Federal Income
Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. Home, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 shall not assert any claim for indemnification hereunder against
the Stockholder until such time as, and solely to the extent that, the aggregate
of all claims which such persons may have against such the Stockholder shall
exceed the greater of (a) 1.0% of the sum of (i) the cash paid to Stockholder
plus (ii) the value of the Home Stock delivered to Stockholder (calculated as
provided in this Section 11.5) or (b) $50,000 (the "Indemnification Threshold").
Stockholder shall not assert any claim for indemnification hereunder against
Home or Newco until such time as, and solely to the extent that, the aggregate
of all claims which Stockholder may have against Home or Newco shall exceed the
Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the Home Stock received by
-45-
<PAGE>
a Stockholder, Home Stock shall be valued at its initial public offering price
as set forth in the Registration Statement. It is hereby agreed that a
stockholder shall have the right to satisfy an indemnification obligation
through payment of a combination of stock and cash in proportion equal to the
proportion of stock and cash received by such stockholder in connection with the
Merger, valued as described immediately above, but shall also have the right to
satisfy any such obligation in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of Home and the
Company;
(ii) by the Stockholder or the Company (acting through its board of
directors), on the one hand, or by Home (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
March 31, 1998, unless the failure of such transactions to be consummated
is due to the willful failure of the party seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the
extent required to be performed by it prior to or on the Funding and
Consummation Date;
(iii) by the Stockholder or Company, on the one hand, or by Home, on
the other hand, if a material breach or default shall be made by the other
party in the observance or in the due and timely performance of any of the
covenants or agreements contained herein, and the curing of such default
shall not have been made on or before the Funding and Consummation Date or
by the Stockholder or the Company, if the conditions set forth in Section
8 hereof have not been satisfied or waived as of the Closing Date or the
Funding and Consummation Date, as applicable, or by Home, if the
conditions set forth in Section 9 hereof have not been satisfied or waived
as of the Closing Date or the Funding and Consummation Date, as
applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that during the period from the Closing Date to the Funding
and Consummation Date, this Agreement may be terminated only if the underwriting
agreement relating to the IPO is terminated in accordance with its terms.
-46-
<PAGE>
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholder will not, for a period of five
(5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any retail (new or used, but excluding used home lots
or other activities listed on Schedule 13.1 hereto) manufactured housing
business or operation or related services business (including the
ownership or management of manufactured housing subdivisions, lots or
parks, but excluding any such subdivisions, lots or parks or other
activities listed on Schedule 13.1 hereto) in direct competition with Home
or any of the subsidiaries thereof, within 100 miles of where the Company
or any of its subsidiaries conducted business prior to the effectiveness
of the Merger (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Home or any subsidiary thereof for the purpose
or with the intent of enticing such employee away from or out of the
employ of Home or any subsidiary thereof;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to the Funding and Consummation
Date, a customer of Home or any subsidiary thereof, of the Company or of
any of the Other Founding Companies within the Territory for the purpose
of soliciting or selling products or services in direct competition with
Home within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the retail
manufactured housing business, which candidate, to the actual knowledge of
such Stockholder after due inquiry, was called upon by Home or any
subsidiary thereof or for which, to the actual knowledge of such
Stockholder after due inquiry, Home or any subsidiary thereof made an
acquisition analysis, for the purpose of acquiring such entity; or
-47-
<PAGE>
(v) disclose customers, whether in existence or proposed, of the
Company to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the Company has in
the past disclosed such information to the public for valid business
reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit (i) any Stockholder from acquiring as a passive investment not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange or over-the-counter, or (ii) any of
the activities listed on Schedule 13.1 hereto.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
Home as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Home for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Home in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholder in light of the activities and business of Home and the subsidiaries
thereof on the date of the execution of this Agreement and the current plans of
Home; but it is also the intent of Home and the Stockholder that such covenants
be construed and enforced in accordance with the changing activities; business
and locations of Home and its subsidiaries throughout the term of this covenant.
During the term of this covenant, if Home or one of its subsidiaries engages in
new activities, enters a new business or establishes new locations for its
current activities or business in addition to or other than the activities or
business it is currently conducting in the locations currently established
therefor (provided such activities or business are related to the business or
operations of the retail manufactured housing business), then the Stockholder
will be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly competing
with such new activities or business within 100 miles of its then-established
operating location(s) through the term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Home or any subsidiary thereof, whether
-48-
<PAGE>
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Home of such covenants. The covenants contained in Section 13
shall not be affected by any breach of any other provision hereof by any party
hereto and shall have no effect if the transactions contemplated by this
Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholder hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDER. The Stockholder recognizes and acknowledges that he had
in the past, currently has, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or Home, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or Home's respective businesses. The Stockholder agrees that he
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of Home, (b) following the Closing,
such information may be disclosed by the Stockholder as is required in the
course of performing his duties for Home or the Surviving Corporation and (c) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1, unless (i) such
information becomes known to the public generally through no fault of the
Stockholder, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the Stockholder shall, if possible, give prior
written notice thereof to Home and provide Home with the opportunity to contest
such disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by the
Stockholder of the provisions of this Section 14.1, Home shall be entitled to an
injunction restraining the Stockholder from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
Home from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages. In the event the transactions
contemplated by this Agreement are not consummated, Stockholder shall have none
of the above-mentioned restrictions on his ability to disseminate confidential
information with respect to the Company. The Stockholder further agrees that in
the event the transactions contemplated herein are not consummated (i) neither
the Company nor any Stockholder can thereafter use any confidential information
of the Other Founding Companies for any purpose and (ii) upon written request of
any Other Founding Company to the Company, the Company and Stockholder will
return all confidential information pertaining to such Other Founding Company to
such Other Founding Company.
14.2 HOME AND NEWCO. Home and Newco recognize and acknowledge that they
had in the past and currently have access to certain confidential information of
the Company, such as
-49-
<PAGE>
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Company's business. Home and Newco agree that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
Home or Newco, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii), Home and Newco shall, if possible,
give prior written notice thereof to the Company and the Stockholder and provide
the Company and the Stockholder with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, and (d) to the public to the extent necessary or advisable in connection
with the filing of the Registration Statement and the IPO and the securities
laws applicable thereto and to the operation of Home as a publicly held entity
after the IPO. In the event of a breach or threatened breach by Home or Newco of
the provisions of this Section 14.2, the Company and the Stockholder shall be
entitled to an injunction restraining Home and Newco from disclosing, in whole
or in part, such confidential information. Nothing herein shall be construed as
prohibiting the Company and the Stockholder from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by Home, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or trusts for the benefit of the Stockholder or
family members, the trustees of which so agree), for a period of one year from
the Closing, except pursuant to Section 17 hereof, the Stockholder shall not
sell, assign, exchange, transfer, encumber, pledge, distribute, appoint, or
otherwise dispose of any shares of Home Stock received by the Stockholder in the
Merger. The certificates evidencing the Home Stock delivered to the Stockholder
pursuant to Section 3 of this Agreement will bear a
-50-
<PAGE>
legend substantially in the form set forth below and containing such other
information as Home may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholder acknowledges that the shares of
Home Stock to be delivered to the Stockholder pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The Home Stock to be acquired by such Stockholder pursuant to this
Agreement is being acquired solely for his own respective account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholder
covenants, warrants and represents that none of the shares of Home Stock issued
to the Stockholder will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the Home Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholder is able to bear the
economic risk of an investment in the Home Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the proposed investment in the
Home Stock. The Stockholder has had an adequate opportunity to ask questions and
receive answers from the officers of Home concerning any and all matters
relating to the transactions described herein including, without limitation, the
background and experience of the current and
-51-
<PAGE>
proposed officers and directors of Home, the plans for the operations of the
business of Home, the business, operations and financial condition of the
Founding Companies other than the Company, and any plans for additional
acquisitions and the like. The Stockholder has asked any and all questions in
the nature described in the preceding sentence and all questions have been
answered to his satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever Home proposes to register any Home Stock for its own or others account
under the 1933 Act for a public offering, other than (i) any shelf or other
registration of shares to be used as consideration for acquisitions of
additional businesses by Home and (ii) registrations relating to employee
benefit plans, Home shall give the Stockholder prompt written notice of its
intent to do so. Upon the written request of the Stockholder given within 30
days after receipt of such notice, Home shall cause to be included in such
registration all of the Home Stock issued to the Stockholder pursuant to this
Agreement (including any stock issued as (or issuable upon the conversion or
exchange of any convertible security, warrant, right or other security which is
issued by Home as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Home Stock) which any such Stockholder
requests, provided that Home shall have the right to reduce the number of shares
included in such registration to the extent that inclusion of such shares could,
in the written opinion of tax counsel to Home or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as a tax-free organization under Section 351 of the Code.
In addition, if Home is advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 17.1 that the number of shares
to be sold by persons other than Home is greater than the number of such shares
which can be offered without adversely affecting the offering, Home may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares held by such person) to a number deemed satisfactory
by such managing underwriter, provided, that, for each such offering made by
Home after the IPO, such reduction shall be made first by reducing the number of
shares to be sold by persons other than Home, the Stockholder and the
stockholders of the Other Founding Companies (collectively, the Stockholder and
the stockholders of the other Founding Companies being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of Home Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements which have not been
previously registered or sold and which are not entitled to be sold under Rule
144(k) (or any similar or successor provision) promulgated under the 1933 Act
may request in writing that Home file a registration statement under the 1933
Act covering the registration of the
-52-
<PAGE>
shares of Home Stock issued to the Stockholder pursuant to this Agreement and
the Other Agreements (including any stock issued as (or issuable upon the
conversion or exchange of any convertible security, warrant, right or other
security which is issued by Home as) a dividend or other distribution with
respect to, or in exchange for, or in replacement of such Home Stock) then held
by such Founding Stockholders (a "Demand Registration"). Within ten (10) days of
the receipt of such request, Home shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from any Stockholder, file and use its
best efforts to cause to become effective a registration statement covering all
such shares. Home shall be obligated to effect only one Demand Registration for
all Founding Stockholders and will keep such Demand Registration current and
effective for not less than 120 days (or such shorter period as is required to
sell all of the shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of Home's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which
Home would otherwise be required to make such filing pursuant to the foregoing
paragraph.
If at the time of any request by the Founding Stockholders for a Demand
Registration Home has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' Home
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless Home is no longer proceeding
diligently to effect such registration; provided that Home shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by Home
as a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever Home is required to register shares
of Home Stock pursuant to Sections 17.1 and 17.2, Home will, as expeditiously as
possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, Home will
furnish a representative of the Stockholder with copies of all such documents
proposed to be filed) as promptly as practical;
-53-
<PAGE>
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholder, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that Home shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of Home Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
Home are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that Home is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, Home will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by Home.
17.4 INDEMNIFICATION.
(a) In connection with any demand registration, Home shall indemnify, to
the extent permitted by law, each Stockholder (an "Indemnified Party") against
all losses, claims, damages, liabilities and expenses arising out of or
resulting from any untrue or alleged untrue statement of material fact contained
in any registration statement, prospectus or preliminary prospectus or
associated term sheet or any omission or alleged omission to state therein a
material fact required
-54-
<PAGE>
to be stated therein or necessary to make the statements therein not misleading
except insofar as the same are caused by or contained in or omitted from any
information furnished in writing to Home by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after Home has furnished such Indemnified Party with a sufficient number of
copies of the same.
(b) In connection with any demand registration, each Stockholder shall
furnish to Home in writing such information as is reasonably requested by Home
for use in any such registration statement or prospectus and will indemnify, to
the extent permitted by law, Home, its directors and officers and each person
who controls Home (within the meaning of the 1933 Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or alleged
untrue statement or material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement or prospectus
or any amendment thereof or supplement thereto necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
omission is contained in information so furnished in writing by such Stockholder
specifically for use in preparing the registration statement. Notwithstanding
the foregoing, the liability of a Stockholder under this Section 17.5 shall be
limited to an amount equal to the net proceeds actually received by such
Stockholder from the sale of the relevant shares covered by the registration
statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified parties' reasonable
judgment, a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. Any failure to give prompt notice shall deprive a party of
its right to indemnification hereunder only to the extent that such failure
shall have adversely effected the indemnifying party. If the defense of any
claim is assumed, the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled or elects not,
to assume the defense of a claim, will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party, a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, Home and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of Home's size and investment stature,
including indemnification.
-55-
<PAGE>
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of Home stock
to the public without registration, Home agrees to use its best efforts to:
(i) make and keep public information regarding Home available as
those terms are understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of Home under the 1933 Act and the 1934 Act at any time
after it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted Home Common
Stock, furnish to each Stockholder forthwith upon written request a
written statement by Home as to its compliance with the reporting
requirements of Rule 144 (at any time from and after 90 days following the
effective date of the Registration Statement, and of the 1933 Act and the
1934 Act (any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
Home, and such other reports and documents so filed as a Stockholder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Stockholder to sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholder, Home and Newco shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The Company will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the Company
cooperate with Home on and after the Funding and Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any tax
return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Funding
and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Home, and the heirs and legal representatives of the Stockholder.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholder, the
Company, Newco and Home and supersede any prior
-56-
<PAGE>
agreement and understanding relating to the subject matter of this Agreement.
This Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholder, the Company,
Newco and Home, acting through their respective officers or trustees, duly
authorized by their respective Boards of Directors. Any disclosure made on any
Schedule delivered pursuant hereto shall be deemed to have been disclosed for
purposes of any other Schedule required hereby, provided that the Company shall
make a good faith effort to cross reference disclosure, as necessary or
advisable, between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, Home will pay the fees, expenses and disbursements of Home
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by Home under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other
person or entity retained by Home or by Notre Capital Ventures II, L.L.C., and
the costs of preparing the Registration Statement. Each Stockholder shall pay
all sales, use, transfer, real property transfer, recording, gains, stock
transfer and other similar taxes and fees ("Transfer Taxes") imposed in
connection with the Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. Each Stockholder shall file all necessary documentation and
Returns with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or Home, will pay all taxes due upon
receipt of the consideration payable pursuant to Section 2 hereof. The
Stockholder acknowledges that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholder is relying solely on
the opinion contemplated by Section 8.12 hereof.
(b) In the event that the Funding and Consummation Date occurs, then
Home will reimburse the Stockholder and the stockholders of Other Founding
Companies for incremental and direct accounting costs and expenses incurred by
them in connection with the Merger and IPO and such additional accounting and
legal expenses incurred by them in connection therewith as may be approved by
Home.
-57-
<PAGE>
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to Home, or Newco, addressed to them at:
Home USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: Cary N. Vollintine
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Stockholder, addressed to him at his address set forth
on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
with copies to Local Counsel:
Albert G. Delgadillo
Mitchell, McNutt, Threadgill, Smith & Sams
105 South Front Street/P.O. Box 7120
Tupelo, MS 38802-7120
-58-
<PAGE>
(c) If to the Company, addressed to it at:
Patrick Home Center, Inc.
2401 Highway 72 East/P.O. 1029
Corinth, MS 38835-1029
Attn: Harold Patrick
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
-59-
<PAGE>
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of Home, Newco, the Company and Stockholder. Any amendment or
waiver effected in accordance with this Section 18.15 shall be binding upon each
of the parties hereto, any other person receiving Home Stock in connection with
the Merger and each future holder of such Home Stock.
-60-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
HOMEUSA, INC.
By:
Cary N. Vollintine
Chief Executive Officer
PATRICK HOME CENTER ACQUISITION CORP.
By:
Name:
Title:
PATRICK HOME CENTER, INC.
By:
Name:
Title:
-61-
<PAGE>
Stockholder:
-------------------------
Harold K. Patrick
-62-
<PAGE>
SCHEDULE 6.9
None.
-63-
EXHIBIT 10.8
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 10th day of September, 1997
by and among
HOMEUSA, INC.
HOME FOLKS HOUSING CENTER ACQUISITION CORP.
(a subsidiary of HomeUSA, Inc.)
HOME FOLKS HOUSING CENTER, INC.
and
the STOCKHOLDER named herein
-2-
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER........................5
1.2 EFFECTIVE TIME OF THE MERGER.....................................6
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS
OF SURVIVING CORPORATION.........................................6
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, HOME AND NEWCO..........................................6
1.5 EFFECT OF MERGER.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 MANNER OF CONVERSION.............................................8
3. DELIVERY OF MERGER CONSIDERATION.......................................9
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDER.............................................10
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDER.....................................10
5.1 DUE ORGANIZATION................................................10
5.2 AUTHORIZATION...................................................10
5.3 CAPITAL STOCK OF THE COMPANY....................................11
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........11
5.5 NO BONUS SHARES.................................................11
5.6 SUBSIDIARIES....................................................11
5.7 PREDECESSOR STATUS; ETC.........................................11
5.8 SPIN-OFF BY THE COMPANY.........................................11
5.9 FINANCIAL STATEMENTS............................................12
5.10 LIABILITIES AND OBLIGATIONS.....................................12
5.11 ACCOUNTS AND NOTES RECEIVABLE...................................12
5.12 PERMITS AND INTANGIBLES.........................................13
5.13 ENVIRONMENTAL MATTERS...........................................13
5.14 PERSONAL PROPERTY...............................................14
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.......14
-i-
<PAGE>
5.16 REAL PROPERTY...................................................15
5.17 INSURANCE.......................................................15
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS....16
5.19 EMPLOYEE PLANS..................................................16
5.20 COMPLIANCE WITH ERISA...........................................17
5.21 CONFORMITY WITH LAW; LITIGATION.................................18
5.22 TAXES...........................................................18
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC.......................19
5.24 GOVERNMENT CONTRACTS............................................20
5.25 ABSENCE OF CHANGES..............................................20
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY............................21
5.27 VALIDITY OF OBLIGATIONS.........................................21
5.28 RELATIONS WITH GOVERNMENTS......................................21
5.29 DISCLOSURE......................................................22
5.30 PROHIBITED ACTIVITIES...........................................22
5.31 DEALER AGREEMENTS AND RELATED MATTERS...........................23
5.32 NO RETAIL FINANCING.............................................23
5.33 NO WARRANTIES OR INSURANCE......................................24
5.34 NO INTERESTS IN OTHER BUSINESSES................................24
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER.24
5.35 AUTHORITY; OWNERSHIP............................................24
5.36 PREEMPTIVE RIGHTS...............................................24
5.37 NO INTENTION TO DISPOSE OF HOME STOCK...........................24
6. REPRESENTATIONS OF HOME AND NEWCO.....................................25
6.1 DUE ORGANIZATION................................................25
6.2 AUTHORIZATION...................................................25
6.3 CAPITAL STOCK OF HOME AND NEWCO.................................25
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........25
6.5 SUBSIDIARIES....................................................26
6.6 FINANCIAL STATEMENTS............................................26
6.7 LIABILITIES AND OBLIGATIONS.....................................26
6.8 CONFORMITY WITH LAW; LITIGATION.................................26
6.9 NO VIOLATIONS...................................................26
6.10 VALIDITY OF OBLIGATIONS.........................................27
6.11 HOME STOCK......................................................27
6.12 NO SIDE AGREEMENTS..............................................28
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS....................28
6.14 TAXES...........................................................28
6.15 ABSENCE OF CHANGES..............................................28
6.16 DISCLOSURE......................................................29
-ii-
<PAGE>
6.17 PRIVATE OFFERING................................................30
7. COVENANTS PRIOR TO CLOSING............................................30
7.1 ACCESS AND COOPERATION; DUE DILIGENCE...........................30
7.2 CONDUCT OF BUSINESS PENDING CLOSING.............................30
7.3 PROHIBITED ACTIVITIES...........................................31
7.4 NO SHOP.........................................................33
7.5 NOTICE TO BARGAINING AGENTS.....................................33
7.6 AGREEMENTS......................................................33
7.7 NOTIFICATION OF CERTAIN MATTERS.................................33
7.8 AMENDMENT OF SCHEDULES..........................................34
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT............35
7.10 FINAL FINANCIAL STATEMENTS......................................35
7.11 FURTHER ASSURANCES..............................................35
7.12 AUTHORIZED CAPITAL..............................................35
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS
ACT OF 1976 (THE "HART-SCOTT-RODINO ACT").......................36
7.14 STOCKHOLDERS OF HOME............................................36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER AND
COMPANY...............................................................36
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......36
8.2 SATISFACTION....................................................37
8.3 NO LITIGATION...................................................37
8.4 OPINION OF COUNSEL..............................................37
8.5 REGISTRATION STATEMENT..........................................37
8.6 CONSENTS AND APPROVALS..........................................37
8.7 GOOD STANDING CERTIFICATES......................................37
8.8 NO MATERIAL ADVERSE CHANGE......................................38
8.9 CLOSING OF IPO..................................................38
8.10 SECRETARY'S CERTIFICATE.........................................38
8.11 EMPLOYMENT AGREEMENTS...........................................38
8.12 TAX MATTERS.....................................................38
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME AND NEWCO.................38
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......39
9.2 NO LITIGATION...................................................39
9.3 SECRETARY'S CERTIFICATE.........................................39
9.4 NO MATERIAL ADVERSE EFFECT......................................39
9.5 STOCKHOLDER'S RELEASE...........................................39
9.6 SATISFACTION....................................................40
-iii-
<PAGE>
9.7 TERMINATION OF RELATED PARTY AGREEMENTS.........................40
9.8 OPINION OF COUNSEL..............................................40
9.9 CONSENTS AND APPROVALS..........................................40
9.10 GOOD STANDING CERTIFICATES......................................40
9.11 REGISTRATION STATEMENT..........................................40
9.12 EMPLOYMENT AGREEMENTS...........................................40
9.13 CLOSING OF IPO..................................................40
9.14 FIRPTA CERTIFICATE..............................................41
10. COVENANTS OF HOME AND THE STOCKHOLDER AFTER CLOSING...................41
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.......41
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT....................41
10.3 PREPARATION AND FILING OF TAX RETURNS...........................41
10.4 DIRECTORS.......................................................42
11. INDEMNIFICATION.......................................................42
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDER......................42
11.2 INDEMNIFICATION BY HOME.........................................43
11.3 THIRD PERSON CLAIMS.............................................44
11.4 EXCLUSIVE REMEDY................................................45
11.5 LIMITATIONS ON INDEMNIFICATION..................................45
12. TERMINATION OF AGREEMENT..............................................46
12.1 TERMINATION.....................................................46
12.2 LIABILITIES IN EVENT OF TERMINATION.............................47
13. NONCOMPETITION........................................................47
13.1 PROHIBITED ACTIVITIES...........................................47
13.2 DAMAGES.........................................................48
13.3 REASONABLE RESTRAINT............................................48
13.4 SEVERABILITY; REFORMATION.......................................48
13.5 INDEPENDENT COVENANT............................................49
13.6 MATERIALITY.....................................................49
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................49
14.1 STOCKHOLDER.....................................................49
14.2 HOME AND NEWCO..................................................50
14.3 DAMAGES.........................................................50
14.4 SURVIVAL........................................................50
15. TRANSFER RESTRICTIONS.................................................50
-iv-
<PAGE>
15.1 TRANSFER RESTRICTIONS...........................................50
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................51
16.1 COMPLIANCE WITH LAW.............................................51
16.2 ECONOMIC RISK; SOPHISTICATION...................................51
17. REGISTRATION RIGHTS...................................................52
17.1 PIGGYBACK REGISTRATION RIGHTS...................................52
17.2 DEMAND REGISTRATION RIGHTS......................................52
17.3 REGISTRATION PROCEDURES.........................................53
17.4 INDEMNIFICATION.................................................54
17.5 UNDERWRITING AGREEMENT..........................................55
17.6 RULE 144 REPORTING..............................................56
18. GENERAL...............................................................56
18.1 COOPERATION.....................................................56
18.2 SUCCESSORS AND ASSIGNS..........................................56
18.3 ENTIRE AGREEMENT................................................56
18.4 COUNTERPARTS....................................................57
18.5 BROKERS AND AGENTS..............................................57
18.6 EXPENSES........................................................57
18.7 NOTICES.........................................................58
18.8 GOVERNING LAW...................................................59
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................59
18.10 EXERCISE OF RIGHTS AND REMEDIES.................................59
18.11 TIME............................................................59
18.12 REFORMATION AND SEVERABILITY....................................59
18.13 REMEDIES CUMULATIVE.............................................59
18.14 CAPTIONS........................................................60
18.15 AMENDMENTS AND WAIVERS..........................................60
-v-
<PAGE>
ANNEXES
Annex I - Consideration to Be Paid to Stockholder
Annex II - Stockholder and Stock Ownership of the Company
Annex III - Certificate of Incorporation and By-Laws of Home
Annex IV - Certificate of Incorporation and By-Laws of Newco
Annex V - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex VI - Form of Opinion of Andrews & Kurth, LLP
Annex VII - Form of Key Employee Employment Agreement
-vi-
<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes 5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Dealer Agreements
5.32 No Retail Financing
5.33 No Warranties or Insurance
5.34 No Interests in Other Businesses
5.35 Authority; Ownership
6.9 No Violations
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
10.1 Guaranties
13.1 Lots Excluded from Noncompete
-vii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 10th day of September, 1997, by and among HomeUSA, Inc., a Delaware
corporation ("Home"), HOME FOLKS HOUSING CENTER ACQUISITION CORP., a Delaware
corporation ("Newco"), HOME FOLKS HOUSING CENTER, INC., a Kentucky corporation
(the "Company"), and Dick Berry (the "Stockholder"). The Stockholder is the only
stockholder of the Company.
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on September
8, 1997 solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of Home, a corporation organized
and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of Newco and the Company
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the
Constituent Corporations and their respective stockholders that Newco
merge with and into the Company pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation;
WHEREAS, Home is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional retail manufactured housing
companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"Home Plan of Organization;"
WHEREAS, the Stockholder and the Boards of Directors and the
stockholders of Home, each of the Other Founding Companies and each of the
subsidiaries of Home that are parties to the Other Agreements have
approved and adopted the Home Plan of Organization as an integrated plan
pursuant to which the Stockholder and the stockholders of each of the
other Founding Companies will transfer the capital stock of each of the
Founding Companies to Home and the stockholders of each of the other
Founding Companies will acquire the stock of Home (but not cash or other
property) as a tax-free transfer of property under Section 351 of the
Code;
-1-
<PAGE>
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the Home Plan of Organization in
order to transfer the capital stock of the Company to Home;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" shall mean Newco and each of the other Delaware
companies wholly-owned by Home prior to the Funding and Consummation Date.
"Affiliates" means, with respect to any Person, any Person or entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean June 30, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
-2-
<PAGE>
"Draft Registration Statement" means the draft dated September 5, 1997 of
the Registration Statement, and any corrections thereto and supplemental
information delivered by Home to the Company for delivery to the Stockholder
prior to the time this Agreement is delivered to Home.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Cooper's Mobile Homes, Inc., a Washington corporation, Home USA,
Inc., a Washington corporation, and Pac West Mgmt., Inc., a Washington
corporation.
CSF&T, Inc. (dba AAA Homes), a Mississippi corporation, AAA Homes,
L.L.C., a Louisiana limited liability company, and Fordham Insurance
Agency, Inc., a Mississippi corporation.
First American Homes, Inc., an Alabama corporation, D & S, Inc., an
Alabama corporation, and Son Development Corporation, an Alabama
corporation.
Home Folks Housing Center, Inc., a Kentucky corporation.
McDonald Homes, Inc., an Oklahoma corporation.
Mobile World, Inc., a Texas corporation, and Showcase of Homes,
Inc., a Texas corporation.
Patrick Home Center, Inc., a Mississippi corporation.
Universal Housing, Inc., a Tennessee corporation, Shaffer & Webb
Insurance Agency, Inc., a Tennessee corporation, and Universal Housing of
East TN, Inc., a Tennessee corporation.
Willmax Homes of Colorado LLC, a Colorado limited liability company.
"Funding and Consummation Date" has the meaning set forth in Section 4.
-3-
<PAGE>
"IPO" means the initial public offering of Home Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Company" means the actual knowledge of the executive
officers of the Company.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of Newco with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"Home" has the meaning set forth in the first paragraph of this Agreement.
"Home Charter Documents" has the meaning set forth in Section 6.1.
"Home Stock" means the common stock, par value $.01 per share, of Home.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by Home and the Underwriters of
the public offering price of the shares of Home Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Home Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
-4-
<PAGE>
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Kentucky.
"Stockholder" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to Home to be held for filing with the Secretary of State of the State
of Delaware and the Secretary of State (or other appropriate authority) of the
State of Incorporation on or effective as of the Funding and Consummation Date.
-5-
<PAGE>
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into the Company in accordance with the Articles
of Merger, the separate existence of Newco shall cease, the Company shall be the
surviving party in the Merger and the Company is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation
until changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the
Merger, such By-laws shall be the By-laws of the Surviving Corporation
until they shall thereafter be duly amended (and such By-laws shall be
amended from time to time, if necessary, to comply with applicable state
law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the Company
immediately prior to the Effective Time of the Merger, provided that Cary
N. Vollintine shall become an additional director of the Surviving
Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of the
Company shall be increased, if necessary, to accommodate the addition of
such additional director; the Board of Directors of the Surviving
Corporation shall hold office subject to the provisions of the laws of the
State of Incorporation and of the Certificate of Incorporation and By-laws
of the Surviving Corporation; and
(iv) the officers of the Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger Michael Loy shall become an additional Vice
President of the Surviving Corporation, such officers to serve, subject to
the provisions of the Certificate of Incorporation and By-laws of the
Surviving Corporation, until their respective successors are duly elected
and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
HOME AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the Company,
Home and Newco as of the date of this Agreement are as follows:
-6-
<PAGE>
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof,
the authorized capital stock of Home will consist of 50,000,000 shares of
Home Stock, of which the number of issued and outstanding shares will be
set forth in the Registration Statement, 5,000,000 shares of preferred
stock, $.01 par value, of which no shares will be issued and outstanding,
and 5,000,000 shares of Restricted Voting Common Stock, $.01 par value
(the "Restricted Common Stock"), all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement;
and
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred
(100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, franchises, privileges, rights and immunities of
the Company shall continue unaffected and unimpaired by the Merger and the
corporate franchises, existence and rights of Newco shall be merged with and
into the Company, and the Company, as the Surviving Corporation, shall be fully
vested therewith. At the Effective Time of the Merger, the separate existence of
Newco shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and Newco shall be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Company and Newco; and the title to any real estate, or
interest therein, whether by deed or otherwise, under the laws of the State of
Incorporation vested in the Company and Newco, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the Company and Newco and any claim existing, or
action or proceeding pending, by or against the Company or Newco may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in their place. Neither the rights of creditors nor any liens
upon the property of the Company or Newco shall be impaired by the Merger, and
all debts, liabilities and duties of the Company and Newco shall attach to the
Surviving
-7-
<PAGE>
Corporation, and may be enforced against such Surviving Corporation to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) Home Stock and cash and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of Home Stock set forth on Annex I hereto (adjusted as
set forth on such Annex I) with respect to such holder and (2) the right
to receive the amount of cash set forth on Annex I hereto with respect to
such holder (adjusted as set forth on such Annex I);
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of Home Stock
or other consideration shall be delivered or paid in exchange therefor;
and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger
and without any action on the part of Home, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All Home Stock received by the Stockholder pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding Home
Stock by reason of the provisions of the Certificate of Incorporation of Home or
as otherwise provided by the Delaware GCL. All Home Stock received by the
Stockholder shall be issued and delivered to the Stockholder free and clear of
any liens, claims or encumbrances of any kind or nature. All voting rights of
such Home Stock received by the Stockholder shall be fully exercisable by the
Stockholder and the Stockholder shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, Home shall have no
class of capital stock issued and outstanding other than the Home Stock and the
Restricted Voting Common Stock.
-8-
<PAGE>
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholder, who is the
holder of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
number of shares of Home Stock and the amount of cash described on Annex I
hereto, said cash to be payable by certified check or wire transfer.
3.2 The Stockholder shall deliver to Home at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholder, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholder's expense, affixed and canceled. The
Stockholder agrees promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such Company Stock or with respect to the stock powers accompanying
any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to Home for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and certified check(s) referred to in
Section 3 hereof, each of which actions shall only be taken upon the Funding and
Consummation Date as herein provided. In the event that there is no Funding and
Consummation Date and this Agreement automatically terminates as provided in
this Section 4 the Articles of Merger shall not be filed and shall be returned
to the Stockholder. The taking of the actions described in clauses (i) and (ii)
above (the "Closing") shall take place on the closing date (the "Closing Date")
at the offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares, the delivery of a certified check or checks in an amount
equal to the cash portion of the consideration which the Stockholder shall be
entitled to receive pursuant to the Merger referred to in Section 3 hereof and
(z) the closing with respect to the IPO shall occur and be completed. The date
on which the actions described in the preceding clauses (x), (y) and (z) occurs
shall be referred to as the "Funding and Consummation Date." During the period
from the Closing Date to the Funding and Consummation Date, this Agreement may
only be terminated by the parties if the underwriting agreement in respect of
the IPO is terminated pursuant to the terms of such underwriting agreement. This
Agreement shall also in any event automatically terminate if the Funding and
Consummation Date has not occurred within 15 business days following the Closing
Date. Time is of the essence.
-9-
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER.
Each of the Company and the Stockholder represent and warrant that all of
the following representations and warranties in this Section 5(A) are true at
the date of this Agreement and, subject to Section 7.8 hereof, shall be true at
the time of Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the warranties and representations set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Funding and Consummation Date, which shall
be deemed to be the Expiration Date for Section 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of its
subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company taken as a whole (as used herein with respect to the Company, or
with respect to any other Person, a "Material Adverse Effect"). Schedule 5.1
sets forth a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and correct copies of (i) the
Certificate of Incorporation and By-laws, each as amended, of the Company (the
"Charter Documents"), and (ii) the stock records of the Company, are all
attached to Schedule 5.1. The Company has delivered complete and correct copies
of all minutes of meetings, written consents and other evidence, if any, of
deliberations of or actions taken by the Company's Board of Directors and
stockholders during the last five years.
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholder approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the Company
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
-10-
<PAGE>
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholder in the
amounts set forth in Annex II. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Stockholder and further, such shares were offered, issued, sold and delivered by
the Company in compliance with all applicable state and Federal laws concerning
the issuance of securities. Further, none of such shares were issued in
violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective stockholders has been altered or changed in
contemplation of the Merger and/or the Home Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the Home Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
-11-
<PAGE>
5.9 FINANCIAL STATEMENTS. Complete and correct copies of the following
financial statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31, 1996 and
the related statements of operations, stockholder's equity and cash flows
for the year ended December 31, 1996, together with the related notes and
schedules (such balance sheets, the related statements of operations,
stockholder's equity and cash flows and the related notes and schedules
are referred to herein as the "Year-end Financial Statements"); and
(ii) the balance sheet (the "Interim Balance Sheet") of the Company
as of June 30, 1997 (the "Balance Sheet Date") and the related statements
of operations, stockholder's equity and cash flows for the six-month
periods ended June 30, 1997 and 1996, together with the related notes and
schedules (such balance sheets, the related statements of operations,
stockholder's equity and cash flows and the related notes and schedules
are referred to herein as the "Interim Financial Statements"). The
Year-end Financial Statements and the Interim Financial Statements are
collectively called the "Financial Statements".
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all liabilities of the Company of a
nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
best knowledge of the Company and the Stockholder, except as set forth on
Schedule 5.10, since the Balance Sheet Date the Company has not incurred any
material liabilities of any kind, character or description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than liabilities
incurred in the ordinary course of business. The Company has also delivered to
Home on Schedule 5.10, in the case of those contingent liabilities related to
pending or threatened litigation, or other liabilities which are not fixed, a
good faith and reasonable estimate of the maximum amount which the Company
reasonably expects will be payable and the amount, if any, accrued or reserved
for each such potential liability on the Company's Financial Statements; in the
case of any such liability for which no estimate has been provided, the estimate
for purposes of this Agreement shall be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholder, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are
-12-
<PAGE>
collectible in the amounts shown on Schedule 5.11, net of reserves reflected in
the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to Home an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, including any trademarks,
trade names, patents, patent applications and copyrights owned or held by the
Company or any of its employees (including interests in software or other
technology systems, programs and intellectual property) (it being understood and
agreed that a list of environmental permits and other environmental approvals is
set forth on Schedule 5.13). At or prior to the Closing, all such trademarks,
trade names, patents, patent applications, copyrights and other intellectual
property will be assigned or licensed to the Company for no additional
consideration. To the best knowledge of the Company, the Licenses and other
rights listed on Schedules 5.12 and 5.13 are valid, and the Company has not
received any notice that any person intends to cancel, terminate or not renew
any such License or other right. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Licenses and other rights listed on Schedules 5.12 and 5.13 and
is not in violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the Company. Except as
specifically provided in Schedule 5.12, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to the Company by, any such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have any Material Adverse Effect on the Company or its
business, (i) the Company has complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to any of them or any of their respective properties, assets,
operations and businesses relating to environmental protection (collectively
"Environmental Laws") including, without limitation, Environmental Laws relating
to air, water, land and the generation, storage, use, handling, transportation,
treatment or disposal of Hazardous Wastes, Hazardous Materials and Hazardous
Substances (as such terms are defined in any applicable Environmental Law), as
well as petroleum and petroleum products (collectively "Hazardous Materials"),
(ii) the Company has obtained and adhered to all necessary permits and other
approvals necessary to treat, transport, store, dispose of and otherwise handle
Hazardous Materials, a list of all of which permits and approvals is set forth
on Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the Company where Hazardous Materials have been treated, stored,
disposed of or otherwise handled. There have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and to the best
-13-
<PAGE>
knowledge of the Company and the Stockholder, there is no on-site or off-site
location to which the Company has transported or disposed of Hazardous Materials
or arranged for the transportation of Hazardous Materials which is the subject
of any Federal, state, local or foreign enforcement action or any other
investigation which could lead to any claim against the Company, Home or Newco
for any clean-up cost, remedial work, damage to natural resources, property
damage or personal injury, including, but not limited to, any claim under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, the Resource Conservation and Recovery Act, the Hazardous Materials
Transportation Act or comparable state or local statutes or regulations. The
Company has no contingent liability in connection with any release of any
Hazardous Materials into the environment that would have a Material Adverse
Effect.
5.14 PERSONAL PROPERTY. The Company has delivered to Home an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company, (y) all other personal property owned by the
Company with an individual value in excess of $25,000 (i) as of the Balance
Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material
leases and agreements in respect of personal property, including, in the case of
each of (x), (y) and (z), (1) true, complete and correct copies of all such
leases and (2) an indication as to which assets are currently owned, or were
formerly owned, by Stockholder, relatives of Stockholder, or Affiliates of the
Company. Except as set forth on Schedule 5.14, (i) all material personal
property used by the Company in its business is either owned by the Company or
leased by the Company pursuant to a lease included on Schedule 5.14, (ii) all of
the personal property listed on Schedule 5.14 is in good working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 5% or more of the
Company's annual revenues for any period covered by any of the Financial
Statements. Except to the extent set forth on Schedule 5.15, none of such
customers have canceled or substantially reduced or, to the knowledge of the
Company, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by the Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to Home. For purposes of this Section 5.17, Material Contracts
includes contracts between the Company and significant customers, joint venture
or partnership agreements, contracts with any labor organization, strategic
alliances, options to purchase land and other contracts which
-14-
<PAGE>
are not terminable on sixty days or less notice and involve payments by the
Company in any twelve month period in excess of $25,000. The Company has also
indicated on Schedule 5.15 a summary description of all plans or projects
involving the opening of new operations, expansion of existing operations, the
acquisition of any personal property, business or assets requiring, in any
event, the payment of more than $25,000 by the Company during any 12-month
period.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on terms reasonably acceptable to Home and leased
back by the Company on terms no less favorable to the Company than those
available from an unaffiliated party and otherwise reasonably acceptable to Home
at or prior to the Closing Date. The Company has good and insurable title to any
real property owned by it that is not shown on Schedule 5.16 as property
intended to be sold or distributed prior to the Closing Date, subject to no
mortgage, pledge, lien, conditional sales agreement, encumbrance or charge,
except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholder or affiliates of the Company or Stockholder is
included in Schedule 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
5.17 INSURANCE. The Company has delivered to Home (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the best knowledge of the Company provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect and shall, to the best knowledge of the
Company,
-15-
<PAGE>
remain in full force and effect through the Funding and Consummation Date. Since
January 1, 1995, no insurance carried by the Company has been canceled by the
insurer and the Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The Company has provided to Home
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the best knowledge of the Company, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the best of the Company's knowledge, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years. The Company believes its relationship
with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholder has delivered to Home an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on the Benefit Plans Schedule, and the Company is not required to contribute
-16-
<PAGE>
to any retirement plan pursuant to the provisions of any collective bargaining
agreement establishing the terms and conditions or employment of any of the
Company's or any subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code are, and have been so qualified and have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination letters are
attached to the Benefit Plans Schedule. Except as disclosed on the Benefit Plans
Schedule, all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or tax returns) have
been timely filed or distributed, and copies thereof are included as part of the
Benefit Plans Schedule. Neither the Stockholder, any such plan listed in the
Benefit Plans Schedule, nor the Company has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No such Plan listed in the Benefit Plans Schedule has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and the Company has not incurred any liability for
excise tax or penalty due to the Internal Revenue Service nor any liability to
the Pension Benefit Guaranty Corporation. The Stockholder further represents
that except as set forth on the Benefit Plans Schedule hereto:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
the Benefit Plans Schedule;
-17-
<PAGE>
(iv) the Company has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the Company could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such
liability) with respect to any plan now or heretofore maintained or
contributed to by any entity other than the Company that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and, to the Knowledge of the
Company and the Stockholder, there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, orders, approvals,
variances, rules and regulations, including without limitation to the extent
applicable all regulations promulgated by the Department of Housing and Urban
Development under the National Manufactured Housing Construction and Safety
Standards Act, as amended, or otherwise, and all laws and regulations affecting
the sale of manufactured housing, on credit or otherwise, including the Federal
Consumer Credit Protection Act, the Federal Fair Credit Reporting Act, the
Federal Equal Credit Opportunity Act, the Consumer Credit Protection Act, the
Fair Debt Collection Practices Act and the regulations promulgated under the
foregoing, and all state and local laws and regulations of similar effect, and
including all such orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, except where any such noncompliance, individually or in
the aggregate, would not have a Material Adverse Effect.
5.22 TAXES. The Company has timely filed all requisite Federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other taxes (including penalties and interest) for any period
or periods prior to and including the Balance Sheet Date and no notice of any
claim for taxes, whether pending or threatened, has been received. All tax,
including interest and penalties (whether or not shown on any tax return) owed
by the Company or any of the Company's Subsidiaries has been paid. The
-18-
<PAGE>
amounts shown as accruals for taxes on the Company Financial Statements are
sufficient for the payment of all taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before that date.
Copies of (i) any tax examinations, (ii) extensions of statutory limitations and
(iii) the federal and local income tax returns and franchise tax returns of the
Company for their last three (3) fiscal years, or such shorter period of time as
any of them shall have existed, are attached hereto as Schedule 5.22 or have
otherwise been delivered to Home. The Company has disclosed to Home when its
taxable year ends. The Company uses the accrual method of accounting for income
tax purposes, and the Company's methods of accounting have not changed in the
past five years. The Company is not an investment Company as defined in Section
351(e)(1) of the Code. The Company is not and has not during the last five years
been a party to any tax sharing agreement or agreement of similar effect. The
Company is not and has not during the last five years been a member of any
consolidated group. Except as described on Schedule 5.22, the Company has not
received, been denied, or applied for any private letter ruling during the last
five years.
The Stockholder made a valid election under the provisions of Subchapter S
of the Code and the Company has not, within the past five years, been taxed
under the provisions of Subchapter C of the Code. The Stockholder shall pay, and
hereby indemnifies Home, the Company and Newco against, all income taxes payable
for all periods though and including the Closing Date.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the best
knowledge of the Company, any other party thereto, is in default under any
lease, instrument, agreement, license, or permit set forth on Schedule 5.12,
5.13, 5.14, 5.15 or 5.16, or any other Material Contract (as defined in Section
5.15) to which it is a party or by which its properties are bound (the "Material
Documents") in any manner that could result in a Material Adverse Effect; and,
except as set forth in Schedule 5.23, (a) the rights and benefits of the Company
under the Material Documents will not be materially adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
Material Documents or the Charter Documents. Except as set forth on Schedule
5.23, none of the Material Documents requires notice to, or the consent or
approval of, any governmental agency or other third party with respect to any of
the transactions contemplated hereby in order to remain in full force and
effect, and consummation of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the Company, Home or
Newco of the name of any other party to such Material Document, and none of the
Material Documents prohibits or restricts the Company from freely providing
services to any other customer or potential customer of the Company, Home, Newco
or any Other Founding Company.
