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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. 1)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
CAVCO INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
N/A
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(2) Form, Schedule or Registration Statement No.:
N/A
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(3) Filing Party:
N/A
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(4) Date Filed:
N/A
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<PAGE> 2
LOGO
CAVCO INDUSTRIES, INC.
1001 NORTH CENTRAL AVENUE
EIGHTH FLOOR
PHOENIX, ARIZONA 85004
February , 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of Cavco Industries, Inc. ("Cavco") to be held on March 21,
1997, at 10:00 a.m., local time, at 1001 North Central Avenue, Fourth Floor,
Phoenix, Arizona.
As described in the accompanying Proxy Statement, at the Special Meeting
you will be asked to consider and vote upon a proposal to approve the Merger
Agreement (defined below), pursuant to which Cavco shareholders will receive
$26.75 in cash for each outstanding share of common stock ("Common Stock") of
Cavco (other than a portion of the shares held by the Ghelfi Parties (defined
below) and shares held by persons who exercise dissenters' rights under Arizona
law). The Ghelfi Parties, who currently own an aggregate of 1,830,729 shares of
Common Stock, representing approximately 52% of the outstanding shares, will
receive $26.75 in cash for 1,047,288 of the shares held by them. The remaining
shares of Common Stock held by the Ghelfi Parties will be contributed to the
Holding Company (defined below) in exchange for Holding Company shares and will
be canceled in the Merger (defined below), with the result that the Ghelfi
Parties will retain an approximate 22% indirect equity interest in Cavco through
their ownership of shares in the Holding Company.
On December 4, 1996, Centex Real Estate Corporation ("CREC"), MFH Holding
Company (the "Holding Company"), MFH Acquisition Company (the "Merger
Subsidiary"), Cavco and Al R. Ghelfi and certain of his affiliates (the "Ghelfi
Parties") entered into an Agreement and Plan of Merger (the "Merger Agreement").
The Ghelfi Parties consist of Al Ghelfi, the Chairman of the Board of Directors
of Cavco, his spouse, Janet M. Ghelfi, and Janal Limited Partnership, an Arizona
limited partnership controlled by Al Ghelfi and Janet Ghelfi. CREC is a
subsidiary of Centex Corporation. The Merger Agreement provides that the Merger
Subsidiary will be merged with and into Cavco (the "Merger"), and Cavco will
thereupon become a wholly owned subsidiary of the Holding Company. Immediately
after the Merger, CREC will, through its ownership of shares in the Holding
Company, have an approximate 78% equity interest in Cavco. The remaining
approximate 22% equity interest in Cavco will be retained by the Ghelfi Parties
as described above.
Consummation of the Merger is conditioned upon, among other things, the
approval of the Merger Agreement by the holders of a majority of the outstanding
shares of Common Stock. Only holders of record of Common Stock on February 18,
1997 (the "Record Date") are entitled to notice of and to vote at the Special
Meeting. The Ghelfi Parties have entered into a Voting Agreement (the "Voting
Agreement") with CREC pursuant to which they have agreed to vote all of the
shares of Common Stock owned by them to approve the Merger Agreement and against
any inconsistent transactions. As a result of the Voting Agreement, the approval
of the Merger Agreement by the holders of a majority of the outstanding shares
of Common Stock is assured, even if no votes to approve the Merger Agreement are
cast by shareholders other than the Ghelfi Parties (the "Independent
Shareholders"). In addition, as of the Record Date, directors and officers of
Cavco (other than the Ghelfi Parties) beneficially owned, in the aggregate,
325,164 shares of Common Stock, representing approximately 9% of the outstanding
shares of Common Stock. All such directors and officers have advised Cavco that
they intend to vote the shares of Common Stock beneficially owned by them to
approve the Merger Agreement.
At the time the Merger is consummated, CREC, the Holding Company and the
Ghelfi Parties will enter into a Shareholders' Agreement to provide for certain
arrangements relating to the management of the Holding Company and its
subsidiaries and their respective holdings of shares in the Holding Company.
Among other things, the Shareholders' Agreement will provide that, beginning in
2000, the Ghelfi Parties will have the right to sell their shares of common
stock in the Holding Company to CREC at a formula price
<PAGE> 3
based on specified multiples of the Holding Company's adjusted earnings before
taxes and, beginning in 2002, CREC will have the right to acquire such shares
from the Ghelfi Parties at a price determined on the same basis.
The Ghelfi Parties have also entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement") with CREC which provides that, if the Merger
Agreement is terminated for specified reasons (including, but not limited to, a
termination by Cavco in order to accept a qualified acquisition proposal
received from a third party), the Ghelfi Parties will sell to CREC an aggregate
of 1,047,288 shares of Common Stock (the "Subject Share Purchase"), representing
approximately 30% of the outstanding shares of Common Stock, for $26.75 per
share.
Because the interests of the Ghelfi Parties and certain directors of Cavco
may be different from or in addition to the interests of the Independent
Shareholders, the Board of Directors of Cavco has established a Special
Committee (the "Special Committee") consisting entirely of disinterested
directors to act in connection with and evaluate the transactions with CREC (or
alternative transactions with other parties), from the standpoint of the
Independent Shareholders.
The Special Committee engaged Goldman, Sachs & Co. ("Goldman Sachs") as
financial advisor, and Goldman Sachs has delivered to the Special Committee and
the Board of Directors its opinion dated December 4, 1996, to the effect that,
as of the date of such opinion, the consideration of $26.75 in cash to be
received by the Independent Shareholders pursuant to the Merger Agreement is
fair to the Independent Shareholders. The full text of the written opinion of
Goldman Sachs, which sets forth assumptions made, matters considered and
limitations on the review undertaken in connection with the opinion, is attached
as Appendix B to the accompanying Proxy Statement. INDEPENDENT SHAREHOLDERS ARE
URGED TO READ SUCH OPINION IN ITS ENTIRETY.
The Special Committee has unanimously recommended that the Merger Agreement
and the transactions contemplated thereby be approved by the Board of Directors
and shareholders of Cavco. Based upon, among other things, (i) the unanimous
recommendation of the Special Committee and (ii) the opinion of Goldman Sachs
referred to above, the Board of Directors has unanimously determined (with Al
Ghelfi and Brent Ghelfi abstaining) that the Merger is fair to, and in the best
interests of, Cavco and the Independent Shareholders. ACCORDINGLY, THE SPECIAL
COMMITTEE AND THE BOARD OF DIRECTORS RECOMMEND THAT YOU VOTE "FOR" THE APPROVAL
OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
You are urged to read carefully and in its entirety the accompanying Proxy
Statement, which provides a description of the Merger Agreement and the Merger
and the other transactions and agreements referred to above. A copy of the
Merger Agreement is attached as Appendix A to the Proxy Statement.
If the Merger is consummated, holders of Common Stock who do not vote to
approve the Merger Agreement will be entitled to statutory dissenters' rights if
they deliver to Cavco, prior to the vote at the Special Meeting, written notice
of their intent to demand payment for their shares pursuant to Article 2 of
Chapter 13 of the Arizona Business Corporation Act and strictly comply with the
other requirements thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO
PROMPTLY COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. You may revoke your proxy, either in writing or by voting
in person at the Special Meeting, at any time before it is exercised, in the
manner described in the accompanying Proxy Statement. A prompt response will be
appreciated.
Please do not send your stock certificates at this time. In the event the
Merger is consummated, you will be sent a letter of transmittal promptly
thereafter for that purpose.
Sincerely,
Al Ghelfi
Chairman of the Board
<PAGE> 4
CAVCO INDUSTRIES, INC.
1001 NORTH CENTRAL AVENUE
EIGHTH FLOOR
PHOENIX, ARIZONA 85004
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 21, 1997
To the Shareholders of
Cavco Industries, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Cavco Industries, Inc., an Arizona corporation ("Cavco"), will be
held on March 21, 1997, at 10:00 a.m., local time, at 1001 North Central Avenue,
Fourth Floor, Phoenix, Arizona, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of December 4, 1996 (the "Merger Agreement"), among
Centex Real Estate Corporation ("CREC"), MFH Holding Company (the
"Holding Company"), MFH Acquisition Company (the "Merger Subsidiary"),
Cavco, and Al R. Ghelfi, Janet M. Ghelfi and Janal Limited Partnership
(the "Ghelfi Parties"), and the transactions contemplated thereby, upon
the terms and subject to the conditions of which:
(a) The Merger Subsidiary will be merged with and into Cavco (the
"Merger"), with Cavco continuing as the surviving corporation;
(b) Cavco will become a wholly owned subsidiary of the Holding Company;
and
(c) Each outstanding share of the Common Stock, par value $0.05 per
share ("Common Stock"), of Cavco (other than a portion of the shares
held by the Ghelfi Parties, representing approximately 22% of the
outstanding shares of Common Stock, and shares held by persons who
exercise dissenters' rights under Arizona law) will be converted
into the right to receive $26.75 in cash.
The foregoing transactions are more fully described in the accompanying
Proxy Statement and in the Merger Agreement, the full text of which is
attached as Appendix A to the Proxy Statement.