-19-
<PAGE>
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any
grant by the Company of any options, warrants, calls, conversion rights or
commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
(v) any material increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the Company
to any of its officers, directors, stockholders, employees, consultants or
agents, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the Company;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of Company to any person,
including, without limitation, the Stockholder and his Affiliates;
(viii)any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of the Stockholder or any Affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
-20-
<PAGE>
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
(xii) any amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(xiii)any transaction by the Company outside the ordinary course of
its business;
(xiv) any cancellation or termination by the Company of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the Company
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
Home an accurate schedule (which is set forth on Schedule 5.26) as of the date
of this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.28 RELATIONS WITH GOVERNMENTS. Except for legal contributions to
candidates for political office, neither the Company nor any Affiliate of the
Company acting on behalf of the
-21-
<PAGE>
Company has given or offered anything of value to any governmental official,
political party or candidate for government office, nor has it or any of them
otherwise taken any action which would cause the Company to be in violation of
the Foreign Corrupt Practices Act of 1977, as amended or any law of similar
effect.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished to Home by the Company and the Stockholder in
connection herewith, do not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements herein and
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing does not apply to statements
contained in or omitted from any of such documents made or omitted in reliance
upon information furnished in writing by Home. If, prior to the 25th day after
the date of the final prospectus of Home utilized in connection with the IPO,
the Company or the Stockholder becomes aware of any fact or circumstance which
would affect the accuracy of a representation or warranty of Company or the
Stockholder in this Agreement in any material respect, the Company and the
Stockholder shall immediately give notice of such fact or circumstance to Home.
Subject to the provisions of Section 7.8, such notification shall not relieve
either the Company or the Stockholder of their respective obligations under this
Agreement, and, subject to the provisions of Section 7.8, at the sole option of
Home, the truth and accuracy in all material respects of any and all warranties
and representations of the Company, or on behalf of the Company and of
Stockholder at the date of this Agreement and on the Closing Date and on the
Funding and Consummation Date, shall be a precondition to the consummation of
this transaction.
(b) The Company and the Stockholder acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that a Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither Home or any of its officers, directors, agents or representatives
nor any Underwriter shall have any liability to the Company, the Stockholder or
any other person affiliated or associated with the Company for any failure of
the Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Stockholder to enter
into this Agreement, or to vote in favor of or consent to the proposed Merger,
has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to Home or the prospective IPO. Notwithstanding the foregoing, Home has
agreed and herein acknowledges its agreement to use its reasonable efforts to
consummate the Home Plan of Organization and IPO as contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
Company has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
-22-
<PAGE>
5.31 DEALER AGREEMENTS AND RELATED MATTERS. Schedule 5.31 sets forth a
complete and accurate list of:
(i) all agreements of any nature (including "Dealer Agreements",
"Home Center Agreements", "Retailer Agreements", "Exclusive Retailer
Agreements", "General Conditions", "Action Plans" and other documents)
between the Company and any dealer, manufacturer, wholesaler or other
distributor (collectively, "Manufacturers") of manufactured housing units
(collectively, "Dealer Agreements"); and
(ii) all volume incentive, rebate and other similar programs of any
Manufacturer (collectively, "Dealer Programs") in which the Company is now
or has within the last three years been a participant.
Schedule 5.31 identifies the Manufacturer that is a party to each such Dealer
Agreement or that sponsors each such Dealer Program, and also identifies the
Company's sales locations subject to or affected by each such Dealer Agreement
and each such Dealer Program. Complete and accurate copies of all Dealer
Agreements and all Dealer Programs listed on Schedule 5.31 are attached to
Schedule 5.31. Except as set forth on Schedule 5.31, the Company is now and for
the last three years has been in compliance in all material respects with all
applicable provisions of the Dealer Agreements and Dealer Programs identified on
Schedule 5.31 and any similar agreements to which the Company has been a party
during the last three years. To the extent that the Company is required by any
Dealer Agreement or Dealer Program to take or refrain from taking specified
actions in order to qualify for the benefits offered thereby (such as the
benefits of an exclusive retailer agreement), the Company is in compliance in
all material respects with all such requirements (it being understood that the
Company is not hereby representing that it qualifies for the highest level of
incentive discounts or rebates offered by such Dealer Agreements or Dealer
Programs). Except as set forth on Schedule 5.31, within the last three years, no
Manufacturer has asserted any claim or right to any refund of any incentive
payment or rebate or other payment or discount granted to the Company by any
such Manufacturer, or any right to offset any amount against any future payment
due or otherwise due to the Company, and no circumstances exist that would
entitle any Manufacturer to make any such claim against the Company. During the
last three years, the Company has accurately calculated and reported to each
Manufacturer with which the Company has done business all financial and sales
data that the Company is required to report to each such Manufacturer, whether
in connection with volume incentive or rebate plans or otherwise.
5.32 NO RETAIL FINANCING. Except as set forth on Schedule 5.32, the
Company does not finance the sale to the Company's customers of manufactured
housing units or related products or services (collectively, "Product"), and is
not liable, directly or indirectly, contingently or otherwise, to any
Manufacturer or any financing source for all or any portion of the purchase
price of any Product that has been sold by the Company or delivered by the
Company to a retail purchaser.
-23-
<PAGE>
5.33 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule 5.33, the
Company has not made any express warranties regarding any Products and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any payment
to or perform any service for any person other than routine matters described as
"Retailer Responsibilities", "Retailer General Installation and Home Delivery
Guidelines" and the like in the Dealer Agreements listed on Schedule 5.31.
5.34 NO INTERESTS IN OTHER BUSINESSES. Except as set forth on Schedule
5.34, neither the Company nor any Stockholder, nor any affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's sales of Product.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
The Stockholder represents and warrants that the representations and
warranties set forth below as and to the extent relating to such Stockholder are
true as of the date of this Agreement and, subject to Section 7.8 hereof, shall
be true at the time of Closing and on the Funding and Consummation Date, and
that the representations and warranties set forth in Sections 5.35 and 5.36
shall survive until the first anniversary of the Funding and Consummation Date,
which shall be the Expiration Date for purposes of Sections 5.35 and 5.36.
5.35 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.35, such Company Stock is owned free and clear of all liens, security
interests, pledges, charges, voting agreements, voting trusts, restrictions,
encumbrances and claims of every kind.
5.36 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Home Stock
that such Stockholder has or may have had. Nothing herein, however, shall limit
or restrict the rights of any Stockholder to acquire Home Stock pursuant to (i)
this Agreement or (ii) any option granted by Home.
5.37 NO INTENTION TO DISPOSE OF HOME STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of Home Stock received as described in Section 3.1.
-24-
<PAGE>
6. REPRESENTATIONS OF HOME AND NEWCO
Home and Newco jointly and severally represent and warrant that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at the time
of Closing and the Funding and Consummation Date, and that such representations
and warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that the warranties and representations set forth in Section 6.14 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 6.14.
6.1 DUE ORGANIZATION. Home and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. Home and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws of Home and Newco (the "Home Charter Documents") are
all attached hereto as Annexes III and IV.
6.2 AUTHORIZATION. (i) The respective representatives of Home and Newco
executing this Agreement have the authority to enter into and bind Home and
Newco to the terms of this Agreement and (ii) Home and Newco have the full legal
right, power and authority to enter into this Agreement and consummate the
Merger. All corporate acts and other proceedings required to have been taken by
Home and Newco to authorize the execution, delivery and performance of this
Agreement and the consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF HOME AND NEWCO. The authorized capital stock of Home
and Newco is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding shares of the capital stock of Newco are owned by
Home. All of the issued and outstanding shares of the capital stock of Home and
Newco have been duly authorized and validly issued, are fully paid and
nonassessable, and further, such shares were offered, issued, sold and delivered
by Home and Newco in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of Home
or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in the Draft Registration Statement,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates Home or Newco to issue any of their respective authorized but
unissued capital stock; and (ii) neither Home nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity
-25-
<PAGE>
securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of Home.
6.5 SUBSIDIARIES. Newco has no subsidiaries. Home has no subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither Home
nor Newco presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, and
neither Home nor Newco, directly or indirectly, is a participant in any joint
venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of Home included in the
Draft Registration Statement (the "Home Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon),
and the balance sheet included therein presents fairly the financial position of
Home as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, Home and Newco have no material liabilities, contingent
or otherwise, except as set forth in or contemplated by this Agreement and the
Other Agreements and except for fees incurred in connection with the
transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement, neither Home nor Newco is in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them which would have a Material Adverse
Effect; and except to the extent set forth in Schedule 6.8, there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
Home or Newco, threatened against or affecting, Home or Newco, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. Home and Newco
have conducted and are conducting their respective businesses in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations and are not in violation of
any of the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. Neither Home nor Newco is in violation of any Home
Charter Document. None of Home, Newco, or, to the knowledge of Home and Newco,
any other party
-26-
<PAGE>
thereto, is in default under any lease, instrument, agreement, license, or
permit to which Home or Newco is a party, or by which Home or Newco, or any of
their respective properties, are bound (collectively, the "Home Documents"); and
(a) the rights and benefits of Home and Newco under the Home Documents will not
be adversely affected by the transactions contemplated hereby and (b) the
execution and delivery of this Agreement by Home and Newco and the performance
of their obligations hereunder do not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not, conflict
with, or result in any violation or default (with or without notice or lapse of
time, or both), under or give rise to a right of termination, cancellation, or
acceleration of any obligation or to loss of a material benefit under, or result
in the creation of any lien upon any of the assets of Home or any Newco under,
any provision of (i) the Certificate of Incorporation or Bylaws of Home or the
comparable governing instruments of any Newco, (ii) any note, bond, mortgage,
indenture or deed of trust or any license, lease, contract, commitment,
agreement or arrangement to which Home and any Newco is a party or by which any
of their respective properties or assets are bound or (iii) any judgment, order,
decree or law, ordinance, rule or regulation, applicable to Home or any Newco or
their respective properties or assets. The execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the Home
Documents or the Home Charter Documents. Except as set forth on Schedule 6.9,
none of the Home Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by Home and Newco and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective Boards of Directors of
Home and Newco and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of Home
and Newco.
6.11 HOME STOCK. At the time of issuance thereof and delivery to the
Stockholder, the Home Stock to be delivered to the Stockholder pursuant to this
Agreement will constitute valid and legally issued shares of Home, fully paid
and nonassessable, and with the exception of restrictions upon resale set forth
in Sections 15 and 16 hereof, will be identical in all substantive respects
(which do not include the form of certificate upon which it is printed or the
presence or absence of a CUSIP number on any such certificate) to the Home Stock
issued and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. The Home Stock issued and delivered to the Stockholder shall at
the time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of Home Stock to be issued to
the Stockholder pursuant to this Agreement will not be registered under the 1933
Act, except as provided in Section 17 hereof.
-27-
<PAGE>
6.12 NO SIDE AGREEMENTS. Neither Home nor Newco has entered or will enter
into any agreement with any of the Founding Companies or any of the stockholders
of the Founding Companies or Home other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Home was formed in July
1996 and has conducted only limited operations since that time. Neither Home nor
Newco has conducted any material business since the date of its inception,
except in connection with this Agreement, the Other Agreements and the IPO.
Except as described in the Draft Registration Statement, neither Home nor Newco
owns or has at any time owned any real property or any material personal
property or is a party to any other agreement other than the Other Agreements
and the agreements contemplated thereby and to such agreements as will be filed
as Exhibits to the Registration Statement.
6.14 TAXES. Home and Newco have timely filed all requisite federal, state
and other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and there are no examinations in progress or
claims against Home for federal, state and other taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for taxes, whether pending or threatened, has
been received. All taxes which Home or any Newco has been required to collect or
withhold have been duly and timely collected and withheld and have been set
aside in accounts for such purposes, or have been duly and timely paid to the
proper governmental authority. All tax, including interest and penalties
(whether or not shown on any tax return) owed by Home, any member of an
affiliated or consolidated group which includes or included Home, or with
respect to any payment made or deemed made by Home herein has been paid. The
amounts shown as accruals for taxes on Home Financial Statements are sufficient
for the payment of all taxes of the kinds indicated (including penalties and
interest) for all fiscal periods ended on or before that date. Home and Newco
have not entered into any tax sharing agreement or similar arrangement. Home is
not an investment company as defined in Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholder, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Home or
Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
Home or Newco;
-28-
<PAGE>
(iii) any change in the authorized capital of Home or Newco or their
outstanding securities or any change in their ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of Home or
Newco;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of Home or Newco;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Home or Newco to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Home or Newco;
(viii)any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of Home or Newco or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of Home or Newco;
(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which Home or Newco is a
party;
(xi) any transaction by Home or Newco outside the ordinary course of
its business;
(xii) any other distribution of property or assets by Home or Newco
other than in the ordinary course of business.
6.16 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Stockholder, together with this Agreement and the information furnished
to the Company and the Stockholder in connection herewith, does not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing does not apply
to statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished by the Company or the Stockholder.
-29-
<PAGE>
6.17 PRIVATE OFFERING. (a) Neither Home, any of its Affiliates nor anyone
on its or their behalf, has issued, sold, or offered any securities of Home to
any person under circumstances that would cause the issuance and sale of the
Home Stock to the Stockholder pursuant to this Agreement, to be subject to the
registration requirements of the 1933 Act.
(b) The offering of shares of Home Stock pursuant to the Home Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of Home and the Other Founding Companies
access to all of the Company's sites, properties, books and records and will
furnish Home with such additional financial and operating data and other
information as to the business and properties of the Company as Home or the
Other Founding Companies may from time to time reasonably request. The Company
will cooperate with Home and the Other Founding Companies, its representatives,
auditors and counsel in the preparation of any documents or other materials
which may be required in connection with any documents or materials required by
this Agreement. Home, Newco, the Stockholder and the Company will treat all
information obtained in connection with the negotiation and performance of this
Agreement or the due diligence investigations conducted with respect to the
Other Founding Companies as confidential in accordance with the provisions of
Section 14 hereof. In addition, Home will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
such Other Founding Company, its stockholders, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, Home will afford to the officers and authorized representatives of the
Company access to all of Home's and Newco's sites, properties, books and records
and will furnish the Company with such additional financial and operating data
and other information as to the business and properties of Home and Newco as the
Company may from time to time reasonably request. Home and Newco will cooperate
with the Company, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The Company will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
-30-
<PAGE>
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order
and condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or
rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and
maintain its relationships with suppliers, customers and others having
business relations with the Company;
(vi) use its reasonable efforts to maintain compliance with all
material permits, laws, rules and regulations, consent orders, and all
other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent
of Home (which consent shall not be unreasonably withheld), provided that
debt and/or lease instruments may be replaced without the consent of Home
if such replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced; and
(viii)maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of Home, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
-31-
<PAGE>
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock
except for distributions permitted as described on Annex I hereto;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the businesses of the Company, (2) (A) liens for taxes either not yet due
or being contested in good faith and by appropriate proceedings (and for
which contested taxes adequate reserves have been established and are
being maintained) or (B) materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii)merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the Company; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
-32-
<PAGE>
7.4 NO SHOP. Neither the Stockholder, the Company, nor any agent, officer,
director, trustee or any representative of any of the foregoing will, during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Funding and Consummation Date or the termination of this Agreement
in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Home or its
authorized agents relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, the Company
or a merger, consolidation or business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Home on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholder and the Company shall (except as otherwise
agreed to by Home or reflected in Schedule 7.6) terminate (i) any stockholders
agreements, voting agreements, voting trusts, options, warrants and employment
agreements between the Company and any employee listed on Schedule 9.12 hereto
and (ii) any existing agreement between the Company and any Stockholder, on or
prior to the Funding and Consummation Date provided that nothing herein shall
prohibit or prevent the Company from paying (either prior to or on the Closing
Date) notes or other obligations from the Company to the Stockholder in
accordance with the terms thereof, which terms have been disclosed to Home. Such
termination agreements are listed on Schedule 7.6 and copies thereof shall be
attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholder and the Company shall
give prompt notice to Home of (i) the occurrence or non-occurrence of any event
the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholder contained herein to
be untrue or inaccurate in any material respect at or prior to the Closing and
(ii) any failure of the Stockholder or the Company to comply with or satisfy any
material covenant, condition or agreement to be complied with or satisfied by
such person hereunder. Home and Newco shall give prompt notice to the Company of
(i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of Home or Newco contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any failure of Home or Newco to
comply with or satisfy any material covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.7 shall not be deemed to (i) modify the
-33-
<PAGE>
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.8, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless Home and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by Home or Newco that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, Home shall give the Company notice promptly after
it has knowledge thereof. If Home and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been deemed
given by Home or any Founding Company if no response is received within 24 hours
following receipt of notice of such amendment or supplement (or sooner if
required by the circumstances under which such consent is requested), but the
Company does not give its consent, the Company may terminate this Agreement
pursuant to Section 12.1(iv) hereof. In the event that the Company seeks to
amend or supplement a Schedule pursuant to this Section 7.8, and Home and a
majority of the Other Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. In the event that Home or Newco seeks to amend
or supplement a Schedule pursuant to this Section 7.8 and a majority of the
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. No party to this Agreement shall be liable to any other party if
this Agreement shall be terminated pursuant to the provisions of this Section
7.8. No amendment of or supplement to a Schedule shall be made later than 24
hours prior to the anticipated effectiveness of the Registration Statement.
-34-
<PAGE>
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholder shall furnish or cause to be furnished to Home and the Underwriters
all of the information concerning the Company and the Stockholder required for
inclusion in, and will cooperate with Home and the Underwriters in the
preparation of, the Registration Statement and the prospectus included therein
(including audited and unaudited financial statements, prepared in accordance
with generally accepted accounting principles, in form suitable for inclusion in
the Registration Statement). The Company and the Stockholder agree promptly to
advise Home if at any time during the period in which a prospectus relating to
the offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the Company or the
Stockholder becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the Company or the Stockholder, the Company
represents and warrants as to such information with respect to itself, and the
Stockholder represents and warrants, as to such information with respect to the
Company and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and Home shall have had sufficient time to review
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, Home
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the Home Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
-35-
<PAGE>
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
(ii) such compliance by the Stockholder and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by Home and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott-Rodino Act to be
made. If filings under the Hart-Scott-Rodino Act are required, the costs and
expenses thereof (including legal fees and costs and filing fees) shall be borne
by Home. The obligation of each party to consummate the transactions
contemplated by this Agreement is subject to the expiration or termination of
the waiting period under the Hart-Scott-Rodino Act, if applicable.
7.14 STOCKHOLDERS OF HOME. Promptly after a request by the Company, Home
will deliver to the Company a list of the stockholders of Home as of the date of
this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER AND
COMPANY
The obligations of Stockholder and the Company with respect to actions to
be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. The obligations of
the Stockholder and the Company with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have not been satisfied,
the Stockholder shall have the right to terminate this Agreement, or in the
alternative, waive any condition not so satisfied. Any act or action of the
Stockholder in consummating the Closing or delivering certificates representing
Company Stock as of the Funding and Consummation Date shall constitute a waiver
of any conditions not so satisfied. However, no such waiver shall be deemed to
affect the survival of the representations and warranties of Home and Newco
contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Home and Newco contained in Section 6 shall be
true and correct in all material respects as of the Closing Date and the Funding
and Consummation Date as though such representations and warranties had been
made as of that time; all of the terms, covenants and conditions of this
Agreement to be complied with and performed by Home and Newco on or before the
Closing Date and the Funding and Consummation Date shall have been duly complied
with and
-36-
<PAGE>
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Funding and Consummation Date, respectively, and
signed by the President or any Vice President of Home shall have been delivered
to the Stockholder.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholder and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholder shall have failed
to inform Home in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the Company as a result of which
the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for Home, dated the Closing Date, in the form annexed hereto as Annex V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of Home Stock to be received by the
Stockholder is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of the Company as a result of which the Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. Home and Newco each shall have delivered
to the Company a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which Home or Newco is authorized to do business, showing that each of
Home and Newco is in good standing and authorized to do business
-37-
<PAGE>
and that all state franchise and/or income tax returns and taxes for Home and
Newco, respectively, for all periods prior to the Closing have been filed and
paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to Home or Newco which would constitute a Material Adverse
Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of Home and of Newco, certifying the truth and correctness of attached copies of
the Home's and Newco's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the stockholders of Home and Newco
approving Home's and Newco's entering into this Agreement and the consummation
of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The Stockholder shall have received an opinion of Arthur
Andersen LLP or other tax advisor reasonably acceptable to the Stockholder that
the Home Plan of Organization will qualify as a tax-free transfer of property
under Section 351 of the Code and that the Stockholder will not recognize gain
to the extent the Stockholder exchanges stock of the Company for Home Stock (but
not cash or other property) pursuant to the Home Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME AND NEWCO
The obligations of Home and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of Home and
Newco with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, Home and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
-38-
<PAGE>
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholder and the Company contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Funding and Consummation Date with the same effect as
though such representations and warranties had been made on and as of such date;
all of the terms, covenants and conditions of this Agreement to be complied with
or performed by the Stockholder and the Company on or before the Closing Date or
the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholder shall
have delivered to Home certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of Home as a result of which the
management of Home (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. Home shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholder
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the Company
to conduct its business.
9.5 STOCKHOLDER'S RELEASE. The Stockholder shall have delivered to Home an
instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholder against the Company and Home and (ii)
obligations of the Company and Home to the Stockholder, except for (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the Stockholder, (y) continuing obligations to Stockholder
relating to his employment by the Company and (z) obligations arising under this
Agreement or the transactions contemplated hereby. In the event that the Funding
and Consummation Date does not occur, then the release instrument referenced
herein shall be void and of no further force or effect.
-39-
<PAGE>
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to Home.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 or otherwise approved by Home, all existing agreements between the
Company and the Stockholder (and entities controlled by the Stockholder) other
than real property leases shall have been canceled effective prior to or as of
the Closing Date, and all real property leases between the Company and the
Stockholder (and any entity controlled by the Stockholder) shall have been
amended in a manner reasonably satisfactory to Home.
9.8 OPINION OF COUNSEL. Home shall have received an opinion from Counsel
to the Company and the Stockholder, dated the Closing Date, substantially in the
form annexed hereto as Annex VI.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Home as a result of which Home deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to Home
a certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
state of incorporation and, unless waived by Home, in each state in which the
Company is authorized to do business, showing the Company is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for the Company for all periods prior to the Closing have been
filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. The Stockholder shall have delivered to Home a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
-40-
<PAGE>
10. COVENANTS OF HOME AND THE STOCKHOLDER AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. Home shall
use reasonable efforts to have the Stockholder released from any and all
guarantees of the Company's indebtedness identified on Schedule 10.1. In the
event that Home cannot obtain such releases from the lenders of any such
guaranteed indebtedness identified on Schedule 10.1 on or prior to 120 days
subsequent to the Funding and Consummation Date, Home shall promptly pay off or
otherwise refinance or retire such indebtedness. From and after the Funding and
Consummation Date and until such time as all of such indebtedness is paid off,
refinanced or retired, Home shall maintain unencumbered funds in amounts
sufficient to provide for such pay off, refinancing or retirement, provided that
Home may use such funds for other purposes, in its sole discretion, with the
prior written consent of each Stockholder who has not as of that time been
released from his or her guarantee as described above and whose indebtedness as
described above has not as of that time been paid off, refinanced or retired.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, Home shall not and shall not permit any of its subsidiaries
to undertake any act that would jeopardize the tax-free status of the
organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all or
part of the Home Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of the
Stockholder.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholder shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or
before the Funding and Consummation Date, and shall permit Home to review
all such Tax Returns prior to such filings. Unless the Company is a C
corporation, the Stockholder shall pay or cause to be paid all Tax
liabilities (in excess of all amounts already paid with respect thereto or
properly accrued or reserved with respect thereto on the Company Financial
Statements) shown by such Returns to be due.
(ii) Home shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund,
-41-
<PAGE>
determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all relevant
portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings
or other determinations by Taxing Authorities and relevant records
concerning the ownership and Tax basis of property, which such party may
possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any
documents or information so provided. Subject to the preceding sentence,
each party required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
(iv) Each of the Company, Newco, Home and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of Home, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholder, Home and Newco each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDER. The Stockholder covenants
and agrees that he will indemnify, defend, protect and hold harmless Home,
Newco, the Company and the Surviving Corporation at all times, from and after
the date of this Agreement until the Expiration Date (provided that for purposes
of Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by Home, Newco, the
Company or the Surviving Corporation as a result of or arising from (i) any
breach of the representations and warranties of the Stockholder or the Company
set forth herein or on the schedules or certificates delivered in connection
herewith, (ii) any breach of any agreement on the part of the Stockholder or the
Company under this Agreement, or (iii) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement of a material fact
relating to the Company or the Stockholder, and provided to Home or its counsel
by the Company or the Stockholder (but in the
-42-
<PAGE>
case of the Stockholder, only if such statement was provided in writing)
contained in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to the Company or the Stockholder required to be stated therein or
necessary to make the statements therein not misleading, provided, however, that
such indemnity shall not inure to the benefit of Home, Newco, the Company or the
Surviving Corporation to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the Stockholder provided, in writing, corrected
information to Home counsel and to Home for inclusion in the final prospectus,
and such information was not so included or properly delivered, and provided
further, that no Stockholder shall be liable for any indemnification obligation
pursuant to this Section 11.1 to the extent attributable to a breach of any
representation, warranty or agreement made herein individually by any other
Stockholder.
Home and Newco acknowledge and agree that other than the representations
and warranties of Company or Stockholder specifically contained in this
Agreement, there are no representations or warranties of Company or Stockholder,
either express or implied, with respect to the transactions contemplated by this
Agreement, the Company or its assets, liabilities and business.
Home and Newco further acknowledge and agree that, should the Closing
occur, their sole and exclusive remedy with respect to any and all claims
relating to this Agreement and the transactions contemplated in this Agreement,
shall be pursuant to the indemnification provisions set forth in this Section
11. Home and Newco hereby waive, from and after the Closing, to the fullest
extent permitted under applicable law, any and all rights, claims and causes of
action they or any indemnified person may have against the Company or any
Stockholder relating to this Agreement or the transactions arising under or
based upon any federal, state, local or foreign statute, law, rule, regulation
or otherwise.
11.2 INDEMNIFICATION BY HOME. Home covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholder at all times from
and after the date of this Agreement until the Expiration Date, from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by the
Stockholder as a result of or arising from (i) any breach by Home or Newco of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
Home or Newco under this Agreement, (iii) any liabilities which the Stockholder
may incur due to Home's or Newco's failure to be responsible for the liabilities
and obligations of the Company as provided in Section 1 hereof (except to the
extent that Home or Newco has claims against the Stockholder by reason of such
liabilities); or (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to Home, Newco or any of the Other Founding Companies contained in
any preliminary
-43-
<PAGE>
prospectus, the Registration Statement or any prospectus forming a part thereof,
or any amendment thereof or supplement thereto, or arising out of or based upon
any omission or alleged omission to state therein a material fact relating to
Home or Newco or any of the Other Founding Companies required to be stated
therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing Indemnified Party, Indemnified
Party shall have the right to participate in such matter through counsel of its
own choosing and Indemnifying Party will reimburse the Indemnified Party for the
reasonable expenses of its counsel. After the Indemnifying Party has notified
the Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently pursues
such defense, the Indemnifying Party shall not be liable for any additional
legal expenses incurred by the Indemnified Party in connection with any defense
or settlement of such asserted liability, except (i) as set forth in the
preceding sentence and (ii) to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be reimbursed by
the Indemnifying Party for reasonable additional legal expenses and
out-of-pocket expenses. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person. Upon agreement as to
such settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to
-44-
<PAGE>
such claim and all additional costs of settlement or judgment. If the
Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party,
provided that, nothing herein shall be construed to limit the right of a party,
in a proper case, to seek injunctive relief for a breach of this Agreement. Any
indemnity payment under this Section 11 shall be treated as an adjustment to the
exchange consideration for tax purposes unless a final determination (which
shall include the execution of a Form 870-AD or successor form) with respect to
the indemnified party or any of its affiliate causes any such payment not to be
treated as an adjustment to the exchange consideration for U.S. Federal Income
Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. Home, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 shall not assert any claim for indemnification hereunder against
the Stockholder until such time as, and solely to the extent that, the aggregate
of all claims which such persons may have against such the Stockholder shall
exceed the greater of (a) 1.0% of the sum of (i) the cash paid to Stockholder
plus (ii) the value of the Home Stock delivered to Stockholder (calculated as
provided in this Section 11.5) or (b) $50,000 (the "Indemnification Threshold").
Stockholder shall not assert any claim for indemnification hereunder against
Home or Newco until such time as, and solely to the extent that, the aggregate
of all claims which Stockholder may have against Home or Newco shall exceed the
Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the Home Stock received by
-45-
<PAGE>
a Stockholder, Home Stock shall be valued at its initial public offering price
as set forth in the Registration Statement. It is hereby agreed that a
stockholder shall have the right to satisfy an indemnification obligation
through payment of a combination of stock and cash in proportion equal to the
proportion of stock and cash received by such stockholder in connection with the
Merger, valued as described immediately above, but shall also have the right to
satisfy any such obligation in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of Home and the
Company;
(ii) by the Stockholder or the Company (acting through its board of
directors), on the one hand, or by Home (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
March 31, 1998, unless the failure of such transactions to be consummated
is due to the willful failure of the party seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the
extent required to be performed by it prior to or on the Funding and
Consummation Date;
(iii) by the Stockholder or Company, on the one hand, or by Home, on
the other hand, if a material breach or default shall be made by the other
party in the observance or in the due and timely performance of any of the
covenants or agreements contained herein, and the curing of such default
shall not have been made on or before the Funding and Consummation Date or
by the Stockholder or the Company, if the conditions set forth in Section
8 hereof have not been satisfied or waived as of the Closing Date or the
Funding and Consummation Date, as applicable, or by Home, if the
conditions set forth in Section 9 hereof have not been satisfied or waived
as of the Closing Date or the Funding and Consummation Date, as
applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that during the period from the Closing Date to the Funding
and Consummation Date, this Agreement may be terminated only if the underwriting
agreement relating to the IPO is terminated in accordance with its terms.
-46-
<PAGE>
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholder will not, for a period of five
(5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any retail (new or used, but excluding used home lots
or other activities listed on Schedule 13.1 hereto) manufactured housing
business or operation or related services business (including the
ownership or management of manufactured housing subdivisions, lots or
parks, but excluding any such subdivisions, lots or parks or other
activities listed on Schedule 13.1 hereto) in direct competition with Home
or any of the subsidiaries thereof, within 100 miles of where the Company
or any of its subsidiaries conducted business prior to the effectiveness
of the Merger (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Home or any subsidiary thereof for the purpose
or with the intent of enticing such employee away from or out of the
employ of Home or any subsidiary thereof;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to the Funding and Consummation
Date, a customer of Home or any subsidiary thereof, of the Company or of
any of the Other Founding Companies within the Territory for the purpose
of soliciting or selling products or services in direct competition with
Home within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the retail
manufactured housing business, which candidate, to the actual knowledge of
such Stockholder after due inquiry, was called upon by Home or any
subsidiary thereof or for which, to the actual knowledge of such
Stockholder after due inquiry, Home or any subsidiary thereof made an
acquisition analysis, for the purpose of acquiring such entity; or
-47-
<PAGE>
(v) disclose customers, whether in existence or proposed, of the
Company to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the Company has in
the past disclosed such information to the public for valid business
reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit (i) any Stockholder from acquiring as a passive investment not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange or over-the-counter, or (ii) any of
the activities listed on Schedule 13.1 hereto.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
Home as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Home for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Home in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholder in light of the activities and business of Home and the subsidiaries
thereof on the date of the execution of this Agreement and the current plans of
Home; but it is also the intent of Home and the Stockholder that such covenants
be construed and enforced in accordance with the changing activities; business
and locations of Home and its subsidiaries throughout the term of this covenant.
During the term of this covenant, if Home or one of its subsidiaries engages in
new activities, enters a new business or establishes new locations for its
current activities or business in addition to or other than the activities or
business it is currently conducting in the locations currently established
therefor (provided such activities or business are related to the business or
operations of the retail manufactured housing business), then the Stockholder
will be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly competing
with such new activities or business within 100 miles of its then-established
operating location(s) through the term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Home or any subsidiary thereof, whether
-48-
<PAGE>
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Home of such covenants. The covenants contained in Section 13
shall not be affected by any breach of any other provision hereof by any party
hereto and shall have no effect if the transactions contemplated by this
Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholder hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDER. The Stockholder recognizes and acknowledges that he had
in the past, currently has, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or Home, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or Home's respective businesses. The Stockholder agrees that he
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of Home, (b) following the Closing,
such information may be disclosed by the Stockholder as is required in the
course of performing his duties for Home or the Surviving Corporation and (c) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1, unless (i) such
information becomes known to the public generally through no fault of the
Stockholder, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the Stockholder shall, if possible, give prior
written notice thereof to Home and provide Home with the opportunity to contest
such disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by the
Stockholder of the provisions of this Section 14.1, Home shall be entitled to an
injunction restraining the Stockholder from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
Home from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages. In the event the transactions
contemplated by this Agreement are not consummated, Stockholder shall have none
of the above-mentioned restrictions on his ability to disseminate confidential
information with respect to the Company. The Stockholder further agrees that in
the event the transactions contemplated herein are not consummated (i) neither
the Company nor any Stockholder can thereafter use any confidential information
of the Other Founding Companies for any purpose and (ii) upon written request of
any Other Founding Company to the Company, the Company and Stockholder will
return all confidential information pertaining to such Other Founding Company to
such Other Founding Company.
14.2 HOME AND NEWCO. Home and Newco recognize and acknowledge that they
had in the past and currently have access to certain confidential information of
the Company, such as
-49-
<PAGE>
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Company's business. Home and Newco agree that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, they will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
Home or Newco, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii), Home and Newco shall, if possible,
give prior written notice thereof to the Company and the Stockholder and provide
the Company and the Stockholder with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, and (d) to the public to the extent necessary or advisable in connection
with the filing of the Registration Statement and the IPO and the securities
laws applicable thereto and to the operation of Home as a publicly held entity
after the IPO. In the event of a breach or threatened breach by Home or Newco of
the provisions of this Section 14.2, the Company and the Stockholder shall be
entitled to an injunction restraining Home and Newco from disclosing, in whole
or in part, such confidential information. Nothing herein shall be construed as
prohibiting the Company and the Stockholder from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by Home, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or trusts for the benefit of the Stockholder or
family members, the trustees of which so agree), for a period of one year from
the Closing, except pursuant to Section 17 hereof, the Stockholder shall not
sell, assign, exchange, transfer, encumber, pledge, distribute, appoint, or
otherwise dispose of any shares of Home Stock received by the Stockholder in the
Merger. The certificates evidencing the Home Stock delivered to the Stockholder
pursuant to Section 3 of this Agreement will bear a
-50-
<PAGE>
legend substantially in the form set forth below and containing such other
information as Home may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholder acknowledges that the shares of
Home Stock to be delivered to the Stockholder pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The Home Stock to be acquired by such Stockholder pursuant to this
Agreement is being acquired solely for his own respective account, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholder
covenants, warrants and represents that none of the shares of Home Stock issued
to the Stockholder will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the Home Stock shall bear the following legend in addition to the
legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholder is able to bear the
economic risk of an investment in the Home Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the proposed investment in the
Home Stock. The Stockholder has had an adequate opportunity to ask questions and
receive answers from the officers of Home concerning any and all matters
relating to the transactions described herein including, without limitation, the
background and experience of the current and
-51-
<PAGE>
proposed officers and directors of Home, the plans for the operations of the
business of Home, the business, operations and financial condition of the
Founding Companies other than the Company, and any plans for additional
acquisitions and the like. The Stockholder has asked any and all questions in
the nature described in the preceding sentence and all questions have been
answered to his satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever Home proposes to register any Home Stock for its own or others account
under the 1933 Act for a public offering, other than (i) any shelf or other
registration of shares to be used as consideration for acquisitions of
additional businesses by Home and (ii) registrations relating to employee
benefit plans, Home shall give the Stockholder prompt written notice of its
intent to do so. Upon the written request of the Stockholder given within 30
days after receipt of such notice, Home shall cause to be included in such
registration all of the Home Stock issued to the Stockholder pursuant to this
Agreement (including any stock issued as (or issuable upon the conversion or
exchange of any convertible security, warrant, right or other security which is
issued by Home as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Home Stock) which any such Stockholder
requests, provided that Home shall have the right to reduce the number of shares
included in such registration to the extent that inclusion of such shares could,
in the written opinion of tax counsel to Home or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as a tax-free organization under Section 351 of the Code.
In addition, if Home is advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 17.1 that the number of shares
to be sold by persons other than Home is greater than the number of such shares
which can be offered without adversely affecting the offering, Home may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares held by such person) to a number deemed satisfactory
by such managing underwriter, provided, that, for each such offering made by
Home after the IPO, such reduction shall be made first by reducing the number of
shares to be sold by persons other than Home, the Stockholder and the
stockholders of the Other Founding Companies (collectively, the Stockholder and
the stockholders of the other Founding Companies being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of Home Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements which have not been
previously registered or sold and which are not entitled to be sold under Rule
144(k) (or any similar or successor provision) promulgated under the 1933 Act
may request in writing that Home file a registration statement under the 1933
Act covering the registration of the
-52-
<PAGE>
shares of Home Stock issued to the Stockholder pursuant to this Agreement and
the Other Agreements (including any stock issued as (or issuable upon the
conversion or exchange of any convertible security, warrant, right or other
security which is issued by Home as) a dividend or other distribution with
respect to, or in exchange for, or in replacement of such Home Stock) then held
by such Founding Stockholders (a "Demand Registration"). Within ten (10) days of
the receipt of such request, Home shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from any Stockholder, file and use its
best efforts to cause to become effective a registration statement covering all
such shares. Home shall be obligated to effect only one Demand Registration for
all Founding Stockholders and will keep such Demand Registration current and
effective for not less than 120 days (or such shorter period as is required to
sell all of the shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of Home's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which
Home would otherwise be required to make such filing pursuant to the foregoing
paragraph.
If at the time of any request by the Founding Stockholders for a Demand
Registration Home has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' Home
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless Home is no longer proceeding
diligently to effect such registration; provided that Home shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by Home
as a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever Home is required to register shares
of Home Stock pursuant to Sections 17.1 and 17.2, Home will, as expeditiously as
possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, Home will
furnish a representative of the Stockholder with copies of all such documents
proposed to be filed) as promptly as practical;
-53-
<PAGE>
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholder, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that Home shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of Home Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
Home are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that Home is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, Home will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by Home.
17.4 INDEMNIFICATION.
(a) In connection with any demand registration, Home shall indemnify, to
the extent permitted by law, each Stockholder (an "Indemnified Party") against
all losses, claims, damages, liabilities and expenses arising out of or
resulting from any untrue or alleged untrue statement of material fact contained
in any registration statement, prospectus or preliminary prospectus or
associated term sheet or any omission or alleged omission to state therein a
material fact required
-54-
<PAGE>
to be stated therein or necessary to make the statements therein not misleading
except insofar as the same are caused by or contained in or omitted from any
information furnished in writing to Home by such Indemnified Party expressly for
use therein or by any Indemnified Parties' failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after Home has furnished such Indemnified Party with a sufficient number of
copies of the same.
(b) In connection with any demand registration, each Stockholder shall
furnish to Home in writing such information as is reasonably requested by Home
for use in any such registration statement or prospectus and will indemnify, to
the extent permitted by law, Home, its directors and officers and each person
who controls Home (within the meaning of the 1933 Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or alleged
untrue statement or material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement or prospectus
or any amendment thereof or supplement thereto necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
omission is contained in information so furnished in writing by such Stockholder
specifically for use in preparing the registration statement. Notwithstanding
the foregoing, the liability of a Stockholder under this Section 17.5 shall be
limited to an amount equal to the net proceeds actually received by such
Stockholder from the sale of the relevant shares covered by the registration
statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified parties' reasonable
judgment, a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. Any failure to give prompt notice shall deprive a party of
its right to indemnification hereunder only to the extent that such failure
shall have adversely effected the indemnifying party. If the defense of any
claim is assumed, the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled or elects not,
to assume the defense of a claim, will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party, a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, Home and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of Home's size and investment stature,
including indemnification.
-55-
<PAGE>
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of Home stock
to the public without registration, Home agrees to use its best efforts to:
(i) make and keep public information regarding Home available as
those terms are understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of Home under the 1933 Act and the 1934 Act at any time
after it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted Home Common
Stock, furnish to each Stockholder forthwith upon written request a
written statement by Home as to its compliance with the reporting
requirements of Rule 144 (at any time from and after 90 days following the
effective date of the Registration Statement, and of the 1933 Act and the
1934 Act (any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
Home, and such other reports and documents so filed as a Stockholder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Stockholder to sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholder, Home and Newco shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The Company will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the Company
cooperate with Home on and after the Funding and Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any tax
return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Funding
and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Home, and the heirs and legal representatives of the Stockholder.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholder, the
Company, Newco and Home and supersede any prior
-56-
<PAGE>
agreement and understanding relating to the subject matter of this Agreement.
This Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended only by a written instrument executed by the Stockholder, the Company,
Newco and Home, acting through their respective officers or trustees, duly
authorized by their respective Boards of Directors. Any disclosure made on any
Schedule delivered pursuant hereto shall be deemed to have been disclosed for
purposes of any other Schedule required hereby, provided that the Company shall
make a good faith effort to cross reference disclosure, as necessary or
advisable, between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, Home will pay the fees, expenses and disbursements of Home
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by Home under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other
person or entity retained by Home or by Notre Capital Ventures II, L.L.C., and
the costs of preparing the Registration Statement. Each Stockholder shall pay
all sales, use, transfer, real property transfer, recording, gains, stock
transfer and other similar taxes and fees ("Transfer Taxes") imposed in
connection with the Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. Each Stockholder shall file all necessary documentation and
Returns with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or Home, will pay all taxes due upon
receipt of the consideration payable pursuant to Section 2 hereof. The
Stockholder acknowledges that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholder is relying solely on
the opinion contemplated by Section 8.12 hereof.
(b) In the event that the Funding and Consummation Date occurs, then
Home will reimburse the Stockholder and the stockholders of Other Founding
Companies for incremental and direct accounting costs and expenses incurred by
them in connection with the Merger and IPO and such additional accounting and
legal expenses incurred by them in connection therewith as may be approved by
Home.
-57-
<PAGE>
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to Home, or Newco, addressed to them at:
Home USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: Cary N. Vollintine
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Stockholder, addressed to him at his address set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
with copies to Local Counsel:
George Thacker
Thacker, Bickel, Hodskins & Thacker LLP
209 West Fourth Street, P. O. Box 39
Owensboro, KY 42302-0039
-58-
<PAGE>
(c) If to the Company, addressed to it at:
Home Folks Housing Center, Inc.
2727 Highway 60 East
Owensboro, KY 42303
Attn: Dick Berry
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
-59-
<PAGE>
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of Home, Newco, the Company and Stockholder. Any amendment or
waiver effected in accordance with this Section 18.15 shall be binding upon each
of the parties hereto, any other person receiving Home Stock in connection with
the Merger and each future holder of such Home Stock.
-60-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
HOMEUSA, INC.
By:
Cary N. Vollintine
Chief Executive Officer
HOME FOLKS HOUSING CENTER
ACQUISITION CORP.
By:
Name:
Title:
HOME FOLKS HOUSING CENTER, INC.
By:
Name:
Title:
-61-
<PAGE>
Stockholder:
Dick Berry
-62-
<PAGE>
SCHEDULE 6.9
None.
-63-
EXHIBIT 10.9
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 10th day of September, 1997
by and among
HOMEUSA, INC.
COOPER'S MOBILE HOMES ACQUISITION CORP.
PAC WEST MANAGEMENT ACQUISITION CORP.
HUSAI ACQUISITION CORP.
(each a subsidiary of HomeUSA, Inc.)
COOPER'S MOBILE HOMES, INC.
PAC WEST MGMT., INC.