2. To act on such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on February 18, 1997
as the record date (the "Record Date") for the determination of shareholders
entitled to notice of and to vote at the Special Meeting. Only holders of record
of Common Stock on the Record Date are entitled to notice of and to vote at the
Special Meeting.
If the Merger is consummated, holders of Common Stock who do not vote to
approve the Merger Agreement will be entitled to statutory dissenters' rights if
they deliver to Cavco, prior to the vote at the Special Meeting, written notice
of their intent to demand payment for their shares pursuant to Article 2 of
Chapter 13 of the Arizona Business Corporation Act, the full text of which is
attached as Appendix C to the Proxy Statement, and strictly comply with the
other requirements thereof.
By Order of the Board of Directors
RUTH SMITH
Secretary
Phoenix, Arizona
February , 1997
THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS RECOMMEND THAT YOU VOTE "FOR"
THE APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO
PROMPTLY COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY, EITHER IN WRITING OR BY VOTING
IN PERSON AT THE SPECIAL MEETING, AT ANY TIME BEFORE IT IS EXERCISED, IN THE
MANNER DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME.
<PAGE> 5
CAVCO INDUSTRIES, INC.
1001 NORTH CENTRAL AVENUE
EIGHTH FLOOR
PHOENIX, ARIZONA 85004
------------------------
PROXY STATEMENT
------------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 21, 1997
------------------------
This Proxy Statement is being furnished to shareholders ("Shareholders") of
Cavco Industries, Inc. ("Cavco" or the "Company") in connection with the
solicitation of proxies by and on behalf of the Board of Directors of Cavco (the
"Board") to be used at a special meeting of its Shareholders (the "Special
Meeting") to be held on March 21, 1997. The Board has fixed the close of
business on February 18, 1997 as the record date (the "Record Date") for the
determination of Shareholders entitled to notice of and to vote at the Special
Meeting.
At the Special Meeting, Shareholders will consider and vote upon a proposal
to approve the Agreement and Plan of Merger, dated as of December 4, 1996, among
Centex Real Estate Corporation ("CREC"), MFH Holding Company (the "Holding
Company"), MFH Acquisition Company (the "Merger Subsidiary"), Cavco, and Al R.
Ghelfi and certain of his affiliates (the "Ghelfi Parties"). The Ghelfi Parties
consist of Al Ghelfi, the Chairman of the Board of Cavco, his spouse, Janet M.
Ghelfi, and Janal Limited Partnership, a limited partnership controlled by Al
Ghelfi and Janet Ghelfi. CREC is a subsidiary of Centex Corporation ("Centex").
Upon the terms and subject to the conditions set forth in the Merger Agreement,
(i) the Merger Subsidiary will be merged with and into Cavco (the "Merger"),
(ii) Cavco will thereupon become a wholly owned subsidiary of the Holding
Company and (iii) each outstanding share of Common Stock, par value $0.05 per
share ("Common Stock"), of Cavco (other than a portion of the shares held by the
Ghelfi Parties, representing approximately 22% of the outstanding shares of
Common Stock, and shares held by persons who exercise dissenters' rights under
Arizona law) will be converted into the right to receive $26.75 in cash.
Immediately after the Merger, CREC will, through its ownership of shares in the
Holding Company, have an approximate 78% indirect equity interest in Cavco. The
remaining approximate 22% indirect equity interest in Cavco will be retained by
the Ghelfi Parties through their ownership of shares in the Holding Company.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
Accompanying this Proxy Statement are copies of Cavco's Annual Report on
Form 10-K/A for the fiscal year ended September 30, 1996 and Quarterly Report on
Form 10-Q for the quarterly period ended December 31, 1996.
This Proxy Statement and the accompanying Notice of Special Meeting and
proxy card, together with the annual and quarterly reports of Cavco referred to
above, are first being mailed on or about February , 1997, to Shareholders
entitled to vote at the Special Meeting.
------------------------
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO
PROMPTLY COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Proxy Statement is February , 1997.
<PAGE> 6
TABLE OF CONTENTS
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TABLE OF CONTENTS..................................................................... 2
ADDITIONAL INFORMATION................................................................ 4
AVAILABLE INFORMATION................................................................. 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 5
SUMMARY............................................................................... 6
Cavco Industries, Inc. ............................................................. 6
Centex Real Estate Corporation...................................................... 6
The Ghelfi Parties.................................................................. 6
The Special Meeting................................................................. 6
Solicitation of Proxies............................................................. 7
The Merger and Related Transactions................................................. 7
Recommendation of the Special Committee and the Board............................... 8
Opinion of Financial Advisor........................................................ 8
Effective Time of the Merger........................................................ 9
Regulatory Considerations........................................................... 9
Other Conditions to the Merger...................................................... 9
No Solicitation; Consideration of Other Proposals................................... 9
Termination......................................................................... 10
Termination Payments................................................................ 10
Source of Funds..................................................................... 10
Interests of Certain Persons in the Merger.......................................... 11
Shareholders' Agreement............................................................. 11
Voting Agreement and Stock Purchase Agreement....................................... 11
Certain Federal Income Tax Consequences............................................. 12
Certain Effects of the Merger....................................................... 13
Rights of Dissenting Shareholders................................................... 13
Market Price and Dividend Information............................................... 14
THE SPECIAL MEETING................................................................... 15
Matters to Be Considered............................................................ 15
Record Date; Voting Rights.......................................................... 15
Votes Required for Approval; Revocability of Proxies................................ 16
Solicitation of Proxies............................................................. 16
CAVCO INDUSTRIES, INC. ............................................................... 17
CENTEX REAL ESTATE CORPORATION........................................................ 17
THE GHELFI PARTIES.................................................................... 18
SPECIAL FACTORS....................................................................... 18
Background of the Merger............................................................ 18
Purpose of the Merger............................................................... 28
Recommendation and Reasons for the Merger........................................... 28
Opinion of Financial Advisor........................................................ 32
Interests of Certain Persons in the Merger.......................................... 35
Certain Effects of the Merger; Plans for the Company after the Merger............... 37
Certain Federal Income Tax Consequences............................................. 38
Regulatory Considerations........................................................... 39
Financing the Merger................................................................ 40
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THE MERGER AGREEMENT.................................................................. 40
General; Parties.................................................................... 40
The Merger.......................................................................... 40
Governing Documents; Directors and Officers......................................... 41
Holding Company Transactions........................................................ 41
Conversion of Securities............................................................ 41
Dissenters' Rights.................................................................. 42
Exchange Procedures................................................................. 42
Representations and Warranties...................................................... 43
Conduct of Business Pending the Merger.............................................. 43
No Solicitation; Fiduciary Out...................................................... 45
Indemnification of Directors and Officers........................................... 46
Convertible Note.................................................................... 47
Arizona Takeover Statute Matters.................................................... 47
Post-Termination Proposals.......................................................... 47
Certain Additional Covenants........................................................ 48
Conditions to the Closing........................................................... 48
Indemnification; Survival of Representations........................................ 49
Termination......................................................................... 50
Expenses............................................................................ 51
Amendment or Waiver................................................................. 51
RELATED AGREEMENTS.................................................................... 51
Shareholders' Agreement............................................................. 51
Consulting Agreement................................................................ 56
Employment Agreement................................................................ 57
CERTAIN OTHER AGREEMENTS BETWEEN CREC AND THE GHELFI PARTIES.......................... 59
General............................................................................. 59
Stock Purchase Agreement............................................................ 59
Voting Agreement.................................................................... 62
DISSENTERS' RIGHTS.................................................................... 63
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 65
MARKET PRICE AND DIVIDEND INFORMATION................................................. 67
SELECTED FINANCIAL DATA............................................................... 68
INDEPENDENT PUBLIC ACCOUNTANTS........................................................ 69
SHAREHOLDER PROPOSALS................................................................. 69
OTHER BUSINESS........................................................................ 69
APPENDIX A -- AGREEMENT AND PLAN OF MERGER............................................ A-1
APPENDIX B -- FAIRNESS OPINION OF GOLDMAN, SACHS & CO................................. B-1
APPENDIX C -- ARIZONA DISSENTERS' RIGHTS
(Sections 10-1301 through 10-1331 of the Arizona Business
Corporation Act).................................................. C-1
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<PAGE> 8
ADDITIONAL INFORMATION
Pursuant to the requirements of Section 13(e) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and Rule 13e-3 promulgated
thereunder, Cavco, as issuer of the class of equity securities that is the
subject of the Rule 13e-3 transaction, and the Ghelfi Parties, as persons who
may be deemed affiliates of the issuer, have filed with the Securities and
Exchange Commission (the "Commission") a transaction statement on Schedule 13E-3
(the "Schedule 13E-3") relating to the transactions contemplated by the Merger
Agreement. As permitted by the rules and regulations of the Commission, this
Proxy Statement omits certain information, exhibits and undertakings contained
in the Schedule 13E-3. Such additional information can be inspected at and
obtained from the Commission in the manner set forth below under "Available
Information."
Statements contained herein concerning any documents are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Schedule 13E-3. Each such statement is qualified in
its entirety by such reference.
AVAILABLE INFORMATION
Cavco is subject to the informational requirements of the Exchange Act and
the rules and regulations thereunder, and, in accordance therewith, files
reports, proxy and information statements and other information with the
Commission. Reports, proxy and information statements and other information
filed by Cavco may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, reports,
proxy and information statements and other information concerning Cavco may be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1935 K Street, N.W., Washington, D.C. 20006.
This Proxy Statement incorporates certain documents by reference which are
not presented herein or delivered herewith. Copies of such documents (other than
exhibits thereto not specifically incorporated by reference into the text of
such documents) are available, without charge, to each person to whom this Proxy
Statement is delivered, on the written or oral request of such person, to Cavco
Industries, Inc., attention Ruth Smith, Secretary, 1001 North Central Avenue,
Eighth Floor, Phoenix, Arizona 85004 (telephone (602) 256-6263). In order to
ensure delivery of the documents prior to the Special Meeting, requests should
be received no later than March 14, 1997.
Any report, opinion or appraisal filed as an exhibit to the Schedule 13E-3
will be made available for inspection and copying at the principal executive
offices of the Company during regular business hours by any holder of Common
Stock or such holder's representative who has been so designated in writing. In
addition, a copy of any such report, opinion or appraisal will be transmitted by
the Company to any holder of Common Stock or such holder's representative who
has been designated in writing upon written request at the expense of such
holder.
Accompanying this Proxy Statement are copies of Cavco's Annual Report on
Form 10-K/A for the fiscal year ended September 30, 1996 and Quarterly Report on
Form 10-Q for the quarterly period ended December 31, 1996.
All information contained in this Proxy Statement concerning CREC and its
affiliates has been supplied by CREC and has not been independently verified by
Cavco. Except as otherwise indicated, all other information contained in this
Proxy Statement has been supplied by Cavco.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ON BEHALF OF CAVCO WITH RESPECT TO THE MATTERS DESCRIBED IN THIS
PROXY STATEMENT OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
4
<PAGE> 9
AUTHORIZED BY CAVCO. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF CAVCO SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROXY STATEMENT
DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE IT IS
UNLAWFUL TO MAKE SUCH SOLICITATION.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission by Cavco (File
Number 0-8822) pursuant to the Exchange Act are incorporated by this reference
in this Proxy Statement:
(1) Cavco's Annual Report on Form 10-K for the fiscal year ended September
30, 1996, as amended by its Annual Report on Form 10-K/A filed with the
Commission on February 19, 1997;
(2) Cavco's Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1996; and
(3) Cavco's Current Report on Form 8-K dated December 4, 1996 and filed
with the Commission on December 16, 1996, as amended by its Current
Report on Form 8-K/A filed with the Commission on December 19, 1996.
All documents filed by the Company pursuant to Sections 13(a) or 15(d) of
the Exchange Act subsequent to the date hereof and prior to the date of the
Special Meeting shall be deemed to be incorporated by reference herein and to be
a part hereof from the date any such document is filed.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document which also is incorporated by reference
herein) modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed to constitute a part hereof except as so modified
or superseded. All information appearing in this Proxy Statement with regard to
Cavco, its business and its operations is qualified in its entirety by the
information and financial statements (including notes thereto) appearing in the
documents incorporated herein by reference, except to the extent set forth in
the immediately preceding statement.
5
<PAGE> 10
SUMMARY
This summary is qualified in its entirety by the more detailed information
and financial data appearing elsewhere in this Proxy Statement and the
appendices hereto or in the documents delivered herewith and incorporated herein
by reference. Shareholders are urged to review carefully the entire Proxy
Statement and the appendices hereto, together with the documents delivered
herewith and incorporated herein by reference.
Cavco Industries, Inc. .... Cavco is the largest manufacturer of residential
and recreational manufactured housing in Arizona.
Through its subsidiaries, Cavco is also engaged in
the business of selling and leasing temporary
security storage containers and trailer vans (the
"Leasing Business") and the business of developing
manufactured housing subdivisions, purchasing
developed lots and selling manufactured homes in
established subdivisions (the "Real Estate
Development Business"). See "Cavco Industries,
Inc."
Cavco is an Arizona corporation and its executive
offices are located at 1001 North Central Avenue,
Eighth Floor, Phoenix, Arizona 85004. Its telephone
number is (602) 256-6263.
Centex Real Estate
Corporation................ CREC is a 99.9% owned subsidiary of Centex, a
multi-industry company whose common stock is traded
on the New York Stock Exchange. CREC is engaged
primarily in home building operations, which
involve the construction and sale of residential
housing, including the development of land in
residential communities and the purchase of
developed lots. CREC is one of the nation's largest
home builders, having built and delivered 11,970
homes in its fiscal year ended March 31, 1996. CREC
is currently engaged in the construction and sale
of residential housing in 49 markets located in
more than 20 different states. CREC and its
predecessors have been engaged in the home building
business since 1950. See "Centex Real Estate
Corporation."
CREC is a Nevada corporation and its principal
executive offices are located at 2728 North
Harwood, Dallas, Texas 75201. Its telephone number
is (214) 981-5000.
The Ghelfi Parties......... The Ghelfi Parties consist of Al Ghelfi, the
Chairman of the Board of Cavco, his spouse, Janet
Ghelfi, and Janal Limited Partnership, an Arizona
limited partnership ("Janal"). The general partners
of Janal are the Alfred and Janet Ghelfi Trust and
The 1994 Alsons Trust (the "Ghelfi Trusts"). The
sole trustees of the Ghelfi Trusts are Al Ghelfi
and Janet Ghelfi. The limited partners of Janal and
the beneficiaries of the Ghelfi Trusts include Al
Ghelfi, Janet Ghelfi and their descendants. See
"The Ghelfi Parties."
The Special Meeting........ The Special Meeting will be held on March 21, 1997,
at 10:00 a.m., local time, at 1001 North Central
Avenue, Fourth Floor, Phoenix, Arizona. At the
Special Meeting, Shareholders will be asked to
consider and vote upon (i) a proposal to approve
the Merger Agreement and the transactions
contemplated thereby, and (ii) such other business
as may properly come before the Special Meeting.
See "The Special Meeting."
The Record Date for the Special Meeting is the
close of business on February 18, 1997. On the
Record Date, there were 3,516,052 shares of Common
Stock outstanding and entitled to vote. Each holder
of Common Stock on the Record Date is entitled to
cast one vote for each share
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<PAGE> 11
held of record on each matter that is properly
presented to the Shareholders for a vote at the
Special Meeting.
The affirmative vote of the holders of a majority
of the outstanding shares of Common Stock is
required for the approval of the Merger Agreement
and the transactions contemplated thereby. See "The
Special Meeting."
If a proxy is properly executed and timely
returned, it will be voted in accordance with the
instructions contained therein and, in the absence
of specific instructions, will be voted to approve
the Merger Agreement and the transactions
contemplated thereby.
As of the Record Date, the Ghelfi Parties
beneficially owned an aggregate of 1,830,729 shares
of Common Stock, representing approximately 52% of
the outstanding shares of Common Stock. The Ghelfi
Parties have entered into a Voting Agreement (the
"Voting Agreement") with CREC pursuant to which
they have agreed to vote all of the shares of
Common Stock owned by them to approve the Merger
Agreement and against any inconsistent
transactions. As a result of the Voting Agreement,
the approval of the Merger Agreement by the holders
of a majority of the outstanding shares of Common
Stock is assured, even if no votes to approve the
Merger Agreement are cast by any Shareholders other
than the Ghelfi Parties (the "Independent
Shareholders"). See "Certain Other Agreements
Between CREC and the Ghelfi Parties -- Voting
Agreement."
In addition, as of the Record Date, directors and
officers of Cavco (other than the Ghelfi Parties)
beneficially owned, in the aggregate, 325,164
shares of Common Stock, representing approximately
9% of the outstanding shares of Common Stock. All
such directors and officers have advised Cavco that
they intend to vote the shares of Common Stock
beneficially owned by them to approve the Merger
Agreement. See "Security Ownership of Certain
Beneficial Owners and Management."
Solicitation of Proxies.... The expense of filing, printing, assembling and
mailing this Proxy Statement to Shareholders will
be paid by Cavco. Brokerage houses, custodians,
nominees and fiduciaries will be requested to
forward the proxy soliciting materials to the
beneficial owners of Common Stock held of record by
such persons, and Cavco will reimburse such persons
for reasonable out-of-pocket expenses incurred in
connection therewith. Cavco has retained
ChaseMellon Shareholder Services, L.L.C.
("ChaseMellon") to aid in the solicitation of
proxies. See "The Special Meeting -- Solicitation
of Proxies."
The Merger and Related
Transactions............. The Merger Agreement provides that, at the
Effective Time (as defined below), the Merger
Subsidiary will be merged with and into Cavco. Upon
the consummation of the Merger, the separate
corporate existence of the Merger Subsidiary will
cease and Cavco will continue as the surviving
corporation. As a result of the Merger, Cavco will
become a wholly owned subsidiary of the Holding
Company.