HOMEUSA, INC.
and
the STOCKHOLDERS named herein
-2-
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 Delivery and Filing of Articles of Merger........................5
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-laws
and Board of Directors of Surviving Corporation..................6
1.4 Certain Information With Respect to the Capital Stock
of the Company, Home and Newco...................................6
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 Manner of Conversion.............................................8
3. DELIVERY OF MERGER CONSIDERATION.......................................9
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS..................................................10
(A) Representations and Warranties of the Company
and the Stockholders......................................10
5.1 Due Organization................................................10
5.2 Authorization...................................................10
5.3 Capital Stock of the Company....................................11
5.4 Transactions in Capital Stock, Organization Accounting..........11
5.5 No Bonus Shares.................................................11
5.6 Subsidiaries....................................................11
5.7 Predecessor Status; etc.........................................11
5.8 Spin-off by the Company.........................................12
5.9 Financial Statements............................................12
5.10 Liabilities and Obligations.....................................12
5.11 Accounts and Notes Receivable...................................13
5.12 Permits and Intangibles.........................................13
5.13 Environmental Matters...........................................13
5.14 Personal Property...............................................14
5.15 Significant Customers; Material Contracts and Commitments.......14
-i-
<PAGE>
5.16 Real Property...................................................15
5.17 Insurance.......................................................15
5.18 Compensation; Employment Agreements; Organized Labor Matters....16
5.19 Employee Plans..................................................16
5.20 Compliance with ERISA...........................................17
5.21 Conformity with Law; Litigation.................................18
5.22 Taxes...........................................................19
5.23 No Violations; No Consents Required, Etc.......................19
5.24 Government Contracts............................................20
5.25 Absence of Changes..............................................20
5.26 Deposit Accounts; Powers of Attorney............................21
5.27 Validity of Obligations.........................................21
5.28 Relations with Governments......................................22
5.29 Disclosure......................................................22
5.30 Prohibited Activities...........................................23
5.31 Dealer Agreements and Related Matters...........................23
5.32 No Retail Financing.............................................24
5.33 No Warranties or Insurance......................................24
5.34 No Interests In Other Businesses................................24
(B) Representations and Warranties of Stockholders......24
5.35 Authority; Ownership............................................24
5.36 Preemptive Rights...............................................24
5.37 No Intention to Dispose of Home Stock...........................25
6. REPRESENTATIONS OF HOME AND NEWCO.....................................25
6.1 Due Organization................................................25
6.2 Authorization...................................................25
6.3 Capital Stock of Home and Newco.................................25
6.4 Transactions in Capital Stock, Organization Accounting..........26
6.5 Subsidiaries....................................................26
6.6 Financial Statements............................................26
6.7 Liabilities and Obligations.....................................26
6.8 Conformity with Law; Litigation.................................26
6.9 No Violations...................................................27
6.10 Validity of Obligations.........................................27
6.11 Home Stock......................................................27
6.12 No Side Agreements..............................................28
6.13 Business; Real Property; Material Agreements....................28
6.14 Taxes...........................................................28
6.15 Absence of Changes..............................................28
-ii-
<PAGE>
6.16 Disclosure......................................................29
6.17 Private Offering................................................30
7. COVENANTS PRIOR TO CLOSING............................................30
7.1 Access and Cooperation; Due Diligence...........................30
7.2 Conduct of Business Pending Closing.............................31
7.3 Prohibited Activities...........................................31
7.4 No Shop.........................................................33
7.5 Notice to Bargaining Agents.....................................33
7.6 Agreements......................................................33
7.7 Notification of Certain Matters.................................33
7.8 Amendment of Schedules..........................................34
7.9 Cooperation in Preparation of Registration Statement............35
7.10 Final Financial Statements......................................35
7.11 Further Assurances..............................................35
7.12 Authorized Capital..............................................36
7.13 Compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "Hart-Scott-Rodino Act")..........36
7.14 Stockholders of Home............................................36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF
STOCKHOLDERS AND COMPANY..............................................36
8.1 Representations and Warranties; Performance of Obligations......37
8.2 Satisfaction....................................................37
8.3 No Litigation...................................................37
8.4 Opinion of Counsel..............................................37
8.5 Registration Statement..........................................37
8.6 Consents and Approvals..........................................37
8.7 Good Standing Certificates......................................38
8.8 No Material Adverse Change......................................38
8.9 Closing of IPO..................................................38
8.10 Secretary's Certificate.........................................38
8.11 Employment Agreements...........................................38
8.12 Tax Matters.....................................................38
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME AND NEWCO.................38
9.1 Representations and Warranties; Performance of Obligations......39
9.2 No Litigation...................................................39
9.3 Secretary's Certificate.........................................39
9.4 No Material Adverse Effect......................................39
9.5 Stockholders' Release...........................................39
-iii-
<PAGE>
9.6 Satisfaction....................................................40
9.7 Termination of Related Party Agreements.........................40
9.8 Opinion of Counsel..............................................40
9.9 Consents and Approvals..........................................40
9.10 Good Standing Certificates......................................40
9.11 Registration Statement..........................................40
9.12 Employment Agreements...........................................40
9.13 Closing of IPO..................................................41
9.14 FIRPTA Certificate..............................................41
10. COVENANTS OF HOME AND THE STOCKHOLDERS AFTER CLOSING..................41
10.1 Release From Guarantees; Repayment of Certain Obligations.......41
10.2 Preservation of Tax and Accounting Treatment....................41
10.3 Preparation and Filing of Tax Returns...........................41
10.4 Directors.......................................................42
11. INDEMNIFICATION.......................................................42
11.1 General Indemnification by the Stockholders.....................42
11.2 Indemnification by Home.........................................43
11.3 Third Person Claims.............................................44
11.4 Exclusive Remedy................................................45
11.5 Limitations on Indemnification..................................45
12. TERMINATION OF AGREEMENT..............................................46
12.1 Termination.....................................................46
12.2 Liabilities in Event of Termination.............................47
13. NONCOMPETITION........................................................47
13.1 Prohibited Activities...........................................47
13.2 Damages.........................................................48
13.3 Reasonable Restraint............................................48
13.4 Severability; Reformation.......................................48
13.5 Independent Covenant............................................49
13.6 Materiality.....................................................49
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................49
14.1 Stockholders....................................................49
14.2 Home and Newco..................................................50
14.3 Damages.........................................................50
14.4 Survival........................................................50
-iv-
<PAGE>
15. TRANSFER RESTRICTIONS.................................................50
15.1 Transfer Restrictions...........................................50
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................51
16.1 Compliance with Law.............................................51
16.2 Economic Risk; Sophistication...................................51
17. REGISTRATION RIGHTS...................................................52
17.1 Piggyback Registration Rights...................................52
17.2 Demand Registration Rights......................................53
17.3 Registration Procedures.........................................53
17.4 Indemnification.................................................55
17.5 Underwriting Agreement..........................................56
17.6 Rule 144 Reporting..............................................56
18. GENERAL...............................................................56
18.1 Cooperation.....................................................56
18.2 Successors and Assigns..........................................57
18.3 Entire Agreement................................................57
18.4 Counterparts....................................................57
18.5 Brokers and Agents..............................................57
18.6 Expenses........................................................57
18.7 Notices.........................................................58
18.8 Governing Law...................................................59
18.9 Survival of Representations and Warranties......................59
18.10 Exercise of Rights and Remedies.................................59
18.11 Time............................................................59
18.12 Reformation and Severability....................................59
18.13 Remedies Cumulative.............................................60
18.14 Captions........................................................60
18.15 Amendments and Waivers..........................................60
-v-
<PAGE>
APPENDICES AND ANNEXES
Appendix I - Mergers
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Certificate of Incorporation and By-Laws of Home
Annex IV - Certificate of Incorporation and By-Laws of Newco
Annex V - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex VI - Form of Opinion of Andrews & Kurth, LLP
Annex VII - Form of Key Employee Employment Agreement
-vi-
<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes 5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Dealer Agreements
5.32 No Retail Financing
5.33 No Warranties or Insurance
5.34 No Interests in Other Businesses
5.35 Authority; Ownership
6.9 No Violations
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
10.1 Guaranties
13.1 Lots Excluded from Noncompete
-vii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 10th day of September, 1997, by and among HOMEUSA, INC., a Delaware
corporation ("Home"), COOPER'S MOBILE HOMES ACQUISITION CORP., PAC WEST
MANAGEMENT ACQUISITION CORP. and HUSAI ACQUISITION CORP., each of which is a
Delaware corporation (collectively, "Newco", and individually, "each Newco"),
COOPER'S MOBILE HOMES, INC., PAC WEST MGMT., INC., and HOMEUSA, INC., each of
which is a Washington corporation (collectively, the "Company", and
individually, "each Company"), and RANDY COOPER AND DENISE COOPER (the
"Stockholders"). The Stockholders are all the stockholders of the Company.
RECITALS
WHEREAS, each Newco is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on
September 8, 1997 solely for the purpose of completing the transactions
set forth herein, and is a wholly-owned subsidiary of Home, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of each Newco and each
Company (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of
the Constituent Corporations and their respective Stockholders that each
Newco merge with and into each Company as set forth on Appendix I hereto
pursuant to this Agreement and the applicable provisions of the laws of
the State of Delaware and the State or States of Incorporation;
WHEREAS, Home is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional retail manufactured housing
companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"Home Plan of Organization;"
WHEREAS, the Stockholders and the Boards of Directors and the
stockholders of Home, each of the Other Founding Companies and each of the
subsidiaries of Home that are parties to the Other Agreements have
approved and adopted the Home Plan of Organization as an integrated plan
pursuant to which the Stockholders and the stockholders of each of the
other Founding Companies will transfer the capital stock of each of the
Founding Companies
-1-
<PAGE>
to Home and the Stockholders of each of the other Founding Companies will
acquire the stock of Home (but not cash or other property) as a tax-free
transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of each
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the Home Plan of Organization in
order to transfer the capital stock of such Company to Home;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means each Company, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" shall mean each Newco and each of the other
Delaware companies wholly-owned by Home prior to the Funding and Consummation
Date.
"Affiliates" means, with respect to any Person, any Person or entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Mergers in such forms as may be required by the laws of the
State of Delaware and the State or States of Incorporation.
"Balance Sheet Date" shall mean June 30, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
-2-
<PAGE>
"Company Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the draft dated September 5, 1997 of
the Registration Statement, and any corrections thereto and supplemental
information delivered by Home to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to Home.
"Effective Time of the Merger" shall mean the time as of which each Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Cooper's Mobile Homes, Inc., a Washington corporation, Home USA,
Inc., a Washington corporation, and Pac West Mgmt., Inc., a Washington
corporation.
CSF&T, Inc. (dba AAA Homes), a Mississippi corporation, AAA Homes,
L.L.C., a Louisiana limited liability company, and Fordham Insurance
Agency, Inc., a Mississippi corporation.
First American Homes, Inc., an Alabama corporation, D & S, Inc., an
Alabama corporation, and Son Development Corporation, an Alabama
corporation.
Home Folks Housing Center, Inc., a Kentucky corporation.
McDonald Homes, Inc., an Oklahoma corporation.
Mobile World, Inc., a Texas corporation, and Showcase of Homes,
Inc., a Texas corporation.
Patrick Home Center, Inc., a Mississippi corporation.
Universal Housing, Inc., a Tennessee corporation, Shaffer & Webb
Insurance Agency, Inc., a Tennessee corporation, and Universal Housing of
East TN, Inc., a Tennessee corporation.
Willmax Homes of Colorado LLC, a Colorado limited liability company.
-3-
<PAGE>
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of Home Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Company" means the actual knowledge of the executive
officers of the Company.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of each Newco with and into each Company as set
forth on Appendix I hereto pursuant to this Agreement and the applicable
provisions of the laws of the State of Delaware and the laws of the State or
States of Incorporation.
"Home" has the meaning set forth in the first paragraph of this Agreement.
"Home Charter Documents" has the meaning set forth in Section 6.1.
"Home Stock" means the common stock, par value $.01 per share, of Home.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by Home and the Underwriters of
the public offering price of the shares of Home Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Home Stock to be issued in
the IPO and all amendments thereto.
-4-
<PAGE>
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Washington.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean each Company as the surviving party in
each Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to Home to be held for filing with the
-5-
<PAGE>
Secretary of State of the State of Delaware and the Secretary of State (or other
appropriate authority) of the State or States of Incorporation on or effective
as of the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
each Newco shall be merged with and into each Company as set forth on Appendix I
hereto in accordance with the respective Articles of Merger, the separate
existence of each Newco shall cease, each Company shall be the surviving party
in the respective Merger and each Company is sometimes hereinafter referred to
as the Surviving Corporation. The Mergers will be effected in a single
transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of each Company then in effect
shall be the Certificate of Incorporation of the respective Surviving
Corporation until changed as provided by law;
(ii) the By-laws of each Newco then in effect shall become the
By-laws of the respective Surviving Corporation; and subsequent to the
Effective Time of each Merger, such By-laws shall be the By-laws of the
respective Surviving Corporation until they shall there after be duly
amended (and such By-laws shall be amended from time to time, if
necessary, to comply with applicable state law);
(iii) the Board of Directors of the respective Surviving Corporation
shall consist of the persons who are on the Board of Directors of each
Company immediately prior to the Effective Time of the Mergers, provided
that Cary N. Vollintine shall become an additional director of each
Surviving Corporation effective as of the Effective Time of the Merger,
and the number of directors constituting the entire Board of Directors of
each Surviving Corporation shall be increased, if necessary, to
accommodate the addition of such additional director; the Board of
Directors of each Surviving Corporation shall hold office subject to the
provisions of the laws of the State or States of Incorporation and of the
Certificate of Incorporation and By-laws of the respective Surviving
Corporation; and
(iv) the officers of each Company immediately prior to the Effective
Time of the Mergers shall continue as the officers of the respective
Surviving Corporation in the same capacity or capacities, and effective
upon the Effective Time of the Mergers Michael Loy shall become an
additional Vice President of each Surviving Corporation, such officers to
serve, subject to the provisions of the Certificate of Incorporation and
By-laws of the respective Surviving Corporation, until their respective
successors are duly elected and qualified.
-6-
<PAGE>
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
HOME AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of each Company,
Home and each Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of each Company is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof,
the authorized capital stock of Home will consist of 50,000,000 shares of
Home Stock, of which the number of issued and outstanding shares will be
set forth in the Registration Statement, 5,000,000 shares of preferred
stock, $.01 par value, of which no shares will be issued and outstanding,
and 5,000,000 shares of Restricted Voting Common Stock, $.01 par value
(the "Restricted Common Stock"), all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement;
and
(iii) as of the date of this Agreement, the authorized capital stock
of each Newco consists of 1,000 shares of Newco Stock, of which one
hundred (100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Mergers, the effect of
each Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State or States of Incorporation. Except as herein specifically set forth, the
identity, existence, purposes, powers, franchises, privileges, rights and
immunities of each Company shall continue unaffected and unimpaired by the
Mergers and the corporate franchises, existence and rights of each Newco shall
be merged with and into the respective Company, and the respective Company, as
the Surviving Corporation, shall be fully vested therewith. At the Effective
Time of the Mergers, the separate existence of each Newco shall cease and, in
accordance with the terms of this Agreement, the respective Surviving
Corporation shall possess all the rights, privileges, immunities and franchises,
of a public, as well as of a private, nature, and all property, real, personal
and mixed, and all debts due on whatever account, including subscriptions to
shares, and all taxes, including those due and owing and those accrued, and all
other choses in action, and all and every other interest of or belonging to or
due to the respective Company and respective Newco shall be transferred to, and
vested in, the respective Surviving Corporation without further act or deed; and
all property, rights and privileges, powers and franchises and all and every
other interest shall be thereafter as effectually the property of the respective
Surviving Corporation as they were of the respective Company and respective
Newco; and the title to any real estate, or interest therein, whether by deed or
otherwise, under the laws of the State or States of Incorporation vested in the
respective Company and respective Newco, shall not revert or be in any way
impaired by reason of the Mergers. Except as otherwise provided herein, the
respective
-7-
<PAGE>
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the respective Company and respective Newco and
any claim existing, or action or proceeding pending, by or against the
respective Company or respective Newco may be prosecuted as if the Merger had
not taken place, or the respective Surviving Corporation may be substituted in
their place. Neither the rights of creditors nor any liens upon the property of
the respective Company or respective Newco shall be impaired by the Merger, and
all debts, liabilities and duties of the respective Company and respective Newco
shall attach to the respective Surviving Corporation, and may be enforced
against such Surviving Corporation to the same extent as if said debts,
liabilities and duties had been incurred or contracted by such Surviving
Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) Home Stock and cash and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of Home Stock set forth on Annex I hereto (adjusted as
set forth on such Annex I) with respect to such holder and (2) the right
to receive the amount of cash set forth on Annex I hereto with respect to
such holder (adjusted as set forth on such Annex I);
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of Home Stock
or other consideration shall be delivered or paid in exchange therefor;
and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger
and without any action on the part of Home, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All Home Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding Home
Stock by reason of the provisions of the Certificate of Incorporation of Home or
as otherwise provided by the Delaware GCL. All Home Stock received
-8-
<PAGE>
by the Stockholders shall be issued and delivered to the Stockholders free and
clear of any liens, claims or encumbrances of any kind or nature. All voting
rights of such Home Stock received by the Stockholders shall be fully
exercisable by the Stockholders and the Stockholders shall not be deprived nor
restricted in exercising those rights. At the Effective Time of the Merger, Home
shall have no class of capital stock issued and outstanding other than the Home
Stock and the Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
number of shares of Home Stock and the amount of cash described on Annex I
hereto, said cash to be payable by certified check or wire transfer.
3.2 The Stockholders shall deliver to Home at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The
Stockholders agree promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such Company Stock or with respect to the stock powers accompanying
any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to Home for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and certified check(s) referred to in
Section 3 hereof, each of which actions shall only be taken upon the Funding and
Consummation Date as herein provided. In the event that there is no Funding and
Consummation Date and this Agreement automatically terminates as provided in
this Section 4 the Articles of Merger shall not be filed and shall be returned
to the Stockholders. The taking of the actions described in clauses (i) and (ii)
above (the "Closing") shall take place on the closing date (the "Closing Date")
at the offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares, the delivery of a certified check or checks in an amount
equal to the cash portion of the consideration which the Stockholders shall be
entitled to receive pursuant to the Merger referred to in Section 3 hereof and
(z) the closing with respect to the IPO shall occur
-9-
<PAGE>
and be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occurs shall be referred to as the "Funding and
Consummation Date." During the period from the Closing Date to the Funding and
Consummation Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall also in any event
automatically terminate if the Funding and Consummation Date has not occurred
within 15 business days following the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
Each Company, and the Stockholders severally (based on their relative
ownership of the Company Stock on the date hereof) represent and warrant that
all of the following representations and warranties in this Section 5(A) are
true at the date of this Agreement and, subject to Section 7.8 hereof, shall be
true at the time of Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the warranties and representations set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Funding and Consummation Date, which shall
be deemed to be the Expiration Date for Section 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
their subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company taken as a whole (as used herein with respect to the Company, or
with respect to any other Person, a "Material Adverse Effect"). Schedule 5.1
sets forth a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and correct copies of (i) the
Certificate of Incorporation and By-laws, each as amended, of the Company (the
"Charter Documents"), and (ii) the stock records of the Company, are all
attached to Schedule 5.1. The Company has delivered complete and correct copies
of all minutes of meetings, written consents and other evidence, if any, of
deliberations of or actions taken by the Company's Board of Directors and
stockholders during the last five years.
-10-
<PAGE>
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the Company
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Annex II. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Stockholders and further, such shares were offered, issued, sold and delivered
by the Company in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Merger and/or the Home Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the Home Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the
-11-
<PAGE>
Company previously acquired material assets, in any case, from the earliest date
upon which any Stockholder acquired his or her stock in any Company. Except as
disclosed on Schedule 5.7, the Company has not been, within such period of time,
a subsidiary or division of another corporation or a part of an acquisition
which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Complete and correct copies of the following
financial statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31, 1996 and
1995 and the related statements of operations, stockholder's equity and
cash flows for the years ended December 31, 1996, 1995 and 1994, together
with the related notes and schedules (such balance sheets, the related
statements of operations, stockholder's equity and cash flows and the
related notes and schedules are referred to herein as the "Year-end
Financial Statements"); and
(ii) the balance sheet (the "Interim Balance Sheet") of the Company
as of June 30, 1997 (the "Balance Sheet Date") and the related statements
of operations, stockholder's equity and cash flows for the six-month
periods ended June 30, 1997 and 1996, together with the related notes and
schedules (such balance sheets, the related statements of operations,
stockholder's equity and cash flows and the related notes and schedules
are referred to herein as the "Interim Financial Statements"). The
Year-end Financial Statements and the Interim Financial Statements are
collectively called the "Financial Statements".
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all liabilities of the Company of a
nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
best knowledge of the Company and the Stockholders, except as set forth on
Schedule 5.10, since the Balance Sheet Date the Company has not incurred any
material liabilities of any kind, character or description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than liabilities
incurred in the ordinary course of business. The Company has also delivered to
Home on Schedule 5.10, in the case of those contingent liabilities related to
pending or threatened litigation, or other liabilities which are not fixed, a
good faith and reasonable estimate of the maximum amount which the Company
reasonably expects will be payable and the amount,
-12-
<PAGE>
if any, accrued or reserved for each such potential liability on the Company's
Financial Statements; in the case of any such liability for which no estimate
has been provided, the estimate for purposes of this Agreement shall be deemed
to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholders, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to Home an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, including any trademarks,
trade names, patents, patent applications and copyrights owned or held by the
Company or any of its employees (including interests in software or other
technology systems, programs and intellectual property) (it being understood and
agreed that a list of environmental permits and other environmental approvals is
set forth on Schedule 5.13). At or prior to the Closing, all such trademarks,
trade names, patents, patent applications, copyrights and other intellectual
property will be assigned or licensed to the Company for no additional
consideration. To the best knowledge of the Company, the Licenses and other
rights listed on Schedules 5.12 and 5.13 are valid, and the Company has not
received any notice that any person intends to cancel, terminate or not renew
any such License or other right. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Licenses and other rights listed on Schedules 5.12 and 5.13 and
is not in violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the Company. Except as
specifically provided in Schedule 5.12, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to the Company by, any such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have any Material Adverse Effect on the Company or its
business, (i) the Company has complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to any of them or any of their respective properties, assets,
operations and businesses relating to environmental protection (collectively
"Environmental Laws") including, without limitation, Environmental Laws relating
to air, water, land and the generation, storage, use, handling, transportation,
treatment or disposal of Hazardous Wastes, Hazardous Materials and Hazardous
Substances (as such terms are defined in any
-13-
<PAGE>
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (ii) the Company has obtained and adhered
to all necessary permits and other approvals necessary to treat, transport,
store, dispose of and otherwise handle Hazardous Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled. There
have been no releases or threats of releases (as these terms are defined in
Environmental Laws) of any Hazardous Materials at, from, in or on any property
owned or operated by the Company except as permitted by Environmental Laws, and
to the best knowledge of the Company and the Stockholders, there is no on-site
or off-site location to which the Company has transported or disposed of
Hazardous Materials or arranged for the transportation of Hazardous Materials
which is the subject of any Federal, state, local or foreign enforcement action
or any other investigation which could lead to any claim against the Company,
Home or Newco for any clean-up cost, remedial work, damage to natural resources,
property damage or personal injury, including, but not limited to, any claim
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, the Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act or comparable state or local statutes or
regulations. The Company has no contingent liability in connection with any
release of any Hazardous Materials into the environment that would have a
Material Adverse Effect.
5.14 PERSONAL PROPERTY. The Company has delivered to Home an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company, (y) all other personal property owned by the
Company with an individual value in excess of $25,000 (i) as of the Balance
Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material
leases and agreements in respect of personal property, including, in the case of
each of (x), (y) and (z), (1) true, complete and correct copies of all such
leases and (2) an indication as to which assets are currently owned, or were
formerly owned, by Stockholders, relatives of Stockholders, or Affiliates of the
Company. Except as set forth on Schedule 5.14, (i) all material personal
property used by the Company in its business is either owned by the Company or
leased by the Company pursuant to a lease included on Schedule 5.14, (ii) all of
the personal property listed on Schedule 5.14 is in good working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 5% or more of the
Company's annual revenues for any period covered by any of the Financial
Statements. Except to the extent set forth on Schedule 5.15, none of such
customers have canceled or substantially reduced or, to the knowledge of the
Company, are
-14-
<PAGE>
currently attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to Home. For purposes of this Section 5.17, Material Contracts
includes contracts between the Company and significant customers, joint venture
or partnership agreements, contracts with any labor organization, strategic
alliances, options to purchase land and other contracts which are not terminable
on sixty days or less notice and involve payments by the Company in any twelve
month period in excess of $25,000. The Company has also indicated on Schedule
5.15 a summary description of all plans or projects involving the opening of new
operations, expansion of existing operations, the acquisition of any personal
property, business or assets requiring, in any event, the payment of more than
$25,000 by the Company during any 12-month period.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on terms reasonably acceptable to Home and leased
back by the Company on terms no less favorable to the Company than those
available from an unaffiliated party and otherwise reasonably acceptable to Home
at or prior to the Closing Date. The Company has good and insurable title to any
real property owned by it that is not shown on Schedule 5.16 as property
intended to be sold or distributed prior to the Closing Date, subject to no
mortgage, pledge, lien, conditional sales agreement, encumbrance or charge,
except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, all
-15-
<PAGE>
of such leases included on Schedule 5.16 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their respective terms.
5.17 INSURANCE. The Company has delivered to Home (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the best knowledge of the Company provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect and shall, to the best knowledge of the
Company, remain in full force and effect through the Funding and Consummation
Date. Since January 1, 1995, no insurance carried by the Company has been
canceled by the insurer and the Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The Company has provided to Home
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the best knowledge of the Company, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the best of the Company's knowledge, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years. The Company believes its relationship
with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to Home an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee
-16-
<PAGE>
benefit plans, if any, described on the Benefit Plans Schedule, the Company does
not sponsor, maintain or contribute to any plan program, fund or arrangement
that constitutes an "employee pension benefit plan", and the Company has no
obligation to contribute to or accrue or pay any benefits under any deferred
compensation or retirement funding arrangement on behalf of any employee or
employees (such as, for example, and without limitation, any individual
retirement account or annuity, any "excess benefit plan" (within the meaning of
Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) or any non-qualified deferred compensation arrangement). For the
purposes of this Agreement, the term "employee pension benefit plan" shall have
the same meaning as is given that term in Section 3(2) of ERISA. The Company has
not sponsored, maintained or contributed to any employee pension benefit plan
other than the plans set forth on the Benefit Plans Schedule, and the Company is
not required to contribute to any retirement plan pursuant to the provisions of
any collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's or any subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code are, and have been so qualified and have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination letters are
attached to the Benefit Plans Schedule. Except as disclosed on the Benefit Plans
Schedule, all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or tax returns) have
been timely filed or distributed, and copies thereof are included as part of the
Benefit Plans Schedule. Neither Stockholders, any such plan listed in the
Benefit Plans Schedule, nor the Company has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No such Plan listed in the Benefit Plans Schedule has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and the Company has not incurred any liability for
excise tax or penalty due to the Internal Revenue Service nor any liability to
the Pension Benefit Guaranty
-17-
<PAGE>
Corporation. The Stockholders further represent that except as set forth on the
Benefit Plans Schedule hereto:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
the Benefit Plans Schedule;
(iv) the Company has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the Company could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such
liability) with respect to any plan now or heretofore maintained or
contributed to by any entity other than the Company that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and, to the Knowledge of the
Company and the Stockholders, there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, orders, approvals,
variances, rules and regulations, including without limitation to the extent
applicable all regulations promulgated by the Department of Housing and Urban
Development under the National Manufactured Housing Construction and Safety
Standards Act, as amended, or otherwise, and all laws and regulations affecting
the sale of manufactured housing, on credit or otherwise, including the Federal
Consumer Credit Protection Act, the Federal
-18-
<PAGE>
Fair Credit Reporting Act, the Federal Equal Credit Opportunity Act, the
Consumer Credit Protection Act, the Fair Debt Collection Practices Act and the
regulations promulgated under the foregoing, and all state and local laws and
regulations of similar effect, and including all such orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, except where any
such noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. The Company has timely filed all requisite Federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other taxes (including penalties and interest) for any period
or periods prior to and including the Balance Sheet Date and no notice of any
claim for taxes, whether pending or threatened, has been received. All tax,
including interest and penalties (whether or not shown on any tax return) owed
by the Company or any of the Company's Subsidiaries has been paid. The amounts
shown as accruals for taxes on the Company Financial Statements are sufficient
for the payment of all taxes of the kinds indicated (including penalties and
interest) for all fiscal periods ended on or before that date. Copies of (i) any
tax examinations, (ii) extensions of statutory limitations and (iii) the federal
and local income tax returns and franchise tax returns of the Company for their
last three (3) fiscal years, or such shorter period of time as any of them shall
have existed, are attached hereto as Schedule 5.22 or have otherwise been
delivered to Home. The Company has disclosed to Home when its taxable year ends.
The Company uses the accrual method of accounting for income tax purposes, and
the Company's methods of accounting have not changed in the past five years. The
Company is not an investment Company as defined in Section 351(e)(1) of the
Code. The Company is not and has not during the last five years been a party to
any tax sharing agreement or agreement of similar effect. The Company is not and
has not during the last five years been a member of any consolidated group.
Except as described on Schedule 5.22, the Company has not received, been denied,
or applied for any private letter ruling during the last five years.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the best
knowledge of the Company, any other party thereto, is in default under any
lease, instrument, agreement, license, or permit set forth on Schedule 5.12,
5.13, 5.14, 5.15 or 5.16, or any other Material Contract (as defined in Section
5.15) to which it is a party or by which its properties are bound (the "Material
Documents") in any manner that could result in a Material Adverse Effect; and,
except as set forth in Schedule 5.23, (a) the rights and benefits of the Company
under the Material Documents will not be materially adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
Material Documents or the Charter Documents. Except as set forth on Schedule
5.23, none of the Material Documents requires notice to, or the consent or
approval of, any governmental agency or other third party with respect to any of
the transactions contemplated hereby
-19-
<PAGE>
in order to remain in full force and effect, and consummation of the
transactions contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit. Except as
set forth on Schedule 5.23, none of the Material Documents prohibits the use or
publication by the Company, Home or Newco of the name of any other party to such
Material Document, and none of the Material Documents prohibits or restricts the
Company from freely providing services to any other customer or potential
customer of the Company, Home, Newco or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any
grant by the Company of any options, warrants, calls, conversion rights or
commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
(v) any material increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the Company
to any of its officers, directors, Stockholders, employees, consultants or
agents, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the Company;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of Company to any person,
including, without limitation, the Stockholders and their Affiliates;
-20-
<PAGE>
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
(xii) any amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(xiii) any transaction by the Company outside the ordinary course of
its business;
(xiv) any cancellation or termination by the Company of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the Company
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
Home an accurate schedule (which is set forth on Schedule 5.26) as of the date
of this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
-21-
<PAGE>
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.28 RELATIONS WITH GOVERNMENTS. Except for legal contributions to
candidates for political office, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office, nor has it or any of them otherwise taken any action which would cause
the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended or any law of similar effect.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished to Home by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements herein and
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing does not apply to statements
contained in or omitted from any of such documents made or omitted in reliance
upon information furnished in writing by Home. If, prior to the 25th day after
the date of the final prospectus of Home utilized in connection with the IPO,
the Company or the Stockholders become aware of any fact or circumstance which
would affect the accuracy of a representation or warranty of Company or
Stockholders in this Agreement in any material respect, the Company and the
Stockholders shall immediately give notice of such fact or circumstance to Home.
Subject to the provisions of Section 7.8, such notification shall not relieve
either the Company or the Stockholders of their respective obligations under
this Agreement, and, subject to the provisions of Section 7.8, at the sole
option of Home, the truth and accuracy in all material respects of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on the
Funding and Consummation Date, shall be a precondition to the consummation of
this transaction.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that a Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither Home or any of its officers, directors, agents or representatives
nor any Underwriter shall have any liability to the Company, the Stockholders or
any other person affiliated or associated with the Company for any failure of
the Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Stockholders to enter
into this Agreement, or to vote in favor of or consent to the proposed Merger,
has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications, or
-22-
<PAGE>
due diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to Home or the prospective IPO.
Notwithstanding the foregoing, Home has agreed and herein acknowledges its
agreement to use its reasonable efforts to consummate the Home Plan of
Organization and IPO as contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
Company has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 DEALER AGREEMENTS AND RELATED MATTERS. Schedule 5.31 sets forth a
complete and accurate list of:
(i) all agreements of any nature (including "Dealer Agreements",
"Home Center Agreements", "Retailer Agreements", "Exclusive Retailer
Agreements", "General Conditions", "Action Plans" and other documents)
between the Company and any dealer, manufacturer, wholesaler or other
distributor (collectively, "Manufacturers") of manufactured housing units
(collectively, "Dealer Agreements"); and
(ii) all volume incentive, rebate and other similar programs of any
Manufacturer (collectively, "Dealer Programs") in which the Company is now
or has within the last three years been a participant.
Schedule 5.31 identifies the Manufacturer that is a party to each such Dealer
Agreement or that sponsors each such Dealer Program, and also identifies the
Company's sales locations subject to or affected by each such Dealer Agreement
and each such Dealer Program. Complete and accurate copies of all Dealer
Agreements and all Dealer Programs listed on Schedule 5.31 are attached to
Schedule 5.31. Except as set forth on Schedule 5.31, the Company is now and for
the last three years has been in compliance in all material respects with all
applicable provisions of the Dealer Agreements and Dealer Programs identified on
Schedule 5.31 and any similar agreements to which the Company has been a party
during the last three years. To the extent that the Company is required by any
Dealer Agreement or Dealer Program to take or refrain from taking specified
actions in order to qualify for the benefits offered thereby (such as the
benefits of an exclusive retailer agreement), the Company is in compliance in
all material respects with all such requirements (it being understood that the
Company is not hereby representing that it qualifies for the highest level of
incentive discounts or rebates offered by such Dealer Agreements or Dealer
Programs). Except as set forth on Schedule 5.31, within the last three years, no
Manufacturer has asserted any claim or right to any refund of any incentive
payment or rebate or other payment or discount granted to the Company by any
such Manufacturer, or any right to offset any amount against any future payment
due or otherwise due to the Company, and no circumstances exist that would
entitle any Manufacturer to make any such claim against the Company. During the
last three years, the Company has accurately calculated and reported to each
Manufacturer with which the Company has
-23-
<PAGE>
done business all financial and sales data that the Company is required to
report to each such Manufacturer, whether in connection with volume incentive or
rebate plans or otherwise.
5.32 NO RETAIL FINANCING. Except as set forth on Schedule 5.32, the
Company does not finance the sale to the Company's customers of manufactured
housing units or related products or services (collectively, "Product"), and is
not liable, directly or indirectly, contingently or otherwise, to any
Manufacturer or any financing source for all or any portion of the purchase
price of any Product that has been sold by the Company or delivered by the
Company to a retail purchaser.
5.33 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule 5.33, the
Company has not made any express warranties regarding any Products and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any payment
to or perform any service for any person other than routine matters described as
"Retailer Responsibilities", "Retailer General Installation and Home Delivery
Guidelines" and the like in the Dealer Agreements listed on Schedule 5.31.
5.34 NO INTERESTS IN OTHER BUSINESSES. Except as set forth on Schedule
5.34, neither the Company nor any Stockholder, nor any affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's sales of Product.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each Stockholder severally represents and warrants that the
representations and warranties set forth below as and to the extent relating to
such Stockholder are true as of the date of this Agreement and, subject to
Section 7.8 hereof, shall be true at the time of Closing and on the Funding and
Consummation Date, and that the representations and warranties set forth in
Sections 5.35 and 5.36 shall survive until the first anniversary of the Funding
and Consummation Date, which shall be the Expiration Date for purposes of
Sections 5.35 and 5.36.
5.35 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.35, such Company Stock is owned free and clear of all liens, security
interests, pledges, charges, voting agreements, voting trusts, restrictions,
encumbrances and claims of every kind.
5.36 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Home Stock
that such Stockholder
-24-
<PAGE>
has or may have had. Nothing herein, however, shall limit or restrict the rights
of any Stockholder to acquire Home Stock pursuant to (i) this Agreement or (ii)
any option granted by Home.
5.37 NO INTENTION TO DISPOSE OF HOME STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of Home Stock received as described in Section 3.1.
6. REPRESENTATIONS OF HOME AND NEWCO
Home and Newco jointly and severally represent and warrant that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at the time
of Closing and the Funding and Consummation Date, and that such representations
and warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that the warranties and representations set forth in Section 6.14 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 6.14.
6.1 DUE ORGANIZATION. Home and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. Home and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws of Home and Newco (the "Home Charter Documents") are
all attached hereto as Annexes III and IV.
6.2 AUTHORIZATION. (i) The respective representatives of Home and Newco
executing this Agreement have the authority to enter into and bind Home and
Newco to the terms of this Agreement and (ii) Home and Newco have the full legal
right, power and authority to enter into this Agreement and consummate the
Merger. All corporate acts and other proceedings required to have been taken by
Home and Newco to authorize the execution, delivery and performance of this
Agreement and the consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF HOME AND NEWCO. The authorized capital stock of Home
and Newco is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding shares of the capital stock of Newco are owned by
Home. All of the issued and outstanding shares of the capital stock of Home and
Newco have been duly authorized and validly issued, are fully paid and
nonassessable, and further, such shares were offered, issued, sold and delivered
by Home and Newco in compliance with all applicable state and Federal laws
concerning the issuance of
-25-
<PAGE>
securities. Further, none of such shares were issued in violation of the
preemptive rights of any past or present stockholder of Home or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in the Draft Registration Statement,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates Home or Newco to issue any of their respective authorized but
unissued capital stock; and (ii) neither Home nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of Home.
6.5 SUBSIDIARIES. Newco has no subsidiaries. Home has no subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither Home
nor Newco presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, and
neither Home nor Newco, directly or indirectly, is a participant in any joint
venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of Home included in the
Draft Registration Statement (the "Home Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon),
and the balance sheet included therein presents fairly the financial position of
Home as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, Home and Newco have no material liabilities, contingent
or otherwise, except as set forth in or contemplated by this Agreement and the
Other Agreements and except for fees incurred in connection with the
transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement, neither Home nor Newco is in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them which would have a Material Adverse
Effect; and except to the extent set forth in Schedule 6.8, there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
Home or Newco, threatened against or affecting, Home or Newco, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them and no notice of any claim, action, suit or
proceeding,
-26-
<PAGE>
whether pending or threatened, has been received. Home and Newco have conducted
and are conducting their respective businesses in substantial compliance with
the requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation of any of
the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. Neither Home nor Newco is in violation of any Home
Charter Document. None of Home, Newco, or, to the knowledge of Home and Newco,
any other party thereto, is in default under any lease, instrument, agreement,
license, or permit to which Home or Newco is a party, or by which Home or Newco,
or any of their respective properties, are bound (collectively, the "Home
Documents"); and (a) the rights and benefits of Home and Newco under the Home
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution and delivery of this Agreement by Home and Newco and the
performance of their obligations hereunder do not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof will not,
conflict with, or result in any violation or default (with or without notice or
lapse of time, or both), under or give rise to a right of termination,
cancellation, or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any lien upon any of the assets of Home or
any Newco under, any provision of (i) the Certificate of Incorporation or Bylaws
of Home or the comparable governing instruments of any Newco, (ii) any note,
bond, mortgage, indenture or deed of trust or any license, lease, contract,
commitment, agreement or arrangement to which Home and any Newco is a party or
by which any of their respective properties or assets are bound or (iii) any
judgment, order, decree or law, ordinance, rule or regulation, applicable to
Home or any Newco or their respective properties or assets. The execution of
this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
material violation or breach or constitute a default under, any of the terms or
provisions of the Home Documents or the Home Charter Documents. Except as set
forth on Schedule 6.9, none of the Home Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by Home and Newco and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective Boards of Directors of
Home and Newco and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of Home
and Newco.
6.11 HOME STOCK. At the time of issuance thereof and delivery to the
Stockholders, the Home Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid and legally issued shares of Home, fully
paid and nonassessable, and with the exception of restrictions
-27-
<PAGE>
pon resale set forth in Sections 15 and 16 hereof, will be identical in all
substantive respects (which do not include the form of certificate upon which it
is printed or the presence or absence of a CUSIP number on any such certificate)
to the Home Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. The Home Stock issued and delivered to the
Stockholders shall at the time of such issuance and delivery be free and clear
of any liens, claims or encumbrances of any kind or character. The shares of
Home Stock to be issued to the Stockholders pursuant to this Agreement will not
be registered under the 1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither Home nor Newco has entered or will enter
into any agreement with any of the Founding Companies or any of the Stockholders
of the Founding Companies or Home other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Home was formed in July
1996 and has conducted only limited operations since that time. Neither Home nor
Newco has conducted any material business since the date of its inception,
except in connection with this Agreement, the Other Agreements and the IPO.
Except as described in the Draft Registration Statement, neither Home nor Newco
owns or has at any time owned any real property or any material personal
property or is a party to any other agreement other than the Other Agreements
and the agreements contemplated thereby and to such agreements as will be filed
as Exhibits to the Registration Statement.
6.14 TAXES.Home and Newco have timely filed all requisite federal, state
and other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and there are no examinations in progress or
claims against Home for federal, state and other taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for taxes, whether pending or threatened, has
been received. All taxes which Home or any Newco has been required to collect or
withhold have been duly and timely collected and withheld and have been set
aside in accounts for such purposes, or have been duly and timely paid to the
proper governmental authority. All tax, including interest and penalties
(whether or not shown on any tax return) owed by Home, any member of an
affiliated or consolidated group which includes or included Home, or with
respect to any payment made or deemed made by Home herein has been paid. The
amounts shown as accruals for taxes on Home Financial Statements are sufficient
for the payment of all taxes of the kinds indicated (including penalties and
interest) for all fiscal periods ended on or before that date. Home and Newco
have not entered into any tax sharing agreement or similar arrangement. Home is
not an investment company as defined in Section 351(e)(1) of the Code.
-28-
<PAGE>
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Home or
Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
Home or Newco;
(iii) any change in the authorized capital of Home or Newco or their
outstanding securities or any change in their ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of Home or
Newco;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of Home or Newco;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Home or Newco to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Home or Newco;
(viii)any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of Home or Newco or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of Home or Newco;
(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which Home or Newco is a
party;
(xi) any transaction by Home or Newco outside the ordinary course of
its business;
-29-
<PAGE>
(xii) any other distribution of property or assets by Home or Newco
other than in the ordinary course of business.
6.16 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Stockholders, together with this Agreement and the information furnished
to the Company and the Stockholders in connection herewith, does not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing does not apply
to statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished by the Company or the Stockholders.
6.17 PRIVATE OFFERING. (a) Neither Home, any of its Affiliates nor anyone
on its or their behalf, has issued, sold, or offered any securities of Home to
any person under circumstances that would cause the issuance and sale of the
Home Stock to the Stockholders pursuant to this Agreement, to be subject to the
registration requirements of the 1933 Act.