Immediately prior to or concurrently with the
Merger, (i) CREC will contribute to the Holding
Company an amount in cash (the "CREC Purchase
Price") equal to the aggregate Merger Consideration
(as
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<PAGE> 12
defined below) to be paid to the Shareholders in
accordance with the Merger Agreement and (ii) the
Ghelfi Parties will transfer and contribute to the
Holding Company an aggregate 783,441 shares of
Common Stock (the "Contributed Company Shares"). In
exchange for the foregoing consideration, the
Holding Company will issue to CREC and the Ghelfi
Parties approximately 78% and 22%, respectively, of
the outstanding shares of common stock, par value
$0.01 per share, of the Holding Company ("Holding
Company Common Stock").
The Merger Agreement provides that each share of
Common Stock that is issued and outstanding
immediately prior to the Effective Time (other than
the Contributed Company Shares and shares held by
persons who exercise dissenters' rights under
Arizona law) will be converted as of the Effective
Time into the right to receive $26.75 per share in
cash (the "Merger Consideration"). Each share of
Common Stock held in the treasury of the Company
and each Contributed Company Share will be canceled
at the Effective Time, and no payment will be made
in respect thereof. See "The Merger Agreement."
A copy of the Merger Agreement is attached as
Appendix A to this Proxy Statement.
Recommendation of the
Special Committee and the
Board.................... Because the interests of the Ghelfi Parties and
certain directors of Cavco may be different from or
in addition to the interests of the Independent
Shareholders, the Board has established a Special
Committee (the "Special Committee") consisting
entirely of disinterested directors to act in
connection with and evaluate the transactions with
CREC (or alternative transactions with other
parties) from the standpoint of the Independent
Shareholders, and the Special Committee has
unanimously recommended that the Merger Agreement
and the transactions contemplated thereby be
approved by the Board and Shareholders.
Based upon, among other things, (i) the unanimous
recommendation of the Special Committee and (ii)
the opinion of Goldman, Sachs & Co. ("Goldman
Sachs") referred to below, the Board has
unanimously determined (with Al Ghelfi and Brent
Ghelfi abstaining) that the Merger is fair to, and
in the best interests of, Cavco and the Independent
Shareholders. THE SPECIAL COMMITTEE AND THE BOARD
RECOMMEND THAT SHAREHOLDERS VOTE "FOR" THE APPROVAL
OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY. See "Special Factors --
Background of the Merger" and "-- Recommendation
and Reasons for the Merger."
Opinion of Financial
Advisor.................... Goldman Sachs has delivered its written opinion,
dated December 4, 1996, to the Special Committee
and the Board that, as of such date, the
consideration of $26.75 per share in cash to be
received by the Independent Shareholders pursuant
to the Merger Agreement is fair to the Independent
Shareholders.
The full text of the written opinion of Goldman
Sachs, which sets forth assumptions made, matters
considered and limitations on the review undertaken
in connection with the opinion, is attached hereto
as Appendix B and is incorporated herein by
reference. SHAREHOLDERS ARE
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<PAGE> 13
URGED TO READ SUCH OPINION IN ITS ENTIRETY. See
"Special Factors -- Opinion of Financial Advisor."
Effective Time of the
Merger..................... The Effective Time of the Merger will occur when
the Merger Agreement (or a plan of merger
summarizing certain of the principal terms thereof)
and articles of merger are filed with the Arizona
Corporation Commission, or such later time as may
be agreed upon by the Merger Subsidiary and the
Company. Such filing will occur as promptly as
practicable following the satisfaction or waiver of
all the conditions contained in the Merger
Agreement, including the approval of the Merger
Agreement by the holders of a majority of the
outstanding shares of Common Stock. Cavco and CREC
currently anticipate that the Effective Time will
occur as soon as practicable after the Special
Meeting. See "The Merger Agreement -- The Merger"
and "-- Conditions to the Closing."
Regulatory
Considerations............. The consummation of the transactions contemplated
by the Merger Agreement is subject to the
expiration or early termination of all applicable
waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). Pre-merger notification and report
forms with respect to the Merger were filed by
Centex and Cavco under the HSR Act on or about
December 26, 1996. Early termination was granted
with respect to the applicable waiting periods as
of December 31, 1996. See "Special
Factors -- Regulatory Considerations."
Other Conditions to the
Merger................... In addition to the approval of the Merger Agreement
by the holders of a majority of the outstanding
shares of Common Stock, the consummation of the
transactions contemplated by the Merger Agreement
is conditioned upon the satisfaction of certain
other conditions, including the truth and accuracy
of certain representations and warranties,
compliance with certain covenants contained in the
Merger Agreement and other usual and customary
closing conditions. See "The Merger Agreement --
Conditions to the Closing."
No Solicitation;
Consideration of Other
Proposals................ The Merger Agreement provides that neither Cavco
nor its representatives will initiate any contact
with, solicit, encourage or enter into or continue
any discussions, negotiations, understandings or
agreements with any third parties with respect to
any other acquisition proposal or disclose any
non-public information regarding Cavco or any of
its businesses to any third parties, except under
certain circumstances in which the Board or the
Special Committee reasonably determines based on
the advice of its counsel that it is required to do
so by virtue of its fiduciary obligations under
applicable law, and certain other conditions
described or referred to below are satisfied.
Under the Merger Agreement, Cavco may furnish and
discuss non-public information concerning Cavco or
its businesses in response to unsolicited requests
therefor to any third party the Board reasonably
determines is financially qualified to consummate a
proposed transaction, and Cavco may enter into
negotiations with such a third party concerning an
alternative acquisition proposal if (i) the amount
of consideration to be paid to the Independent
Shareholders under such acquisition proposal
9
<PAGE> 14
is at least $1,000,000 greater than the amount
payable to the Independent Shareholders under the
Merger Agreement and (ii) the terms and conditions
of such acquisition proposal, when taken in their
entirety, are no less favorable to the Independent
Shareholders than those set forth in the Merger
Agreement. In addition, Cavco may enter into an
agreement with a third party with respect to such
an acquisition proposal if (i) it is permitted to
enter into negotiations with such third party as
described above, (ii) CREC has not responded with a
counter offer topping the amount of consideration
to be paid to the Independent Shareholders under
such proposal by at least $1,000,000 and (iii)
certain other conditions are met, including the
payment to CREC by Cavco of certain termination
fees and expenses as discussed below. See "The
Merger Agreement -- No Solicitation; Fiduciary
Out."
Termination................ The Merger Agreement may be terminated by the
parties in certain circumstances, including by
mutual consent, or by either party in the event of
(i) a governmental order, injunction or decree
restraining or prohibiting the transactions
contemplated by the Merger Agreement, (ii) failure
to obtain the required vote of the Shareholders at
the Special Meeting, (iii) certain material
violations or breaches by the other party of the
representations, warranties and covenants contained
in the Merger Agreement, or (iv) failure to
consummate the Merger by December 31, 1997. In
addition, either party may terminate the Merger
Agreement if Cavco receives a qualified acquisition
proposal from a third party and certain other
conditions specified in the Merger Agreement are
satisfied. See "The Merger
Agreement -- Termination."
Termination Payments....... The Merger Agreement provides for payment to CREC
by Cavco of a termination fee in the amount of
$2,500,000 and reimbursement of certain expenses in
an amount up to $300,000 in the event that the
Merger Agreement is terminated for any reason
(including a termination by Cavco in order to
accept a qualified acquisition proposal from a
third party), other than (i) by mutual consent;
(ii) by reason of the issuance of certain orders,
injunctions or decrees restraining or prohibiting
the transaction in an action brought by a plaintiff
that is a governmental authority; (iii) because the
Merger has not been consummated by December 31,
1997 and CREC elects to terminate; or (iv) because
Cavco and the Ghelfi Parties have elected to
terminate due to a material violation or breach by
CREC. The Merger Agreement also provides for
payment to Cavco by CREC of a termination fee and
reimbursement of certain expenses, in the same
amounts, in the event that the Merger Agreement is
terminated because (i) the Merger has not been
consummated by December 31, 1997 and CREC elects to
terminate, or (ii) Cavco and the Ghelfi Parties
elect to terminate due to a material violation or
breach by CREC. See "The Merger Agreement --
Termination."
Source of Funds............ It is expected that the Merger Consideration,
together with any funds required to pay Dissenting
Shareholders (as defined below), will be funded
through cash contributed by CREC to the Holding
Company. CREC has represented and warranted in the
Merger Agreement that it has, or will have at the
time of the consummation of the Merger, the funds
necessary to pay the Merger Consideration. See
"Special Factors -- Financing The Merger."
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<PAGE> 15
Interests of Certain
Persons in the Merger...... In considering the recommendation of the Board with
respect to the Merger Agreement and the
transactions contemplated thereby, Shareholders
should be aware that the Ghelfi Parties and certain
directors and officers of Cavco may have interests
in such matters that are different from or in
addition to the interests of the Independent
Shareholders. These interests include, but are not
limited to, (i) the approximate 22% indirect equity
interest in Cavco to be retained by the Ghelfi
Parties after the Merger; (ii) the rights and
interests of the Ghelfi Parties in the
Shareholders' Agreement, as described below; (iii)
the rights and interests of the Ghelfi Parties
under the Voting Agreement and the Stock Purchase
Agreement, as described below; (iv) the rights and
interests of Al Ghelfi in the Consulting Agreement,
as described below, which will become effective
upon the consummation of the Merger; (v) the rights
and interests of Brent Ghelfi in the Employment
Agreement, as described below, which will become
effective upon consummation of the Merger; (vi)
rights of the officers and directors of Cavco and
the Ghelfi Parties to indemnification against
certain liabilities; and (vii) the acceleration of
vesting of stock options granted to one officer of
Cavco. See "Special Factors -- Interests of Certain
Persons in the Merger."
Shareholders' Agreement.... The Merger Agreement provides that, at the time the
Merger is consummated, CREC, the Holding Company
and the Ghelfi Parties will enter into a
Shareholders' Agreement (the "Shareholders'
Agreement"). The Shareholders' Agreement will
provide that CREC and the Ghelfi Parties will each
have the right to designate a specific number of
members of the board of directors of the Holding
Company and that certain actions may not be taken
by the Holding Company unless authorized by a vote
of at least two-thirds of the total number of
Holding Company directors. Under the Shareholders'
Agreement, all of the Holding Company Common Stock
will be subject to certain transfer restrictions,
and the shares held by the Ghelfi Parties will be
subject to certain annual put options exercisable
by the Ghelfi Parties (beginning in 2000) and
certain annual call options exercisable by CREC
(beginning in 2002) whereby CREC may acquire all of
the Ghelfi Parties' shares of Holding Company
Common Stock at a formula price based on specified
multiples of the Holding Company's adjusted
earnings before taxes. The Shareholders' Agreement
also contains agreements relating to the payment of
dividends and grants the Ghelfi Parties a right of
first refusal with respect to any sale of the
Leasing Business. See "Related
Agreements -- Shareholders' Agreement."
Voting Agreement and Stock
Purchase Agreement....... Concurrently with the execution of the Merger
Agreement, the Ghelfi Parties entered into the
Voting Agreement and a Stock Purchase Agreement
with CREC (the "Stock Purchase Agreement").
Pursuant to the Voting Agreement, the Ghelfi
Parties, who beneficially owned an aggregate of
1,830,729 shares of Common Stock as of the Record
Date, representing approximately 52% of the
outstanding shares of Common Stock, have agreed to
vote all of the shares of Common Stock beneficially
owned by them to approve the Merger Agreement and
against any inconsistent transactions. Pursuant to
the Stock Purchase Agreement, the Ghelfi Parties
have agreed to sell to CREC, and CREC has agreed to
purchase, an aggregate of 1,047,288 shares of
Common Stock, represent-
11
<PAGE> 16
ing approximately 30% of the outstanding shares,
for $26.75 per share (the "Subject Share Purchase")
in the event the Merger Agreement is terminated for
specified reasons, including, but not limited to, a
termination by Cavco in order to accept a qualified
acquisition proposal received from a third party.
If the Subject Share Purchase is consummated, the
Ghelfi Parties and CREC have agreed to enter into a
shareholders' agreement on terms similar to those
of the Shareholders' Agreement described above and
to use their best efforts to cause Cavco to become
a party thereto. Among other things, such
shareholders' agreement will provide that CREC and
the Ghelfi Parties will each have the right to
designate a specified number of Cavco directors,
with CREC having the right to designate a majority
of directors, and that Cavco will not take certain
actions or engage in certain transactions,
including a merger, consolidation or sale of all or
substantially all of its assets, unless authorized
by a vote of at least two-thirds of the total
number of Cavco directors. The Company believes
that one effect of the Stock Purchase Agreement and
the Voting Agreement is to increase the likelihood
that the Merger will be consummated by making it
more difficult for a third party to make a
competing proposal to acquire the Company. See
"Special Factors -- Background of the Merger" and
"-- Recommendation and Reasons for the Merger" and
"Certain Other Agreements Between CREC and the
Ghelfi Parties."
Certain Federal Income Tax
Consequences............. In general, each Shareholder, including
Shareholders who exercise their dissenters' rights
under Arizona law as discussed below, will
recognize gain or loss per share as a result of the
Merger in an amount equal to the difference between
the cash received per share for the Shareholder's
shares and the Shareholder's tax basis per share in
the Common Stock. Such gain or loss generally will
be treated as capital gain or loss if a
Shareholder's shares of Common Stock are held as
capital assets at the time of the Merger. Gain with
respect to shares of Common Stock acquired through
the exercise of employee incentive stock options
and which have not been held for the requisite
holding periods, and any other shares that are not
held as capital assets, will be subject to federal
income tax at ordinary income tax rates. See
"Special Factors -- Certain Federal Income Tax
Consequences."
THE FOREGOING TAX DISCUSSION IS INCLUDED FOR
GENERAL INFORMATION ONLY AND IS BASED UPON PRESENT
LAW. EACH SHAREHOLDER SHOULD CAREFULLY REVIEW THE
MORE DETAILED INFORMATION UNDER "SPECIAL
FACTORS -- CERTAIN FEDERAL INCOME TAX CONSEQUENCES"
AND CONSULT SUCH SHAREHOLDER'S OWN TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO
SUCH SHAREHOLDER, INCLUDING THE APPLICATION AND
EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN SUCH TAX
LAWS. SPECIAL RULES APPLY TO COMMON STOCK ACQUIRED
PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS
OR OTHERWISE AS COMPENSATION.
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<PAGE> 17
Certain Effects of the
Merger..................... If the Merger is consummated, the Independent
Shareholders will no longer have an equity interest
in Cavco and, therefore, will not share in its
future earnings and growth. Instead, each
Independent Shareholder will have the right to
receive $26.75 per share in cash (or, in the case
of Shareholders who exercise dissenters' rights,
the fair value of their shares as determined in
accordance with Arizona law).
Cavco will, as a result of the Merger, become a
wholly owned subsidiary of the Holding Company, the
shares of which will be owned approximately 78% by
CREC and approximately 22% by the Ghelfi Parties.
The Common Stock will no longer be traded on the
Nasdaq SmallCap Market, the registration of Common
Stock under the Exchange Act will be terminated and
Cavco will be relieved of the obligation to comply
with the proxy rules of Regulation 14A under
Section 14 of the Exchange Act. See "Special
Factors -- Certain Effects of the Merger; Plans for
the Company after the Merger."
Rights of Dissenting
Shareholders............. If the Merger is consummated, Shareholders who
exercise their rights to dissent from the Merger
("Dissenting Shareholders") in accordance with the
procedures set forth in Article 2 of Chapter 13 of
the Arizona Business Corporation Act (the "Arizona
Act") will be entitled to demand payment of the
fair value of their shares. Shareholders wishing to
exercise dissenters' rights must (i) not vote in
favor of approval of the Merger Agreement (which
approval would include submitting a signed proxy
card without voting instructions); (ii) deliver to
Cavco, prior to the vote on the Merger Agreement at
the Special Meeting, written notice of their intent
to demand payment for their shares under the
Arizona Act if the Merger is effectuated; and (iii)
strictly comply with the other requirements of the
Arizona Act. The Ghelfi Parties have waived their
dissenters' rights in connection with the Merger.
Failure to follow the procedures required by
Article 2 of Chapter 13 of the Arizona Act may
result in the loss of dissenters' rights (in which
event a Shareholder will be entitled to receive the
Merger Consideration with respect to such
Shareholder's shares in accordance with the Merger
Agreement). Under the Arizona Act, a Shareholder
entitled to dissenters' rights may not challenge
the corporate action creating such rights unless
the action is unlawful or fraudulent with respect
to the Shareholder or the Company. See "Dissenters'
Rights" and Sections 10-1301 through 10-1331 of the
Arizona Act attached hereto as Appendix C.
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<PAGE> 18
Market Price and Dividend
Information.............. The Common Stock is traded on the Nasdaq SmallCap
Market under the symbol "CVCO." On December 4,
1996, the last full trading day prior to the first
public announcement of the Merger, the high and low
sales prices of the Common Stock were $24.00 and
$23.625, respectively. For the last twelve months
prior to December 4, 1996, the highest market
closing price for the Common Stock was $23.25 per
share and the average market closing price for the
same period was $15.81 per share. The Company has
never paid dividends and has no plans to pay
dividends in the foreseeable future in the event
that the transactions contemplated by the Merger
Agreement are not consummated for any reason. See
"Market Price and Dividend Information."
14
<PAGE> 19
THE SPECIAL MEETING
This Proxy Statement and the accompanying proxy card are furnished in
connection with the solicitation by the Board of proxies to be used at the
Special Meeting to be held on March 21, 1997, at 10:00 a.m., local time, at 1001
North Central Avenue, Fourth Floor, Phoenix, Arizona.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO
PROMPTLY COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. You may revoke your proxy, either in writing or by voting
in person at the Special Meeting, at any time before it is exercised, in the
manner described below.