(b) The offering of shares of Home Stock pursuant to the Home Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of Home and the Other Founding Companies
access to all of the Company's sites, properties, books and records and will
furnish Home with such additional financial and operating data and other
information as to the business and properties of the Company as Home or the
Other Founding Companies may from time to time reasonably request. The Company
will cooperate with Home and the Other Founding Companies, its representatives,
auditors and counsel in the preparation of any documents or other materials
which may be required in connection with any documents or materials required by
this Agreement. Home, Newco, the Stockholders and the Company will treat all
information obtained in connection with the negotiation and performance of this
Agreement or the due diligence investigations conducted with respect to the
Other Founding Companies as confidential in accordance with the provisions of
Section 14 hereof. In addition, Home will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
such Other Founding Company, its Stockholders, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, Home will afford to the officers and authorized representatives of the
Company access to all of Home's and Newco's sites, properties, books and records
and will furnish the Company with such additional
-30-
<PAGE>
financial and operating data and other information as to the business and
properties of Home and Newco as the Company may from time to time reasonably
request. Home and Newco will cooperate with the Company, its representatives,
auditors and counsel in the preparation of any documents or other material which
may be required in connection with any documents or materials required by this
Agreement. The Company will cause all information obtained in connection with
the negotiation and performance of this Agreement to be treated as confidential
in accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order
and condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or
rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and
maintain its relationships with suppliers, customers and others having
business relations with the Company;
(vi) use its reasonable efforts to maintain compliance with all
material permits, laws, rules and regulations, consent orders, and all
other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent
of Home (which consent shall not be unreasonably withheld), provided that
debt and/or lease instruments may be replaced without the consent of Home
if such replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced; and
(viii)maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
-31-
<PAGE>
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of Home, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock
except for distributions permitted as described on Annex I hereto;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the businesses of the Company, (2) (A) liens for taxes either not yet due
or being contested in good faith and by appropriate proceedings (and for
which contested taxes adequate reserves have been established and are
being maintained) or (B) materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii)merge or consolidate or agree to merge or consolidate with or
into any other corporation;
-32-
<PAGE>
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the Company; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Home or its
authorized agents relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, the Company
or a merger, consolidation or business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Home on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by Home or reflected in Schedule 7.6) terminate (i) any
Stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to Home. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
-33-
<PAGE>
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to Home of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of any Stockholder or the Company to comply with or satisfy
any material covenant, condition or agreement to be complied with or satisfied
by such person hereunder. Home and Newco shall give prompt notice to the Company
of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of Home or Newco contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any failure of Home or Newco to
comply with or satisfy any material covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii) modify the conditions set forth in
Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless Home and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by Home or Newco that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, Home shall give the Company notice promptly after
it has knowledge thereof. If Home and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been deemed
given by Home or any Founding Company if no response is received within 24 hours
following receipt of notice of such amendment or supplement (or sooner
-34-
<PAGE>
if required by the circumstances under which such consent is requested), but the
Company does not give its consent, the Company may terminate this Agreement
pursuant to Section 12.1(iv) hereof. In the event that the Company seeks to
amend or supplement a Schedule pursuant to this Section 7.8, and Home and a
majority of the Other Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. In the event that Home or Newco seeks to amend
or supplement a Schedule pursuant to this Section 7.8 and a majority of the
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. No party to this Agreement shall be liable to any other party if
this Agreement shall be terminated pursuant to the provisions of this Section
7.8. No amendment of or supplement to a Schedule shall be made later than 24
hours prior to the anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to Home and the Underwriters
all of the information concerning the Company and the Stockholders required for
inclusion in, and will cooperate with Home and the Underwriters in the
preparation of, the Registration Statement and the prospectus included therein
(including audited and unaudited financial statements, prepared in accordance
with generally accepted accounting principles, in form suitable for inclusion in
the Registration Statement). The Company and the Stockholders agree promptly to
advise Home if at any time during the period in which a prospectus relating to
the offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the Company or the
Stockholders becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the Company or the Stockholders, the Company
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
Company and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and Home shall have had sufficient time to review
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of
-35-
<PAGE>
such financial statements will present fairly the results of operations of the
Company for the periods indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, Home
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the Home Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the Hart-
Scott-Rodino Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
(ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by Home and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart- Scott-Rodino Act to be
made. If filings under the Hart-Scott-Rodino Act are required, the costs and
expenses thereof (including legal fees and costs and filing fees) shall be borne
by Home. The obligation of each party to consummate the transactions
contemplated by this Agreement is subject to the expiration or termination of
the waiting period under the Hart-Scott-Rodino Act, if applicable.
7.14 STOCKHOLDERS OF HOME. Promptly after a request by the Company, Home
will deliver to the Company a list of the stockholders of Home as of the date of
this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of Stockholders and the Company with respect to actions to
be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. The obligations of
the Stockholders and the Company with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to
the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the
Funding and Consummation Date, if any such conditions have not been
-36-
<PAGE>
satisfied, the Stockholders (acting in unison) shall have the right to terminate
this Agreement, or in the alternative, waive any condition not so satisfied. Any
act or action of the Stockholders in consummating the Closing or delivering
certificates representing Company Stock as of the Funding and Consummation Date
shall constitute a waiver of any conditions not so satisfied. However, no such
waiver shall be deemed to affect the survival of the representations and
warranties of Home and Newco contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Home and Newco contained in Section 6 shall be
true and correct in all material respects as of the Closing Date and the Funding
and Consummation Date as though such representations and warranties had been
made as of that time; all of the terms, covenants and conditions of this
Agreement to be complied with and performed by Home and Newco on or before the
Closing Date and the Funding and Consummation Date shall have been duly complied
with and performed in all material respects; and certificates to the foregoing
effect dated the Closing Date and the Funding and Consummation Date,
respectively, and signed by the President or any Vice President of Home shall
have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform Home in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the Company as a result of which
the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for Home, dated the Closing Date, in the form annexed hereto as Annex V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such
-37-
<PAGE>
that the aggregate value of the cash and the number of shares of Home Stock to
be received by the Stockholders is not less than the Minimum Value set forth on
Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of the Company as a result of which the Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. Home and Newco each shall have delivered
to the Company a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which Home or Newco is authorized to do business, showing that each of
Home and Newco is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for Home and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to Home or Newco which would constitute a Material Adverse
Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of Home and of Newco, certifying the truth and correctness of attached copies of
the Home's and Newco's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the Stockholders of Home and Newco
approving Home's and Newco's entering into this Agreement and the consummation
of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the Home Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for Home Stock (but not cash or other property) pursuant to the Home
Plan of Organization.
-38-
<PAGE>
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME AND NEWCO
The obligations of Home and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of Home and
Newco with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, Home and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Funding and Consummation Date with the same effect as
though such representations and warranties had been made on and as of such date;
all of the terms, covenants and conditions of this Agreement to be complied with
or performed by the Stockholders and the Company on or before the Closing Date
or the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to Home certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of Home as a result of which the
management of Home (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. Home shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the Company
to conduct its business.
-39-
<PAGE>
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to Home
an instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholders against the Company and Home and (ii)
obligations of the Company and Home to the Stockholders, except for (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the Stockholders, (y) continuing obligations to Stockholders
relating to their employment by the Company and (z) obligations arising under
this Agreement or the transactions contemplated hereby. In the event that the
Funding and Consummation Date does not occur, then the release instrument
referenced herein shall be void and of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to Home.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 or otherwise approved by Home, all existing agreements between the
Company and the Stockholders (and entities controlled by the Stockholders) other
than real property leases shall have been canceled effective prior to or as of
the Closing Date, and all real property leases between the Company and the
Stockholders (and any entity controlled by the Stockholders) shall have been
amended in a manner reasonably satisfactory to Home.
9.8 OPINION OF COUNSEL. Home shall have received an opinion from Counsel
to the Company and the Stockholders, dated the Closing Date, substantially in
the form annexed hereto as Annex VI.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Home as a result of which Home deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to Home
a certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
state of incorporation and, unless waived by Home, in each state in which the
Company is authorized to do business, showing the Company is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for the Company for all periods prior to the Closing have been
filed and paid.
-40-
<PAGE>
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to Home a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF HOME AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. Home shall
use reasonable efforts to have the Stockholders released from any and all
guarantees of the Company's indebtedness identified on Schedule 10.1. In the
event that Home cannot obtain such releases from the lenders of any such
guaranteed indebtedness identified on Schedule 10.1 on or prior to 120 days
subsequent to the Funding and Consummation Date, Home shall promptly pay off or
otherwise refinance or retire such indebtedness. From and after the Funding and
Consummation Date and until such time as all of such indebtedness is paid off,
refinanced or retired, Home shall maintain unencumbered funds in amounts
sufficient to provide for such pay off, refinancing or retirement, provided that
Home may use such funds for other purposes, in its sole discretion, with the
prior written consent of each Stockholder who has not as of that time been
released from his or her guarantee as described above and whose indebtedness as
described above has not as of that time been paid off, refinanced or retired.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, Home shall not and shall not permit any of its subsidiaries
to undertake any act that would jeopardize the tax-free status of the
organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all or
part of the Home Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of the
Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
-41-
<PAGE>
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or
before the Funding and Consummation Date, and shall permit Home to review
all such Tax Returns prior to such filings. Unless the Company is a C
corporation, the Stockholders shall pay or cause to be paid all Tax
liabilities (in excess of all amounts already paid with respect thereto or
properly accrued or reserved with respect thereto on the Company Financial
Statements) shown by such Returns to be due.
(ii) Home shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs
of filing such Returns.
(iv) Each of the Company, Newco, Home and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of Home, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders, Home and Newco each make the following covenants that
are applicable to them, respectively:
-42-
<PAGE>
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, severally (based on their relative ownership of
the Company Stock on the date hereof), will indemnify, defend, protect and hold
harmless Home, Newco, the Company and the Surviving Corporation at all times,
from and after the date of this Agreement until the Expiration Date (provided
that for purposes of Section 11.1(iii) below, the Expiration Date shall be the
date on which the applicable statute of limitations expires), from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by Home,
Newco, the Company or the Surviving Corporation as a result of or arising from
(i) any breach of the representations and warranties of the Stockholders or the
Company set forth herein or on the schedules or certificates delivered in
connection herewith, (ii) any breach of any agreement on the part of the
Stockholders or the Company under this Agreement, or (iii) any liability under
the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement of a
material fact relating to the Company or the Stockholders, and provided to Home
or its counsel by the Company or the Stockholders (but in the case of the
Stockholders, only if such statement was provided in writing) contained in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Company or the Stockholders required to be stated therein or necessary to make
the statements therein not misleading, provided, however, that such indemnity
shall not inure to the benefit of Home, Newco, the Company or the Surviving
Corporation to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and the Stockholders provided, in writing, corrected
information to Home counsel and to Home for inclusion in the final prospectus,
and such information was not so included or properly delivered, and provided
further, that no Stockholder shall be liable for any indemnification obligation
pursuant to this Section 11.1 to the extent attributable to a breach of any
representation, warranty or agreement made herein individually by any other
Stockholder.
Home and Newco acknowledge and agree that other than the representations
and warranties of Company or Stockholders specifically contained in this
Agreement, there are no representations or warranties of Company or
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
Home and Newco further acknowledge and agree that, should the Closing
occur, their sole and exclusive remedy with respect to any and all claims
relating to this Agreement and the transactions contemplated in this Agreement,
shall be pursuant to the indemnification provisions set forth in this Section
11. Home and Newco hereby waive, from and after the Closing, to the fullest
extent permitted under applicable law, any and all rights, claims and causes of
action they or any indemnified person may have against the Company or any
Stockholder relating to this Agreement
-43-
<PAGE>
or the transactions arising under or based upon any federal, state, local or
foreign statute, law, rule, regulation or otherwise.
11.2 INDEMNIFICATION BY HOME. Home covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by the
Stockholders as a result of or arising from (i) any breach by Home or Newco of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
Home or Newco under this Agreement, (iii) any liabilities which the Stockholders
may incur due to Home's or Newco's failure to be responsible for the liabilities
and obligations of the Company as provided in Section 1 hereof (except to the
extent that Home or Newco has claims against the Stockholders by reason of such
liabilities); or (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to Home, Newco or any of the Other Founding Companies contained in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, or arising out
of or based upon any omission or alleged omission to state therein a material
fact relating to Home or Newco or any of the Other Founding Companies required
to be stated therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing Indemnified Party,
-44-
<PAGE>
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the Indemnified
Party for the amount paid in such settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no circumstances shall the Indemnified Party settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. All settlements hereunder
shall effect a complete release of the Indemnified Party, unless the Indemnified
Party otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party,
provided that, nothing herein shall be construed to limit the right of a party,
in a proper case, to seek injunctive relief for a breach of this Agreement. Any
indemnity payment under this Section 11 shall be treated as an adjustment to the
exchange consideration for tax purposes unless a final determination (which
shall include the execution of a Form 870-AD or successor form) with respect to
the indemnified party or any of its affiliate causes any such payment not to be
treated as an adjustment to the exchange consideration for U.S. Federal Income
Tax purposes.
-45-
<PAGE>
11.5 LIMITATIONS ON INDEMNIFICATION. Home, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 shall not assert any claim for indemnification hereunder against
the Stockholders until such time as, and solely to the extent that, the
aggregate of all claims which such persons may have against such the
Stockholders shall exceed the greater of (a) 1.0% of the sum of (i) the cash
paid to Stockholders plus (ii) the value of the Home Stock delivered to
Stockholders (calculated as provided in this Section 11.5) or (b) $50,000 (the
"Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against Home or Newco until such time as, and solely
to the extent that, the aggregate of all claims which Stockholders may have
against Home or Newco shall exceed the Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the Home Stock received by a Stockholder, Home Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such stockholder in connection with the Merger, valued as described
immediately above, but shall also have the right to satisfy any such obligation
in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of Home and the
Company;
(ii) by the Stockholders or the Company (acting through its board of
directors), on the one hand, or by Home (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
March 31, 1998, unless the failure of such transactions to be consummated
is due to the willful failure of the party seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the
extent required to be performed by it prior to or on the Funding and
Consummation Date;
(iii) by the Stockholders or Company, on the one hand, or by Home,
on the other hand, if a material breach or default shall be made by the
other party in the observance or in
-46-
<PAGE>
the due and timely performance of any of the covenants or agreements
contained herein, and the curing of such default shall not have been made
on or before the Funding and Consummation Date or by the Stockholders or
the Company, if the conditions set forth in Section 8 hereof have not been
satisfied or waived as of the Closing Date or the Funding and Consummation
Date, as applicable, or by Home, if the conditions set forth in Section 9
hereof have not been satisfied or waived as of the Closing Date or the
Funding and Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that during the period from the Closing Date to the Funding
and Consummation Date, this Agreement may be terminated only if the underwriting
agreement relating to the IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, for a period of
five (5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any retail (new or used, but excluding used home lots
or other activities listed on Schedule 13.1 hereto) manufactured housing
business or operation or related services business (including the
ownership or management of manufactured housing subdivisions, lots or
parks, but excluding any such subdivisions, lots or parks or other
activities listed on Schedule 13.1 hereto) in direct competition with Home
or any of the subsidiaries thereof, within 100 miles of where the Company
or any of its subsidiaries conducted business prior to the effectiveness
of the Merger (the "Territory");
-47-
<PAGE>
(ii) call upon any person who is, at that time, within the
Territory, an employee of Home or any subsidiary thereof for the purpose
or with the intent of enticing such employee away from or out of the
employ of Home or any subsidiary thereof;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to the Funding and Consummation
Date, a customer of Home or any subsidiary thereof, of the Company or of
any of the Other Founding Companies within the Territory for the purpose
of soliciting or selling products or services in direct competition with
Home within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the retail
manufactured housing business, which candidate, to the actual knowledge of
such Stockholder after due inquiry, was called upon by Home or any
subsidiary thereof or for which, to the actual knowledge of such
Stockholder after due inquiry, Home or any subsidiary thereof made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the
Company to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the Company has in
the past disclosed such information to the public for valid business
reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit (i) any Stockholder from acquiring as a passive investment not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange or over-the-counter, or (ii) any of
the activities listed on Schedule 13.1 hereto.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
Home as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Home for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Home in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of Home and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of Home; but it is also the intent of Home and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities; business and locations of Home and its subsidiaries throughout the
term of this covenant. During the term of this covenant, if Home or one of its
subsidiaries engages in new activities, enters a new business or establishes new
locations for its current activities or business in addition to or other than
the activities or business
-48-
<PAGE>
it is currently conducting in the locations currently established therefor
(provided such activities or business are related to the business or operations
of the retail manufactured housing business), then the Stockholders will be
precluded from soliciting the customers or employees of such new activities or
business or from such new location and from directly competing with such new
activities or business within 100 miles of its then-established operating
location(s) through the term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Home or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by Home of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or Home, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or Home's respective businesses. The Stockholders agree that they
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of Home, (b) following the Closing,
such information may be disclosed by the Stockholders as is required in the
course of performing their duties for Home or the Surviving Corporation and (c)
to counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1, unless (i) such
information becomes known to the public generally through no fault of the
Stockholders, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii), the Stockholders shall, if
possible, give prior written notice thereof to Home and provide Home with the
-49-
<PAGE>
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by any of the Stockholders of the provisions of this Section 14.1, Home
shall be entitled to an injunction restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Home from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
Stockholders shall have none of the above-mentioned restrictions on their
ability to disseminate confidential information with respect to the Company.
Each Stockholder further agrees that in the event the transactions contemplated
herein are not consummated (i) neither the Company nor any Stockholder can
thereafter use any confidential information of the Other Founding Companies for
any purpose and (ii) upon written request of any Other Founding Company to the
Company, the Company and Stockholders will return all confidential information
pertaining to such Other Founding Company to such Other Founding Company.
14.2 HOME AND NEWCO. Home and Newco recognize and acknowledge that they
had in the past and currently have access to certain confidential information of
the Company, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company's business. Home and
Newco agree that, prior to the Closing, or if the Transactions contemplated by
this Agreement are not consummated, they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
the Company, (b) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.2, (c) to the Other Founding Companies and their representatives pursuant to
Section 7.1(a), unless (i) such information becomes known to the public
generally through no fault of Home or Newco, (ii) disclosure is required by law
or the order of any governmental authority under color of law, provided, that
prior to disclosing any information pursuant to this clause (ii), Home and Newco
shall, if possible, give prior written notice thereof to the Company and the
Stockholders and provide the Company and the Stockholders with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably believes
that such disclosure is required in connection with the defense of a lawsuit
against the disclosing party, and (d) to the public to the extent necessary or
advisable in connection with the filing of the Registration Statement and the
IPO and the securities laws applicable thereto and to the operation of Home as a
publicly held entity after the IPO. In the event of a breach or threatened
breach by Home or Newco of the provisions of this Section 14.2, the Company and
the Stockholders shall be entitled to an injunction restraining Home and Newco
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the Company and the Stockholders from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and
-50-
<PAGE>
irreparable damage that would be caused for which they would have no other
adequate remedy, the parties hereto agree that, in the event of a breach by any
of them of the foregoing covenants, the covenant may be enforced against the
other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by Home, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or trusts for the benefit of the Stockholders or
family members, the trustees of which so agree), for a period of one year from
the Closing, except pursuant to Section 17 hereof, none of the Stockholders
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any shares of Home Stock received by the Stockholders in
the Merger. The certificates evidencing the Home Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as Home may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
Home Stock to be delivered to the Stockholders pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The Home Stock to be acquired by such Stockholders pursuant to this
Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the shares of Home Stock issued to
such Stockholders will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the
-51-
<PAGE>
applicable provisions of the 1933 Act and the rules and regulations of the SEC.
All the Home Stock shall bear the following legend in addition to the legend
required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the Home Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the proposed investment in the
Home Stock. The Stockholders party hereto have had an adequate opportunity to
ask questions and receive answers from the officers of Home concerning any and
all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of Home, the plans for the operations of the business of Home, the
business, operations and financial condition of the Founding Companies other
than the Company, and any plans for additional acquisitions and the like. The
Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever Home proposes to register any Home Stock for its own or others account
under the 1933 Act for a public offering, other than (i) any shelf or other
registration of shares to be used as consideration for acquisitions of
additional businesses by Home and (ii) registrations relating to employee
benefit plans, Home shall give each of the Stockholders prompt written notice of
its intent to do so. Upon the written request of any of the Stockholders given
within 30 days after receipt of such notice, Home shall cause to be included in
such registration all of the Home Stock issued to the Stockholders pursuant to
this Agreement (including any stock issued as (or issuable upon the conversion
or exchange of any convertible security, warrant, right or other security which
is issued by Home as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Home Stock) which any such Stockholder
requests, provided that Home shall have the right to reduce the number of shares
included in such registration to the extent that inclusion of such shares could,
in the written opinion of tax counsel to Home or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as a tax-free organization under Section 351 of the Code.
In addition, if Home is advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 17.1 that the number of shares
to be sold by persons
-52-
<PAGE>
other than Home is greater than the number of such shares which can be offered
without adversely affecting the offering, Home may reduce pro rata the number of
shares offered for the accounts of such persons (based upon the number of shares
held by such person) to a number deemed satisfactory by such managing
underwriter, provided, that, for each such offering made by Home after the IPO,
such reduction shall be made first by reducing the number of shares to be sold
by persons other than Home, the Stockholders and the stockholders of the Other
Founding Companies (collectively, the Stockholders and the stockholders of the
other Founding Companies being referred to herein as the "Founding
Stockholders"), and thereafter, if a further reduction is required, by reducing
the number of shares to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of Home Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements which have not been
previously registered or sold and which are not entitled to be sold under Rule
144(k) (or any similar or successor provision) promulgated under the 1933 Act
may request in writing that Home file a registration statement under the 1933
Act covering the registration of the shares of Home Stock issued to the
Stockholders pursuant to this Agreement and the Other Agreements (including any
stock issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by Home as) a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Home Stock) then held by such Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the receipt of such request,
Home shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from any Stockholder, file and use its best efforts to cause
to become effective a registration statement covering all such shares. Home
shall be obligated to effect only one Demand Registration for all Founding
Stockholders and will keep such Demand Registration current and effective for
not less than 120 days (or such shorter period as is required to sell all of the
shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of Home's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which
Home would otherwise be required to make such filing pursuant to the foregoing
paragraph.
If at the time of any request by the Founding Stockholders for a Demand
Registration Home has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' Home
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless Home is no longer proceeding
diligently to effect such registration; provided that Home shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
-53-
<PAGE>
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by Home
as a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever Home is required to register shares
of Home Stock pursuant to Sections 17.1 and 17.2, Home will, as expeditiously as
possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, Home will
furnish a representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that Home shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of Home Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
Home are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that Home is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, Home will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain
-54-
<PAGE>
an untrue statement of material fact or omit to state any fact necessary to make
the statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by Home.
17.4 INDEMNIFICATION.
(a) In connection with any demand registration, Home shall indemnify, to
the extent permitted by law, each Stockholder (an "Indemnified Party") against
all losses, claims, damages, liabilities and expenses arising out of or
resulting from any untrue or alleged untrue statement of material fact contained
in any registration statement, prospectus or preliminary prospectus or
associated term sheet or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading except insofar as the same are caused by or contained in
or omitted from any information furnished in writing to Home by such Indemnified
Party expressly for use therein or by any Indemnified Parties' failure to
deliver a copy of the registration statement or prospectus or any amendment or
supplements thereto after Home has furnished such Indemnified Party with a
sufficient number of copies of the same.
(b) In connection with any demand registration, each Stockholder shall
furnish to Home in writing such information as is reasonably requested by Home
for use in any such registration statement or prospectus and will indemnify, to
the extent permitted by law, Home, its directors and officers and each person
who controls Home (within the meaning of the 1933 Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or alleged
untrue statement or material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement or prospectus
or any amendment thereof or supplement thereto necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
omission is contained in information so furnished in writing by such Stockholder
specifically for use in preparing the registration statement. Notwithstanding
the foregoing, the liability of a Stockholder under this Section 17.5 shall be
limited to an amount equal to the net proceeds actually received by such
Stockholder from the sale of the relevant shares covered by the registration
statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified parties' reasonable
judgment, a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. Any failure to give prompt notice shall deprive a party of
its right to indemnification hereunder only to the extent that such failure
shall have adversely effected the indemnifying party. If the defense of any
claim
-55-
<PAGE>
is assumed, the indemnifying party will not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). An indemnifying party who is not entitled or elects not, to assume
the defense of a claim, will not be obligated to pay the fees and expenses of
more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, Home and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of Home's size and investment stature,
including indemnification.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of Home stock
to the public without registration, Home agrees to use its best efforts to:
(i) make and keep public information regarding Home available as
those terms are understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of Home under the 1933 Act and the 1934 Act at any time
after it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted Home Common
Stock, furnish to each Stockholder forthwith upon written request a
written statement by Home as to its compliance with the reporting
requirements of Rule 144 (at any time from and after 90 days following the
effective date of the Registration Statement, and of the 1933 Act and the
1934 Act (any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
Home, and such other reports and documents so filed as a Stockholder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Stockholder to sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, Stockholders, Home and Newco shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably
-56-
<PAGE>
request for the purpose of carrying out this Agreement. The Company will
cooperate and use its reasonable efforts to have the present officers, directors
and employees of the Company cooperate with Home on and after the Funding and
Consummation Date in furnishing information, evidence, testimony and other
assistance in connection with any tax return filing obligations, actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Funding and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Home, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and Home and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and Home,
acting through their respective officers or trustees, duly authorized by their
respective Boards of Directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the Company shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, Home will pay the fees, expenses and disbursements of Home
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by Home under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other
person or entity retained by Home or by Notre Capital Ventures II, L.L.C., and
the costs of
-57-
<PAGE>
preparing the Registration Statement. Each Stockholder shall pay all sales, use,
transfer, real property transfer, recording, gains, stock transfer and other
similar taxes and fees ("Transfer Taxes") imposed in connection with the Merger,
other than Transfer Taxes, if any, imposed by the State of Delaware. Each
Stockholder shall file all necessary documentation and Returns with respect to
such Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or Home, will pay all taxes due upon receipt of the consideration
payable pursuant to Section 2 hereof. The Stockholders acknowledge that the
risks of the transactions contemplated hereby include tax risks, with respect to
which the Stockholders are relying solely on the opinion contemplated by Section
8.12 hereof.
(b) In the event that the Funding and Consummation Date occurs, then
Home will reimburse the Stockholders and the stockholders of Other Founding
Companies for incremental and direct accounting costs and expenses incurred by
them in connection with the Merger and IPO and such additional accounting and
legal expenses incurred by them in connection therewith as may be approved by
Home.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to Home, or Newco, addressed to them at:
Home USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: Cary N. Vollintine
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
-58-
<PAGE>
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(c) If to the Company, addressed to it at:
Cooper's Mobile Homes, Inc.
1821 N. Wenatchee Avenue
Wenatchee, WA 98801
Attn: Randy Cooper
with copies to:
Tom R. Rechtin
Monnette, Rechtin & Cawley
37 S. Wenatchee Avenue
Wenatchee, WA 98807
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
-59-
<PAGE>
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of Home, Newco, the Company and Stockholders who hold or who
will hold at least 50% of the Home Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving Home Stock in connection with the Merger and each future holder
of such Home Stock.
-60-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
HOMEUSA, INC.
By: ________________________
Cary N. Vollintine
Chief Executive Officer
COOPER'S MOBILE HOMES ACQUISITION CORP.
By: ________________________
Name: ___________________
Title: __________________
PAC WEST MANAGEMENT ACQUISITION CORP.
By: ________________________
Name: ___________________
Title: __________________
HUSAI ACQUISITION CORP.
By: ________________________
Name: ___________________
Title: __________________
-61-
<PAGE>
COOPER'S MOBILE HOMES, INC.
By: ________________________
Name: ___________________
Title: __________________
PAC WEST MGMT., INC.
By: ________________________
Name: ___________________
Title: __________________
HOMEUSA, INC.
By: ________________________
Name: ___________________
Title: __________________
-62-
<PAGE>
STOCKHOLDERS:
____________________________
RANDY COOPER
____________________________
DENISE COOPER
-63-
<PAGE>
SCHEDULE 6.9
None.
-64-
EXHIBIT 10.10
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 10th day of September, 1997
by and among
HOMEUSA, INC.
CSF&T ACQUISITION CORP.
AAA HOMES ACQUISITION CORP.
FORDHAM INSURANCE AGENCY ACQUISITION CORP.
(each a subsidiary of HomeUSA, Inc.)
CSF & T, INC.
AAA HOMES, L.L.C.
FORDHAM INSURANCE AGENCY, INC.
and
the STOCKHOLDERS named herein
-2-
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-laws and Board of
Directors of Surviving Corporation...............................6
1.4 Certain Information With Respect to the
Capital Stock of the Company, Home and Newco.....................7
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 Manner of Conversion.............................................8
3. DELIVERY OF MERGER CONSIDERATION.......................................9
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS..................................................10
(A) Representations and Warranties of the Company
and the Stockholders......................................10
5.1 Due Organization................................................10
5.2 Authorization...................................................11
5.3 Capital Stock of the Company....................................11
5.4 Transactions in Capital Stock, Organization Accounting..........11
5.5 No Bonus Shares.................................................11
5.6 Subsidiaries....................................................11
5.7 Predecessor Status; etc.........................................12
5.8 Spin-off by the Company.........................................12
5.9 Financial Statements............................................12
5.10 Liabilities and Obligations.....................................12
5.11 Accounts and Notes Receivable...................................13
5.12 Permits and Intangibles.........................................13
5.13 Environmental Matters...........................................13
5.14 Personal Property...............................................14
5.15 Significant Customers; Material Contracts and Commitments.......15
-i-
<PAGE>
5.16 Real Property...................................................15
5.17 Insurance.......................................................16
5.18 Compensation; Employment Agreements; Organized Labor Matters....16
5.19 Employee Plans..................................................16
5.20 Compliance with ERISA...........................................17
5.21 Conformity with Law; Litigation.................................18
5.22 Taxes...........................................................19
5.23 No Violations; No Consents Required, Etc.......................19
5.24 Government Contracts............................................20
5.25 Absence of Changes..............................................20
5.26 Deposit Accounts; Powers of Attorney............................21
5.27 Validity of Obligations.........................................22
5.28 Relations with Governments......................................22
5.29 Disclosure......................................................22
5.30 Prohibited Activities...........................................23
5.31 Dealer Agreements and Related Matters...........................23
5.32 No Retail Financing.............................................24
5.33 No Warranties or Insurance......................................24
5.34 No Interests In Other Businesses................................24
(B) Representations and Warranties of Stockholders......24
5.35 Authority; Ownership............................................24
5.36 Preemptive Rights...............................................25
5.37 No Intention to Dispose of Home Stock...........................25
6. REPRESENTATIONS OF HOME AND NEWCO.....................................25
6.1 Due Organization................................................25
6.2 Authorization...................................................25
6.3 Capital Stock of Home and Newco.................................26
6.4 Transactions in Capital Stock, Organization Accounting..........26
6.5 Subsidiaries....................................................26
6.6 Financial Statements............................................26
6.7 Liabilities and Obligations.....................................26
6.8 Conformity with Law; Litigation.................................26
6.9 No Violations...................................................27
6.10 Validity of Obligations.........................................27
6.11 Home Stock......................................................28
6.12 No Side Agreements..............................................28
6.13 Business; Real Property; Material Agreements....................28
6.14 Taxes...........................................................28
6.15 Absence of Changes..............................................29
-ii-
<PAGE>
6.16 Disclosure......................................................30
6.17 Private Offering................................................30
7. COVENANTS PRIOR TO CLOSING............................................30
7.1 Access and Cooperation; Due Diligence...........................30
7.2 Conduct of Business Pending Closing.............................31
7.3 Prohibited Activities...........................................32
7.4 No Shop.........................................................33
7.5 Notice to Bargaining Agents.....................................33
7.6 Agreements......................................................33
7.7 Notification of Certain Matters.................................34
7.8 Amendment of Schedules..........................................34
7.9 Cooperation in Preparation of Registration Statement............35
7.10 Final Financial Statements......................................35
7.11 Further Assurances..............................................36
7.12 Authorized Capital..............................................36
7.13 Compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "Hart-Scott-Rodino Act")..........36
7.14 Stockholders of Home............................................36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF
STOCKHOLDERS AND COMPANY..............................................36
8.1 Representations and Warranties; Performance of Obligations......37
8.2 Satisfaction....................................................37
8.3 No Litigation...................................................37
8.4 Opinion of Counsel..............................................37
8.5 Registration Statement..........................................37
8.6 Consents and Approvals..........................................38
8.7 Good Standing Certificates......................................38
8.8 No Material Adverse Change......................................38
8.9 Closing of IPO..................................................38
8.10 Secretary's Certificate.........................................38
8.11 Employment Agreements...........................................38
8.12 Tax Matters.....................................................38
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME AND NEWCO.................39
9.1 Representations and Warranties; Performance of Obligations......39
9.2 No Litigation...................................................39
9.3 Secretary's Certificate.........................................39
9.4 No Material Adverse Effect......................................39
9.5 Stockholders' Release...........................................40
-iii-
<PAGE>
9.6 Satisfaction....................................................40
9.7 Termination of Related Party Agreements.........................40
9.8 Opinion of Counsel..............................................40
9.9 Consents and Approvals..........................................40
9.10 Good Standing Certificates......................................40
9.11 Registration Statement..........................................41
9.12 Employment Agreements...........................................41
9.13 Closing of IPO..................................................41
9.14 FIRPTA Certificate..............................................41
10. COVENANTS OF HOME AND THE STOCKHOLDERS AFTER CLOSING..................41
10.1 Release From Guarantees; Repayment of Certain Obligations.......41
10.2 Preservation of Tax and Accounting Treatment....................41
10.3 Preparation and Filing of Tax Returns...........................42
10.4 Directors.......................................................42
11. INDEMNIFICATION.......................................................43
11.1 General Indemnification by the Stockholders.....................43
11.2 Indemnification by Home.........................................44
11.3 Third Person Claims.............................................44
11.4 Exclusive Remedy................................................45
11.5 Limitations on Indemnification..................................46
12. TERMINATION OF AGREEMENT..............................................46
12.1 Termination.....................................................46
12.2 Liabilities in Event of Termination.............................47
13. NONCOMPETITION........................................................47
13.1 Prohibited Activities...........................................47
13.2 Damages.........................................................48
13.3 Reasonable Restraint............................................48
13.4 Severability; Reformation.......................................49
13.5 Independent Covenant............................................49
13.6 Materiality.....................................................49
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................49
14.1 Stockholders....................................................49
14.2 Home and Newco..................................................50
14.3 Damages.........................................................51
14.4 Survival........................................................51
-iv-
<PAGE>
15. TRANSFER RESTRICTIONS.................................................51
15.1 Transfer Restrictions...........................................51
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................51
16.1 Compliance with Law.............................................51
16.2 Economic Risk; Sophistication...................................52
17. REGISTRATION RIGHTS...................................................52
17.1 Piggyback Registration Rights...................................52
17.2 Demand Registration Rights......................................53
17.3 Registration Procedures.........................................54
17.4 Indemnification.................................................55
17.5 Underwriting Agreement..........................................56
17.6 Rule 144 Reporting..............................................56
18. GENERAL...............................................................57
18.1 Cooperation.....................................................57
18.2 Successors and Assigns..........................................57
18.3 Entire Agreement................................................57
18.4 Counterparts....................................................57
18.5 Brokers and Agents..............................................57
18.6 Expenses........................................................57
18.7 Notices.........................................................58
18.8 Governing Law...................................................59
18.9 Survival of Representations and Warranties......................59
18.10 Exercise of Rights and Remedies.................................59
18.11 Time............................................................60
18.12 Reformation and Severability....................................60
18.13 Remedies Cumulative.............................................60
18.14 Captions........................................................60
18.15 Amendments and Waivers..........................................60
18.16 Special Limitation..............................................60
-v-
<PAGE>
APPENDICES AND ANNEXES
Appendix I - Mergers
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Certificate of Incorporation and By-Laws of Home
Annex IV - Certificate of Incorporation and By-Laws of Newco
Annex V - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex VI - Form of Opinion of Andrews & Kurth, LLP
Annex VII - Form of Key Employee Employment Agreement
-vi-
<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes 5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Dealer Agreements
5.32 No Retail Financing
5.33 No Warranties or Insurance
5.34 No Interests in Other Businesses
5.35 Authority; Ownership
6.9 No Violations
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
10.1 Guaranties
13.1 Lots Excluded from Noncompete
-vii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 10th day of September, 1997, by and among HOMEUSA, INC., a Delaware
corporation ("Home"), CSF&T ACQUISITION CORP., AAA HOMES ACQUISITION CORP., and
FORDHAM INSURANCE AGENCY ACQUISITION CORP., each of which is a Delaware
corporation (collectively, "Newco", and individually, "each Newco"), CSF & T,
INC., a Mississippi corporation, AAA HOMES, L.L.C., a Louisiana limited
liability company, and FORDHAM INSURANCE AGENCY, INC., a Mississippi corporation
(collectively, the "Company", and individually, "each Company"), and the
stockholders and limited liability company members listed on the signature pages
hereto (collectively, the "Stockholders"). The Stockholders are all the
stockholders and owners of equity interests in each Company.
RECITALS
WHEREAS, each Newco is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on
September 8, 1997 solely for the purpose of completing the transactions
set forth herein, and is a wholly-owned subsidiary of Home, a corporation
organized and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of each Newco and each
Company (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of
the Constituent Corporations and their respective Stockholders that each
Newco merge with and into each Company as set forth on Appendix I hereto
pursuant to this Agreement and the applicable provisions of the laws of
the State of Delaware and the State or States of Incorporation;
WHEREAS, Home is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional retail manufactured housing
companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"Home Plan of Organization;"
WHEREAS, the Stockholders and the Boards of Directors and the
stockholders of Home, each of the Other Founding Companies and each of the
subsidiaries of Home that are parties to the Other Agreements have
approved and adopted the Home Plan of Organization as an integrated plan
pursuant to which the Stockholders and the stockholders of each of the
-1-
<PAGE>
other Founding Companies will transfer the capital stock of each of the
Founding Companies to Home and the Stockholders of each of the other
Founding Companies will acquire the stock of Home (but not cash or other
property) as a tax-free transfer of property under Section 351 of the
Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of each
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the Home Plan of Organization in
order to transfer the capital stock of such Company to Home;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement, and references to the Company and the Mergers and various
corporate mechanics, shall apply, mutatis mutandis, to AAA Homes, L.L.C.
and the members thereof:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means each Company, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" shall mean each Newco and each of the other
Delaware companies wholly-owned by Home prior to the Funding and Consummation
Date.
"Affiliates" means, with respect to any Person, any Person or entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Mergers in such forms as may be required by the laws of the
State of Delaware and the State or States of Incorporation.
"Balance Sheet Date" shall mean June 30, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
-2-
<PAGE>
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the draft dated September 5, 1997 of
the Registration Statement, and any corrections thereto and supplemental
information delivered by Home to the Company for delivery to the Stockholders
prior to the time this Agreement is delivered to Home.
"Effective Time of the Merger" shall mean the time as of which each Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Cooper's Mobile Homes, Inc., a Washington corporation, Home USA,
Inc., a Washington corporation, and Pac West Mgmt., Inc., a Washington
corporation.
CSF&T, Inc. (dba AAA Homes), a Mississippi corporation, AAA Homes,
L.L.C., a Louisiana limited liability company, and Fordham Insurance
Agency, Inc., a Mississippi corporation.
First American Homes, Inc., an Alabama corporation, D & S, Inc., an
Alabama corporation, and Son Development Corporation, an Alabama
corporation.
Home Folks Housing Center, Inc., a Kentucky corporation.
McDonald Homes, Inc., an Oklahoma corporation.
Mobile World, Inc., a Texas corporation, and Showcase of Homes,
Inc., a Texas corporation.
Patrick Home Center, Inc., a Mississippi corporation.
Universal Housing, Inc., a Tennessee corporation, Shaffer & Webb
Insurance Agency, Inc., a Tennessee corporation, and Universal Housing of
East TN, Inc., a Tennessee corporation.
-3-
<PAGE>
Willmax Homes of Colorado LLC, a Colorado limited liability company.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of Home Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Company" means the actual knowledge of the executive
officers of the Company.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of each Newco with and into each Company as set
forth on Appendix I hereto pursuant to this Agreement and the applicable
provisions of the laws of the State of Delaware and the laws of the State or
States of Incorporation.
"Home" has the meaning set forth in the first paragraph of this Agreement.
"Home Charter Documents" has the meaning set forth in Section 6.1.
"Home Stock" means the common stock, par value $.01 per share, of Home.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by Home and the Underwriters of
the public offering price of the shares of Home Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
-4-
<PAGE>
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Home Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the States of Mississippi (with respect to
CSF&T, Inc. and Fordham Insurance Agency, Inc.), and Louisiana (with respect to
AAA Homes, L.L.C.).
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean each Company as the surviving party in
each Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
-5-
<PAGE>
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to Home to be held for filing with the Secretary of State of the State
of Delaware and the Secretary of State (or other appropriate authority) of the
State or States of Incorporation on or effective as of the Funding and
Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
each Newco shall be merged with and into each Company as set forth on Appendix I
hereto in accordance with the respective Articles of Merger, the separate
existence of each Newco shall cease, each Company shall be the surviving party
in the respective Merger and each Company is sometimes hereinafter referred to
as the Surviving Corporation. The Mergers will be effected in a single
transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of each Company then in effect
shall be the Certificate of Incorporation of the respective Surviving
Corporation until changed as provided by law;
(ii) the By-laws of each Newco then in effect shall become the
By-laws of the respective Surviving Corporation; and subsequent to the
Effective Time of each Merger, such By-laws shall be the By-laws of the
respective Surviving Corporation until they shall there after be duly
amended (and such By-laws shall be amended from time to time, if
necessary, to comply with applicable state law);
(iii) the Board of Directors of the respective Surviving Corporation
shall consist of the persons who are on the Board of Directors of each
Company immediately prior to the Effective Time of the Mergers, provided
that Cary N. Vollintine shall become an additional director of each
Surviving Corporation effective as of the Effective Time of the Merger,
and the number of directors constituting the entire Board of Directors of
each Surviving Corporation shall be increased, if necessary, to
accommodate the addition of such additional director; the Board of
Directors of each Surviving Corporation shall hold office subject to the
provisions of the laws of the State or States of Incorporation and of the
Certificate of Incorporation and By-laws of the respective Surviving
Corporation; and
(iv) the officers of each Company immediately prior to the Effective
Time of the Mergers shall continue as the officers of the respective
Surviving Corporation in the same capacity or capacities, and effective
upon the Effective Time of the Mergers Michael Loy shall become an
additional Vice President of each Surviving Corporation, such officers to
serve, subject to the provisions of the Certificate of Incorporation and
By-laws of the
-6-
<PAGE>
respective Surviving Corporation, until their respective successors are
duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
HOME AND NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of each Company,
Home and each Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of each Company is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof,
the authorized capital stock of Home will consist of 50,000,000 shares of
Home Stock, of which the number of issued and outstanding shares will be
set forth in the Registration Statement, 5,000,000 shares of preferred
stock, $.01 par value, of which no shares will be issued and outstanding,
and 5,000,000 shares of Restricted Voting Common Stock, $.01 par value
(the "Restricted Common Stock"), all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement;
and
(iii) as of the date of this Agreement, the authorized capital stock
of each Newco consists of 1,000 shares of Newco Stock, of which one
hundred (100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Mergers, the effect of
each Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State or States of Incorporation. Except as herein specifically set forth, the
identity, existence, purposes, powers, franchises, privileges, rights and
immunities of each Company shall continue unaffected and unimpaired by the
Mergers and the corporate franchises, existence and rights of each Newco shall
be merged with and into the respective Company, and the respective Company, as
the Surviving Corporation, shall be fully vested therewith. At the Effective
Time of the Mergers, the separate existence of each Newco shall cease and, in
accordance with the terms of this Agreement, the respective Surviving
Corporation shall possess all the rights, privileges, immunities and franchises,
of a public, as well as of a private, nature, and all property, real, personal
and mixed, and all debts due on whatever account, including subscriptions to
shares, and all taxes, including those due and owing and those accrued, and all
other choses in action, and all and every other interest of or belonging to or
due to the respective Company and respective Newco shall be transferred to, and
vested in, the respective Surviving Corporation without further act or deed; and
all property, rights and privileges, powers and franchises and all and every
other interest shall be thereafter as effectually the property of the respective
Surviving Corporation as they were of the respective Company and respective
Newco; and the title to any real
-7-
<PAGE>
estate, or interest therein, whether by deed or otherwise, under the laws of the
State or States of Incorporation vested in the respective Company and respective
Newco, shall not revert or be in any way impaired by reason of the Mergers.
Except as otherwise provided herein, the respective Surviving Corporation shall
thenceforth be responsible and liable for all the liabilities and obligations of
the respective Company and respective Newco and any claim existing, or action or
proceeding pending, by or against the respective Company or respective Newco may
be prosecuted as if the Merger had not taken place, or the respective Surviving
Corporation may be substituted in their place. Neither the rights of creditors
nor any liens upon the property of the respective Company or respective Newco
shall be impaired by the Merger, and all debts, liabilities and duties of the
respective Company and respective Newco shall attach to the respective Surviving
Corporation, and may be enforced against such Surviving Corporation to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) Home Stock and cash and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (1) the right to receive the
number of shares of Home Stock set forth on Annex I hereto (adjusted as
set forth on such Annex I) with respect to such holder and (2) the right
to receive the amount of cash set forth on Annex I hereto with respect to
such holder (adjusted as set forth on such Annex I);
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of Home Stock
or other consideration shall be delivered or paid in exchange therefor;
and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger
and without any action on the part of Home, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
-8-
<PAGE>
All Home Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding Home
Stock by reason of the provisions of the Certificate of Incorporation of Home or
as otherwise provided by the Delaware GCL. All Home Stock received by the
Stockholders shall be issued and delivered to the Stockholders free and clear of
any liens, claims or encumbrances of any kind or nature. All voting rights of
such Home Stock received by the Stockholders shall be fully exercisable by the
Stockholders and the Stockholders shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, Home shall have no
class of capital stock issued and outstanding other than the Home Stock and the
Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
number of shares of Home Stock and the amount of cash described on Annex I
hereto, said cash to be payable by certified check or wire transfer.