THE HOLDING COMPANY HAS DESIGNATED CHASEMELLON TO ACT AS PAYING AGENT (THE
"PAYING AGENT") IN CONNECTION WITH THE MERGER. SHAREHOLDERS SHOULD NOT FORWARD
ANY COMMON STOCK CERTIFICATES WITH THEIR PROXY CARDS. IN THE EVENT THE MERGER IS
CONSUMMATED, STOCK CERTIFICATES SHOULD BE DELIVERED IN ACCORDANCE WITH
INSTRUCTIONS SET FORTH IN A LETTER OF TRANSMITTAL, WHICH WILL BE SENT TO
SHAREHOLDERS BY THE PAYING AGENT, PROMPTLY AFTER THE EFFECTIVE TIME.
MATTERS TO BE CONSIDERED
At the Special Meeting, Shareholders will be asked to consider and vote
upon:
1. A proposal to approve the Merger Agreement and the transactions
contemplated thereby, upon the terms and subject to the conditions of
which:
(a) The Merger Subsidiary will be merged with and into Cavco, with
Cavco continuing as the surviving corporation;
(b) Cavco will become a wholly owned subsidiary of the Holding
Company; and
(c) Each outstanding share of Common Stock (other than the
Contributed Company Shares, which are held by the Ghelfi Parties and
represent approximately 22% of the outstanding shares of Common Stock,
and shares held by Dissenting Shareholders) will be converted into the
right to receive $26.75 in cash.
2. Such other business as may properly come before the Special Meeting
or any adjournment or postponement thereof.
It is not expected that any matter not referred to herein will be presented
for action at the Special Meeting. If any other matters are properly brought
before the Special Meeting, including a motion to adjourn the meeting for the
purpose of soliciting additional proxies, the persons named in the proxies or
authorized substitutes will have discretion to vote on such matters and on
matters incident to the conduct of the Special Meeting in accordance with their
best judgment, except that shares represented by proxies which have been voted
"Against" approval of the Merger Agreement will not be used to vote "For"
adjournment of the Special Meeting for the purpose of soliciting additional
votes "For" approval of the Merger Agreement.
RECORD DATE; VOTING RIGHTS
The Board has fixed the close of business on February 18, 1997 as the
Record Date. Only holders of record of Common Stock on the Record Date are
entitled to notice of and to vote at the Special Meeting, whether in person or
by proxy. As of the Record Date, there were 3,516,052 shares of Common Stock
outstanding and entitled to vote at the Special Meeting, which shares were held
by approximately Shareholders of record.
Each holder of Common Stock on the Record Date is entitled to cast one vote
for each share held of record on each matter that is properly presented to the
Shareholders for a vote at the Special Meeting. The presence, in person or by
proxy, of a majority of the outstanding shares of Common Stock entitled to be
voted is necessary to constitute a quorum at the Special Meeting. Abstentions
will be included in the calculation of
15
<PAGE> 20
the number of votes represented at the Special Meeting for purposes of
determining whether a quorum is present.
If a proxy is properly executed and timely returned, it will be voted in
accordance with the instructions contained therein and, in the absence of
specific instructions, will be voted to approve the Merger Agreement and the
transactions contemplated thereby. In addition, properly executed proxies that
are timely returned will be voted in accordance with the judgment of the person
or persons voting the proxies on any other matter that properly may be brought
before the Special Meeting.
Brokers and nominees are precluded from exercising their voting discretion
on the Merger Agreement and thus, absent specific instructions from the
beneficial owner of such shares, are not empowered to vote such shares on the
proposal to approve the Merger Agreement and the transactions contemplated
thereby.
VOTES REQUIRED FOR APPROVAL; REVOCABILITY OF PROXIES
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required for the approval of the Merger Agreement and the
transactions contemplated thereby.
As of the Record Date, the Ghelfi Parties beneficially owned an aggregate
of 1,830,729 shares of Common Stock, representing approximately 52% of the
outstanding shares of Common Stock. The Ghelfi Parties have entered into the
Voting Agreement with CREC pursuant to which they have agreed to vote all of the
shares of Common Stock owned by them to approve the Merger Agreement and against
any inconsistent transactions. As a result of the Voting Agreement, the approval
of the Merger Agreement by the holders of a majority of the outstanding shares
of Common Stock is assured, even if no votes in favor of the Merger Agreement
are cast by the Independent Shareholders. See "Certain Other Agreements Between
CREC and the Ghelfi Parties -- Voting Agreement."
In addition, as of the Record Date, directors and officers of Cavco (other
than the Ghelfi Parties) beneficially owned, in the aggregate, 325,164 shares of
Common Stock, representing approximately 9% of the outstanding shares of Common
Stock. All such directors and officers have advised Cavco that they intend to
vote the shares of Common Stock beneficially owned by them to approve the Merger
Agreement. See "Security Ownership of Certain Beneficial Owners and Management."
A properly executed proxy marked "ABSTAIN" will not be voted. Accordingly,
since the affirmative vote of a majority of the shares of Common Stock
outstanding on the Record Date is required for approval of the Merger Agreement,
a proxy marked "ABSTAIN" will have the effect of a vote against the Merger
Agreement.
A Shareholder may revoke a proxy by (i) delivering, prior to the Special
Meeting, to Cavco Industries, Inc., attention Ruth Smith, Secretary, 1001 North
Central Avenue, Eighth Floor, Phoenix, Arizona 85004, (A) a written notice of
revocation or (B) a duly executed proxy bearing a later date or (ii) attending
the Special Meeting and voting in person. Attendance at the Special Meeting will
not in itself constitute the revocation of a proxy.
No vote of the shareholders of CREC is required for consummation of the
Merger.
SOLICITATION OF PROXIES
The expense of filing, printing, assembling and mailing this Proxy
Statement and related materials to Shareholders will be paid by Cavco. In
addition to solicitation by use of the mails, solicitation may be made in
person, or by telephone, facsimile or telegraph. Cavco may use the services of
its directors, officers and employees to solicit proxies but they will not
receive any additional salary or compensation for such services. Brokerage
houses, custodians, nominees and fiduciaries will be requested to forward the
proxy soliciting materials to the beneficial owners of Common Stock held of
record by such persons, and Cavco will reimburse such persons for reasonable
out-of-pocket expenses incurred by them related thereto. Cavco has retained
ChaseMellon to aid in the solicitation of proxies. ChaseMellon's fee for
solicitation of proxies is estimated to be approximately $5,500, plus
reimbursement for out-of-pocket costs and expenses.
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<PAGE> 21
CAVCO INDUSTRIES, INC.
Cavco is the largest manufacturer of residential and recreational
manufactured housing in Arizona. Cavco is also in the business of selling and
leasing temporary security storage containers and trailer vans and developing
manufactured housing subdivisions, purchasing developed lots and selling
manufactured homes in established subdivisions.
Cavco's manufactured homes are manufactured in one of three facilities
located in Arizona. The Company is also in the process of constructing a new
manufacturing facility near Albuquerque, New Mexico. Once they have been
completed, homes manufactured by Cavco are transported in one or more sections
for installation on either temporary or permanent foundations. Although Cavco's
manufactured homes are designed to be transportable, fewer than five percent are
ever moved from the original site after installation.
The Company's manufactured homes are distributed under various trademarks,
with models available in a variety of floor plans ranging in size from
approximately 399 square feet for a recreational/retirement park home to a range
of 546 to 2,026 square feet for a residential home. The Company offers numerous
options and customizes models to meet the needs of different geographical areas.
Retail prices of the Company's homes range from approximately $19,000 to
$100,000. The average price of a recreational/retirement park home is
approximately $28,000 and the average price of a residential home is
approximately $40,000.
The Company sells its manufactured homes through a network of independent
dealers and generally does not sell products directly to the general public,
except for sales in certain subdivisions developed by the Real Estate
Development Business. The retail prices of the Company's manufactured homes are
set by individual dealers and not by the Company. Many of the Company's
independent dealers operate more than one retail outlet. The Company presently
sells its manufactured homes through approximately 200 outlets in 10 states,
Canada and Japan, of which there are approximately 103 in Arizona, 27 in New
Mexico, 20 in Colorado, 15 in Utah, 6 in Texas, 4 each in Nevada and Washington,
3 in California, 2 in Idaho, 1 in Oregon, 7 in Canada and 8 in Japan.
The Company also sells and leases security storage containers and trailer
vans through its subsidiary, National Security Containers, Inc. ("NSC"). The
storage containers are used by a wide variety of businesses with a need for
additional temporary storage space; the trailer vans are used generally for
ground transportation of goods. The Company purchases the storage containers and
trailer vans and refurbishes them at its own facilities or by using outside
contractors. The refurbished storage containers and trailer vans are sold or
leased by NSC directly to customers through nine offices located in Arizona,
Texas, Colorado, Louisiana and Tennessee.
The Company organized its Sun Built Homes, Inc. ("Sun Built") subsidiary in
1991 to develop manufactured housing subdivisions, purchase developed lots and
sell manufactured homes in established subdivisions. The Company has generally
sought to acquire land with the intent to complete the sale of housing units
within 36 to 60 months from the date of acquisition. Generally, this involves
acquiring land that is properly zoned and is either ready for development or
already developed. Sun Built sells lots in its subdivisions and manufactured
homes directly to the consumer. Homes sold by Sun Built are manufactured by the
Company at its existing manufacturing plants. The average size of these homes
ranges from 576 to 1,800 square feet, with retail selling prices ranging from
$30,200 to $86,800, excluding land.
Cavco is an Arizona corporation and its executive offices are located at
1001 North Central Avenue, Eighth Floor, Phoenix, Arizona 85004. Its telephone
number is (602) 256-6263.
CENTEX REAL ESTATE CORPORATION
CREC is a 99.9% owned subsidiary of Centex, a multi-industry company
incorporated in Nevada. Centex's common stock has been publicly traded since
1969 and is currently listed on the New York Stock Exchange and the
International Stock Exchange of the United Kingdom and the Republic of Ireland.
Centex currently operates in three principal business segments: home building,
financial services and contracting and construction services. In addition,
Centex has a 51% interest in Centex Construction Products, Inc., a publicly
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traded company engaged in the production, distribution and sale of cement,
aggregates, readymix concrete and gypsum wallboard.
Centex's home building operations are conducted primarily by CREC. These
operations involve the construction and sale of residential housing, including
the development of land in residential communities and the purchase of developed
lots. Approximately 96% of the homes sold by CREC are single-family detached
homes. The remainder are town homes and low rise condominiums. CREC and its
predecessors have participated in the home building business since 1950.
CREC is one of the nation's largest home builders, having built and
delivered 11,970 homes in its fiscal year ended March 31, 1996. CREC's home
building operations have ranked, by the number of units produced in the calendar
year, as the largest U.S. builder of homes from 1989 to 1994 and the second
largest builder in 1995. CREC is also the only company to rank among the top ten
U.S. builders for each of the past 27 years.
CREC follows a strategy of reducing exposure to local market volatility by
spreading its operations across geographically and economically diverse markets.
CREC is currently engaged in the construction and sale of residential housing in
approximately 275 neighborhoods and 49 different markets located in more than 20
different states. These markets include areas in the West (California, Nevada,
Oregon and Washington State), Midwest (Colorado, Illinois, Indiana, Minnesota,
and Ohio), East (Georgia, New Jersey, North Carolina, Tennessee, South Carolina
and Virginia), Southeast (Florida) and Southwest (Arizona, New Mexico and
Texas).
CREC sells to both first time and move-up buyers. In fiscal 1996, CREC
closed sales of first time, move-up and, in some markets, custom homes, ranging
in price from approximately $69,000 to about $577,000, with the average sale
price being approximately $163,000. In the Dallas and San Antonio locations,
CREC has custom home divisions which offer higher-end homes.
CREC is a Nevada corporation and its principal executive offices are
located at 2728 North Harwood, Dallas, Texas 75201. Its telephone number is
(214) 981-5000.
THE GHELFI PARTIES
The Ghelfi Parties are Al Ghelfi, the Chairman of the Board of Cavco, his
spouse, Janet Ghelfi, and Janal. Al Ghelfi and Janet Ghelfi are citizens of the
United States of America. Janal is a limited partnership formed under the laws
of the State of Arizona of which the sole general partners are the Ghelfi Trusts
and the sole limited partners are the Ghelfi Trusts, Al Ghelfi, Janet Ghelfi,
their descendants and trusts for the benefit of such persons. The business of
Janal is to hold and manage assets for the benefit of its partners. The Ghelfi
Trusts are trusts formed under the laws of the State of Arizona, the sole
trustees of which are Al Ghelfi and Janet Ghelfi and the sole beneficiaries of
which are Al Ghelfi, Janet Ghelfi and their descendants.
Al Ghelfi is currently the Chairman of the Board of Directors of Cavco and
served as President and Chief Executive Officer of Cavco from 1974 through
October 1996. For at least the last five years, Janet Ghelfi has been a
homemaker. Brent Ghelfi, who currently serves as the President and Chief
Executive Officer of Cavco, is the son of Al Ghelfi and Janet Ghelfi. Brent
Ghelfi is not one of the Ghelfi Parties.
The business address of each of the Ghelfi Parties is 1001 North Central
Avenue, Eighth Floor, Phoenix, Arizona 85004. Their telephone number is (602)
256-6263.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
In 1968, Al Ghelfi and an associate founded the Company under the name
Cavalier Manufacturing Company to manufacture and sell truck campers. In 1969,
the Company began to produce manufactured housing, which has been the Company's
principal business for many years. The Company completed an initial public
offering of Common Stock in 1969, followed by a second public offering of Common
Stock in 1971. In
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1974, Al Ghelfi acquired a majority ownership position in Cavco when he
purchased the majority of the Common Stock then held by the other principal
founder of the Company. Mr. Ghelfi and his affiliates have maintained majority
ownership of Cavco ever since, and currently own approximately 52% of the
outstanding shares of Common Stock.
In 1986, the Company began manufacturing relocatable commercial modular
structures for sale or lease, and in 1993, the Company diversified its leasing
operations to include security storage containers and trailer vans. In 1987, the
Company further expanded its business through Action Healthcare Management
Services, Inc. ("Action"), a subsidiary that the Company founded to provide
health care utilization management and other health care services.
On February 9 and 10, 1996, the Board and members of Cavco management held
the Company's annual strategic planning meeting at the Company's offices in
Phoenix. At the meeting, the participants considered the potential impact on the
Company of recent changes and trends in the manufactured housing industry. Among
other things, they considered the trend of increasing consolidation of companies
in the industry and increasing competition from large, vertically integrated and
geographically diversified competitors, many of which combine manufacturing
operations with other complementary services and operations, such as a retail
sales network, mortgage financing, insurance and other services. The consensus
of the participants was that Cavco should refocus its capital and management
resources on its core manufactured housing business and explore strategic
alternatives that would permit it to grow that business substantially and to
position itself to effectively respond to these changes and trends.
To refocus resources on its core manufactured housing business, the Company
undertook steps to sell Action. That disposition was completed in September
1996.
In addition, the Company had for some time been exploring alternatives for
the restructuring or disposition of NSC, its subsidiary that markets and leases
security storage containers and trailer vans. The alternatives considered
included a sale of NSC to a third party or to Al Ghelfi and his affiliates and a
potential spin off of NSC to the Shareholders. During 1995, Cavco management had
begun to study tax and structural issues relating to a spin-off. However, the
Board and management were concerned that a spin off transaction might not
provide the best value to Shareholders due to several factors, including the
small size of NSC, its short history and relatively low reported net income, the
likely thin trading market for its shares and the administrative costs and
burdens of operating a publicly-held company of that size.
During the spring and summer of 1996, Cavco management also began to
consider an offering of Common Stock or other equity securities to raise
additional capital to finance growth of the Company's manufactured housing
business. During that period, Cavco management met and discussed financing
alternatives with several investment banking firms. Because Cavco management
believed that the Common Stock was undervalued by the market during this period
and expected that the Company would report significantly improved revenues and
earnings for its remaining two fiscal quarters and fiscal year ending September
30, 1996, management believed that a public offering was not advisable until
after the end of the Company's fiscal year, if at all, and determined to
reconsider financing alternatives at a later time.
In April 1996, Roger Sefzik, a senior vice president of Centex's
manufactured housing group, conducted a survey of various manufactured housing
companies and, in connection with this survey, obtained and reviewed certain
publicly available information regarding Cavco. After reviewing this
information, Mr. Sefzik contacted Bob Ward, the Company's Chief Financial
Officer, to inquire whether Cavco would have an interest in discussing mutual
business opportunities with Centex in manufactured housing and related areas. On
May 7, 1996, Mr. Sefzik wrote to Mr. Ward to request additional information
regarding Cavco. Mr. Ward forwarded to Mr. Sefzik publicly available information
regarding Cavco and suggested that Mr. Sefzik talk to Brent Ghelfi. In May 1996,
Mr. Sefzik and Brent Ghelfi discussed general business possibilities by
telephone. Brent Ghelfi invited Mr. Sefzik to visit certain real estate
subdivisions containing Cavco homes and meet with him in Phoenix. On May 28,
1996, Mr. Sefzik traveled to the Tucson area to meet with representatives of
Cavco and visit certain subdivisions containing homes manufactured by Cavco. On
May 29, 1996, Mr. Sefzik met with Brent Ghelfi, Bob Ward and Sam Parlette, Vice
President of Sales and Marketing of Cavco, at Cavco's executive offices in
Phoenix. The discussion at that meeting initially centered on possibilities for
the
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sale or joint venture of certain real estate properties of Cavco and Centex's
possible purchase of manufactured homes from Cavco for installation in Centex
subdivisions. During the conversation, Mr. Sefzik indicated to Brent Ghelfi that
Centex was studying whether to enter the manufactured housing industry and
expressed general interest in discussing a possible business combination between
Centex and Cavco at some future time.
Also in May 1996, the chairman of Champion Enterprises, Inc. ("Champion"),
a large, national manufactured housing company, called Al Ghelfi and expressed
an unsolicited interest in a possible acquisition of Cavco's manufactured
housing business. Al Ghelfi considered this expression of interest too
preliminary and indefinite to warrant presentation to the Board, but believed
the possibility, if further clarified and defined, could provide a beneficial
addition to the other strategic alternatives currently under consideration by
the Company. Al Ghelfi discussed with outside directors Stephen Kleemann and
Robert Wold the indications of interest received from Centex and Champion and
those directors agreed that management should investigate these alternatives.