3.2 The Stockholders shall deliver to Home at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The
Stockholders agree promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such Company Stock or with respect to the stock powers accompanying
any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to Home for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and certified check(s) referred to in
Section 3 hereof, each of which actions shall only be taken upon the Funding and
Consummation Date as herein provided. In the event that there is no Funding and
Consummation Date and this Agreement automatically terminates as provided in
this Section 4 the Articles of Merger shall not be filed and shall be returned
to the Stockholders. The taking of the actions described in clauses (i) and (ii)
above (the "Closing") shall take place on the closing date (the "Closing Date")
at the offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and
-9-
<PAGE>
the Merger shall thereby be effected, (y) all transactions contemplated by this
Agreement, including the conversion and delivery of shares, the delivery of a
certified check or checks in an amount equal to the cash portion of the
consideration which the Stockholders shall be entitled to receive pursuant to
the Merger referred to in Section 3 hereof and (z) the closing with respect to
the IPO shall occur and be completed. The date on which the actions described in
the preceding clauses (x), (y) and (z) occurs shall be referred to as the
"Funding and Consummation Date." During the period from the Closing Date to the
Funding and Consummation Date, this Agreement may only be terminated by the
parties if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such underwriting agreement. This Agreement shall also
in any event automatically terminate if the Funding and Consummation Date has
not occurred within 15 business days following the Closing Date. Time is of the
essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
Each Company, and the Stockholders severally (based on their relative
ownership of the Company Stock on the date hereof) represent and warrant that
all of the following representations and warranties in this Section 5(A) are
true at the date of this Agreement and, subject to Section 7.8 hereof, shall be
true at the time of Closing and the Funding and Consummation Date, and that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the warranties and representations set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Funding and Consummation Date, which shall
be deemed to be the Expiration Date for Section 5.22. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of
their subsidiaries, if any.
5.1 DUE ORGANIZATION. CSF&T, Inc. and Fordham Insurance Agency, Inc. are
each a corporation duly incorporated and organized, validly existing and in good
standing, and AAA Homes, L.L.C. is a limited liability company duly formed,
validly existing and in good standing, under the laws of the State of
Incorporation, and each has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company taken as a whole (as used herein with respect to the Company, or
with respect to any other Person, a "Material Adverse Effect"). Schedule 5.1
sets forth a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and correct copies of (i) the
Certificate of Incorporation and By-laws, each as amended, and limited liability
company formation documents,
-10-
<PAGE>
of the Company (the "Charter Documents"), and (ii) the stock and membership
records of the Company, are all attached to Schedule 5.1. The Company has
delivered complete and correct copies of all minutes of meetings, written
consents and other evidence, if any, of deliberations of or actions taken by the
Company's Board of Directors and stockholders during the last five years.
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement and the Merger. The most recent
resolutions adopted by the Board of Directors of the Company and the most recent
resolutions adopted by the Stockholders approve this Agreement and the
transactions contemplated hereby in all respects, and copies of all such
resolutions, certified by the Secretary or an Assistant Secretary of the Company
as being in full force and effect on the date hereof, are attached hereto as
Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Annex II. All of the issued and outstanding shares of the
capital stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable, are owned of record and beneficially by the
Stockholders and further, such shares were offered, issued, sold and delivered
by the Company in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Merger and/or the Home Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the Home Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any
-11-
<PAGE>
other equity interest in any corporation, association or business entity nor is
the Company, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Stockholder acquired
his or her stock in any Company. Except as disclosed on Schedule 5.7, the
Company has not been, within such period of time, a subsidiary or division of
another corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Complete and correct copies of the following
financial statements are attached hereto as Schedule 5.9:
(i) the balance sheets of the Company as of December 31, 1996 and
1995 and the related statements of operations, stockholder's equity and
cash flows for the years ended December 31, 1996, 1995 and 1994, together
with the related notes and schedules (such balance sheets, the related
statements of operations, stockholder's equity and cash flows and the
related notes and schedules are referred to herein as the "Year-end
Financial Statements"); and
(ii) the balance sheet (the "Interim Balance Sheet") of the Company
as of June 30, 1997 (the "Balance Sheet Date") and the related statements
of operations, stockholder's equity and cash flows for the six-month
periods ended June 30, 1997 and 1996, together with the related notes and
schedules (such balance sheets, the related statements of operations,
stockholder's equity and cash flows and the related notes and schedules
are referred to herein as the "Interim Financial Statements"). The
Year-end Financial Statements and the Interim Financial Statements are
collectively called the "Financial Statements".
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all liabilities of the Company of a
nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
best knowledge of the Company and the Stockholders, except as set forth on
-12-
<PAGE>
Schedule 5.10, since the Balance Sheet Date the Company has not incurred any
material liabilities of any kind, character or description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than liabilities
incurred in the ordinary course of business. The Company has also delivered to
Home on Schedule 5.10, in the case of those contingent liabilities related to
pending or threatened litigation, or other liabilities which are not fixed, a
good faith and reasonable estimate of the maximum amount which the Company
reasonably expects will be payable and the amount, if any, accrued or reserved
for each such potential liability on the Company's Financial Statements; in the
case of any such liability for which no estimate has been provided, the estimate
for purposes of this Agreement shall be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholders, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to Home an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, including any trademarks,
trade names, patents, patent applications and copyrights owned or held by the
Company or any of its employees (including interests in software or other
technology systems, programs and intellectual property) (it being understood and
agreed that a list of environmental permits and other environmental approvals is
set forth on Schedule 5.13). At or prior to the Closing, all such trademarks,
trade names, patents, patent applications, copyrights and other intellectual
property will be assigned or licensed to the Company for no additional
consideration. To the best knowledge of the Company, the Licenses and other
rights listed on Schedules 5.12 and 5.13 are valid, and the Company has not
received any notice that any person intends to cancel, terminate or not renew
any such License or other right. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Licenses and other rights listed on Schedules 5.12 and 5.13 and
is not in violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the Company. Except as
specifically provided in Schedule 5.12, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to the Company by, any such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have any Material Adverse Effect on the Company or its
business, (i) the Company has complied with and is in
-13-
<PAGE>
compliance with all Federal, state, local and foreign statutes (civil and
criminal), laws, ordinances, regulations, rules, notices, permits, judgments,
orders and decrees applicable to any of them or any of their respective
properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (ii) the Company has obtained and adhered
to all necessary permits and other approvals necessary to treat, transport,
store, dispose of and otherwise handle Hazardous Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled. There
have been no releases or threats of releases (as these terms are defined in
Environmental Laws) of any Hazardous Materials at, from, in or on any property
owned or operated by the Company except as permitted by Environmental Laws, and
to the best knowledge of the Company and the Stockholders, there is no on-site
or off-site location to which the Company has transported or disposed of
Hazardous Materials or arranged for the transportation of Hazardous Materials
which is the subject of any Federal, state, local or foreign enforcement action
or any other investigation which could lead to any claim against the Company,
Home or Newco for any clean-up cost, remedial work, damage to natural resources,
property damage or personal injury, including, but not limited to, any claim
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, the Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act or comparable state or local statutes or
regulations. The Company has no contingent liability in connection with any
release of any Hazardous Materials into the environment that would have a
Material Adverse Effect.
5.14 PERSONAL PROPERTY. The Company has delivered to Home an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company, (y) all other personal property owned by the
Company with an individual value in excess of $25,000 (i) as of the Balance
Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material
leases and agreements in respect of personal property, including, in the case of
each of (x), (y) and (z), (1) true, complete and correct copies of all such
leases and (2) an indication as to which assets are currently owned, or were
formerly owned, by Stockholders, relatives of Stockholders, or Affiliates of the
Company. Except as set forth on Schedule 5.14, (i) all material personal
property used by the Company in its business is either owned by the Company or
leased by the Company pursuant to a lease included on Schedule 5.14, (ii) all of
the personal property listed on Schedule 5.14 is in good working order and
condition, ordinary wear and tear excepted and (iii) all leases and agreements
included on Schedule 5.14 are in full force and effect and constitute valid and
binding agreements of the parties (and their successors) thereto in accordance
with their respective terms.
-14-
<PAGE>
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 5% or more of the
Company's annual revenues for any period covered by any of the Financial
Statements. Except to the extent set forth on Schedule 5.15, none of such
customers have canceled or substantially reduced or, to the knowledge of the
Company, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by the Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to Home. For purposes of this Section 5.17, Material Contracts
includes contracts between the Company and significant customers, joint venture
or partnership agreements, contracts with any labor organization, strategic
alliances, options to purchase land and other contracts which are not terminable
on sixty days or less notice and involve payments by the Company in any twelve
month period in excess of $25,000. The Company has also indicated on Schedule
5.15 a summary description of all plans or projects involving the opening of new
operations, expansion of existing operations, the acquisition of any personal
property, business or assets requiring, in any event, the payment of more than
$25,000 by the Company during any 12-month period.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on terms reasonably acceptable to Home and leased
back by the Company on terms no less favorable to the Company than those
available from an unaffiliated party and otherwise reasonably acceptable to Home
at or prior to the Closing Date. The Company has good and insurable title to any
real property owned by it that is not shown on Schedule 5.16 as property
intended to be sold or distributed prior to the Closing Date, subject to no
mortgage, pledge, lien, conditional sales agreement, encumbrance or charge,
except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
-15-
<PAGE>
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, all of such
leases included on Schedule 5.16 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
5.17 INSURANCE. The Company has delivered to Home (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the best knowledge of the Company provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect and shall, to the best knowledge of the
Company, remain in full force and effect through the Funding and Consummation
Date. Since January 1, 1995, no insurance carried by the Company has been
canceled by the insurer and the Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The Company has provided to Home
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the best knowledge of the Company, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the best of the Company's knowledge, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years. The Company believes its relationship
with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to Home an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company,
-16-
<PAGE>
including all employment agreements and other agreements or arrangements
containing "golden parachute" or other similar provisions, and deferred
compensation agreements, together with true, complete and correct copies of such
plans, agreements and any trusts related thereto, and classifications of
employees covered thereby as of the Balance Sheet Date. Except for the employee
benefit plans, if any, described on the Benefit Plans Schedule, the Company does
not sponsor, maintain or contribute to any plan program, fund or arrangement
that constitutes an "employee pension benefit plan", and the Company has no
obligation to contribute to or accrue or pay any benefits under any deferred
compensation or retirement funding arrangement on behalf of any employee or
employees (such as, for example, and without limitation, any individual
retirement account or annuity, any "excess benefit plan" (within the meaning of
Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) or any non-qualified deferred compensation arrangement). For the
purposes of this Agreement, the term "employee pension benefit plan" shall have
the same meaning as is given that term in Section 3(2) of ERISA. The Company has
not sponsored, maintained or contributed to any employee pension benefit plan
other than the plans set forth on the Benefit Plans Schedule, and the Company is
not required to contribute to any retirement plan pursuant to the provisions of
any collective bargaining agreement establishing the terms and conditions or
employment of any of the Company's or any subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code are, and have been so qualified and have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination letters are
attached to the Benefit Plans Schedule. Except as disclosed on the Benefit Plans
Schedule, all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or tax returns) have
been timely filed or distributed, and copies thereof are included as part of the
Benefit Plans Schedule. Neither Stockholders, any such plan listed in the
Benefit Plans Schedule, nor the Company has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section 406 of
ERISA. No such Plan listed in the Benefit Plans
-17-
<PAGE>
Schedule has incurred an accumulated funding deficiency, as defined in Section
412(a) of the Code and Section 302(1) of ERISA; and the Company has not incurred
any liability for excise tax or penalty due to the Internal Revenue Service nor
any liability to the Pension Benefit Guaranty Corporation. The Stockholders
further represent that except as set forth on the Benefit Plans Schedule hereto:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
the Benefit Plans Schedule;
(iv) the Company has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the Company could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such
liability) with respect to any plan now or heretofore maintained or
contributed to by any entity other than the Company that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and, to the Knowledge of the
Company and the Stockholders, there is no basis for any such claim, action, suit
or proceeding. The Company has conducted and is now conducting its business in
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, orders, approvals,
variances, rules and regulations, including without limitation to the extent
applicable all regulations promulgated by the Department of Housing and
-18-
<PAGE>
Urban Development under the National Manufactured Housing Construction and
Safety Standards Act, as amended, or otherwise, and all laws and regulations
affecting the sale of manufactured housing, on credit or otherwise, including
the Federal Consumer Credit Protection Act, the Federal Fair Credit Reporting
Act, the Federal Equal Credit Opportunity Act, the Consumer Credit Protection
Act, the Fair Debt Collection Practices Act and the regulations promulgated
under the foregoing, and all state and local laws and regulations of similar
effect, and including all such orders and other governmental approvals set forth
on Schedules 5.12 and 5.13, except where any such noncompliance, individually or
in the aggregate, would not have a Material Adverse Effect.
5.22 TAXES. The Company has timely filed all requisite Federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other taxes (including penalties and interest) for any period
or periods prior to and including the Balance Sheet Date and no notice of any
claim for taxes, whether pending or threatened, has been received. All tax,
including interest and penalties (whether or not shown on any tax return) owed
by the Company or any of the Company's Subsidiaries has been paid. The amounts
shown as accruals for taxes on the Company Financial Statements are sufficient
for the payment of all taxes of the kinds indicated (including penalties and
interest) for all fiscal periods ended on or before that date. Copies of (i) any
tax examinations, (ii) extensions of statutory limitations and (iii) the federal
and local income tax returns and franchise tax returns of the Company for their
last three (3) fiscal years, or such shorter period of time as any of them shall
have existed, are attached hereto as Schedule 5.22 or have otherwise been
delivered to Home. The Company has disclosed to Home when its taxable year ends.
The Company uses the accrual method of accounting for income tax purposes, and
the Company's methods of accounting have not changed in the past five years. The
Company is not an investment Company as defined in Section 351(e)(1) of the
Code. The Company is not and has not during the last five years been a party to
any tax sharing agreement or agreement of similar effect. The Company is not and
has not during the last five years been a member of any consolidated group.
Except as described on Schedule 5.22, the Company has not received, been denied,
or applied for any private letter ruling during the last five years.
AAA Homes, L.L.C. is not taxed under the provisions of Subchapter C of the
Code. The members of AAA Homes, L.L.C. shall pay, and they hereby indemnify
Home, the Company and Newco against, all income taxes payable for all periods
though and including the Closing Date.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the best
knowledge of the Company, any other party thereto, is in default under any
lease, instrument, agreement, license, or permit set forth on Schedule 5.12,
5.13, 5.14, 5.15 or 5.16, or any other Material Contract (as defined in Section
5.15) to which it is a party or by which its properties are bound (the "Material
Documents") in any manner that could result in a Material Adverse Effect; and,
except as set forth in Schedule 5.23, (a) the rights
-19-
<PAGE>
and benefits of the Company under the Material Documents will not be materially
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
material violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 5.23, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect, and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any material right or benefit. Except as set forth on Schedule 5.23,
none of the Material Documents prohibits the use or publication by the Company,
Home or Newco of the name of any other party to such Material Document, and none
of the Material Documents prohibits or restricts the Company from freely
providing services to any other customer or potential customer of the Company,
Home, Newco or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any
grant by the Company of any options, warrants, calls, conversion rights or
commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
(v) any material increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the Company
to any of its officers, directors, Stockholders, employees, consultants or
agents, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
-20-
<PAGE>
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the Company;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of Company to any person,
including, without limitation, the Stockholders and their Affiliates;
(viii)any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
(xii) any amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(xiii)any transaction by the Company outside the ordinary course of
its business;
(xiv) any cancellation or termination by the Company of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the Company
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
Home an accurate schedule (which is set forth on Schedule 5.26) as of the date
of this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
-21-
<PAGE>
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.28 RELATIONS WITH GOVERNMENTS. Except for legal contributions to
candidates for political office, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office, nor has it or any of them otherwise taken any action which would cause
the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended or any law of similar effect.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished to Home by the Company and the Stockholders in
connection herewith, do not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements herein and
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing does not apply to statements
contained in or omitted from any of such documents made or omitted in reliance
upon information furnished in writing by Home. If, prior to the 25th day after
the date of the final prospectus of Home utilized in connection with the IPO,
the Company or the Stockholders become aware of any fact or circumstance which
would affect the accuracy of a representation or warranty of Company or
Stockholders in this Agreement in any material respect, the Company and the
Stockholders shall immediately give notice of such fact or circumstance to Home.
Subject to the provisions of Section 7.8, such notification shall not relieve
either the Company or the Stockholders of their respective obligations under
this Agreement, and, subject to the provisions of Section 7.8, at the sole
option of Home, the truth and accuracy in all material respects of any and all
warranties and representations of the Company, or on behalf of the Company and
of Stockholders at the date of this Agreement and on the Closing Date and on the
Funding and Consummation Date, shall be a precondition to the consummation of
this transaction.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that a Registration
Statement will become effective or that the IPO
-22-
<PAGE>
pursuant thereto will occur at a particular price or within a particular range
of prices or occur at all; (ii) that neither Home or any of its officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the Company, the Stockholders or any other person affiliated or
associated with the Company for any failure of the Registration Statement to
become effective, the IPO to occur at a particular price or to occur at all; and
(iii) that the decision of Stockholders to enter into this Agreement, or to vote
in favor of or consent to the proposed Merger, has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications, or due diligence investigations which have been or will be made
or performed by any prospective Underwriter, relative to Home or the prospective
IPO. Notwithstanding the foregoing, Home has agreed and herein acknowledges its
agreement to use its reasonable efforts to consummate the Home Plan of
Organization and IPO as contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
Company has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 DEALER AGREEMENTS AND RELATED MATTERS. Schedule 5.31 sets forth a
complete and accurate list of:
(i) all agreements of any nature (including "Dealer Agreements",
"Home Center Agreements", "Retailer Agreements", "Exclusive Retailer
Agreements", "General Conditions", "Action Plans" and other documents)
between the Company and any dealer, manufacturer, wholesaler or other
distributor (collectively, "Manufacturers") of manufactured housing units
(collectively, "Dealer Agreements"); and
(ii) all volume incentive, rebate and other similar programs of any
Manufacturer (collectively, "Dealer Programs") in which the Company is now
or has within the last three years been a participant.
Schedule 5.31 identifies the Manufacturer that is a party to each such Dealer
Agreement or that sponsors each such Dealer Program, and also identifies the
Company's sales locations subject to or affected by each such Dealer Agreement
and each such Dealer Program. Complete and accurate copies of all Dealer
Agreements and all Dealer Programs listed on Schedule 5.31 are attached to
Schedule 5.31. Except as set forth on Schedule 5.31, the Company is now and for
the last three years has been in compliance in all material respects with all
applicable provisions of the Dealer Agreements and Dealer Programs identified on
Schedule 5.31 and any similar agreements to which the Company has been a party
during the last three years. To the extent that the Company is required by any
Dealer Agreement or Dealer Program to take or refrain from taking specified
actions in order to qualify for the benefits offered thereby (such as the
benefits of an exclusive retailer agreement), the Company is in compliance in
all material respects with all such requirements (it being understood that the
Company is not hereby representing that it qualifies for the highest level of
-23-
<PAGE>
incentive discounts or rebates offered by such Dealer Agreements or Dealer
Programs). Except as set forth on Schedule 5.31, within the last three years, no
Manufacturer has asserted any claim or right to any refund of any incentive
payment or rebate or other payment or discount granted to the Company by any
such Manufacturer, or any right to offset any amount against any future payment
due or otherwise due to the Company, and no circumstances exist that would
entitle any Manufacturer to make any such claim against the Company. During the
last three years, the Company has accurately calculated and reported to each
Manufacturer with which the Company has done business all financial and sales
data that the Company is required to report to each such Manufacturer, whether
in connection with volume incentive or rebate plans or otherwise.
5.32 NO RETAIL FINANCING. Except as set forth on Schedule 5.32, the
Company does not finance the sale to the Company's customers of manufactured
housing units or related products or services (collectively, "Product"), and is
not liable, directly or indirectly, contingently or otherwise, to any
Manufacturer or any financing source for all or any portion of the purchase
price of any Product that has been sold by the Company or delivered by the
Company to a retail purchaser.
5.33 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule 5.33, the
Company has not made any express warranties regarding any Products and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any payment
to or perform any service for any person other than routine matters described as
"Retailer Responsibilities", "Retailer General Installation and Home Delivery
Guidelines" and the like in the Dealer Agreements listed on Schedule 5.31.
5.34 NO INTERESTS IN OTHER BUSINESSES. Except as set forth on Schedule
5.34, neither the Company nor any Stockholder, nor any affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's sales of Product.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each Stockholder severally represents and warrants that the
representations and warranties set forth below as and to the extent relating to
such Stockholder are true as of the date of this Agreement and, subject to
Section 7.8 hereof, shall be true at the time of Closing and on the Funding and
Consummation Date, and that the representations and warranties set forth in
Sections 5.35 and 5.36 shall survive until the first anniversary of the Funding
and Consummation Date, which shall be the Expiration Date for purposes of
Sections 5.35 and 5.36.
5.35 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex II as being owned by such Stockholder, and,
-24-
<PAGE>
except as set forth on Schedule 5.35, such Company Stock is owned free and clear
of all liens, security interests, pledges, charges, voting agreements, voting
trusts, restrictions, encumbrances and claims of every kind.
5.36 PREEMPTIVE RIGHTS. Such Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Home Stock
that such Stockholder has or may have had. Nothing herein, however, shall limit
or restrict the rights of any Stockholder to acquire Home Stock pursuant to (i)
this Agreement or (ii) any option granted by Home.
5.37 NO INTENTION TO DISPOSE OF HOME STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of Home Stock received as described in Section 3.1.
6. REPRESENTATIONS OF HOME AND NEWCO
Home and Newco jointly and severally represent and warrant that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at the time
of Closing and the Funding and Consummation Date, and that such representations
and warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that the warranties and representations set forth in Section 6.14 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 6.14.
6.1 DUE ORGANIZATION. Home and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. Home and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws of Home and Newco (the "Home Charter Documents") are
all attached hereto as Annexes III and IV.
6.2 AUTHORIZATION. (i) The respective representatives of Home and Newco
executing this Agreement have the authority to enter into and bind Home and
Newco to the terms of this Agreement and (ii) Home and Newco have the full legal
right, power and authority to enter into this Agreement and consummate the
Merger. All corporate acts and other proceedings required to have been taken by
Home and Newco to authorize the execution, delivery and performance of this
Agreement and the consummation of the Merger have been duly and properly taken.
-25-
<PAGE>
6.3 CAPITAL STOCK OF HOME AND NEWCO. The authorized capital stock of Home
and Newco is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding shares of the capital stock of Newco are owned by
Home. All of the issued and outstanding shares of the capital stock of Home and
Newco have been duly authorized and validly issued, are fully paid and
nonassessable, and further, such shares were offered, issued, sold and delivered
by Home and Newco in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of Home
or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in the Draft Registration Statement,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates Home or Newco to issue any of their respective authorized but
unissued capital stock; and (ii) neither Home nor Newco has any obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Schedule 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of Home.
6.5 SUBSIDIARIES. Newco has no subsidiaries. Home has no subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither Home
nor Newco presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, and
neither Home nor Newco, directly or indirectly, is a participant in any joint
venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of Home included in the
Draft Registration Statement (the "Home Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon),
and the balance sheet included therein presents fairly the financial position of
Home as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, Home and Newco have no material liabilities, contingent
or otherwise, except as set forth in or contemplated by this Agreement and the
Other Agreements and except for fees incurred in connection with the
transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement, neither Home nor Newco is in violation of any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board,
-26-
<PAGE>
bureau, agency or instrumentality having jurisdiction over either of them which
would have a Material Adverse Effect; and except to the extent set forth in
Schedule 6.8, there are no material claims, actions, suits or proceedings,
pending or, to the knowledge of Home or Newco, threatened against or affecting,
Home or Newco, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. Home and Newco have conducted and are conducting their respective
businesses in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing which would have a
Material Adverse Effect.
6.9 NO VIOLATIONS. Neither Home nor Newco is in violation of any Home
Charter Document. None of Home, Newco, or, to the knowledge of Home and Newco,
any other party thereto, is in default under any lease, instrument, agreement,
license, or permit to which Home or Newco is a party, or by which Home or Newco,
or any of their respective properties, are bound (collectively, the "Home
Documents"); and (a) the rights and benefits of Home and Newco under the Home
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution and delivery of this Agreement by Home and Newco and the
performance of their obligations hereunder do not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof will not,
conflict with, or result in any violation or default (with or without notice or
lapse of time, or both), under or give rise to a right of termination,
cancellation, or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any lien upon any of the assets of Home or
any Newco under, any provision of (i) the Certificate of Incorporation or Bylaws
of Home or the comparable governing instruments of any Newco, (ii) any note,
bond, mortgage, indenture or deed of trust or any license, lease, contract,
commitment, agreement or arrangement to which Home and any Newco is a party or
by which any of their respective properties or assets are bound or (iii) any
judgment, order, decree or law, ordinance, rule or regulation, applicable to
Home or any Newco or their respective properties or assets. The execution of
this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
material violation or breach or constitute a default under, any of the terms or
provisions of the Home Documents or the Home Charter Documents. Except as set
forth on Schedule 6.9, none of the Home Documents requires notice to, or the
consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by Home and Newco and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective Boards of Directors of
Home and Newco and this Agreement has been
-27-
<PAGE>
duly and validly authorized by all necessary corporate action and is a legal,
valid and binding obligation of Home and Newco.
6.11 HOME STOCK. At the time of issuance thereof and delivery to the
Stockholders, the Home Stock to be delivered to the Stockholders pursuant to
this Agreement will constitute valid and legally issued shares of Home, fully
paid and nonassessable, and with the exception of restrictions upon resale set
forth in Sections 15 and 16 hereof, will be identical in all substantive
respects (which do not include the form of certificate upon which it is printed
or the presence or absence of a CUSIP number on any such certificate) to the
Home Stock issued and outstanding as of the date hereof by reason of the
provisions of the Delaware GCL. The Home Stock issued and delivered to the
Stockholders shall at the time of such issuance and delivery be free and clear
of any liens, claims or encumbrances of any kind or character. The shares of
Home Stock to be issued to the Stockholders pursuant to this Agreement will not
be registered under the 1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither Home nor Newco has entered or will enter
into any agreement with any of the Founding Companies or any of the Stockholders
of the Founding Companies or Home other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Home was formed in July
1996 and has conducted only limited operations since that time. Neither Home nor
Newco has conducted any material business since the date of its inception,
except in connection with this Agreement, the Other Agreements and the IPO.
Except as described in the Draft Registration Statement, neither Home nor Newco
owns or has at any time owned any real property or any material personal
property or is a party to any other agreement other than the Other Agreements
and the agreements contemplated thereby and to such agreements as will be filed
as Exhibits to the Registration Statement.
6.14 TAXES.Home and Newco have timely filed all requisite federal, state
and other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and there are no examinations in progress or
claims against Home for federal, state and other taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for taxes, whether pending or threatened, has
been received. All taxes which Home or any Newco has been required to collect or
withhold have been duly and timely collected and withheld and have been set
aside in accounts for such purposes, or have been duly and timely paid to the
proper governmental authority. All tax, including interest and penalties
(whether or not shown on any tax return) owed by Home, any member of an
affiliated or consolidated group which includes or included Home, or with
respect to any payment made or deemed made by Home herein has been paid. The
amounts shown as accruals for taxes on Home Financial Statements are
-28-
<PAGE>
sufficient for the payment of all taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before that date.
Home and Newco have not entered into any tax sharing agreement or similar
arrangement. Home is not an investment company as defined in Section 351(e)(1)
of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Home or
Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
Home or Newco;
(iii) any change in the authorized capital of Home or Newco or their
outstanding securities or any change in their ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of Home or
Newco;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of Home or Newco;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Home or Newco to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Home or Newco;
(viii)any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of Home or Newco or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of Home or Newco;
(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which Home or Newco is a
party;
-29-
<PAGE>
(xi) any transaction by Home or Newco outside the ordinary course of
its business;
(xii) any other distribution of property or assets by Home or Newco
other than in the ordinary course of business.
6.16 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Stockholders, together with this Agreement and the information furnished
to the Company and the Stockholders in connection herewith, does not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the foregoing does not apply
to statements contained in or omitted from any of such documents made or omitted
in reliance upon information furnished by the Company or the Stockholders.
6.17 PRIVATE OFFERING. (a) Neither Home, any of its Affiliates nor anyone
on its or their behalf, has issued, sold, or offered any securities of Home to
any person under circumstances that would cause the issuance and sale of the
Home Stock to the Stockholders pursuant to this Agreement, to be subject to the
registration requirements of the 1933 Act.
(b) The offering of shares of Home Stock pursuant to the Home Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of Home and the Other Founding Companies
access to all of the Company's sites, properties, books and records and will
furnish Home with such additional financial and operating data and other
information as to the business and properties of the Company as Home or the
Other Founding Companies may from time to time reasonably request. The Company
will cooperate with Home and the Other Founding Companies, its representatives,
auditors and counsel in the preparation of any documents or other materials
which may be required in connection with any documents or materials required by
this Agreement. Home, Newco, the Stockholders and the Company will treat all
information obtained in connection with the negotiation and performance of this
Agreement or the due diligence investigations conducted with respect to the
Other Founding Companies as confidential in accordance with the provisions of
Section 14 hereof. In addition, Home will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
such Other Founding Company, its Stockholders, directors, officers,
representatives, employees and agents to keep confidential any information
obtained by such Other Founding Company.
-30-
<PAGE>
(b) Between the date of this Agreement and the Funding and Consummation
Date, Home will afford to the officers and authorized representatives of the
Company access to all of Home's and Newco's sites, properties, books and records
and will furnish the Company with such additional financial and operating data
and other information as to the business and properties of Home and Newco as the
Company may from time to time reasonably request. Home and Newco will cooperate
with the Company, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The Company will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order
and condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or
rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and
maintain its relationships with suppliers, customers and others having
business relations with the Company;
(vi) use its reasonable efforts to maintain compliance with all
material permits, laws, rules and regulations, consent orders, and all
other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent
of Home (which consent shall not be unreasonably withheld), provided that
debt and/or lease instruments may be replaced without the consent of Home
if such replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced; and
-31-
<PAGE>
(viii)maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of Home, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock
except for distributions permitted as described on Annex I hereto;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the businesses of the Company, (2) (A) liens for taxes either not yet due
or being contested in good faith and by appropriate proceedings (and for
which contested taxes adequate reserves have been established and are
being maintained) or (B) materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
-32-
<PAGE>
(viii)merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the Company; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Home or its
authorized agents relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, the Company
or a merger, consolidation or business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Home on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by Home or reflected in Schedule 7.6) terminate (i) any
Stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms
-33-
<PAGE>
thereof, which terms have been disclosed to Home. Such termination agreements
are listed on Schedule 7.6 and copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to Home of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of any Stockholder or the Company to comply with or satisfy
any material covenant, condition or agreement to be complied with or satisfied
by such person hereunder. Home and Newco shall give prompt notice to the Company
of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of Home or Newco contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing and (ii) any failure of Home or Newco to
comply with or satisfy any material covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii) modify the conditions set forth in
Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless Home and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by Home or Newco that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, Home shall give the Company notice promptly after
it has knowledge thereof. If Home
-34-
<PAGE>
and a majority of the Founding Companies consent to such amendment or
supplement, which consent shall have been deemed given by Home or any Founding
Company if no response is received within 24 hours following receipt of notice
of such amendment or supplement (or sooner if required by the circumstances
under which such consent is requested), but the Company does not give its
consent, the Company may terminate this Agreement pursuant to Section 12.1(iv)
hereof. In the event that the Company seeks to amend or supplement a Schedule
pursuant to this Section 7.8, and Home and a majority of the Other Founding
Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i) hereof.
In the event that Home or Newco seeks to amend or supplement a Schedule pursuant
to this Section 7.8 and a majority of the Founding Companies do not consent to
such amendment or supplement, this Agreement shall be deemed terminated by
mutual consent as set forth in Section 12.1(i) hereof. No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to Home and the Underwriters
all of the information concerning the Company and the Stockholders required for
inclusion in, and will cooperate with Home and the Underwriters in the
preparation of, the Registration Statement and the prospectus included therein
(including audited and unaudited financial statements, prepared in accordance
with generally accepted accounting principles, in form suitable for inclusion in
the Registration Statement). The Company and the Stockholders agree promptly to
advise Home if at any time during the period in which a prospectus relating to
the offering is required to be delivered under the Securities Act, any
information contained in the prospectus concerning the Company or the
Stockholders becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the Company or the Stockholders, the Company
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
Company and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and Home shall have had sufficient time to review
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in
-35-
<PAGE>
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted therein). Except as
noted in such financial statements, all of such financial statements will
present fairly the results of operations of the Company for the periods
indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, Home
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the Home Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the Hart-
Scott-Rodino Act are required, then: (i) each of the parties hereto agrees to
cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
(ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by Home and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart- Scott-Rodino Act to be
made. If filings under the Hart-Scott-Rodino Act are required, the costs and
expenses thereof (including legal fees and costs and filing fees) shall be borne
by Home. The obligation of each party to consummate the transactions
contemplated by this Agreement is subject to the expiration or termination of
the waiting period under the Hart-Scott-Rodino Act, if applicable.
7.14 STOCKHOLDERS OF HOME. Promptly after a request by the Company, Home
will deliver to the Company a list of the stockholders of Home as of the date of
this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of Stockholders and the Company with respect to actions to
be taken on the Closing Date are subject to the satisfaction or waiver on or
prior to the Closing Date of all of the following conditions. The obligations of
the Stockholders and the Company with respect to actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9
-36-
<PAGE>
and 8.12. As of the Closing Date or, with respect to the conditions set forth in
Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the Funding and Consummation Date,
if any such conditions have not been satisfied, the Stockholders (acting in
unison) shall have the right to terminate this Agreement, or in the alternative,
waive any condition not so satisfied. Any act or action of the Stockholders in
consummating the Closing or delivering certificates representing Company Stock
as of the Funding and Consummation Date shall constitute a waiver of any
conditions not so satisfied. However, no such waiver shall be deemed to affect
the survival of the representations and warranties of Home and Newco contained
in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Home and Newco contained in Section 6 shall be
true and correct in all material respects as of the Closing Date and the Funding
and Consummation Date as though such representations and warranties had been
made as of that time; all of the terms, covenants and conditions of this
Agreement to be complied with and performed by Home and Newco on or before the
Closing Date and the Funding and Consummation Date shall have been duly complied
with and performed in all material respects; and certificates to the foregoing
effect dated the Closing Date and the Funding and Consummation Date,
respectively, and signed by the President or any Vice President of Home shall
have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform Home in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the Company as a result of which
the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for Home, dated the Closing Date, in the form annexed hereto as Annex V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm
-37-
<PAGE>
commitment basis, subject to the conditions set forth in the underwriting
agreement, on terms such that the aggregate value of the cash and the number of
shares of Home Stock to be received by the Stockholders is not less than the
Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of the Company as a result of which the Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. Home and Newco each shall have delivered
to the Company a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which Home or Newco is authorized to do business, showing that each of
Home and Newco is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for Home and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to Home or Newco which would constitute a Material Adverse
Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of Home and of Newco, certifying the truth and correctness of attached copies of
the Home's and Newco's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the Stockholders of Home and Newco
approving Home's and Newco's entering into this Agreement and the consummation
of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the Home Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
-38-
<PAGE>
Company for Home Stock (but not cash or other property) pursuant to the Home
Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME AND NEWCO
The obligations of Home and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of Home and
Newco with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, Home and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Funding and Consummation Date with the same effect as
though such representations and warranties had been made on and as of such date;
all of the terms, covenants and conditions of this Agreement to be complied with
or performed by the Stockholders and the Company on or before the Closing Date
or the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to Home certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of Home as a result of which the
management of Home (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. Home shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall
-39-
<PAGE>
not have suffered any material loss or damages to any of its properties or
assets, whether or not covered by insurance, which change, loss or damage
materially affects or impairs the ability of the Company to conduct its
business.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to Home
an instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholders against the Company and Home and (ii)
obligations of the Company and Home to the Stockholders, except for (x) items
specifically identified on Schedules 5.10 and 5.15 as being claims of or
obligations to the Stockholders, (y) continuing obligations to Stockholders
relating to their employment by the Company and (z) obligations arising under
this Agreement or the transactions contemplated hereby. In the event that the
Funding and Consummation Date does not occur, then the release instrument
referenced herein shall be void and of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to Home.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 or otherwise approved by Home, all existing agreements between the
Company and the Stockholders (and entities controlled by the Stockholders) other
than real property leases shall have been canceled effective prior to or as of
the Closing Date, and all real property leases between the Company and the
Stockholders (and any entity controlled by the Stockholders) shall have been
amended in a manner reasonably satisfactory to Home.
9.8 OPINION OF COUNSEL. Home shall have received an opinion from Counsel
to the Company and the Stockholders, dated the Closing Date, substantially in
the form annexed hereto as Annex VI.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of Home as a result of which Home deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to Home
a certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
state of incorporation and, unless waived by Home, in each state in which the
Company is authorized to do business, showing the Company is
-40-
<PAGE>
in good standing and authorized to do business and that all state franchise
and/or income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to Home a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF HOME AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. Home shall
use reasonable efforts to have the Stockholders released from any and all
guarantees of the Company's indebtedness identified on Schedule 10.1. In the
event that Home cannot obtain such releases from the lenders of any such
guaranteed indebtedness identified on Schedule 10.1 on or prior to 120 days
subsequent to the Funding and Consummation Date, Home shall promptly pay off or
otherwise refinance or retire such indebtedness. From and after the Funding and
Consummation Date and until such time as all of such indebtedness is paid off,
refinanced or retired, Home shall maintain unencumbered funds in amounts
sufficient to provide for such pay off, refinancing or retirement, provided that
Home may use such funds for other purposes, in its sole discretion, with the
prior written consent of each Stockholder who has not as of that time been
released from his or her guarantee as described above and whose indebtedness as
described above has not as of that time been paid off, refinanced or retired.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, Home shall not and shall not permit any of its subsidiaries
to undertake any act that would jeopardize the tax-free status of the
organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all or
part of the Home Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of the
Stockholders.
-41-
<PAGE>
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or
before the Funding and Consummation Date, and shall permit Home to review
all such Tax Returns prior to such filings. Unless the Company is a C
corporation, the Stockholders shall pay or cause to be paid all Tax
liabilities (in excess of all amounts already paid with respect thereto or
properly accrued or reserved with respect thereto on the Company Financial
Statements) shown by such Returns to be due.
(ii) Home shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs
of filing such Returns.
(iv) Each of the Company, Newco, Home and each Stockholder shall
comply with the tax reporting requirements of Section 1.351-3 of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351(a) of the Code subject to
gain, if any, recognized on the receipt of cash or other property under
Section 351(b) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of Home, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
-42-
<PAGE>
11. INDEMNIFICATION
The Stockholders, Home and Newco each make the following covenants that
are applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. The Stockholders
covenant and agree that they, severally (based on their relative ownership of
the Company Stock on the date hereof), will indemnify, defend, protect and hold
harmless Home, Newco, the Company and the Surviving Corporation at all times,
from and after the date of this Agreement until the Expiration Date (provided
that for purposes of Section 11.1(iii) below, the Expiration Date shall be the
date on which the applicable statute of limitations expires), from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by Home,
Newco, the Company or the Surviving Corporation as a result of or arising from
(i) any breach of the representations and warranties of the Stockholders or the
Company set forth herein or on the schedules or certificates delivered in
connection herewith, (ii) any breach of any agreement on the part of the
Stockholders or the Company under this Agreement, or (iii) any liability under
the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement of a
material fact relating to the Company or the Stockholders, and provided to Home
or its counsel by the Company or the Stockholders (but in the case of the
Stockholders, only if such statement was provided in writing) contained in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Company or the Stockholders required to be stated therein or necessary to make
the statements therein not misleading, provided, however, that such indemnity
shall not inure to the benefit of Home, Newco, the Company or the Surviving
Corporation to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and the Stockholders provided, in writing, corrected
information to Home counsel and to Home for inclusion in the final prospectus,
and such information was not so included or properly delivered, and provided
further, that no Stockholder shall be liable for any indemnification obligation
pursuant to this Section 11.1 to the extent attributable to a breach of any
representation, warranty or agreement made herein individually by any other
Stockholder.
Home and Newco acknowledge and agree that other than the representations
and warranties of Company or Stockholders specifically contained in this
Agreement, there are no representations or warranties of Company or
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
Home and Newco further acknowledge and agree that, should the Closing
occur, their sole and exclusive remedy with respect to any and all claims
relating to this Agreement and the
-43-
<PAGE>
transactions contemplated in this Agreement, shall be pursuant to the
indemnification provisions set forth in this Section 11. Home and Newco hereby
waive, from and after the Closing, to the fullest extent permitted under
applicable law, any and all rights, claims and causes of action they or any
indemnified person may have against the Company or any Stockholder relating to
this Agreement or the transactions arising under or based upon any federal,
state, local or foreign statute, law, rule, regulation or otherwise.
11.2 INDEMNIFICATION BY HOME. Home covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders at all times from
and after the date of this Agreement until the Expiration Date, from and against
all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by the
Stockholders as a result of or arising from (i) any breach by Home or Newco of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
Home or Newco under this Agreement, (iii) any liabilities which the Stockholders
may incur due to Home's or Newco's failure to be responsible for the liabilities
and obligations of the Company as provided in Section 1 hereof (except to the
extent that Home or Newco has claims against the Stockholders by reason of such
liabilities); or (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to Home, Newco or any of the Other Founding Companies contained in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, or arising out
of or based upon any omission or alleged omission to state therein a material
fact relating to Home or Newco or any of the Other Founding Companies required
to be stated therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any criminal proceeding
without the written consent of the Indemnified Party. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate with the
Indemnifying Party and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records or information
-44-
<PAGE>
reasonably requested by the Indemnifying Party that are in the Indemnified
Party's possession or control. All Indemnified Parties shall use the same
counsel, which shall be the counsel selected by Indemnifying Party, provided
that if counsel to the Indemnifying Party shall have a conflict of interest that
prevents counsel for the Indemnifying Party from representing Indemnified Party,
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the Indemnified
Party for the amount paid in such settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no circumstances shall the Indemnified Party settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. All settlements hereunder
shall effect a complete release of the Indemnified Party, unless the Indemnified
Party otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party,
provided that, nothing herein shall be construed to limit the right of a party,
in a proper case, to seek injunctive relief for a breach of this Agreement. Any
indemnity payment under this Section 11 shall be treated as an adjustment to the
exchange consideration for tax purposes unless a final determination (which
shall include the
-45-
<PAGE>
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliate causes any such payment not to be treated as an
adjustment to the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. Home, Newco, the Surviving
Corporation and the other persons or entities indemnified pursuant to Section
11.1 or 11.2 shall not assert any claim for indemnification hereunder against
the Stockholders until such time as, and solely to the extent that, the
aggregate of all claims which such persons may have against such the
Stockholders shall exceed the greater of (a) 1.0% of the sum of (i) the cash
paid to Stockholders plus (ii) the value of the Home Stock delivered to
Stockholders (calculated as provided in this Section 11.5) or (b) $50,000 (the
"Indemnification Threshold"). Stockholders shall not assert any claim for
indemnification hereunder against Home or Newco until such time as, and solely
to the extent that, the aggregate of all claims which Stockholders may have
against Home or Newco shall exceed the Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the Home Stock received by a Stockholder, Home Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such stockholder in connection with the Merger, valued as described
immediately above, but shall also have the right to satisfy any such obligation
in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of Home and the
Company;
(ii) by the Stockholders or the Company (acting through its board of
directors), on the one hand, or by Home (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
March 31, 1998, unless the failure of such transactions to be consummated
is due to the willful failure of the party seeking to terminate this
Agreement to perform any
-46-
<PAGE>
of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Funding and Consummation Date;
(iii) by the Stockholders or Company, on the one hand, or by Home,
on the other hand, if a material breach or default shall be made by the
other party in the observance or in the due and timely performance of any
of the covenants or agreements contained herein, and the curing of such
default shall not have been made on or before the Funding and Consummation
Date or by the Stockholders or the Company, if the conditions set forth in
Section 8 hereof have not been satisfied or waived as of the Closing Date
or the Funding and Consummation Date, as applicable, or by Home, if the
conditions set forth in Section 9 hereof have not been satisfied or waived
as of the Closing Date or the Funding and Consummation Date, as
applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that during the period from the Closing Date to the Funding
and Consummation Date, this Agreement may be terminated only if the underwriting
agreement relating to the IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Stockholders will not, for a period of
five (5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any retail (new or used, but excluding used home lots
or other activities listed on Schedule 13.1 hereto) manufactured housing
business or operation or related services business (including the
ownership or management of manufactured housing subdivisions, lots or
parks, but excluding any such subdivisions, lots or parks or other
activities listed on Schedule 13.1 hereto) in direct competition with Home
-47-
<PAGE>
or any of the subsidiaries thereof, within 100 miles of where the Company
or any of its subsidiaries conducted business prior to the effectiveness
of the Merger (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Home or any subsidiary thereof for the purpose
or with the intent of enticing such employee away from or out of the
employ of Home or any subsidiary thereof;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to the Funding and Consummation
Date, a customer of Home or any subsidiary thereof, of the Company or of
any of the Other Founding Companies within the Territory for the purpose
of soliciting or selling products or services in direct competition with
Home within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the retail
manufactured housing business, which candidate, to the actual knowledge of
such Stockholder after due inquiry, was called upon by Home or any
subsidiary thereof or for which, to the actual knowledge of such
Stockholder after due inquiry, Home or any subsidiary thereof made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the
Company to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the Company has in
the past disclosed such information to the public for valid business
reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit (i) any Stockholder from acquiring as a passive investment not more
than one percent (1%) of the capital stock of a competing business whose stock
is traded on a national securities exchange or over-the-counter, or (ii) any of
the activities listed on Schedule 13.1 hereto.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
Home as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Home for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Home in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of Home and the
subsidiaries thereof on the date of the execution of this Agreement and the
current plans of Home; but it is also the intent of Home and the Stockholders
that such covenants be construed and enforced in accordance with the changing
activities; business and locations of
-48-
<PAGE>
Home and its subsidiaries throughout the term of this covenant. During the term
of this covenant, if Home or one of its subsidiaries engages in new activities,
enters a new business or establishes new locations for its current activities or
business in addition to or other than the activities or business it is currently
conducting in the locations currently established therefor (provided such
activities or business are related to the business or operations of the retail
manufactured housing business), then the Stockholders will be precluded from
soliciting the customers or employees of such new activities or business or from
such new location and from directly competing with such new activities or
business within 100 miles of its then-established operating location(s) through
the term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Home or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by Home of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or Home, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or Home's respective businesses. The Stockholders agree that they
will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of Home, (b) following the Closing,
such information may be disclosed by the Stockholders as is required in the
course of performing their duties for Home or the Surviving Corporation and (c)
to counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1, unless (i) such
information becomes known to the public generally through no fault
-49-
<PAGE>
of the Stockholders, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii), the Stockholders shall, if
possible, give prior written notice thereof to Home and provide Home with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by any of the Stockholders of the provisions of this Section 14.1, Home
shall be entitled to an injunction restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Home from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
Stockholders shall have none of the above-mentioned restrictions on their
ability to disseminate confidential information with respect to the Company.
Each Stockholder further agrees that in the event the transactions contemplated
herein are not consummated (i) neither the Company nor any Stockholder can
thereafter use any confidential information of the Other Founding Companies for
any purpose and (ii) upon written request of any Other Founding Company to the
Company, the Company and Stockholders will return all confidential information
pertaining to such Other Founding Company to such Other Founding Company.
14.2 HOME AND NEWCO. Home and Newco recognize and acknowledge that they
had in the past and currently have access to certain confidential information of
the Company, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the Company's business. Home and
Newco agree that, prior to the Closing, or if the Transactions contemplated by
this Agreement are not consummated, they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except (a) to authorized representatives of
the Company, (b) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.2, (c) to the Other Founding Companies and their representatives pursuant to
Section 7.1(a), unless (i) such information becomes known to the public
generally through no fault of Home or Newco, (ii) disclosure is required by law
or the order of any governmental authority under color of law, provided, that
prior to disclosing any information pursuant to this clause (ii), Home and Newco
shall, if possible, give prior written notice thereof to the Company and the
Stockholders and provide the Company and the Stockholders with the opportunity
to contest such disclosure, or (iii) the disclosing party reasonably believes
that such disclosure is required in connection with the defense of a lawsuit
against the disclosing party, and (d) to the public to the extent necessary or
advisable in connection with the filing of the Registration Statement and the
IPO and the securities laws applicable thereto and to the operation of Home as a
publicly held entity after the IPO. In the event of a breach or threatened
breach by Home or Newco of the provisions of this Section 14.2, the Company and
the Stockholders shall be entitled to an injunction restraining Home and Newco
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the Company and the Stockholders from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
-50-
<PAGE>
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by Home, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or trusts for the benefit of the Stockholders or
family members, the trustees of which so agree), for a period of one year from
the Closing, except pursuant to Section 17 hereof, none of the Stockholders
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any shares of Home Stock received by the Stockholders in
the Merger. The certificates evidencing the Home Stock delivered to the
Stockholders pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as Home may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
Home Stock to be delivered to the Stockholders pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The Home Stock to be acquired by such Stockholders pursuant to this
Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the
-51-
<PAGE>
shares of Home Stock issued to such Stockholders will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all of the applicable provisions of the 1933 Act and
the rules and regulations of the SEC. All the Home Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the Home Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the proposed investment in the
Home Stock. The Stockholders party hereto have had an adequate opportunity to
ask questions and receive answers from the officers of Home concerning any and
all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of Home, the plans for the operations of the business of Home, the
business, operations and financial condition of the Founding Companies other
than the Company, and any plans for additional acquisitions and the like. The
Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever Home proposes to register any Home Stock for its own or others account
under the 1933 Act for a public offering, other than (i) any shelf or other
registration of shares to be used as consideration for acquisitions of
additional businesses by Home and (ii) registrations relating to employee
benefit plans, Home shall give each of the Stockholders prompt written notice of
its intent to do so. Upon the written request of any of the Stockholders given
within 30 days after receipt of such notice, Home shall cause to be included in
such registration all of the Home Stock issued to the Stockholders pursuant to
this Agreement (including any stock issued as (or issuable upon the conversion
or exchange of any convertible security, warrant, right or other security which
is issued by Home as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Home Stock) which any such Stockholder
requests, provided that Home shall have the right to reduce the number of shares
included in such registration to the extent that inclusion of such shares could,
in the written opinion of tax counsel to Home or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as a tax-free organization under Section 351 of the Code.
In addition, if Home is advised in writing in good faith
-52-
<PAGE>
by any managing underwriter of an underwritten offering of the securities being
offered pursuant to any registration statement under this Section 17.1 that the
number of shares to be sold by persons other than Home is greater than the
number of such shares which can be offered without adversely affecting the
offering, Home may reduce pro rata the number of shares offered for the accounts
of such persons (based upon the number of shares held by such person) to a
number deemed satisfactory by such managing underwriter, provided, that, for
each such offering made by Home after the IPO, such reduction shall be made
first by reducing the number of shares to be sold by persons other than Home,
the Stockholders and the stockholders of the Other Founding Companies
(collectively, the Stockholders and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of Home Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements which have not been
previously registered or sold and which are not entitled to be sold under Rule
144(k) (or any similar or successor provision) promulgated under the 1933 Act
may request in writing that Home file a registration statement under the 1933
Act covering the registration of the shares of Home Stock issued to the
Stockholders pursuant to this Agreement and the Other Agreements (including any
stock issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by Home as) a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Home Stock) then held by such Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the receipt of such request,
Home shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from any Stockholder, file and use its best efforts to cause
to become effective a registration statement covering all such shares. Home
shall be obligated to effect only one Demand Registration for all Founding
Stockholders and will keep such Demand Registration current and effective for
not less than 120 days (or such shorter period as is required to sell all of the
shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of Home's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which
Home would otherwise be required to make such filing pursuant to the foregoing
paragraph.
If at the time of any request by the Founding Stockholders for a Demand
Registration Home has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' Home
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless Home is no longer proceeding
diligently to effect such registration;
-53-
<PAGE>
provided that Home shall provide the Founding Stockholders the right to
participate in such public offering pursuant to, and subject to, Section 17.1
hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by Home
as a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever Home is required to register shares
of Home Stock pursuant to Sections 17.1 and 17.2, Home will, as expeditiously as
possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, Home will
furnish a representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that Home shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of Home Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
Home are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that Home is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a
-54-
<PAGE>
material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, Home will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by Home.
17.4 INDEMNIFICATION.
(a) In connection with any demand registration, Home shall indemnify, to
the extent permitted by law, each Stockholder (an "Indemnified Party") against
all losses, claims, damages, liabilities and expenses arising out of or
resulting from any untrue or alleged untrue statement of material fact contained
in any registration statement, prospectus or preliminary prospectus or
associated term sheet or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading except insofar as the same are caused by or contained in
or omitted from any information furnished in writing to Home by such Indemnified
Party expressly for use therein or by any Indemnified Parties' failure to
deliver a copy of the registration statement or prospectus or any amendment or
supplements thereto after Home has furnished such Indemnified Party with a
sufficient number of copies of the same.
(b) In connection with any demand registration, each Stockholder shall
furnish to Home in writing such information as is reasonably requested by Home
for use in any such registration statement or prospectus and will indemnify, to
the extent permitted by law, Home, its directors and officers and each person
who controls Home (within the meaning of the 1933 Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or alleged
untrue statement or material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement or prospectus
or any amendment thereof or supplement thereto necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
omission is contained in information so furnished in writing by such Stockholder
specifically for use in preparing the registration statement. Notwithstanding
the foregoing, the liability of a Stockholder under this Section 17.5 shall be
limited to an amount equal to the net proceeds actually received by such
Stockholder from the sale of the relevant shares covered by the registration
statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified parties' reasonable
judgment, a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume
-55-
<PAGE>
the defense of such claim with counsel reasonably satisfactory to the
indemnified party. Any failure to give prompt notice shall deprive a party of
its right to indemnification hereunder only to the extent that such failure
shall have adversely effected the indemnifying party. If the defense of any
claim is assumed, the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled or elects not,
to assume the defense of a claim, will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party, a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, Home and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of Home's size and investment stature,
including indemnification.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of Home stock
to the public without registration, Home agrees to use its best efforts to:
(i) make and keep public information regarding Home available as
those terms are understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of Home under the 1933 Act and the 1934 Act at any time
after it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted Home Common
Stock, furnish to each Stockholder forthwith upon written request a
written statement by Home as to its compliance with the reporting
requirements of Rule 144 (at any time from and after 90 days following the
effective date of the Registration Statement, and of the 1933 Act and the
1934 Act (any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
Home, and such other reports and documents so filed as a Stockholder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Stockholder to sell any such shares without registration.
-56-
<PAGE>
18. GENERAL
18.1 COOPERATION. The Company, Stockholders, Home and Newco shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The Company will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the Company
cooperate with Home on and after the Funding and Consummation Date in furnishing
information, evidence, testimony and other assistance in connection with any tax
return filing obligations, actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Funding
and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Home, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and Home and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and Home,
acting through their respective officers or trustees, duly authorized by their
respective Boards of Directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the Company shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, Home will pay the fees, expenses and disbursements of Home
and its agents,
-57-
<PAGE>
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by Home under this Agreement, including the fees and expenses of
Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other person or
entity retained by Home or by Notre Capital Ventures II, L.L.C., and the costs
of preparing the Registration Statement. Each Stockholder shall pay all sales,
use, transfer, real property transfer, recording, gains, stock transfer and
other similar taxes and fees ("Transfer Taxes") imposed in connection with the
Merger, other than Transfer Taxes, if any, imposed by the State of Delaware.
Each Stockholder shall file all necessary documentation and Returns with respect
to such Transfer Taxes. In addition, each Stockholder acknowledges that he, and
not the Company or Home, will pay all taxes due upon receipt of the
consideration payable pursuant to Section 2 hereof. The Stockholders acknowledge
that the risks of the transactions contemplated hereby include tax risks, with
respect to which the Stockholders are relying solely on the opinion contemplated
by Section 8.12 hereof.
(b) In the event that the Funding and Consummation Date occurs, then
Home will reimburse the Stockholders and the stockholders of Other Founding
Companies for incremental and direct accounting costs and expenses incurred by
them in connection with the Merger and IPO and such additional accounting and
legal expenses incurred by them in connection therewith as may be approved by
Home.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to Home, or Newco, addressed to them at:
Home USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: Cary N. Vollintine
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
-58-
<PAGE>
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
(c) If to the Company, addressed to it at:
AAA Homes, L.L.C.
201 Hardy Street
Hattiesburg, MS 39401
Attn: Gary Fordham
with copies to:
Thomas E. Schwartz
2010 Oak Grove Road, Building 2, Suite 1
P. O. Box 16057
Hattiesburg, MS 39402-6057
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
-59-
<PAGE>
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of Home, Newco, the Company and Stockholders who hold or who
will hold at least 50% of the Home Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.15 shall be binding upon each of the parties hereto, any other
person receiving Home Stock in connection with the Merger and each future holder
of such Home Stock.
18.16 SPECIAL LIMITATION. The Stockholders include First Baptist Church of
Petal, Mississippi and First Baptist Church of Brandon, Mississippi (the
"Special Stockholders"). Notwithstanding anything else herein to the contrary,
the Special Stockholders shall have no liability for any of the representations
or warranties contained herein; it being hereby agreed that the other
Stockholders hereby assume responsibility for any liability of the Special
Stockholders and the other Stockholders hereby agree to pay any amounts for
which the Special Stockholder would have been liable in the absence of the
foregoing limitation.
-60-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
HOMEUSA, INC.
By: _____________________________
Cary N. Vollintine
Chief Executive Officer
CSF&T ACQUISITION CORP.
By: _____________________________
Name: ________________________
Title: _______________________
AAA HOMES ACQUISITION CORP.
By: _____________________________
Name: ________________________
Title: _______________________
FORDHAM INSURANCE AGENCY
ACQUISITION CORP.
By: _____________________________
Name: ________________________
Title: _______________________
-61-
<PAGE>
CSF & T, INC.
By: _____________________________
Name: ________________________
Title: _______________________
AAA HOMES, L.L.C.
By: _____________________________
Name: ________________________
Title: _______________________
FORDHAM INSURANCE AGENCY, INC.
By: _____________________________
Name: ________________________
Title: _______________________
-62-
<PAGE>
STOCKHOLDERS:
_________________________________
GARY W. FORDHAM
_________________________________
DAVID E. THOMPSON
FIRST BAPTIST CHURCH OF PETAL,
MISSISSIPPI
By: _____________________________
Name: ________________________
Title: _______________________
FIRST BAPTIST CHURCH OF BRANDON,
MISSISSIPPI
By: _____________________________
Name: Dan Martin
Title: President
By: _____________________________
Name: G. H. Graves
Title: Treasurer
By: _____________________________
Name: Michael Whitten
Title: Financial Manager
-63-
<PAGE>
SCHEDULE 6.9
None.
-64-
EXHIBIT 10.11
AGREEMENT AND PLAN OF ORGANIZATION
dated as of the 10th day of September, 1997
by and among
HOMEUSA, INC.
WILLMAX HOMES OF COLORADO LLC
and
the Owners named herein
-2-
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
RECITALS.....................................................................1
1. THE EXCHANGE...........................................................5
1.1 The Exchange.....................................................5
1.2 Certain Information With Respect to the Company and Home.........5
2. MANNER OF EXCHANGE.....................................................5
2.1 Manner of Exhange................................................5
3. DELIVERY OF EXCHANGE CONSIDERATION.....................................6
4. CLOSING................................................................6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE OWNERS.........................................................7
(A) Representations and Warranties of the Company and the Owners.7
5.1 Due Organization.................................................7
5.2 Authorization....................................................7
5.3 Equity Interest in theCompany....................................8
5.4 Transactions in Equity Interests; Organization Accounting........8
5.5 No Bonus.........................................................8
5.6 Subsidiaries.....................................................8
5.7 Predecessor Status; etc..........................................8
5.8 Spin-off by the Company..........................................9
5.9 Financial Statements.............................................9
5.10 Liabilities and Obligations......................................9
5.11 Accounts and Notes Receivable....................................9
5.12 Permits and Intangibles.........................................10
5.13 Environmental Matters...........................................10
5.14 Personal Property...............................................11
5.15 Significant Customers; Material Contracts and Commitments.......11
5.16 Real Property...................................................12
5.17 Insurance.......................................................12
5.18 Compensation; Employment Agreements; Organized Labor Matters....13
5.19 Employee Plans..................................................13
5.20 Compliance with ERISA...........................................14
5.21 Conformity with Law; Litigation.................................15
5.22 Taxes...........................................................15
-i-
<PAGE>
5.23 No Violations; No Consents Required, Etc.......................16
5.24 Government Contracts............................................16
5.25 Absence of Changes..............................................16
5.26 Deposit Accounts; Powers of Attorney............................18
5.27 Validity of Obligations.........................................18
5.28 Relations with Governments......................................18
5.29 Disclosure......................................................18
5.30 Prohibited Activities...........................................19
5.31 Dealer Agreements and Related Matters...........................19
5.32 No Retail Financing.............................................20
5.33 No Warranties or Insurance......................................20
5.34 No Interests In Other Businesses................................20
(B) Representations and Warranties of Owners............21
5.35 Authority; Ownership............................................21
5.36 Preemptive Rights...............................................21
5.37 No Intention to Dispose of Home Stock...........................21
6. REPRESENTATIONS OF HOME...............................................21
6.1 Due Organization................................................21
6.2 Authorization...................................................22
6.3 Capital Stock of Home...........................................22
6.4 Transactions in Capital Stock, Organization Accounting..........22
6.5 Subsidiaries....................................................22
6.6 Financial Statements............................................22
6.7 Liabilities and Obligations.....................................23
6.8 Conformity with Law; Litigation.................................23
6.9 No Violations...................................................23
6.10 Validity of Obligations.........................................24
6.11 Home Stock......................................................24
6.12 No Side Agreements..............................................24
6.13 Business; Real Property; Material Agreements....................24
6.14 Taxes...........................................................24
6.15 Absence of Changes..............................................25
6.16 Disclosure......................................................26
6.17 Private Offering................................................26
7. COVENANTS PRIOR TO CLOSING............................................26
7.1 Access and Cooperation; Due Diligence...........................26
7.2 Conduct of Business Pending Closing.............................27
7.3 Prohibited Activities...........................................27
7.4 No Shop.........................................................29
7.5 Notice to Bargaining Agents.....................................29
-ii-
<PAGE>
7.6 Agreements......................................................29
7.7 Notification of Certain Matters.................................29
7.8 Amendment of Schedules..........................................30
7.9 Cooperation in Preparation of Registration Statement............31
7.10 Final Financial Statements......................................31
7.11 Further Assurances..............................................31
7.12 Authorized Capital..............................................31
7.13 Compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "Hart-Scott-Rodino Act")..........31
7.14 Stockholders of Home...........................................32
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF OWNERS
AND COMPANY...........................................................32
8.1 Representations and Warranties; Performance of Obligations......32
8.2 Satisfaction....................................................33
8.3 No Litigation...................................................33
8.4 Opinion of Counsel..............................................33
8.5 Registration Statement..........................................33
8.6 Consents and Approvals..........................................33
8.7 Good Standing Certificates......................................33
8.8 No Material Adverse Change......................................33
8.9 Closing of IPO..................................................34
8.10 Secretary's Certificate.........................................34
8.11 Employment Agreements...........................................34
8.12 Tax Matters.....................................................34
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME...........................34
9.1 Representations and Warranties; Performance of Obligations......34
9.2 No Litigation...................................................35
9.3 Secretary's Certificate.........................................35
9.4 No Material Adverse Effect......................................35
9.5 Owners' Release.................................................35
9.6 Satisfaction....................................................35
9.7 Termination of Related Party Agreements.........................35
9.8 Opinion of Counsel..............................................36
9.9 Consents and Approvals..........................................36
9.10 Good Standing Certificates......................................36
9.11 Registration Statement..........................................36
9.12 Employment Agreements...........................................36
9.13 Closing of IPO..................................................36
9.14 FIRPTA Certificate..............................................36
-iii-
<PAGE>
10. COVENANTS OF HOME AND THE OWNERS AFTER CLOSING........................36
10.1 Release From Guarantees; Repayment of Certain Obligations.......36
10.2 Preservation of Tax and Accounting Treatment....................37
10.3 Preparation and Filing of Tax Returns...........................37
10.4 Directors.......................................................38
11. INDEMNIFICATION.......................................................38
11.1 General Indemnification by the Owners...........................38
11.2 Indemnification by Home.........................................39
11.3 Third Person Claims.............................................39
11.4 Exclusive Remedy................................................41
11.5 Limitations on Indemnification..................................41
12. TERMINATION OF AGREEMENT..............................................41
12.1 Termination.....................................................41
12.2 Liabilities in Event of Termination.............................42
13. NONCOMPETITION........................................................42
13.1 Prohibited Activities...........................................42
13.2 Damages.........................................................43
13.3 Reasonable Restraint............................................43
13.4 Severability; Reformation.......................................44
13.5 Independent Covenant............................................44
13.6 Materiality.....................................................44
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................44
14.1 Owners..........................................................44
14.2 Home............................................................45
14.3 Damages.........................................................45
14.4 Survival........................................................46
15. TRANSFER RESTRICTIONS.................................................46
15.1 Transfer Restrictions...........................................46
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................46
16.1 Compliance with Law.............................................46
16.2 Economic Risk; Sophistication...................................47
17. REGISTRATION RIGHTS...................................................47
17.1 Piggyback Registration Rights...................................47
17.2 Demand Registration Rights......................................48
17.3 Registration Procedures.........................................49
-iv-
<PAGE>
17.4 Indemnification.................................................50
17.5 Underwriting Agreement..........................................51
17.6 Rule 144 Reporting..............................................51
18. GENERAL...............................................................51
18.1 Cooperation.....................................................51
18.2 Successors and Assigns..........................................52
18.3 Entire Agreement................................................52
18.4 Counterparts....................................................52
18.5 Brokers and Agents..............................................52
18.6 Expenses........................................................52
18.7 Notices.........................................................53
18.8 Governing Law...................................................54
18.9 Survival of Representations and Warranties......................54
18.10 Exercise of Rights and Remedies.................................54
18.11 Time............................................................54
18.12 Reformation and Severability....................................54
18.13 Remedies Cumulative.............................................54
18.14 Captions........................................................54
18.15 Amendments and Waivers..........................................55
-v-
<PAGE>
ANNEXES
Annex I - Consideration to Be Paid to Owners
Annex II - Owners of the Company
Annex III - Certificate of Incorporation and By-Laws of Home
Annex IV - Not Applicable
Annex V - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex VI - Form of Opinion of Andrews & Kurth, LLP
Annex VII - Form of Key Employee Employment Agreement
-vi-
<PAGE>
SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.17 Insurance
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes 5.23 No Violations, Consents, etc.
5.24 Government Contracts
5.25 Absence of Changes
5.26 Deposit Accounts; Powers of Attorney
5.28 Relations with Governments
5.30 Prohibited Activities
5.31 Dealer Agreements
5.32 No Retail Financing
5.33 No Warranties or Insurance
5.34 No Interests in Other Businesses
5.35 Authority; Ownership
6.9 No Violations
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
9.12 Employment Agreements
10.1 Guaranties
13.1 Lots Excluded from Noncompete
-vii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
the 10th day of September, 1997, by and among HomeUSA, Inc., a Delaware
corporation ("Home"), Willmax Homes of Colorado L.L.C., a Colorado limited
liability company (the "Company"), and Jack A. Wensinger, Jeffery D. Heyman and
John Harding (the "Owners"). The Owners are all the equity owners of the
Company.
RECITALS
WHEREAS, the Owners desire to exchange all of the outstanding equity
interest in the Company for shares of Home Stock (as defined below) and
cash as described herein;
WHEREAS, Home is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization," with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional retail manufactured housing
companies;
WHEREAS, this Agreement and the Other Agreements constitute the
"Home Plan of Organization;"
WHEREAS, the Owners and the Boards of Directors and the stockholders
of Home, each of the Other Founding Companies and each of the subsidiaries
of Home that are parties to the Other Agreements have approved and adopted
the Home Plan of Organization as an integrated plan pursuant to which the
Owners and the stockholders of each of the other Founding Companies will
transfer the capital stock of each of the Founding Companies to Home and
the stockholders of each of the other Founding Companies will acquire the
stock of Home (but not cash or other property) as a tax-free transfer of
property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Owners have approved this
Agreement (which is subject to the terms and conditions herein set forth),
as part of the Home Plan of Organization in order to transfer all of the
equity interest in the Company to Home;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
-1-
<PAGE>
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any subsidiary and any member of a
Relevant Group.
"Acquisition Companies" shall mean each of the Delaware companies
wholly-owned by Home prior to the Funding and Consummation Date.
"Affiliates" means, with respect to any Person, any Person or entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person.
"Balance Sheet Date" shall mean June 30, 1997.
"Board of Directors" means the managers or other persons performing the
management role most analogous to that of a board of directors of a corporation.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Draft Registration Statement" means the draft dated September 5, 1997 of
the Registration Statement, and any corrections thereto and supplemental
information delivered by Home to the Company for delivery to the Owners prior to
the time this Agreement is delivered to Home.
"Effective Time of the Exchange" shall mean the time as of which the
Exchange becomes effective, which shall occur on the Funding and Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Cooper's Mobile Homes, Inc., a Washington corporation, Home USA,
Inc., a Washington corporation, and Pac West Mgmt., Inc., a Washington
corporation.
-2-
<PAGE>
CSF&T, Inc. (dba AAA Homes), a Mississippi corporation, AAA Homes,
L.L.C., a Louisiana limited liability company, and Fordham Insurance
Agency, Inc., a Mississippi corporation.
First American Homes, Inc., an Alabama corporation, D & S, Inc., an
Alabama corporation, and Son Development Corporation, an Alabama
corporation.
Home Folks Housing Center, Inc., a Kentucky corporation.
McDonald Homes, Inc., an Oklahoma corporation.
Mobile World, Inc., a Texas corporation, and Showcase of Homes,
Inc., a Texas corporation.
Patrick Home Center, Inc., a Mississippi corporation.
Universal Housing, Inc., a Tennessee corporation, Shaffer & Webb
Insurance Agency, Inc., a Tennessee corporation, and Universal Housing of
East TN, Inc., a Tennessee corporation.
Willmax Homes of Colorado LLC, a Colorado limited liability company.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of Home Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Company" means the actual knowledge of the executive
officers of the Company.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Home" has the meaning set forth in the first paragraph of this Agreement.
"Home Charter Documents" has the meaning set forth in Section 6.1.
"Home Stock" means the common stock, par value $.01 per share, of Home.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
-3-
<PAGE>
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by Home and the Underwriters of
the public offering price of the shares of Home Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Home Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the Company and any affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Organization" means the State of Colorado.
"Owners" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
-4-
<PAGE>
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE EXCHANGE
1.1 THE EXCHANGE. At the Closing, the parties shall execute and deliver to
one another such amendments to the governing documents of the Company and other
agreements and instruments as may be appropriate to effect the exchange of the
membership interests in the Company for the consideration to be received by the
Owners pursuant hereto.
1.2 CERTAIN INFORMATION WITH RESPECT TO THE COMPANY AND HOME. The
respective equity interests or designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock, as applicable, of
the Company and Home as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the Owners are the only
members of the Company and are the only holders of the entire equity
interest in the Company, all as set forth on Schedule 5.3 hereto; and
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof,
the authorized capital stock of Home will consist of 50,000,000 shares of
Home Stock, of which the number of issued and outstanding shares will be
set forth in the Registration Statement, 5,000,000 shares of preferred
stock, $.01 par value, of which no shares will be issued and outstanding,
and 5,000,000 shares of Restricted Voting Common Stock, $.01 par value
(the "Restricted Common Stock"), all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement.
2. MANNER OF EXCHANGE
2.1 MANNER OF EXHANGE. The manner of exchanging the outstanding equity
interest in the Company ("Company Interests") for shares of Home Stock and cash
shall be as follows. As of the Effective Time of the Exchange, the Owners shall
deliver to Home such amendments to the governing documents of the Company and
other agreements and instruments as may be appropriate to effect the exchange of
all of the membership interests in the Company for (1) the right to receive the
number of shares of Home Stock set forth on Annex I hereto (adjusted as set
forth on such Annex
-5-
<PAGE>
I) with respect to such Owner and (2) the right to receive the amount of cash
set forth on Annex I hereto with respect to such Owner (adjusted as set forth on
such Annex I);
All Home Stock received by the Owners pursuant to this Agreement shall,
except for restrictions on resale or transfer described in Sections 15 and 16
hereof, have the same rights as all the other shares of outstanding Home Stock
by reason of the provisions of the Certificate of Incorporation of Home or as
otherwise provided by the Delaware GCL. All Home Stock received by the Owners
shall be issued and delivered to the Owners free and clear of any liens, claims
or encumbrances of any kind or nature. All voting rights of such Home Stock
received by the Owners shall be fully exercisable by the Owners and the Owners
shall not be deprived nor restricted in exercising those rights. At the
Effective Time of the Exchange, Home shall have no class of capital stock issued
and outstanding other than the Home Stock and the Restricted Voting Common
Stock.
3. DELIVERY OF EXCHANGE CONSIDERATION
3.1 On the Funding and Consummation Date the Owners, who are the holders
of all of the outstanding equity interest in the Company, shall, upon their
execution and delivery of appropriate instruments of transfer of their
membership interests, receive the respective number of shares of Home Stock and
the amount of cash described on Annex I hereto, said cash to be payable by
certified check or wire transfer.
3.2 The Owners shall deliver to Home at the Closing an amendment of the
Company's Regulations or other governing documents effective to transfer all of
the equity interest in the Company to Home at the Closing. The Owners agree
promptly to cure any deficiencies with respect to the assignment and admission
of Home as the equity owner of the Company as contemplated hereby.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Exchange and (ii) effect the delivery of shares
referred to in Section 3 hereof; provided, that such actions shall not include
the actual completion of the Exchange or the delivery of the shares and
certified check(s) referred to in Section 3 hereof, each of which actions shall
only be taken upon the Funding and Consummation Date as herein provided. In the
event that there is no Funding and Consummation Date and this Agreement
automatically terminates as provided in this Section 4 the Exchange shall not be
consummated. The taking of the actions described in clauses (i) and (ii) above
(the "Closing") shall take place on the closing date (the "Closing Date") at the
offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) all transactions contemplated by this Agreement, including the delivery
of shares, the delivery of a certified check or checks in an amount equal to the
cash portion of the consideration which the Owners shall be entitled to receive
and (y) the closing
-6-
<PAGE>
with respect to the IPO shall occur and be completed. The date on which the
actions described in the preceding clauses (x) and (y) occurs shall be referred
to as the "Funding and Consummation Date." During the period from the Closing
Date to the Funding and Consummation Date, this Agreement may only be terminated
by the parties if the underwriting agreement in respect of the IPO is terminated
pursuant to the terms of such underwriting agreement. This Agreement shall also
in any event automatically terminate if the Funding and Consummation Date has
not occurred within 15 business days following the Closing Date. Time is of the
essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE OWNERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE OWNERS.
Each of the Company and the Owners severally (based on their relative
ownership of the Company Interests on the date hereof) represent and warrant
that all of the following representations and warranties in this Section 5(A)
are true at the date of this Agreement and, subject to Section 7.8 hereof, shall
be true at the time of Closing and the Funding and Consummation Date, and that
such representations and warranties shall survive the Funding and Consummation
Date for a period of twelve months (the last day of such period being the
"Expiration Date"), except that the warranties and representations set forth in
Section 5.22 hereof shall survive until such time as the limitations period has
run for all tax periods ended on or prior to the Funding and Consummation Date,
which shall be deemed to be the Expiration Date for Section 5.22. For purposes
of this Section 5, the term "Company" shall mean and refer to the Company and
all of its subsidiaries, if any.
5.1 DUE ORGANIZATION. The Company is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Organization, and has the requisite power and authority to carry on its business
as it is now being conducted. The Company is duly qualified to do business and
is in good standing in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification necessary,
except (i) as set forth on Schedule 5.1 or (ii) where the failure to be so
authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company taken as a whole (as used herein with respect to the Company, or
with respect to any other Person, a "Material Adverse Effect"). Schedule 5.1
sets forth a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and correct copies of (i) the Company's
governing documents (the "Charter Documents"), and (ii) the membership records
of the Company, are all attached to Schedule 5.1. The Company has delivered
complete and correct copies of all minutes of meetings, written consents and
other evidence, if any, of deliberations of or actions taken by the Company's
Board of Directors and members during the last five years.
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the
-7-
<PAGE>
Company has the full legal right, power and authority to enter into this
Agreement. The most recent resolutions adopted by the Board of Directors of the
Company and the most recent resolutions adopted by the Owners approve this
Agreement and the transactions contemplated hereby in all respects, and copies
of all such resolutions, certified by the Secretary or an Assistant Secretary of
the Company as being in full force and effect on the date hereof, are attached
hereto as Schedule 5.2.
5.3 EQUITY INTEREST IN THECOMPANY. The outstanding equity interest of the
Company is owned solely by the Owners as set forth on Schedule 5.3 and were
offered, issued, sold and delivered by the Company in compliance with all
applicable state and Federal laws concerning the issuance of securities.
Further, none of such interests were issued in violation of any preemptive
rights of any Person.
5.4 TRANSACTIONS IN EQUITY INTERESTS; ORGANIZATION ACCOUNTING. Except as
set forth on Schedule 5.4, the Company has not acquired any Company Interests
since January 1, 1995. Except as set forth on Schedule 5.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
the Company to issue any equity interest; (ii) the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof; and (iii) neither the voting stock structure of
the Company nor the relative ownership of the Company has been altered or
changed in contemplation of the Exchange and/or the Home Plan of Organization.
5.5 NO BONUS. Except as set forth on Schedule 5.5, none of the Company
Interests was issued pursuant to awards, grants or bonuses in contemplation of
the Exchange or the Home Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired material
assets, in any case, from the earliest date upon which any Owner acquired his or
her stock in any Company. Except as disclosed on Schedule 5.7, the Company has
not been, within such period of time, a subsidiary or division of another
corporation or a part of an acquisition which was later rescinded.
-8-
<PAGE>
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Complete and correct copies of the following
financial statements are attached hereto as Schedule 5.9:
(i) the balance sheet of the Company as of December 31, 1996 and the
related statements of operations, stockholder's equity and cash flows for
the year ended December 31, 1996, together with the related notes and
schedules (such balance sheet, the related statements of operations,
stockholder's equity and cash flows and the related notes and schedules
are referred to herein as the "Year-end Financial Statements"); and
(ii) the balance sheet (the "Interim Balance Sheet") of the Company
as of June 30, 1997 (the "Balance Sheet Date") and the related statements
of operations, stockholder's equity and cash flows for the six-month
periods ended June 30, 1997 and 1996, together with the related notes and
schedules (such balance sheets, the related statements of operations,
stockholder's equity and cash flows and the related notes and schedules
are referred to herein as the "Interim Financial Statements"). The
Year-end Financial Statements and the Interim Financial Statements are
collectively called the "Financial Statements".
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all liabilities of the Company of a
nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
best knowledge of the Company and the Owners, except as set forth on Schedule
5.10, since the Balance Sheet Date the Company has not incurred any material
liabilities of any kind, character or description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than liabilities incurred
in the ordinary course of business. The Company has also delivered to Home on
Schedule 5.10, in the case of those contingent liabilities related to pending or
threatened litigation, or other liabilities which are not fixed, a good faith
and reasonable estimate of the maximum amount which the Company reasonably
expects will be payable and the amount, if any, accrued or reserved for each
such potential liability on the Company's Financial Statements; in the case of
any such liability for which no estimate has been provided, the estimate for
purposes of this Agreement shall be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including
-9-
<PAGE>
receivables from and advances to employees and the Owners, which are identified
as such. Except to the extent reflected on Schedule 5.11, such accounts, notes
and other receivables are collectible in the amounts shown on Schedule 5.11, net
of reserves reflected in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to Home an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, including any trademarks,
trade names, patents, patent applications and copyrights owned or held by the
Company or any of its employees (including interests in software or other
technology systems, programs and intellectual property) (it being understood and
agreed that a list of environmental permits and other environmental approvals is
set forth on Schedule 5.13). At or prior to the Closing, all such trademarks,
trade names, patents, patent applications, copyrights and other intellectual
property will be assigned or licensed to the Company for no additional
consideration. To the best knowledge of the Company, the Licenses and other
rights listed on Schedules 5.12 and 5.13 are valid, and the Company has not
received any notice that any person intends to cancel, terminate or not renew
any such License or other right. The Company has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Licenses and other rights listed on Schedules 5.12 and 5.13 and
is not in violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the Company. Except as
specifically provided in Schedule 5.12, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to the Company by, any such
Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have any Material Adverse Effect on the Company or its
business, (i) the Company has complied with and is in compliance with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to any of them or any of their respective properties, assets,
operations and businesses relating to environmental protection (collectively
"Environmental Laws") including, without limitation, Environmental Laws relating
to air, water, land and the generation, storage, use, handling, transportation,
treatment or disposal of Hazardous Wastes, Hazardous Materials and Hazardous
Substances (as such terms are defined in any applicable Environmental Law), as
well as petroleum and petroleum products (collectively "Hazardous Materials"),
(ii) the Company has obtained and adhered to all necessary permits and other
approvals necessary to treat, transport, store, dispose of and otherwise handle
Hazardous Materials, a list of all of which permits and approvals is set forth
on Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the Company where Hazardous Materials have been treated, stored,
disposed of or otherwise handled. There have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property
-10-
<PAGE>
owned or operated by the Company except as permitted by Environmental Laws, and
to the best knowledge of the Company and the Owners, there is no on-site or
off-site location to which the Company has transported or disposed of Hazardous
Materials or arranged for the transportation of Hazardous Materials which is the
subject of any Federal, state, local or foreign enforcement action or any other
investigation which could lead to any claim against the Company or Home for any
clean-up cost, remedial work, damage to natural resources, property damage or
personal injury, including, but not limited to, any claim under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, the Resource Conservation and Recovery Act, the Hazardous Materials
Transportation Act or comparable state or local statutes or regulations. The
Company has no contingent liability in connection with any release of any
Hazardous Materials into the environment that would have a Material Adverse
Effect.
5.14 PERSONAL PROPERTY. The Company has delivered to Home an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company, (y) all other personal property owned by the
Company with an individual value in excess of $25,000 (i) as of the Balance
Sheet Date and (ii) acquired since the Balance Sheet Date and (z) all material
leases and agreements in respect of personal property, including, in the case of
each of (x), (y) and (z), (1) true, complete and correct copies of all such
leases and (2) an indication as to which assets are currently owned, or were
formerly owned, by Owners, relatives of Owners, or Affiliates of the Company.
Except as set forth on Schedule 5.14, (i) all material personal property used by
the Company in its business is either owned by the Company or leased by the
Company pursuant to a lease included on Schedule 5.14, (ii) all of the personal
property listed on Schedule 5.14 is in good working order and condition,
ordinary wear and tear excepted and (iii) all leases and agreements included on
Schedule 5.14 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 5% or more of the
Company's annual revenues for any period covered by any of the Financial
Statements. Except to the extent set forth on Schedule 5.15, none of such
customers have canceled or substantially reduced or, to the knowledge of the
Company, are currently attempting or threatening to cancel a contract or
substantially reduce utilization of the services provided by the Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to Home. For purposes of this Section 5.17, Material Contracts
includes contracts between the Company and significant customers, joint venture
or partnership agreements, contracts with any labor organization, strategic
alliances, options to purchase land and other contracts which
-11-
<PAGE>
are not terminable on sixty days or less notice and involve payments by the
Company in any twelve month period in excess of $25,000. The Company has also
indicated on Schedule 5.15 a summary description of all plans or projects
involving the opening of new operations, expansion of existing operations, the
acquisition of any personal property, business or assets requiring, in any
event, the payment of more than $25,000 by the Company during any 12-month
period.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on terms reasonably acceptable to Home and leased
back by the Company on terms no less favorable to the Company than those
available from an unaffiliated party and otherwise reasonably acceptable to Home
at or prior to the Closing Date. The Company has good and insurable title to any
real property owned by it that is not shown on Schedule 5.16 as property
intended to be sold or distributed prior to the Closing Date, subject to no
mortgage, pledge, lien, conditional sales agreement, encumbrance or charge,
except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Owners or affiliates of the Company or Owners is included in
Schedule 5.16. Except as set forth on Schedule 5.16, all of such leases included
on Schedule 5.16 are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms.
5.17 INSURANCE. The Company has delivered to Home (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the best knowledge of the Company provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect and shall, to the best knowledge of the
Company, remain in full force and effect through the Funding and Consummation
Date. Since January 1, 1995,
-12-
<PAGE>
no insurance carried by the Company has been canceled by the insurer and the
Company has not been denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to Home an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The Company has provided to Home
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the best knowledge of the Company, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the best of the Company's knowledge, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years. The Company believes its relationship
with employees to be good.
5.19 EMPLOYEE PLANS. The Owners have delivered to Home an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on the Benefit Plans Schedule, and the Company is not required to contribute to
any retirement plan pursuant to the provisions of any collective bargaining
agreement establishing the terms and conditions or employment of any of the
Company's or any subsidiary's employees.
-13-
<PAGE>
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code are, and have been so qualified and have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination letters are
attached to the Benefit Plans Schedule. Except as disclosed on the Benefit Plans
Schedule, all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or tax returns) have
been timely filed or distributed, and copies thereof are included as part of the
Benefit Plans Schedule. Neither Owners, any such plan listed in the Benefit
Plans Schedule, nor the Company has engaged in any transaction prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan
listed in the Benefit Plans Schedule has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and the Company has not incurred any liability for excise tax or penalty
due to the Internal Revenue Service nor any liability to the Pension Benefit
Guaranty Corporation. The Owners further represent that except as set forth on
the Benefit Plans Schedule hereto:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
the Benefit Plans Schedule;
(iv) the Company has not incurred liability under Section 4062 of
ERISA; and
-14-
<PAGE>
(v) no circumstances exist pursuant to which the Company could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any multiemployer plan or the PBGC under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty, or
being subject to any statutory lien to secure payment of any such
liability) with respect to any plan now or heretofore maintained or
contributed to by any entity other than the Company that is, or at any
time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company, and, to the Knowledge of the
Company and the Owners, there is no basis for any such claim, action, suit or
proceeding. The Company has conducted and is now conducting its business in
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, orders, approvals,
variances, rules and regulations, including without limitation to the extent
applicable all regulations promulgated by the Department of Housing and Urban
Development under the National Manufactured Housing Construction and Safety
Standards Act, as amended, or otherwise, and all laws and regulations affecting
the sale of manufactured housing, on credit or otherwise, including the Federal
Consumer Credit Protection Act, the Federal Fair Credit Reporting Act, the
Federal Equal Credit Opportunity Act, the Consumer Credit Protection Act, the
Fair Debt Collection Practices Act and the regulations promulgated under the
foregoing, and all state and local laws and regulations of similar effect, and
including all such orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, except where any such noncompliance, individually or in
the aggregate, would not have a Material Adverse Effect.
5.22 TAXES. The Company has timely filed all requisite Federal, state and
other tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, there
are no examinations in progress or claims pending against any of them for
federal, state and other taxes (including penalties and interest) for any period
or periods prior to and including the Balance Sheet Date and no notice of any
claim for taxes, whether pending or threatened, has been received. All tax,
including interest and penalties (whether or not shown on any tax return) owed
by the Company or any of the Company's Subsidiaries has been paid. The amounts
shown as accruals for taxes on the Company Financial Statements are sufficient
for the payment of all taxes of the kinds indicated (including penalties and
interest) for all fiscal periods ended on or before that date. Copies of (i) any
tax examinations, (ii) extensions of statutory
-15-
<PAGE>
limitations and (iii) the federal and local income tax returns and franchise tax
returns of the Company for their last three (3) fiscal years, or such shorter
period of time as any of them shall have existed, are attached hereto as
Schedule 5.22 or have otherwise been delivered to Home. The Company has
disclosed to Home when its taxable year ends. The Company uses the accrual
method of accounting for income tax purposes, and the Company's methods of
accounting have not changed in the past five years. The Company is not an
investment Company as defined in Section 351(e)(1) of the Code. The Company is
not and has not during the last five years been a party to any tax sharing
agreement or agreement of similar effect. The Company is not and has not during
the last five years been a member of any consolidated group. Except as described
on Schedule 5.22, the Company has not received, been denied, or applied for any
private letter ruling during the last five years.
The Company is not taxed under the provisions of Subchapter C of the Code.
The Owners shall pay, and they hereby indemnify Home and the Company against,
all income taxes payable for all periods though and including the Closing Date.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the best
knowledge of the Company, any other party thereto, is in default under any
lease, instrument, agreement, license, or permit set forth on Schedule 5.12,
5.13, 5.14, 5.15 or 5.16, or any other Material Contract (as defined in Section
5.15) to which it is a party or by which its properties are bound (the "Material
Documents") in any manner that could result in a Material Adverse Effect; and,
except as set forth in Schedule 5.23, (a) the rights and benefits of the Company
under the Material Documents will not be materially adversely affected by the
transactions contemplated hereby and (b) the execution of this Agreement and the
performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
Material Documents or the Charter Documents. Except as set forth on Schedule
5.23, none of the Material Documents requires notice to, or the consent or
approval of, any governmental agency or other third party with respect to any of
the transactions contemplated hereby in order to remain in full force and
effect, and consummation of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the Company or Home of
the name of any other party to such Material Document, and none of the Material
Documents prohibits or restricts the Company from freely providing services to
any other customer or potential customer of the Company, Home, or any Other
Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
Company is not now a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25 or as otherwise contemplated hereby, there has not been:
-16-
<PAGE>
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any
grant by the Company of any options, warrants, calls, conversion rights or
commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company
except for distributions that would have been permitted after the date
hereof under Section 7.3(iii) hereof;
(v) any material increase in the compensation, bonus, sales
commissions or fee arrangement payable or to become payable by the Company
to any of its officers, directors, Owners, employees, consultants or
agents, except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the Company;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of Company to any person,
including, without limitation, the Owners and their Affiliates;
(viii)any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Owners or any Affiliate thereof;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(xi) any waiver of any material rights or claims of the Company;
-17-
<PAGE>
(xii) any amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
(xiii)any transaction by the Company outside the ordinary course of
its business;
(xiv) any cancellation or termination by the Company of a material
contract with a customer or client prior to the scheduled termination
date; or
(xv) any other distribution of property or assets by the Company
other than in the ordinary course of business and other than distributions
of real estate and other assets as permitted by this Agreement (including
the Schedules hereto).
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
Home an accurate schedule (which is set forth on Schedule 5.26) as of the date
of this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.28 RELATIONS WITH GOVERNMENTS. Except for legal contributions to
candidates for political office, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office, nor has it or any of them otherwise taken any action which would cause
the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as
amended or any law of similar effect.
5.29 DISCLOSURE. (a) This Agreement, including the Annexes and Schedules
hereto, and the completed Director and Officer Questionnaires and the completed
S-1 Questionnaire furnished
-18-
<PAGE>
to Home by the Company and the Owners in connection herewith, do not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements herein and therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the foregoing does
not apply to statements contained in or omitted from any of such documents made
or omitted in reliance upon information furnished in writing by Home. If, prior
to the 25th day after the date of the final prospectus of Home utilized in
connection with the IPO, the Company or the Owners become aware of any fact or
circumstance which would affect the accuracy of a representation or warranty of
Company or Owners in this Agreement in any material respect, the Company and the
Owners shall immediately give notice of such fact or circumstance to Home.
Subject to the provisions of Section 7.8, such notification shall not relieve
either the Company or the Owners of their respective obligations under this
Agreement, and, subject to the provisions of Section 7.8, at the sole option of
Home, the truth and accuracy in all material respects of any and all warranties
and representations of the Company, or on behalf of the Company and of Owners at
the date of this Agreement and on the Closing Date and on the Funding and
Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) The Company and the Owners acknowledge and agree (i) that there exists
no firm commitment, binding agreement, or promise or other assurance of any
kind, whether express or implied, oral or written, that a Registration Statement
will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither Home or any of its officers, directors, agents or representatives
nor any Underwriter shall have any liability to the Company, the Owners or any
other person affiliated or associated with the Company for any failure of the
Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Owners to enter into
this Agreement has been or will be made independent of, and without reliance
upon, any statements, opinions or other communications, or due diligence
investigations which have been or will be made or performed by any prospective
Underwriter, relative to Home or the prospective IPO. Notwithstanding the
foregoing, Home has agreed and herein acknowledges its agreement to use its
reasonable efforts to consummate the Home Plan of Organization and IPO as
contemplated hereby.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
Company has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
5.31 DEALER AGREEMENTS AND RELATED MATTERS. Schedule 5.31 sets forth a
complete and accurate list of:
(i) all agreements of any nature (including "Dealer Agreements",
"Home Center Agreements", "Retailer Agreements", "Exclusive Retailer
Agreements", "General Conditions", "Action Plans" and other documents)
between the Company and any dealer, manufacturer, wholesaler or other
distributor (collectively, "Manufacturers") of manufactured housing units
(collectively, "Dealer Agreements"); and
-19-
<PAGE>
(ii) all volume incentive, rebate and other similar programs of any
Manufacturer (collectively, "Dealer Programs") in which the Company is now
or has within the last three years been a participant.
Schedule 5.31 identifies the Manufacturer that is a party to each such Dealer
Agreement or that sponsors each such Dealer Program, and also identifies the
Company's sales locations subject to or affected by each such Dealer Agreement
and each such Dealer Program. Complete and accurate copies of all Dealer
Agreements and all Dealer Programs listed on Schedule 5.31 are attached to
Schedule 5.31. Except as set forth on Schedule 5.31, the Company is now and for
the last three years has been in compliance in all material respects with all
applicable provisions of the Dealer Agreements and Dealer Programs identified on
Schedule 5.31 and any similar agreements to which the Company has been a party
during the last three years. To the extent that the Company is required by any
Dealer Agreement or Dealer Program to take or refrain from taking specified
actions in order to qualify for the benefits offered thereby (such as the
benefits of an exclusive retailer agreement), the Company is in compliance in
all material respects with all such requirements (it being understood that the
Company is not hereby representing that it qualifies for the highest level of
incentive discounts or rebates offered by such Dealer Agreements or Dealer
Programs). Except as set forth on Schedule 5.31, within the last three years, no
Manufacturer has asserted any claim or right to any refund of any incentive
payment or rebate or other payment or discount granted to the Company by any
such Manufacturer, or any right to offset any amount against any future payment
due or otherwise due to the Company, and no circumstances exist that would
entitle any Manufacturer to make any such claim against the Company. During the
last three years, the Company has accurately calculated and reported to each
Manufacturer with which the Company has done business all financial and sales
data that the Company is required to report to each such Manufacturer, whether
in connection with volume incentive or rebate plans or otherwise.
5.32 NO RETAIL FINANCING. Except as set forth on Schedule 5.32, the
Company does not finance the sale to the Company's customers of manufactured
housing units or related products or services (collectively, "Product"), and is
not liable, directly or indirectly, contingently or otherwise, to any
Manufacturer or any financing source for all or any portion of the purchase
price of any Product that has been sold by the Company or delivered by the
Company to a retail purchaser.
5.33 NO WARRANTIES OR INSURANCE. Except as set forth on Schedule 5.33, the
Company has not made any express warranties regarding any Products and the
Company does not offer or sell insurance or consumer protection plans or other
arrangements that could result in the Company being required to make any payment
to or perform any service for any person other than routine matters described as
"Retailer Responsibilities", "Retailer General Installation and Home Delivery
Guidelines" and the like in the Dealer Agreements listed on Schedule 5.31.
5.34 NO INTERESTS IN OTHER BUSINESSES. Except as set forth on Schedule
5.34, neither the Company nor any Owner, nor any affiliate of any of them, has
any ownership or similar interest in any business that offers or sells services
or products of any nature whatsoever to the Company or
-20-
<PAGE>
to any customers of the Company in connection with or as a direct or indirect
result of the Company's sales of Product.
(B) REPRESENTATIONS AND WARRANTIES OF OWNERS
Each Owner severally represents and warrants that the
representations and warranties set forth below as and to the extent relating to
such Owner are true as of the date of this Agreement and, subject to Section 7.8
hereof, shall be true at the time of Closing and on the Funding and Consummation
Date, and that the representations and warranties set forth in Sections 5.35 and
5.36 shall survive until the first anniversary of the Funding and Consummation
Date, which shall be the Expiration Date for purposes of Sections 5.35 and 5.36.
5.35 AUTHORITY; OWNERSHIP. Such Owner has the full legal right, power and
authority to enter into this Agreement. Such Owner owns beneficially and of
record all of the Company Interests identified on Annex II as being owned by
such Owner free and clear of all liens, security interests, pledges, charges,
voting agreements, voting trusts, restrictions, encumbrances and claims of every
kind.
5.36 PREEMPTIVE RIGHTS. Such Owner does not have, or hereby waives, any
preemptive or other right to acquire any additional interest in the Company.
Nothing herein, however, shall limit or restrict the rights of any Owner to
acquire Home Stock pursuant to (i) this Agreement or (ii) any option granted by
Home.
5.37 NO INTENTION TO DISPOSE OF HOME STOCK. No Owner is under any binding
commitment or contract to sell, exchange or otherwise dispose of shares of Home
Stock received as described in Section 3.1.
6. REPRESENTATIONS OF HOME
Home represents and warrants that all of the following representations and
warranties in this Section 6 are true at the date of this Agreement and, subject
to Section 7.8 hereof, shall be true at the time of Closing and the Funding and
Consummation Date, and that such representations and warranties shall survive
the Funding and Consummation Date for a period of twelve months (the last day of
such period being the "Expiration Date"), except that the warranties and
representations set forth in Section 6.14 hereof shall survive until such time
as the limitations period has run for all tax periods ended on or prior to the
Funding and Consummation Date, which shall be deemed to be the Expiration Date
for Section 6.14.
6.1 DUE ORGANIZATION. Home is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted. Home is qualified to do business and is in good
standing in each jurisdiction in which the nature of its business makes such
-21-
<PAGE>
qualification necessary, except where the failure to be so authorized or
qualified would not have a Material Adverse Effect. True, complete and correct
copies of the Certificate of Incorporation and By-laws of Home (the "Home
Charter Documents") are attached hereto as Annex IV.
6.2 AUTHORIZATION. (i) The respective representatives of Home executing
this Agreement have the authority to enter into and bind Home to the terms of
this Agreement and (ii) Home has the full legal right, power and authority to
enter into this Agreement and consummate the Exchange. All corporate acts and
other proceedings required to have been taken by Home to authorize the
execution, delivery and performance of this Agreement and the consummation of
the Exchange have been duly and properly taken.
6.3 CAPITAL STOCK OF HOME. The authorized capital stock of Home is as set
forth in Sections 1.4(ii). All of the issued and outstanding shares of the
capital stock of Home have been duly authorized and validly issued, are fully
paid and nonassessable, and further, such shares were offered, issued, sold and
delivered by Home in compliance with all applicable state and Federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of
Home.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in the Draft Registration Statement,
(i) no option, warrant, call, conversion right or commitment of any kind exists
which obligates Home to issue any of their respective authorized but unissued
capital stock; and (ii) Home has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. Schedule 6.4 also includes complete and accurate copies of all stock
option or stock purchase plans, including a list, accurate as of the date
hereof, of all outstanding options, warrants or other rights to acquire shares
of the stock of Home.
6.5 SUBSIDIARIES. Home has no subsidiaries except for the companies
identified as "Newco" in each of the Other Agreements. Except as set forth in
the preceding sentence, Home does not presently own, of record or beneficially,
or controls, directly or indirectly, any capital stock, securities convertible
into capital stock or any other equity interest in any corporation, association
or business entity, and Home is not, directly or indirectly, a participant in
any joint venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of Home included in the
Draft Registration Statement (the "Home Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon),
and the balance sheet included therein presents fairly the financial position of
Home as of its date.
-22-
<PAGE>
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement, Home has no material liabilities, contingent or
otherwise, except as set forth in or contemplated by this Agreement and the
Other Agreements and except for fees incurred in connection with the
transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement,Home is not in violation of any law or regulation
or any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over it which would have a Material Adverse Effect; and except to
the extent set forth in Schedule 6.8, there are no material claims, actions,
suits or proceedings, pending or, to the knowledge of Home, threatened against
or affecting, Home at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. Home has conducted and is conducting its business in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations and is not in violation of
any of the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. Home is not in violation of any Home Charter Document.
Neither Home nor, to the knowledge of Home, any other party thereto, is in
default under any lease, instrument, agreement, license, or permit to which Home
is a party, or by which Home or any of its properties, is bound (collectively,
the "Home Documents"); and (a) the rights and benefits of Home under the Home
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution and delivery of this Agreement by Home and the performance
of its obligations hereunder do not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not, conflict
with, or result in any violation or default (with or without notice or lapse of
time, or both), under or give rise to a right of termination, cancellation, or
acceleration of any obligation or to loss of a material benefit under, or result
in the creation of any lien upon any of the assets of Home under, any provision
of (i) the Certificate of Incorporation or Bylaws of Home, (ii) any note, bond,
mortgage, indenture or deed of trust or any license, lease, contract,
commitment, agreement or arrangement to which Home is a party or by which any of
their respective properties or assets are bound or (iii) any judgment, order,
decree or law, ordinance, rule or regulation, applicable to Home or its
properties or assets. The execution of this Agreement and the performance of the
obligations hereunder and the consummation of the transactions contemplated
hereby will not result in any material violation or breach or constitute a
default under, any of the terms or provisions of the Home Documents or the Home
Charter Documents. Except as set forth on Schedule 6.9, none of the Home
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions contemplated
hereby in order to remain in full force and effect and consummation of the
transactions contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any right or benefit.
-23-
<PAGE>
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by Home and the performance of the transactions contemplated herein have been
duly and validly authorized by the Board of Directors of Home and this Agreement
has been duly and validly authorized by all necessary corporate action and is a
legal, valid and binding obligation of Home.
6.11 HOME STOCK. At the time of issuance thereof and delivery to the
Owners, the Home Stock to be delivered to the Owners pursuant to this Agreement
will constitute valid and legally issued shares of Home, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Sections 15 and 16 hereof, will be identical in all substantive respects (which
do not include the form of certificate upon which it is printed or the presence
or absence of a CUSIP number on any such certificate) to the Home Stock issued
and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. The Home Stock issued and delivered to the Owners shall at the
time of such issuance and delivery be free and clear of any liens, claims or
encumbrances of any kind or character. The shares of Home Stock to be issued to
the Owners pursuant to this Agreement will not be registered under the 1933 Act,
except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Home has not entered into any agreement with any
of the Founding Companies or any of the stockholders of the Founding Companies
or Home other than the Other Agreements and the agreements contemplated by each
of the Other Agreements, including the employment agreements and leases referred
to herein or entered into in connection with the transactions contemplated
hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. Home was formed in July
1996 and has conducted only limited operations since that time. Home has not
conducted any material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. Except as
described in the Draft Registration Statement, Home does not own any real
property or any material personal property and is not a party to any other
agreement other than the Other Agreements and the agreements contemplated
thereby and to such agreements as will be filed as Exhibits to the Registration
Statement.
6.14 TAXES.Home has timely filed all requisite federal, state and other
tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and there are no examinations in progress or claims against
Home for federal, state and other taxes (including penalties and interest) for
any period or periods prior to and including the Balance Sheet Date and no
notice of any claim for taxes, whether pending or threatened, has been received.
All taxes which Home has been required to collect or withhold have been duly and
timely collected and withheld and have been set aside in accounts for such
purposes, or have been duly and timely paid to the proper governmental
authority. All tax, including interest and penalties (whether or not shown on
any tax return) owed by Home, any member of an affiliated or consolidated group
which includes or included Home, or with respect to any payment made or deemed
made by Home herein has been paid. The amounts shown as accruals for taxes on
Home Financial Statements are sufficient for the payment of all taxes of the
kinds indicated (including penalties and interest) for all fiscal periods
-24-
<PAGE>
ended on or before that date. Home has not entered into any tax sharing
agreement or similar arrangement. Home is not an investment company as defined
in Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Owners, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Home;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
Home;
(iii) any change in the authorized capital of Home or any grant of
any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of Home;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of Home;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Home to any person;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Home;
(viii)any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of Home or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of Home;
(x) any amendment or termination of any material contract,
agreement, license, permit or other right to which Home is a party;
(xi) any transaction by Home outside the ordinary course of its
business;
(xii) any other distribution of property or assets by Home other
than in the ordinary course of business.
-25-
<PAGE>
6.16 DISCLOSURE. The Draft Registration Statement delivered to the Company
and the Owners, together with this Agreement and the information furnished to
the Company and the Owners in connection herewith, does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the foregoing does not apply to
statements contained in or omitted from any of such documents made or omitted in
reliance upon information furnished by the Company or the Owners.
6.17 PRIVATE OFFERING. (a) Neither Home, any of its Affiliates nor anyone
on its or their behalf, has issued, sold, or offered any securities of Home to
any person under circumstances that would cause the issuance and sale of the
Home Stock to the Owners pursuant to this Agreement, to be subject to the
registration requirements of the 1933 Act.
(b) The offering of shares of Home Stock pursuant to the Home Plan of
Organization has been made in compliance with applicable federal and state
securities laws.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of Home and the Other Founding Companies
access to all of the Company's sites, properties, books and records and will
furnish Home with such additional financial and operating data and other
information as to the business and properties of the Company as Home or the
Other Founding Companies may from time to time reasonably request. The Company
will cooperate with Home and the Other Founding Companies, its representatives,
auditors and counsel in the preparation of any documents or other materials
which may be required in connection with any documents or materials required by
this Agreement. Home, the Owners and the Company will treat all information
obtained in connection with the negotiation and performance of this Agreement or
the due diligence investigations conducted with respect to the Other Founding
Companies as confidential in accordance with the provisions of Section 14
hereof. In addition, Home will cause each of the Other Founding Companies to
enter into a provision similar to this Section 7.1 requiring each such Other
Founding Company, its Owners, directors, officers, representatives, employees
and agents to keep confidential any information obtained by such Other Founding
Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, Home will afford to the officers and authorized representatives of the
Company access to all of Home's sites, properties, books and records and will
furnish the Company with such additional financial and operating data and other
information as to the business and properties of Home as the Company may from
time to time reasonably request. Home will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The Company will
-26-
<PAGE>
cause all information obtained in connection with the negotiation and
performance of this Agreement to be treated as confidential in accordance with
the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order
and condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or
rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and
maintain its relationships with suppliers, customers and others having
business relations with the Company;
(vi) use its reasonable efforts to maintain compliance with all
material permits, laws, rules and regulations, consent orders, and all
other orders of applicable courts, regulatory agencies and similar
governmental authorities;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent
of Home (which consent shall not be unreasonably withheld), provided that
debt and/or lease instruments may be replaced without the consent of Home
if such replacement instruments are on terms at least as favorable to the
Company as the instruments being replaced; and
(viii)maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of Home, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
-27-
<PAGE>
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule
5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock
except for distributions permitted as described on Annex I hereto;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the businesses of the Company, (2) (A) liens for taxes either not yet due
or being contested in good faith and by appropriate proceedings (and for
which contested taxes adequate reserves have been established and are
being maintained) or (B) materialmen's, mechanics', workers', repairmen's,
employees' or other like liens arising in the ordinary course of business
(the liens set forth in clause (2) being referred to herein as "Statutory
Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other
than distributions of real estate and other assets as permitted in this
Agreement (including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii)merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course
of good faith disputes with customers in a manner consistent with past
practice, provided, further, that such adjustments shall not be deemed to
be included in Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any material agreement, permit, license or
other right of the Company; or
-28-
<PAGE>
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Owners, the Company, nor any agent, officer,
director, trustee or any representative of any of the foregoing will, during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Funding and Consummation Date or the termination of this Agreement
in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Home or its
authorized agents relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, the Company
or a merger, consolidation or business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide Home on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Owners and the Company shall (except as otherwise
agreed to by Home or reflected in Schedule 7.6) terminate (i) any stockholders
agreements, voting agreements, voting trusts, options, warrants and employment
agreements between the Company and any employee listed on Schedule 9.12 hereto
and (ii) any existing agreement between the Company and any Owner, on or prior
to the Funding and Consummation Date provided that nothing herein shall prohibit
or prevent the Company from paying (either prior to or on the Closing Date)
notes or other obligations from the Company to the Owners in accordance with the
terms thereof, which terms have been disclosed to Home. Such termination
agreements are listed on Schedule 7.6 and copies thereof shall be attached
thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Owners and the Company shall give
prompt notice to Home of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Owners contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing and (ii)
any failure of any Owner or the Company to comply with or satisfy any material
covenant, condition or agreement to be complied with or satisfied by such person
hereunder. Home shall give prompt notice to the Company of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of Home contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing and (ii)
any failure of Home to comply with or satisfy any material covenant, condition
or agreement to be
-29-
<PAGE>
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii) modify the conditions set forth in
Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless Home and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by Home or that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, Home shall give the Company notice promptly after
it has knowledge thereof. If Home and a majority of the Founding Companies
consent to such amendment or supplement, which consent shall have been deemed
given by Home or any Founding Company if no response is received within 24 hours
following receipt of notice of such amendment or supplement (or sooner if
required by the circumstances under which such consent is requested), but the
Company does not give its consent, the Company may terminate this Agreement
pursuant to Section 12.1(iv) hereof. In the event that the Company seeks to
amend or supplement a Schedule pursuant to this Section 7.8, and Home and a
majority of the Other Founding Companies do not consent to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof. In the event that Home seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and a majority of the
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. No party to this Agreement shall be liable to any other party if
this Agreement shall be terminated pursuant to the provisions of this Section
7.8. No amendment of or supplement to a Schedule shall be made later than 24
hours prior to the anticipated effectiveness of the Registration Statement.
-30-
<PAGE>
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Owners shall furnish or cause to be furnished to Home and the Underwriters all
of the information concerning the Company and the Owners required for inclusion
in, and will cooperate with Home and the Underwriters in the preparation of, the
Registration Statement and the prospectus included therein (including audited
and unaudited financial statements, prepared in accordance with generally
accepted accounting principles, in form suitable for inclusion in the
Registration Statement). The Company and the Owners agree promptly to advise
Home if at any time during the period in which a prospectus relating to the
offering is required to be delivered under the Securities Act, any information
contained in the prospectus concerning the Company or the Owners becomes
incorrect or incomplete in any material respect, and to provide the information
needed to correct such inaccuracy. Insofar as the information relates solely to
the Company or the Owners, the Company represents and warrants as to such
information with respect to itself, and each Owner represents and warrants, as
to such information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and Home shall have had sufficient time to review
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, Home
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the Home Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions
-31-
<PAGE>
contemplated herein. If it is determined by the parties to this Agreement that
filings under the Hart- Scott-Rodino Act are required, then: (i) each of the
parties hereto agrees to cooperate and use its best efforts to comply with the
Hart-Scott-Rodino Act, (ii) such compliance by the Owners and the Company shall
be deemed a condition precedent in addition to the conditions precedent set
forth in Section 9 of this Agreement, and such compliance by Home shall be
deemed a condition precedent in addition to the conditions precedent set forth
in Section 8 of this Agreement, and (iii) the parties agree to cooperate and use
their best efforts to cause all filings required under the Hart-Scott-Rodino Act
to be made. If filings under the Hart-Scott-Rodino Act are required, the costs
and expenses thereof (including legal fees and costs and filing fees) shall be
borne by Home. The obligation of each party to consummate the transactions
contemplated by this Agreement is subject to the expiration or termination of
the waiting period under the Hart-Scott-Rodino Act, if applicable.
7.14 STOCKHOLDERS OF HOME. Promptly after a request by the Company, Home
will deliver to the Company a list of the stockholders of Home as of the date of
this Agreement.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF OWNERS AND COMPANY
The obligations of Owners and the Company with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions. The obligations of the
Owners and the Company with respect to actions to be taken on the Funding and
Consummation Date are subject to the satisfaction or waiver on or prior to the
Funding and Consummation Date of the conditions set forth in Sections 8.1, 8.5,
8.8, 8.9 and 8.12. As of the Closing Date or, with respect to the conditions set
forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as of the Funding and
Consummation Date, if any such conditions have not been satisfied, the Owners
(acting in unison) shall have the right to terminate this Agreement, or in the
alternative, waive any condition not so satisfied. Any act or action of the
Owners in consummating the Closing or delivering certificates representing
Company Interests as of the Funding and Consummation Date shall constitute a
waiver of any conditions not so satisfied. However, no such waiver shall be
deemed to affect the survival of the representations and warranties of Home
contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Home contained in Section 6 shall be true and
correct in all material respects as of the Closing Date and the Funding and
Consummation Date as though such representations and warranties had been made as
of that time; all of the terms, covenants and conditions of this Agreement to be
complied with and performed by Home on or before the Closing Date and the
Funding and Consummation Date shall have been duly complied with and performed
in all material respects; and certificates to the foregoing effect dated the
Closing Date and the Funding and Consummation Date, respectively, and signed by
the President or any Vice President of Home shall have been delivered to the
Owners.
-32-
<PAGE>
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Owners and the Company shall be satisfied that the Registration Statement
and the prospectus forming a part thereof, including any amendments thereof or
supplements thereto, shall not contain any untrue statement of a material fact,
or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall (for purposes of this Section 8.2) be
deemed satisfied if the Company or Owners shall have failed to inform Home in
writing prior to the effectiveness of the Registration Statement of the
existence of an untrue statement of a material fact or the omission of such a
statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Exchange or the IPO and no governmental agency or body shall
have taken any other action or made any request of the Company as a result of
which the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for Home, dated the Closing Date, in the form annexed hereto as Annex V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of Home Stock to be received by the Owners is
not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Exchange and no governmental agency or body shall have taken any other
action or made any request of the Company as a result of which the Company deems
it inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. Home shall have delivered to the Company a
certificate, dated as of a date no later than ten days prior to the Closing
Date, duly issued by the Delaware Secretary of State and in each state in which
Home is authorized to do business, showing that Home is in good standing and
authorized to do business and that all state franchise and/or income tax returns
and taxes for Home for all periods prior to the Closing have been filed and
paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to Home which would constitute a Material Adverse Effect.
-33-
<PAGE>
8.9 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of Home, certifying the truth and correctness of attached copies of the Home's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the boards of directors and, if
required, the stockholders of Home approving Home's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VII hereto.
8.12 TAX MATTERS. The Owners shall have received an opinion of Arthur
Andersen LLP or other tax advisor reasonably acceptable to the Owners that the
Home Plan of Organization will qualify as a tax-free transfer of property under
Section 351 of the Code and that the Owners will not recognize gain to the
extent the Owners exchange stock of the Company for Home Stock (but not cash or
other property) pursuant to the Home Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF HOME
The obligations of Home with respect to actions to be taken on the Closing
Date are subject to the satisfaction or waiver on or prior to the Closing Date
of all of the following conditions. The obligations of Home with respect to
actions to be taken on the Funding and Consummation Date are subject to the
satisfaction or waiver on or prior to the Funding and Consummation Date of the
conditions set forth in Sections 9.1, 9.4 and 9.13. As of the Closing Date or,
with respect to the conditions set forth in Sections 9.1, 9.4 and 9.13, as of
the Funding and Consummation Date, if any such conditions have not been
satisfied, Home shall have the right to terminate this Agreement, or waive any
such condition, but no such waiver shall be deemed to affect the survival of the
representations and warranties contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Owners and the Company contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date and the Funding and Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by the Owners and the Company on or before the Closing Date or the
Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Owners shall have
delivered to Home certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
-34-
<PAGE>
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Exchange or the IPO and no governmental agency or body shall
have taken any other action or made any request of Home as a result of which the
management of Home (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. Home shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Owners approving the
Company's entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which would constitute a Material Adverse
Effect, and the Company shall not have suffered any material loss or damages to
any of its properties or assets, whether or not covered by insurance, which
change, loss or damage materially affects or impairs the ability of the Company
to conduct its business.
9.5 OWNERS' RELEASE. The Owners shall have delivered to Home an instrument
dated the Closing Date which shall be effective only upon the occurrence of the
Funding and Consummation Date releasing the Company from (i) any and all claims
of the Owners against the Company and Home and (ii) obligations of the Company
and Home to the Owners, except for (x) items specifically identified on
Schedules 5.10 and 5.15 as being claims of or obligations to the Owners, (y)
continuing obligations to Owners relating to their employment by the Company and
(z) obligations arising under this Agreement or the transactions contemplated
hereby. In the event that the Funding and Consummation Date does not occur, then
the release instrument referenced herein shall be void and of no further force
or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to Home.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedule 9.7 or otherwise approved by Home, all existing agreements between the
Company and the Owners (and entities controlled by the Owners) other than real
property leases shall have been canceled effective prior to or as of the Closing
Date, and all real property leases between the Company and the Owners (and any
entity controlled by the Owners) shall have been amended in a manner reasonably
satisfactory to Home.
-35-
<PAGE>
9.8 OPINION OF COUNSEL. Home shall have received an opinion from Counsel
to the Company and the Owners, dated the Closing Date, substantially in the form
annexed hereto as Annex VI.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Exchange and no governmental agency or body shall have taken any
other action or made any request of Home as a result of which Home deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to Home
a certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
State of Organization and, unless waived by Home, in each state in which the
Company is authorized to do business, showing the Company is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for the Company for all periods prior to the Closing have been
filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall enter into an employment agreement substantially in the form of Annex VII
hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Home Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Owner shall have delivered to Home a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF HOME AND THE OWNERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. Home shall
use reasonable efforts to have the Owners released from any and all guarantees
of the Company's indebtedness identified on Schedule 10.1. In the event that
Home cannot obtain such releases from the lenders of any such guaranteed
indebtedness identified on Schedule 10.1 on or prior to 120 days subsequent to
the Funding and Consummation Date, Home shall promptly pay off or otherwise
refinance or retire such indebtedness. From and after the Funding and
Consummation Date and until such time as all of such indebtedness is paid off,
refinanced or retired, Home shall maintain unencumbered funds in amounts
sufficient to provide for such pay off, refinancing or retirement, provided that
Home may use such funds for other purposes, in its sole discretion, with the
prior
-36-
<PAGE>
written consent of each Owner who has not as of that time been released from his
or her guarantee as described above and whose indebtedness as described above
has not as of that time been paid off, refinanced or retired.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, Home shall not and shall not permit any of its subsidiaries
to undertake any act that would jeopardize the tax-free status of the
organization, including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all or
part of the Home Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of the
Owners.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Owners shall file or
cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or
before the Funding and Consummation Date, and shall permit Home to review
all such Tax Returns prior to such filings. The Owners shall pay or cause
to be paid all Tax liabilities (in excess of all amounts already paid with
respect thereto or properly accrued or reserved with respect thereto on
the Company Financial Statements) shown by such Returns to be due.
(ii) Home shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs
of filing such Returns.
-37-
<PAGE>
(iv) Each of the Company, Home and each Owner shall comply with the
tax reporting requirements of Section 1.351-3 of the Treasury Regulations
promulgated under the Code, and treat the transaction as a tax-free
contribution under Section 351(a) of the Code subject to gain, if any,
recognized on the receipt of cash or other property under Section 351(b)
of the Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of Home, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Owners and Home each make the following covenants that are applicable
to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE OWNERS. The Owners covenant and agree
that they, severally (based on their relative ownership of the Company Interests
on the date hereof), will indemnify, defend, protect and hold harmless Home, the
Company and the Surviving Corporation at all times, from and after the date of
this Agreement until the Expiration Date (provided that for purposes of Section
11.1(iii) below, the Expiration Date shall be the date on which the applicable
statute of limitations expires), from and against all claims, damages, actions,
suits, proceedings, demands, assessments, adjustments, costs and expenses
(including specifically, but without limitation, reasonable attorneys' fees and
expenses of investigation) incurred by Home, the Company or the Surviving
Corporation as a result of or arising from (i) any breach of the representations
and warranties of the Owners or the Company set forth herein or on the schedules
or certificates delivered in connection herewith, (ii) any breach of any
agreement on the part of the Owners or the Company under this Agreement, or
(iii) any liability under the 1933 Act, the 1934 Act or other Federal or state
law or regulation, at common law or otherwise, arising out of or based upon any
untrue statement of a material fact relating to the Company or the Owners, and
provided to Home or its counsel by the Company or the Owners (but in the case of
the Owners, only if such statement was provided in writing) contained in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Company or the Owners required to be stated therein or necessary to make the
statements therein not misleading, provided, however, that such indemnity shall
not inure to the benefit of Home, the Company or the Surviving Corporation to
the extent that such untrue statement (or alleged untrue statement) was made in,
or omission (or alleged omission) occurred in, any preliminary prospectus and
the Owners provided, in writing, corrected information to Home counsel and to
Home for inclusion in the final prospectus, and such information was not so
included or properly delivered, and provided further, that no Owner shall be
liable for any indemnification obligation pursuant to this Section 11.1 to the
extent
-38-
<PAGE>
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Owner.
Home acknowledges and agrees that other than the representations and
warranties of Company or Owners specifically contained in this Agreement, there
are no representations or warranties of Company or Owners, either express or
implied, with respect to the transactions contemplated by this Agreement, the
Company or its assets, liabilities and business.
Home further acknowledges and agrees that, should the Closing occur, its
sole and exclusive remedy with respect to any and all claims relating to this
Agreement and the transactions contemplated in this Agreement, shall be pursuant
to the indemnification provisions set forth in this Section 11. Home hereby
waives, from and after the Closing, to the fullest extent permitted under
applicable law, any and all rights, claims and causes of action it or any
indemnified person may have against the Company or any Owner relating to this
Agreement or the transactions arising under or based upon any federal, state,
local or foreign statute, law, rule, regulation or otherwise.
11.2 INDEMNIFICATION BY HOME. Home covenants and agrees that it will
indemnify, defend, protect and hold harmless the Owners at all times from and
after the date of this Agreement until the Expiration Date, from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Owners as a
result of or arising from (i) any breach by Home of their representations and
warranties set forth herein or on the schedules or certificates attached hereto,
(ii) any breach of any agreement on the part of Home under this Agreement, (iii)
any liabilities which the Owners may incur due to Home's 's failure to be
responsible for the liabilities and obligations of the Company as provided in
Section 1 hereof (except to the extent that Home has claims against the Owners
by reason of such liabilities); or (iv) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to Home or any of the Other Founding
Companies contained in any preliminary prospectus, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to Home or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the
-39-
<PAGE>
right to defend and settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently, provided that the Indemnifying Party shall not settle any criminal
proceeding without the written consent of the Indemnified Party. If the
Indemnifying Party undertakes to defend or settle, it shall promptly notify the
Indemnified Party of its intention to do so, and the Indemnified Party shall
cooperate with the Indemnifying Party and its counsel in the defense thereof and
in any settlement thereof. Such cooperation shall include, but shall not be
limited to, furnishing the Indemnifying Party with any books, records or
information reasonably requested by the Indemnifying Party that are in the
Indemnified Party's possession or control. All Indemnified Parties shall use the
same counsel, which shall be the counsel selected by Indemnifying Party,
provided that if counsel to the Indemnifying Party shall have a conflict of
interest that prevents counsel for the Indemnifying Party from representing
Indemnified Party, Indemnified Party shall have the right to participate in such
matter through counsel of its own choosing and Indemnifying Party will reimburse
the Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the Indemnified
Party for the amount paid in such settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no circumstances shall the Indemnified Party settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. All settlements hereunder
shall effect a complete release of the Indemnified Party, unless the Indemnified
Party otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
-40-
<PAGE>
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party,
provided that, nothing herein shall be construed to limit the right of a party,
in a proper case, to seek injunctive relief for a breach of this Agreement. Any
indemnity payment under this Section 11 shall be treated as an adjustment to the
exchange consideration for tax purposes unless a final determination (which
shall include the execution of a Form 870-AD or successor form) with respect to
the indemnified party or any of its affiliate causes any such payment not to be
treated as an adjustment to the exchange consideration for U.S. Federal Income
Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. Home, the Surviving Corporation and
the other persons or entities indemnified pursuant to Section 11.1 or 11.2 shall
not assert any claim for indemnification hereunder against the Owners until such
time as, and solely to the extent that, the aggregate of all claims which such
persons may have against such the Owners shall exceed the greater of (a) 1.0% of
the sum of (i) the cash paid to Owners plus (ii) the value of the Home Stock
delivered to Owners (calculated as provided in this Section 11.5) or (b) $50,000
(the "Indemnification Threshold"). Owners shall not assert any claim for
indemnification hereunder against Home until such time as, and solely to the
extent that, the aggregate of all claims which Owners may have against Home
shall exceed the Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Owner shall be liable
under this Section 11 for an amount which exceeds the amount of proceeds
received by such Owner in connection with the Exchange. For purposes of
calculating the value of the Home Stock received by a Owner, Home Stock shall be
valued at its initial public offering price as set forth in the Registration
Statement. It is hereby agreed that an Owner shall have the right to satisfy an
indemnification obligation through payment of a combination of stock and cash in
proportion equal to the proportion of stock and cash received by such Owner in
connection with the Exchange, valued as described immediately above, but shall
also have the right to satisfy any such obligation in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the board of directors of Home and the
Owners;
(ii) by the Owners or by Home if the transactions contemplated by
this Agreement to take place at the Closing shall not have been
consummated by March 31, 1998,
-41-
<PAGE>
unless the failure of such transactions to be consummated is due to the
willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required
to be performed by it prior to or on the Funding and Consummation Date;
(iii) by the Owners or by Home if a material breach or default shall
be made by the other party in the observance or in the due and timely
performance of any of the covenants or agreements contained herein, and
the curing of such default shall not have been made on or before the
Funding and Consummation Date or by the Owners or the Company, if the
conditions set forth in Section 8 hereof have not been satisfied or waived
as of the Closing Date or the Funding and Consummation Date, as
applicable, or by Home, if the conditions set forth in Section 9 hereof
have not been satisfied or waived as of the Closing Date or the Funding
and Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that during the period from the Closing Date to the Funding
and Consummation Date, this Agreement may be terminated only if the underwriting
agreement relating to the IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The Owners will not, for a period of five (5)
years following the Funding and Consummation Date, for any reason whatsoever,
directly or indirectly, for themselves or on behalf of or in conjunction with
any other person, persons, company, partnership, corporation or business of
whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any retail (new or used, but excluding used home lots
or other activities listed on Schedule 13.1 hereto) manufactured housing
business or operation or related services business (including the
ownership or management of manufactured housing subdivisions, lots or
parks, but excluding any such subdivisions, lots or parks or other
activities listed on Schedule 13.1 hereto) in direct competition with Home
-42-
<PAGE>
or any of the subsidiaries thereof, within 100 miles of where the Company
or any of its subsidiaries conducted business prior to the effectiveness
of the Exchange (the "Territory");
(ii) call upon any person who is, at that time, within the
Territory, an employee of Home or any subsidiary thereof for the purpose
or with the intent of enticing such employee away from or out of the
employ of Home or any subsidiary thereof;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to the Funding and Consummation
Date, a customer of Home or any subsidiary thereof, of the Company or of
any of the Other Founding Companies within the Territory for the purpose
of soliciting or selling products or services in direct competition with
Home within the Territory;
(iv) call upon any prospective acquisition candidate, on any Owner's
own behalf or on behalf of any competitor in the retail manufactured
housing business, which candidate, to the actual knowledge of such Owner
after due inquiry, was called upon by Home or any subsidiary thereof or
for which, to the actual knowledge of such Owner after due inquiry, Home
or any subsidiary thereof made an acquisition analysis, for the purpose of
acquiring such entity; or
(v) disclose customers, whether in existence or proposed, of the
Company to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the Company has in
the past disclosed such information to the public for valid business
reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit (i) any Owner from acquiring as a passive investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter, or (ii) any of the
activities listed on Schedule 13.1 hereto.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
Home as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Home for which it would
have no other adequate remedy, each Owner agrees that the foregoing covenant may
be enforced by Home in the event of breach by such Owner, by injunctions and
restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Owners in light of the activities and business of Home and the subsidiaries
thereof on the date of the execution of this Agreement and the current plans of
Home; but it is also the intent of Home and the Owners that such covenants be
construed and enforced in accordance with the changing activities; business and
locations of Home and its subsidiaries throughout the term of this covenant.
During the term of this covenant, if Home or one
-43-
<PAGE>
of its subsidiaries engages in new activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business it is currently conducting in the
locations currently established therefor (provided such activities or business
are related to the business or operations of the retail manufactured housing
business), then the Owners will be precluded from soliciting the customers or
employees of such new activities or business or from such new location and from
directly competing with such new activities or business within 100 miles of its
then-established operating location(s) through the term of this covenant.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Owner
against Home or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by Home of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Owners hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 OWNERS. The Owners recognize and acknowledge that they had in the
past, currently have, and in the future may possibly have, access to certain
confidential information of the Company, the Other Founding Companies, and/or
Home, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or Home's respective businesses. The Owners agree that they will
not disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of Home, (b) following the Closing, such information
may be disclosed by the Owners as is required in the course of performing their
duties for Home or the Surviving Corporation and (c) to counsel and other
advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.1, unless (i) such information
becomes known to the public generally through no fault of the Owners, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), the Owners shall, if possible, give prior written notice
thereof to Home and provide Home with the opportunity to contest
-44-
<PAGE>
such disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by any of the
Owners of the provisions of this Section 14.1, Home shall be entitled to an
injunction restraining such Owners from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting Home
from pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated by
this Agreement are not consummated, Owners shall have none of the
above-mentioned restrictions on their ability to disseminate confidential
information with respect to the Company. Each Owner further agrees that in the
event the transactions contemplated herein are not consummated (i) neither the
Company nor any Owner can thereafter use any confidential information of the
Other Founding Companies for any purpose and (ii) upon written request of any
Other Founding Company to the Company, the Company and Owners will return all
confidential information pertaining to such Other Founding Company to such Other
Founding Company.
14.2 HOME. Home recognizes and acknowledges that it had in the past and
currently have access to certain confidential information of the Company, such
as operational policies, and pricing and cost policies that are valuable,
special and unique assets of the Company's business. Home agrees that, prior to
the Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the Company, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
Home , (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), Home shall, if possible, give prior written notice
thereof to the Company and the Owners and provide the Company and the Owners
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party, and (d) to the public to the
extent necessary or advisable in connection with the filing of the Registration
Statement and the IPO and the securities laws applicable thereto and to the
operation of Home as a publicly held entity after the IPO. In the event of a
breach or threatened breach by Home of the provisions of this Section 14.2, the
Company and the Owners shall be entitled to an injunction restraining Home from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting the Company and the Owners from pursuing any
other available remedy for such breach or threatened breach, including the
recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the
-45-
<PAGE>
parties hereto agree that, in the event of a breach by any of them of the
foregoing covenants, the covenant may be enforced against the other parties by
injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by Home, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or trusts for the benefit of the Owners or
family members, the trustees of which so agree), for a period of one year from
the Closing, except pursuant to Section 17 hereof, none of the Owners shall
sell, assign, exchange, transfer, encumber, pledge, distribute, appoint, or
otherwise dispose of any shares of Home Stock received by the Owners in the
Exchange. The certificates evidencing the Home Stock delivered to the Owners
pursuant to Section 3 of this Agreement will bear a legend substantially in the
form set forth below and containing such other information as Home may deem
necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Owners acknowledge that the shares of Home
Stock to be delivered to the Owners pursuant to this Agreement have not been and
will not be registered under the 1933 Act (except as provided in Section 17
hereof) and therefore may not be resold without compliance with the 1933 Act.
The Home Stock to be acquired by such Owners pursuant to this Agreement is being
acquired solely for their own respective accounts, for investment purposes only,
and with no present intention of distributing, selling or otherwise disposing of
it in connection with a distribution. The Owners covenant, warrant and represent
that none of the shares of Home Stock issued to such Owners will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and regulations of the SEC. All the Home Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
-46-
<PAGE>
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Owners are able to bear the
economic risk of an investment in the Home Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the proposed investment in the
Home Stock. The Owners party hereto have had an adequate opportunity to ask
questions and receive answers from the officers of Home concerning any and all
matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of Home, the plans for the operations of the business of Home, the
business, operations and financial condition of the Founding Companies other
than the Company, and any plans for additional acquisitions and the like. The
Owners have asked any and all questions in the nature described in the preceding
sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever Home proposes to register any Home Stock for its own or others account
under the 1933 Act for a public offering, other than (i) any shelf or other
registration of shares to be used as consideration for acquisitions of
additional businesses by Home and (ii) registrations relating to employee
benefit plans, Home shall give each of the Owners prompt written notice of its
intent to do so. Upon the written request of any of the Owners given within 30
days after receipt of such notice, Home shall cause to be included in such
registration all of the Home Stock issued to the Owners pursuant to this
Agreement (including any stock issued as (or issuable upon the conversion or
exchange of any convertible security, warrant, right or other security which is
issued by Home as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Home Stock) which any such Owner
requests, provided that Home shall have the right to reduce the number of shares
included in such registration to the extent that inclusion of such shares could,
in the written opinion of tax counsel to Home or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as a tax-free organization under Section 351 of the Code.
In addition, if Home is advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 17.1 that the number of shares
to be sold by persons other than Home is greater than the number of such shares
which can be offered without adversely affecting the offering, Home may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares held by such person) to a number deemed satisfactory
by such managing underwriter, provided, that, for each such offering made by
Home after the IPO, such reduction shall be made first by reducing the number of
shares to be sold by persons other than Home, the Owners
-47-
<PAGE>
and the stockholders of the Other Founding Companies (collectively, the Owners
and the stockholders of the other Founding Companies being referred to herein as
the "Founding Stockholders"), and thereafter, if a further reduction is
required, by reducing the number of shares to be sold by the Founding
Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date one year after
the Closing and prior to the date three years after the Closing, the holders of
a majority of the shares of Home Stock issued to the Founding Stockholders
pursuant to this Agreement and the Other Agreements which have not been
previously registered or sold and which are not entitled to be sold under Rule
144(k) (or any similar or successor provision) promulgated under the 1933 Act
may request in writing that Home file a registration statement under the 1933
Act covering the registration of the shares of Home Stock issued to the
Stockholders pursuant to this Agreement and the Other Agreements (including any
stock issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by Home as) a
dividend or other distribution with respect to, or in exchange for, or in
replacement of such Home Stock) then held by such Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the receipt of such request,
Home shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from any Stockholder, file and use its best efforts to cause
to become effective a registration statement covering all such shares. Home
shall be obligated to effect only one Demand Registration for all Founding
Stockholders and will keep such Demand Registration current and effective for
not less than 120 days (or such shorter period as is required to sell all of the
shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of Home's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which
Home would otherwise be required to make such filing pursuant to the foregoing
paragraph.
If at the time of any request by the Founding Stockholders for a Demand
Registration Home has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' Home
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless Home is no longer proceeding
diligently to effect such registration; provided that Home shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by Home
as a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
-48-
<PAGE>
17.3 REGISTRATION PROCEDURES. Whenever Home is required to register shares
of Home Stock pursuant to Sections 17.1 and 17.2, Home will, as expeditiously as
possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, Home will
furnish a representative of the Owners with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Owner who so requests such number of copies of such
registration statement, each amendment and supplement thereto and the prospectus
included in such registration statement (including each preliminary prospectus
and any term sheet associated therewith), and such other documents as such Owner
may reasonably request in order to facilitate the disposition of the relevant
shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Owners, and to keep such
registration or qualification effective during the period such registration
statement is to be kept effective, provided that Home shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of Home Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
Home are then listed or included;
f. Notify each Owner at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act within the period that Home is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Owner, Home will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of the covered shares, such prospectus will not contain an untrue statement of
material fact or omit to state any fact necessary to make the statements therein
not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by Home.
-49-
<PAGE>
17.4 INDEMNIFICATION.
(a) In connection with any demand registration, Home shall indemnify, to
the extent permitted by law, each Owner (an "Indemnified Party") against all
losses, claims, damages, liabilities and expenses arising out of or resulting
from any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or associated term
sheet or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading except insofar as the same are caused by or contained in or omitted
from any information furnished in writing to Home by such Indemnified Party
expressly for use therein or by any Indemnified Parties' failure to deliver a
copy of the registration statement or prospectus or any amendment or supplements
thereto after Home has furnished such Indemnified Party with a sufficient number
of copies of the same.
(b) In connection with any demand registration, each Owner shall furnish
to Home in writing such information as is reasonably requested by Home for use
in any such registration statement or prospectus and will indemnify, to the
extent permitted by law, Home, its directors and officers and each person who
controls Home (within the meaning of the 1933 Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged untrue
statement or material fact or any omission or alleged omission of a material
fact required to be stated in the registration statement or prospectus or any
amendment thereof or supplement thereto necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission is
contained in information so furnished in writing by such Owner specifically for
use in preparing the registration statement. Notwithstanding the foregoing, the
liability of a Owner under this Section 17.5 shall be limited to an amount equal
to the net proceeds actually received by such Owner from the sale of the
relevant shares covered by the registration statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified parties' reasonable
judgment, a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. Any failure to give prompt notice shall deprive a party of
its right to indemnification hereunder only to the extent that such failure
shall have adversely effected the indemnifying party. If the defense of any
claim is assumed, the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled or elects not,
to assume the defense of a claim, will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party, a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
-50-
<PAGE>
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, Home and
each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of Home's size and investment stature,
including indemnification.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of Home stock
to the public without registration, Home agrees to use its best efforts to:
(i) make and keep public information regarding Home available as
those terms are understood and defined in Rule 144 under the 1933 Act for
a period of four years beginning 90 days following the effective date of
the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of Home under the 1933 Act and the 1934 Act at any time
after it has become subject to such reporting requirements; and
(iii) so long as a Owner owns any restricted Home Common Stock,
furnish to each Owner forthwith upon written request a written statement
by Home as to its compliance with the reporting requirements of Rule 144
(at any time from and after 90 days following the effective date of the
Registration Statement, and of the 1933 Act and the 1934 Act (any time
after it has become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of Home, and such other reports and
documents so filed as a Owner may reasonably request in availing itself of
any rule or regulation of the SEC allowing a Owner to sell any such shares
without registration.
18. GENERAL
18.1 COOPERATION. The Company, Owners, and Home shall each deliver or
cause to be delivered to the other on the Funding and Consummation Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The Company will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the Company cooperate with
Home on and after the Funding and Consummation Date in furnishing information,
evidence, testimony and other assistance in connection with any tax return
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Funding and
Consummation Date.
-51-
<PAGE>
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Home, and the heirs and legal representatives of the Owners.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Owners, the Company,
and Home and supersede any prior agreement and understanding relating to the
subject matter of this Agreement. This Agreement, upon execution, constitutes a
valid and binding agreement of the parties hereto enforceable in accordance with
its terms and may be modified or amended only by a written instrument executed
by the Owners, the Company and Home, acting through their respective officers or
trustees, duly authorized by their respective Boards of Directors. Any
disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes of any other Schedule required hereby, provided
that the Company shall make a good faith effort to cross reference disclosure,
as necessary or advisable, between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, Home will pay the fees, expenses and disbursements of Home
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by Home under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other
person or entity retained by Home or by Notre Capital Ventures II, L.L.C., and
the costs of preparing the Registration Statement. Each Owner shall pay all
sales, use, transfer, real property transfer, recording, gains, stock transfer
and other similar taxes and fees ("Transfer Taxes") imposed in connection with
the Exchange, other than Transfer Taxes, if any, imposed by the State of
Delaware. Each Owner shall file all necessary documentation and Returns with
respect to such Transfer Taxes. In addition, each Owner acknowledges that he,
and not the Company or Home, will pay all taxes due upon receipt of the
consideration payable pursuant to Section 2 hereof. The Owners acknowledge that
the risks of the transactions contemplated hereby include tax risks, with
respect to which the Owners are relying solely on the opinion contemplated by
Section 8.12 hereof.
-52-
<PAGE>
(b) In the event that the Funding and Consummation Date occurs, then
Home will reimburse the Owners and the Stockholders of Other Founding Companies
for incremental and direct accounting costs and expenses incurred by them in
connection with the Exchange and IPO and such additional accounting and legal
expenses incurred by them in connection therewith as may be approved by Home.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to Home, addressed to it at:
Home USA, Inc.
4801 Woodway, Suite 300E
Houston, Texas 77056
Attn: Cary N. Vollintine
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Owners, addressed to them at their addresses set forth
on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
(c) If to the Company, addressed to it at:
Willmax Homes of Colorado LLC
8111 Preston Road, Suite 616
Dallas, TX 75225
Attn: Jack Wensinger
-53-
<PAGE>
with copies to:
Phil Gans, PC
4700 One Norwest Center
1700 Lincoln Street
Denver, CO 80203
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
-54-
<PAGE>
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of Home, the Company and Owners who hold or who will hold at
least 50% of the Home Stock issued or to be issued upon consummation of the
Exchange. Any amendment or waiver effected in accordance with this Section 18.15
shall be binding upon each of the parties hereto, any other person receiving
Home Stock in connection with the Exchange and each future holder of such Home
Stock.
-55-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
HOMEUSA, INC.
By: ___________________________
Cary N. Vollintine
Chief Executive Officer
WILLMAX HOMES OF COLORADO LLC
By: ___________________________
Name: ______________________
Title: _____________________
-56-
<PAGE>
Owners:
_______________________________
JACK A. WENSINGER
_______________________________
JEFFREY D. HEYMAN
_______________________________
JOHN HARDING
-57-
<PAGE>
SCHEDULE 6.9
None.
-58-
EXHIBIT 10.19
FOUNDER'S EMPLOYMENT AGREEMENT
This Founder's Employment Agreement (this "Agreement") is by and between
[______________________], a [_____________] corporation (the "Company") which,
on the Effective Date (as defined below), will be a wholly-owned subsidiary of
Home USA, Inc., a Delaware corporation ("Home USA"), and
[_______________________] ("Executive"), and is dated October [___], 1997, but
shall become effective only on the date of the consummation of the initial
public offering of the common stock of Home USA (the "Effective Date").
R E C I T A L S
A. As of the Effective Date, the Company and the other subsidiaries of
Home USA are or will be engaged primarily in the retail manufactured housing
business and in related services businesses.
B. Executive is employed by the Company in a confidential relationship
pursuant to which Executive has become and will continue to become familiar with
and aware of information as to the Company's and Home USA's customers, specific
manner of doing business (including the processes, techniques and trade secrets
utilized by the Company and Home USA), and future plans with respect thereto,
all of which have been and will be established and maintained at significant
expense to the Company and Home USA. This information includes trade secrets and
constitutes a valuable asset of the Company and of Home USA.
C. The parties hereto desire to agree to the various matters described
herein and to memorialize their agreements as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, it is hereby agreed as follows:
A G R E E M E N T
1. EMPLOYMENT AND DUTIES.
(a) The Company hereby employs Executive as [______________________] of
the Company. Executive shall have responsibilities, duties and authority
reasonably accorded to, expected of, and consistent with such position and will
report directly to the Board of Directors of the Company (the "Board") or its
designee. Executive hereby accepts this employment upon the terms and conditions
herein contained and agrees to devote substantially all of his business time,
attention and efforts to promote and further the business of the Company.
-2-
<PAGE>
(b) Executive shall faithfully adhere to, execute and fulfill all lawful
policies established from time to time by the Company.
2. COMPENSATION. For all services rendered by Executive, the Company shall
compensate Executive as follows:
(a) BASE SALARY. Commencing on the Effective Date or, at the option of the
Company, the first day of the month during which the Effective Date occurs or
the first day of the month immediately following the date on which the Effective
Date occurs, the base salary payable to Executive shall be $ [________________]
per year, payable on a regular basis in accordance with the Company's standard
payroll procedures but not less than monthly. On at least an annual basis, the
Board will review Executive's performance and may make increases, but not
decreases, to such base salary if, in its discretion, any such increase is
warranted.
(b) EXECUTIVE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Executive
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(i) Coverage, subject to contributions required of executives of the
Company generally, for Executive and his dependent family members under health,
hospitalization, disability, dental, life and other insurance plans that the
Company may have in effect from time to time for the benefit of its executives.
(ii) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Executive in the performance of his services
pursuant to this Agreement. All reimbursable expenses shall be appropriately
documented in reasonable detail by Executive upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's expense
reporting policy.
(iii) The Company shall provide Executive with such other executive
perquisites as may be deemed appropriate for Executive by the Board, and
Executive shall be entitled to participate in all other Company-wide employee
benefits as are available from time to time.
3. NON-COMPETITION AGREEMENT.
(a) Executive shall not, during the term of his employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes in any material respect with
Executive's duties and responsibilities hereunder. The foregoing limitations
shall not be construed as prohibiting Executive from making passive personal
investments in such form or manner as will neither require his services in the
operation or affairs of
-3-
<PAGE>
the companies or enterprises in which such investments are made nor violate the
other terms of this paragraph 3. In addition, Executive shall not, during the
period of his employment by or with the Company, and for a period of two (2)
years immediately following the termination of his employment under this
Agreement, for any reason whatsoever, other than a termination by the Company
without cause or by Executive for Good Reason, directly or indirectly, for
himself or on behalf of or in conjunction with any other person, company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any business
in direct competition with the Company or Home USA or any of their respective
subsidiaries, within 100 miles of where the Company or any of Home USA's other
subsidiaries conduct business, including any territory serviced by the Company
or Home USA or any of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of the Company or Home USA (including the respective subsidiaries
thereof) in a managerial capacity for the purpose or with the intent of enticing
such employee away from or out of the employ of the Company or Home USA
(including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to that time, a customer of the Company or Home
USA (including the respective subsidiaries thereof) within the Territory for the
purpose of soliciting or selling products or services in direct competition with
the Company or Home USA within the Territory;
(iv) call upon any prospective acquisition candidate, on Executive's own
behalf or on behalf of any competitor, which candidate was, to Executive's
knowledge, either called upon by the Company or Home USA (including the
respective subsidiaries thereof) or for which the Company or Home USA made an
acquisition analysis, for the purpose of acquiring such entity.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Executive from acquiring as a passive investment not more than two
percent (2%) of the capital stock of a competing business the stock of which is
traded on a national securities exchange or on an over-the-counter or similar
market.
(b) Because of the difficulty of measuring economic losses to the Company
and Home USA as a result of a breach of the foregoing covenant, and because of
the immediate and irreparable damage that could be caused to the Company and
Home USA for which they would have no other adequate remedy, Executive agrees
that the foregoing covenant may be enforced by Home USA or
-4-
<PAGE>
the Company in the event of breach or threatened breach by Executive, by
injunctions, restraining orders and other appropriate equitable relief.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Executive in light of the
activities and business of the Company or Home USA, as the case may be
(including Home USA's other subsidiaries) on the Effective Date of this
Agreement and the current plans of Home USA (including Home USA's other
subsidiaries); but it is also the intent of the Company and Executive that such
covenants be construed and enforced in accordance with the changing activities,
business and locations of the Company and Home USA, as the case may be
(including Home USA's other subsidiaries) throughout the term of these
covenants, whether before or after the date of termination of the employment of
Executive. For example, if, during the term of this Agreement, the Company or
Home USA, as the case may be (including Home USA's other subsidiaries) engage in
new and different activities, enter a new business or establish new locations
for their current activities or businesses in addition to or other than the
activities or businesses enumerated under the Recitals above or the locations
currently established therefor, then Executive will be precluded from soliciting
the customers or employees of such new activities or businesses or from such new
locations and from directly competing with such new businesses within 100 miles
of all then-established operating location(s) through the term of these
covenants.
It is further agreed by the parties hereto that, in the event that
Executive shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company or Comfort
(including Comfort's other subsidiaries), or similar activities or business in
locations the operation of which, under such circumstances, does not violate
clause (i) of this paragraph 3, and in any event such new business, activities
or location are not in violation of this paragraph 3 or of Executive's
obligations under this paragraph 3, if any, Executive shall not be chargeable
with a violation of this paragraph 3 if the Company or Comfort (including
Comfort's other subsidiaries) shall thereafter enter the same, similar or a
competitive (i) business, (ii) course of activities or (iii) location, as
applicable.
(d) The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth herein are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and this
Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Executive against the Company or
Home USA, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Home USA or the Company of such
covenants. It is specifically agreed that the period of two (2) years following
termination of
-5-
<PAGE>
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants of Executive made in this paragraph 3 shall be
effective, shall be computed by excluding from such computation any time during
which Executive is in violation of any provision of this paragraph 3.
4. TERM; TERMINATION; RIGHTS ON TERMINATION.
(a) The term of this Agreement shall begin on the Effective Date and
continue for five (5) years (the "Term"), unless terminated sooner as herein
provided, and shall continue thereafter on a year-to-year basis on the same
terms and conditions contained herein in effect as of the time of renewal. This
Agreement and Executive's employment may be terminated in any one of the
followings ways:
(i) DEATH. The death of Executive shall immediately terminate this
Agreement with no severance compensation due to Executive's estate.
(ii) DISABILITY. If, as a result of incapacity due to physical or
mental illness or injury, Executive shall have been absent from his
full-time duties hereunder for four (4) consecutive months, then thirty
(30) days after receiving written notice (which notice may occur before or
after the end of such four (4) month period, but which shall not be
effective earlier than the last day of such four (4) month period), the
Company may terminate Executive's employment hereunder provided Executive
is unable to resume his full-time duties with or without reasonable
accommodation at the conclusion of such notice period. Also, Executive may
terminate his employment hereunder if his health should become impaired to
an extent that makes the continued performance of his duties hereunder
hazardous to his physical or mental health or his life, provided that
Executive shall have furnished the Company with a written statement from a
qualified doctor to such effect and provided, further, that, at the
Company's request made within thirty (30) days of the date of such written
statement, Executive shall submit to an examination by a doctor selected
by the Company who is reasonably acceptable to Executive or Executive's
doctor and such doctor shall have concurred in the conclusion of
Executive's doctor. In the event this Agreement is terminated as a result
of Executive's disability, Executive shall receive from the Company, in a
lump-sum payment due within thirty (30) days of the effective date of
termination, the base salary at the rate then in effect for whatever time
period is remaining under the Initial Term (as defined below) or for one
(1) year, whichever amount is greater; provided, however, that any such
payments shall be reduced by the amount of any disability insurance
payments payable to the Executive as a result of such disability to the
extent such disability insurance is provided by the Company and Home USA.
(iii) FOR CAUSE. The Company may terminate the Agreement ten (10)
days after written notice to Executive for cause, which shall be: (1)
Executive's willful or material breach of this Agreement; (2) Executive's
gross negligence in the performance or intentional
-6-
<PAGE>
nonperformance (continuing for ten (10) days after receipt of written
notice of need to cure) of any of Executive's material duties and
responsibilities hereunder; (3) Executive's willful dishonesty, fraud or
misconduct with respect to the business or affairs of the Company or Home
USA; (4) Executive's conviction of a felony crime; or (5) Executive's
confirmed positive illegal drug test result (any one of which is
hereinafter called "Cause"). In the event of a termination for Cause,
Executive shall have no right to any severance compensation.
(iv) WITHOUT CAUSE OR FOR GOOD REASON. The Company may terminate
Executive's employment hereunder without Cause at any time, and Executive
may terminate his employment hereunder for Good Reason (as defined below)
at any time, in either case effective thirty (30) days after written
notice. If Executive is terminated by the Company without Cause or if
Executive terminates Executive's employment hereunder for Good Reason
during the first three (3) years of the Term (the "Initial Term"),
Executive shall receive from the Company, in a lump-sum payment due on the
effective date of termination, the base salary at the rate then in effect
for whatever time period is remaining under the Initial Term of this
Agreement or for one (1) year, whichever amount is greater. If Executive
is terminated by the Company without Cause or should Executive terminate
for Good Reason during the final two (2) year period of the Term,
Executive shall receive from the Company, in a lump-sum payment due on the
effective date of termination, one year's salary at the base salary rate
then in effect. Further, any termination without Cause by the Company
shall operate to shorten the period set forth in paragraph 3(a) and during
which the terms of paragraph 3 apply to one (1) year from the date of
termination of employment. If Executive resigns or otherwise terminates
his employment hereunder without Good Reason, the provisions of paragraph
3 hereof shall apply, except that Executive shall receive no severance
compensation. If Executive is terminated without Cause or terminates his
employment hereunder for Good Reason, (1) the Company shall make the
insurance premium payments contemplated by COBRA for a period of 12 months
after such termination, and (2) the Executive shall be entitled to receive
a pro rated portion of any annual bonus to which the Executive would have
been entitled for the year during which the termination occurred had the
Executive not been terminated.
(b) DEFINITION OF "GOOD REASON". Executive shall have "Good Reason" to
terminate this Agreement and his employment hereunder if, without Executive's
consent, Executive is demoted to a position of materially less stature or
importance within the Company than the position described in Section 1 hereof.
(c) CHANGE IN CONTROL OF HOME USA. In the event of a "Change in Control of
Home USA" (as defined below) during the Initial Term, paragraph 11 below shall
apply.
(d) EFFECT OF TERMINATION. Upon termination of this Agreement for any
reason provided above, Executive shall be entitled to receive all compensation
earned and all benefits and
-7-
<PAGE>
reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Executive only to the extent and in the manner expressly provided herein. All
other rights and obligations of the Company and Executive under this Agreement
shall cease as of the effective date of termination, except that the Company's
obligations under paragraph 8 herein and Executive's obligations under
paragraphs 3, 5, 6, 7 and 9 herein shall survive such termination in accordance
with their terms.
(e) BREACH BY COMPANY. If termination of Executive's employment arises out
of the Company's failure to pay Executive on a timely basis the amounts to which
Executive is entitled under this Agreement or as a result of any other breach of
this Agreement by the Company, as determined by a court of competent
jurisdiction or pursuant to the provisions of paragraph 15 below, the Company
shall pay all amounts and damages to which Executive may be entitled as a result
of such breach, including interest thereon and all reasonable legal fees and
expenses and other costs incurred by Executive to enforce his rights hereunder.
Further, none of the provisions of paragraph 3 shall apply in the event this
Agreement is terminated as a result of a breach by the Company.
5. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Executive by or on behalf of the Company, Home USA
or their representatives, vendors or customers which pertain to the business of
the Company or Home USA shall be and remain the property of the Company or Home
USA, as the case may be, and be subject at all times to their discretion and
control. Likewise, all correspondence, reports, records, charts, advertising
materials and other similar data pertaining to the business, activities or
future plans of the Company or Home USA which is collected by Executive shall be
delivered promptly to the Company without request by it upon termination of
Executive's employment.
6. INVENTIONS. Executive shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by
Executive, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are directly related to the business
or activities of the Company and which Executive conceives as a result of his
employment by the Company. Executive hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Executive shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
7. TRADE SECRETS. Executive agrees that Executive will not, during or
after the Term of this Agreement with the Company, disclose the terms of the
Company's or Home USA's relationships or agreements with their respective
vendors or customers or any other significant or
-8-
<PAGE>
material trade secret of the Company or Home USA, whether in existence or
proposed, to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever.
8. INDEMNIFICATION. In the event Executive is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
or Home USA against Executive), by reason of the fact that Executive is or was
performing services under this Agreement, then the Company shall indemnify
Executive against all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, as actually and reasonably incurred by Executive in
connection therewith to the maximum extent permitted by applicable law. The
advancement of expenses shall be mandatory to the extent permitted by applicable
law. In the event that both Executive and the Company are made a party to the
same third-party action, complaint, suit or proceeding, the Company agrees to
engage counsel, and Executive agrees to use the same counsel, provided that if
counsel selected by the Company shall have a conflict of interest that prevents
such counsel from representing Executive, Executive may engage separate counsel
and the Company shall pay all reasonable attorneys' fees of such separate
counsel. The Company shall not be required to pay the fees of more than one law
firm except as described in the preceding sentence, and shall not be required to
pay the fees of more than two law firms under any circumstances. Executive
cannot be held liable to the Company or Home USA for errors or omissions made in
good faith or where Executive has not exhibited gross, willful, and wanton
negligence in connection with such conduct, error or omission.
9. NO PRIOR AGREEMENTS. Executive hereby represents and warrants to the
Company that the execution of this Agreement by Executive and his employment by
the Company and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client or any other person or
entity. Executive hereby indemnifies the Company against any and all liability,
expenses and other costs and amounts incurred by the Company, including, but not
limited to, attorneys' fees and expenses of investigation, as a result of any
claim by any third party that such third party may now have or may hereafter
come to have against the Company based upon or arising out of any
non-competition agreement, invention or secrecy agreement between Executive and
such third party which was in existence as of the date of this Agreement.
10. ASSIGNMENT; BINDING EFFECT. Executive understands that the Company has
selected Executive for employment by it on the basis of Executive's personal
qualifications, experience and skills. Executive agrees, therefore, that
Executive cannot assign all or any portion of Executive's performance under this
Agreement. Subject to the preceding two (2) sentences and the express provisions
of paragraph 12 below, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties hereto and their respective heirs,
legal representatives, successors and assigns.
-9-
<PAGE>
11. CHANGE IN CONTROL.
(a) Executive understands and acknowledges that Home USA and/or the
Company may be merged or consolidated with or into another entity and that such
entity shall automatically succeed to the rights and obligations of Home USA
and/or the Company hereunder or that the Company may undergo another type of
Change in Control. In the event such a merger or consolidation or other Change
in Control is initiated prior to the end of the Initial Term, then the
provisions of this paragraph 11 shall be applicable.
(b) In the event of a pending Change in Control wherein Home USA and/or
the Company and Executive have not received written notice at least five (5)
business days prior to the anticipated closing date of the transaction giving
rise to the Change in Control from the successor to all or a substantial portion
of Home USA's and/or the Company's business and/or assets that such successor is
willing as of the closing to assume and agree to perform Home USA's and/or the
Company's obligations under this Agreement in the same manner and to the same
extent that Home USA and/or the Company is hereby required to perform, then such
Change in Control shall be deemed to be a termination of this Agreement by Home
USA and/or the Company without Cause during the Initial Term and the applicable
portions of paragraph 4(a)(iv) will apply; however, under such circumstances,
the amount of the lump-sum severance payment due to Executive shall be triple
the amount calculated under the terms of paragraph 4(a)(iv) and the
non-competition provisions of paragraph 3 shall not apply whatsoever.
(c) In any Change in Control situation, Executive may, at his sole
discretion, elect to terminate this Agreement by providing written notice to the
Company at least five (5) business days prior to the anticipated closing of the
transaction giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 4(a)(iv) will apply as though the Company had terminated
the Agreement without Cause during the Initial Term; however, under such
circumstances, the amount of the lump-sum severance payment due to Executive
shall be double the amount calculated under the terms of paragraph 4(a)(iv) and
the non-competition provisions of paragraph 3 shall all apply for a period of
two (2) years from the effective date of termination.
(d) For purposes of applying paragraph 4 under the circumstances described
in (b) and (c) above, the effective date of termination will be the closing date
of the transaction giving rise to the Change in Control and all compensation,
reimbursements and lump-sum payments due Executive must be paid in full by the
Company at or prior to such closing. Further, Executive will be given sufficient
time and opportunity to elect whether to exercise all or any of Executive's
vested options to purchase Home USA common stock, such that Executive may
convert the options to shares of Home USA common stock at or prior to the
closing of the transaction giving rise to the Change in Control, if Executive so
desires.
(e) A "Change in Control" shall be deemed to have occurred if:
-10-
<PAGE>
(i) any person, other than Home USA or an employee benefit plan of
Home USA, acquires directly or indirectly the beneficial ownership (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such Person is, directly or indirectly, the Beneficial Owner
of voting securities representing 50% or more of the total voting power of
all of the then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority of
the members of the Board of Directors of Home USA: (A) the individuals
who, as of the closing date of Home USA's initial public offering,
constitute the Board of Directors of Home USA (the "Original Directors");
(B) the individuals who thereafter are elected to the Board of Directors
of Home USA and whose election, or nomination for election, to the Board
of Directors of Home USA was approved by a vote of at least two-thirds
(2/3) of the Original Directors then still in office (such directors
becoming "Additional Original Directors" immediately following their
election); and (C) the individuals who are elected to the Board of
Directors of Home USA and whose election, or nomination for election, to
the Board of Directors of Home USA was approved by a vote of at least
two-thirds (2/3) of the Original Directors and Additional Original
Directors then still in office (such directors also becoming "Additional
Original Directors" immediately following their election);
(iii) the stockholders of Home USA shall approve a merger,
consolidation, recapitalization, or reorganization of Home USA, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not obtained, other than any such
transaction which would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being Beneficially Owned by at least
75% of the holders of outstanding voting securities of Home USA
immediately prior to the transaction, with the voting power of each such
continuing holder relative to other such continuing holders not
substantially altered in the transaction; or
(iv) the stockholders of Home USA shall approve a plan of complete
liquidation of Home USA or an agreement for the sale or disposition by
Home USA of 50% or more of the total assets of Home USA.
(f) Executive shall be reimbursed by the Company or its successor for any
excise taxes that Executive incurs under Section 4999 of the Internal Revenue
Code of 1986, as a result of any Change in Control. Such amount will be due and
payable by the Company or its successor within ten (10) days after Executive
delivers a written request for reimbursement accompanied by a copy of
Executive's tax return(s) showing the excise tax actually incurred by Executive.
-11-
<PAGE>
12. COMPLETE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto relating to the subject matter hereof and supersedes any
other employment agreements or understandings, written or oral, between the
Company and Executive. This Agreement is not a promise of future employment.
Executive has no oral representations, understandings or agreements with the
Company or any of its officers, directors or representatives covering the same
subject matter as this Agreement. This written Agreement is the final, complete
and exclusive statement and expression of the agreement between the Company and
Executive and of all the terms of this Agreement, and it cannot be varied,
contradicted or supplemented by evidence of any prior or contemporaneous oral or
written agreements. This written Agreement may not be later modified except by a
further writing signed by a duly authorized officer of the Company and
Executive, and no term of this Agreement may be waived except by writing signed
by the party waiving the benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company:
________________________________
________________________________
________________________________
________________________________
with a copy to: [ ]
Home USA, Inc.
4801 Woodway Drive, Suite 300 East
Houston, Texas 77056
Telephone: 713/964-2754
Fax: 713/964-2657
To Executive:
________________________________
________________________________
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually received
by means of hand delivery, delivery by Federal Express or other courier service,
or by facsimile transmission. Either party may change the address for notice by
notifying the other party of such change in accordance with this paragraph 13.
14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable
-12-
<PAGE>
and possible, effect shall be given to the intent manifested by the portion held
invalid or inoperative. The paragraph headings herein are for reference purposes
only and are not intended in any way to describe, interpret, define or limit the
extent or intent of the Agreement or of any part hereof.
15. ARBITRATION. With the exception of the provisions hereof providing for
enforcement by means of equitable remedies, any unresolved dispute or
controversy arising under or in connection with this Agreement shall be settled
exclusively by arbitration, conducted before a panel of three (3) arbitrators in
Houston, Texas, in accordance with the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association ("AAA") then in
effect, provided that Executive shall comply with the Company's grievance
procedures in an effort to resolve such dispute or controversy before resorting
to arbitration, and provided further that the parties may agree to use
arbitrators other than those provided by the AAA. The arbitrators shall not have
the authority to add to, detract from, or modify any provision hereof nor to
award punitive damages to any injured party. A decision by a majority of the
arbitration panel shall be final and binding. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. The direct expenses of any
arbitration proceeding shall be borne by the Company; however, each party shall
be responsible for payment of each's counsel fees related expenses. The
arbitrator shall, however, have the right and discretion to award counsel fees
and expenses to either party as part of the arbitrator's final judgment.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written, but effective as of the Effective Date.
[ ]
By: __________________________________
[ ]
President
EXECUTIVE
______________________________________
[Name]
-13-
EXHIBIT 10.21
INDEMNITY AGREEMENT
This Indemnity Agreement ("Agreement") is made and entered into by and
between HomeUSA, Inc., a Delaware corporation ("Company"), and Notre Capital
Ventures II, L.L.C., a Texas limited liability company ("Indemnitee").
INTRODUCTION
Indemnitee is an organizer and promoter of the Company and has provided,
and continues to provide, the Company with valuable expertise in connection with
the organization of the Company and the formulation of its strategy regarding
the consolidation of the manufactured housing industry and related matters. In
consideration of these services, the Company has agreed to indemnify Indemnitee
against any and all liabilities asserted against the Indemnitee or its managers,
officers, directors, employees, agents, members, partners and owners
(collectively, the "Indemnified Parties") in connection with or as a result of
Indemnitee's status as an organizer and/or promoter (as that term is defined in
Rule 405 under the Securities Act of 1933, as amended) of the Company. Based on
such premise, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. INDEMNIFICATION. The Company shall indemnify the Indemnified
Parties as follows:
1.1. The Company shall indemnify the Indemnified Parties when any of
such Indemnified Parties is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil
(including under federal and/or state securities laws), criminal, administrative
or investigative, by reason of the fact that the Indemnified Parties, or any of
them, is or was an organizer and/or promoter of the Company, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such Indemnified Parties in connection with
such action, suit or proceeding.
1.2. Expenses (including attorneys' fees) incurred by the
Indemnified Parties, or any of them, in defending any such civil (including
under federal and/or state securities laws), criminal, administrative, or
investigative action, suit or proceeding shall be paid by the Company in advance
of the final disposition of such action, suit or proceeding, within 14 days
after the receipt by the Company from the Indemnified Parties, or any of them,
of notice in which such Indemnified Party states that it has reasonably incurred
actual expenses in defending a civil (including under federal and/or state
securities laws), criminal, administrative, or investigative action, suit or
-2-
<PAGE>
proceeding by reason of the fact that such Indemnified Party is or was an
organizer and/or promoter of the Company.
1.3. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 1 shall not be deemed exclusive of any other
rights to which the Indemnified Parties may be entitled under any law or
agreement, and shall continue after each of the Indemnified Parties has ceased
to be an organizer and/or promoter of the Company.
2. ATTORNEYS' FEES. If the Indemnified Parties, or any of them, institute
any legal action to enforce their rights under this Agreement, or to recover
damages for breach of this Agreement, such Indemnified Parties, if they prevail
in whole or in part, shall be entitled to recover from the Company all fees and
expenses (including attorneys' fees) incurred by such Indemnified Parties, or
any of them, in connection therewith.
3. DEPOSIT OF FUNDS IN TRUST. If the Company voluntarily decides to
dissolve or to file a petition for relief under the applicable bankruptcy,
moratorium or similar laws, then not later than 10 days prior to such
dissolution or filing, the Company shall deposit in trust for the sole and
exclusive benefit of the Indemnified Parties a cash amount equal to all amounts
previously authorized to be paid to the Indemnified Parties hereunder, such
amounts to be used to discharge the Company's obligations to the Indemnified
Parties hereunder. Any amounts in such trust not required for such purpose shall
be returned to the Company.
4. MERGER, CONSOLIDATION OR CHANGE IN CONTROL. If the Company is a
constituent corporation in a merger or consolidation, whether the Company is the
resulting or surviving corporation or is absorbed as a result thereof, or if
there is a change in control of the Company, The Indemnified Parties shall stand
in the same position under this Agreement with respect to the resulting,
surviving or changed corporation as the Indemnified Parties would have with
respect to the Company if its separate existence had continued or if there had
been no change in the control of the Company.
5. LITIGATION. To the best of Indemnitee's and Indemnitor's knowledge,
there is no action, suit or proceeding currently existing, pending or threatened
against Indemnitee.
6. MISCELLANEOUS PROVISIONS.
6.1. NOTIFICATION. Each party agrees to give prompt notice to the
other upon its discovery of facts giving rise to a claim for indemnity under the
provisions of this Agreement,
-3-
<PAGE>
including receipt by it of notice of any demand, assertion, claim, action or
proceeding, judicial or otherwise.
6.2. SURVIVAL. The provisions of this Agreement shall survive the
termination of any of the Indemnified Parties' status as an organizer and/or
promoter of the Company.
6.3. ENTIRE AGREEMENT. This Agreement constitutes the full
understanding of the parties and a complete and exclusive statement of the terms
and conditions of their agreement relating to the subject matter hereof and
supersedes all prior negotiations, understandings and agree ments, whether
written or oral, between the parties, their affiliates, and their respective
principals, shareholders, directors, officers, employees, consultants and agents
with respect thereto.
6.4. AMENDMENTS AND WAIVERS. No alteration, modification,
amendment, change or waiver of any provision of this Agreement shall be
effective or binding on any party hereto unless the same is in writing and is
executed by all parties hereto.
6.5. MODIFICATION AND SEVERABILITY. If a court of competent
jurisdiction declares that any provision of this Agreement is illegal, invalid
or unenforceable, then such provision shall be modified automatically to the
extent necessary to make such provision fully legal, valid or enforce able. If
such court does not modify any such provision as contemplated herein, but
instead declares it to be wholly illegal, invalid or unenforceable, then such
provision shall be severed from this Agreement, this Agreement and the rights
and obligations of the parties hereto shall be construed as if this Agreement
did not contain such severed provision, and this Agreement otherwise shall
remain in full force and effect.
6.6. ENFORCEABILITY. This Agreement shall be enforceable by and
against the Company, the Indemnified Parties and their respective successors and
assignees.
6.7. GOVERNING LAW. This Agreement shall be governed by, construed
under, and enforce in accordance with the laws of the State of Delaware without
reference to the conflict-of- laws provisions thereof.
6.8. MULTIPLE COUNTERPARTS. This Agreement may be executed by the
parties hereto in multiple counterparts, each of which shall be deemed an
original for all purposes, and all of which together shall constitute one and
the same instrument.
-4-
<PAGE>
The parties hereto have executed this Agreement on September 15, 1997.
COMPANY:
HomeUSA, Inc.
By: /s/ CARY N. VOLLINTINE
Name: Cary N. Vollintine
Title: CEO
INDEMNITEE:
Notre Capital Ventures II, L.L.C.
By: /s/ STEVE HARTER
Name: Steve Harter
Title: President
-5-
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF HOMEUSA, INC.
AAA Homes Acquisition Corp.
CSF&T Acquisition Corp.
Cooper's Mobile Homes Acquisition Corp.
D&S Acquisition Corp.
First American Homes Acquisition Corp.
Fordham Insurance Agency Acquisition Corp.
Home Folks Housing Center Acquisition Corp.
HUSAI Acquisition Corp.
McDonald Homes Acquisition Corp.
Mobile World Acquisition Corp.
Pac West Management Acquisition Corp.
Patrick Home Center Acquisition Corp.
Shaffer and Webb Insurance Agency Acquisition Corp.
Showcase of Homes Acquisition Corp.
Son Development Acquisition Corp.
Universal Housing Acquisition Corp.
Universal Housing of East Tennessee Acquisition Corp.
-2-
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and all references to our Firm included in this registration statement
on Form S-1 filed by HomeUSA, Inc.
ARTHUR ANDERSEN LLP
Houston, Texas
September 15, 1997
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated March 28, 1997 (except as to the information presented in the
second paragraph of Note 7, for which the date is May 1, 1997) on our audits of
the financial statements of McDonald Mobile Homes, Inc. We also consent to the
reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
September 12, 1997
EXHIBIT 23.4
CONSENT TO BE NAMED AS A DIRECTOR
OF
HOMEUSA, INC.
The undersigned hereby consents to be named as a director of HomeUSA, Inc.
(the "Company") in the Registration Statement on form S-1 to be filed by the
Company with the Securities and Exchange Commission.
Dated: September 5, 1997
By: /s/ FRANK C. MCDONALD
Name: Frank C. McDonald
-2-
EXHIBIT 23.5
CONSENT TO BE NAMED AS A DIRECTOR
OF
HOMEUSA, INC.
The undersigned hereby consents to be named as a director of HomeUSA, Inc.
(the "Company") in the Registration Statement on form S-1 to be filed by the
Company with the Securities and Exchange Commission.
Dated: September 11, 1997
By: /s/ HAROLD K. PATRICK
Name: Harold K. Patrick
-2-
EXHIBIT 23.6
CONSENT TO BE NAMED AS A DIRECTOR
OF
HOMEUSA, INC.
The undersigned hereby consents to be named as a director of HomeUSA, Inc.
(the "Company") in the Registration Statement on form S-1 to be filed by the
Company with the Securities and Exchange Commission.
Dated: September 8, 1997
By: /s/ LARRY T. SHAFFER
Name: Larry T. Shaffer
-2-
EXHIBIT 23.7
CONSENT TO BE NAMED AS A DIRECTOR
OF
HOMEUSA, INC.
The undersigned hereby consents to be named as a director of HomeUSA, Inc.
(the "Company") in the Registration Statement on form S-1 to be filed by the
Company with the Securities and Exchange Commission.
Dated: September 9, 1997
By: /s/ GARY FORDHAM
Name: Gary Fordham
-2-
EXHIBIT 23.8
CONSENT TO BE NAMED AS A DIRECTOR
OF
HOMEUSA, INC.
The undersigned hereby consents to be named as a director of HomeUSA, Inc.
(the "Company") in the Registration Statement on form S-1 to be filed by the
Company with the Securities and Exchange Commission.
Dated: September 9, 1997
By: /s/ DAVID THOMPSON
Name: David Thompson
-2-
EXHIBIT 23.9
CONSENT TO BE NAMED AS A DIRECTOR
OF
HOMEUSA, INC.
The undersigned hereby consents to be named as a director of HomeUSA, Inc.
(the "Company") in the Registration Statement on form S-1 to be filed by the
Company with the Securities and Exchange Commission.
Dated: September 9, 1997
By: /s/ RANDY COOPER
Name: Randy Cooper
-2-
EXHIBIT 23.10
CONSENT TO BE NAMED AS A DIRECTOR
OF
HOMEUSA, INC.
The undersigned hereby consents to be named as a director of HomeUSA, Inc.
(the "Company") in the Registration Statement on form S-1 to be filed by the
Company with the Securities and Exchange Commission.
Dated: September 5, 1997
By: /s/ STANLEY POISSO
Name: Stanley Poisso
-2-
EXHIBIT 23.11
CONSENT TO BE NAMED AS A DIRECTOR
OF
HOMEUSA, INC.
The undersigned hereby consents to be named as a director of HomeUSA, Inc.
(the "Company") in the Registration Statement on form S-1 to be filed by the
Company with the Securities and Exchange Commission.
Dated: September 8, 1997
By: /s/ STEPHEN F. SMITH
Name: Stephen F. Smith
-2-
EXHIBIT 23.12
CONSENT TO BE NAMED AS A DIRECTOR
OF
HOMEUSA, INC.
The undersigned hereby consents to be named as a director of HomeUSA, Inc.
(the "Company") in the Registration Statement on form S-1 to be filed by the
Company with the Securities and Exchange Commission.
Dated: September 8, 1997
By: /s/ THOMAS AMONETT
Name: Thomas Amonett
-2-
EXHIBIT 23.13
CONSENT TO BE NAMED AS A DIRECTOR
OF
HOMEUSA, INC.
The undersigned hereby consents to be named as a director of HomeUSA, Inc.
(the "Company") in the Registration Statement on form S-1 to be filed by the
Company with the Securities and Exchange Commission.
Dated: September 11, 1997
By: /s/ JAMES BLOSSER
Name: James Blosser
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FORM UNIVERSAL HOUSING GROUP AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,928
<SECURITIES> 0
<RECEIVABLES> 1,584
<ALLOWANCES> 0
<INVENTORY> 7,488
<CURRENT-ASSETS> 7,584
<PP&E> 1,341
<DEPRECIATION> (480)
<TOTAL-ASSETS> 12,993
<CURRENT-LIABILITIES> (10,811)
<BONDS> 0
0
0
<COMMON> (2)
<OTHER-SE> (2,114)
<TOTAL-LIABILITY-AND-EQUITY> (12,993)
<SALES> 24,607
<TOTAL-REVENUES> 24,703
<CGS> (19,208)
<TOTAL-COSTS> (19,208)
<OTHER-EXPENSES> (3,455)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (309)
<INCOME-PRETAX> 1,984
<INCOME-TAX> (108)
<INCOME-CONTINUING> 2,040
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,876
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