Mr. Sefzik of Centex and Brent Ghelfi continued general discussions of
possible joint opportunities in telephone conversations in June 1996.
On June 6, 1996, Cavco entered into a confidentiality agreement with
Champion and on June 10, 1996, its chairman met in Phoenix with Al Ghelfi and
Brent Ghelfi to discuss Champion's possible interest in the Company. In early
June 1996, Al Ghelfi and Brent Ghelfi met with representatives of Osborn
Maledon, a law firm that had represented the Company from time to time as
special counsel. At that meeting, Al Ghelfi (who was then Chairman of the Board
and Chief Executive Officer of Cavco) and Brent Ghelfi (who was then Executive
Vice President and Chief Operating Officer of Cavco) determined to engage a
financial advisor to assist the Company in evaluating any proposals received
from Centex, Champion, or others, as well as other strategic alternatives
available to the Company. On June 12 and June 19, 1996, Al Ghelfi, Brent Ghelfi
and a representative of Osborn Maledon met with Michael Geddes and Gregory Berg
of Geddes and Company, a Phoenix-based financial advisory firm with substantial
experience and expertise in mergers, acquisitions and financing transactions.
Based on the experience and reputation of Geddes and Company and their
interviews with its representatives, Al Ghelfi and Brent Ghelfi determined not
to interview other candidates and the Company engaged Geddes and Company as its
financial advisor on June 20, 1996. The Company authorized Geddes and Company to
pursue discussions with Champion and evaluate other strategic alternatives.
On June 21, 1996, the chairman of Champion contacted Geddes and Company to
discuss a preliminary proposal for a possible purchase of all of the outstanding
Common Stock at a purchase price of $18 per share. The closing price of the
Common Stock on June 21, 1996 was $16 per share. The $18 purchase price was
proposed to be paid in cash to the public shareholders, with Al Ghelfi and his
affiliates to receive aggregate consideration of $18 per share in the form of a
distribution of the stock of NSC and Action (valued at net book value) and cash
for the balance of the aggregate purchase price. The proposal also contemplated
a long-term employment arrangement with Brent Ghelfi and a noncompete agreement
with Al Ghelfi. Al Ghelfi and Brent Ghelfi regarded the proposal by Champion as
inadequate and insufficient to warrant presentation to the Board at that time.
Al Ghelfi did, however, advise directors Kleemann and Wold of the nature of the
discussions. In an effort to determine whether a more definitive offer at a
significantly higher valuation could be obtained, Al Ghelfi authorized
representatives of Geddes and Company to continue discussions with Champion,
which they did during the weeks of June 24 and July 1, 1996. Representatives of
Geddes and Company advised the chairman of Champion that substantial improvement
in the proposed price range would be necessary before Cavco would be in a
position to seriously consider any proposal or to authorize a due diligence
investigation.
During the period from July 5, 1996 through July 26, 1996, Cavco management
and representatives of Geddes and Company engaged in extensive discussions with
representatives of Champion regarding a variety of alternative transaction
structures, pricing models and valuations in an effort to improve the price
range proposed by Champion. The parties were unsuccessful in these efforts and
no offer was ever made by Champion to acquire all or part of the Company.
Discussions were broken off by the mutual agreement of the parties on July 26,
1996.
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In June 1996, the Company also received an unsolicited overture from
Transport International Pool, Inc. ("Transport"), a national equipment leasing
company, regarding a potential acquisition of all or part of the assets of NSC.
NSC management had several general discussions with a representative of
Transport in June and July 1996 regarding possible transaction structures,
Transport's interest in particular assets and possible valuations. No offer was
ever made as a result of these discussions, which were discontinued when NSC
management concluded that Transport was unlikely to make an offer at an
acceptable price.
By mid-July 1996, it had become apparent to Cavco management that
discussions with Champion were unlikely to yield a definitive offer at a price
that would be of interest to the Board. However, the analysis undertaken by
Cavco management and Geddes and Company in connection with the discussions with
Champion led Cavco management to conclude that an acquisition of Cavco by a
larger, well-financed strategic buyer could address the concerns identified at
the Company's February 1996 strategic planning meeting, provided that an
acceptable acquisition price and structure could be achieved. For these reasons,
during the week of July 15, 1996, Al Ghelfi and Brent Ghelfi met with
representatives of Geddes and Company and authorized them to approach Centex on
a confidential basis to determine whether Centex's prior indication of interest
might develop into a more definitive proposal for consideration by the Board.
In mid-July, 1996, Mr. Sefzik called Brent Ghelfi and suggested a meeting
in Phoenix between Cavco and senior management of Centex at which the parties
could become better informed about the operations, management and goals of the
two companies. Brent Ghelfi indicated that the Company had engaged Geddes and
Company as its financial advisor and suggested that discussions be coordinated
through Mr. Geddes.
On July 19, 1996, representatives of Geddes and Company contacted Mr.
Sefzik, who reiterated the interest of Centex in potential relationships with
Cavco, including a possible joint venture or acquisition. However, Mr. Sefzik
indicated that senior management of Centex would not be available to consider
these matters until early August 1996. Mr. Sefzik and representatives of Geddes
and Company had several additional telephone conversations during July to
explore possible alternatives to be discussed at a future meeting of the
parties.
On August 8, 1996, several representatives of Centex, including Larry
Hirsch, its chairman, Tim Ziifle, senior vice president of the manufactured
housing group, and Mr. Sefzik, met in Phoenix with Al Ghelfi, Brent Ghelfi, and
Messrs. Geddes and Berg of Geddes and Company. Cavco management conducted a tour
of two subdivisions utilizing Cavco manufactured homes, which was followed by a
general discussion of the Company's business operations over dinner that
evening. The following day, the parties continued these general discussions
regarding the Company's businesses and Al Ghelfi, Brent Ghelfi and
representatives of Geddes and Company conducted tours of the Company's three
manufactured housing facilities in Phoenix. Discussions of potential joint
business opportunities continued during and following the plant tour.
During the meetings on August 8 and 9, 1996, the Centex representatives
indicated an interest in pursuing a potential business relationship with Cavco,
subject to further study and due diligence. A number of possibilities were
discussed in a preliminary fashion, ranging from the acquisition of Cavco
manufactured homes by Centex for its own subdivisions, a possible joint venture
between the two companies or a possible acquisition or other business
combination. During the meetings, Mr. Hirsch emphasized that continuity of
management would be a critical feature of any transaction or relationship with
Cavco, because manufactured housing would represent a new line of business for
Centex. Mr. Hirsch further stated that for these reasons, Centex would be
interested in a potential transaction or relationship with Cavco only if Centex
could be assured that Al Ghelfi and Brent Ghelfi would continue to serve as
senior management of the Company on a long-term basis and only if Al Ghelfi and
his affiliates continued to own a significant equity interest in the Company.
At the August 9 meetings, Al Ghelfi and Brent Ghelfi indicated to Mr.
Hirsch that they were each willing to consider long-term employment or similar
arrangements and, in the case of Al Ghelfi, retention of an equity position in
the Company, if such agreements were part of a transaction that was in the best
interests of the Company and its Shareholders. At the end of the August 9
meeting, Mr. Hirsch advised the Ghelfis and Geddes and Company that Centex
intended to evaluate its plans with respect to entering the manufactured
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housing industry and to study a possible relationship or transaction with Cavco.
The parties agreed to communicate again after Centex had made progress in these
efforts.
On August 22, 1996, representatives of Geddes and Company had a telephone
conversation with Mr. Sefzik, who indicated that Centex's investigation of the
manufactured housing industry was progressing and that Centex continued to have
an interest in further discussions with Cavco. On August 26, 1996, Mr. Geddes
and Mr. Hirsch had an extensive telephone conversation in which Mr. Hirsch
advised Mr. Geddes that Centex was considering accelerating its plans to enter
the manufactured housing business and was interested in discussing an
acquisition of Cavco. In each of these conversations, Mr. Hirsch and Mr. Sefzik
stated that a condition of Centex's interest in proceeding would be the
willingness of Al Ghelfi and Brent Ghelfi to enter into long-term employment or
similar agreements with Cavco. In the August 26 telephone conversation, Mr.
Hirsch also stated that Centex would expect Al Ghelfi and his affiliates to
retain an equity interest in the Company in the range of 20% on a long-term
basis, with arrangements for Centex to acquire the Ghelfi retained interest
after some significant period of time.
On September 3, 1996, Mr. Geddes and Mr. Hirsch had another telephone
conversation to continue their discussions of potential transaction
alternatives. During this conversation, Mr. Geddes and Mr. Hirsch discussed
general price ranges for an acquisition of the Common Stock. At that time, Mr.
Hirsch expressed his preliminary view that Centex might be willing to pay a
price in the range of $23 to $24 per share, but emphasized that this preliminary
view had been reached without the benefit of any due diligence investigation or
access to non-public information. On September 3, 1996, the closing price of the
Common Stock was $19.75 per share.
In early September 1996, Al Ghelfi was contacted by Tom Cady, an individual
purporting to represent a real estate development and investment company, who
inquired about the possibility of a business combination with Cavco. On
September 9, 1996, Mr. Cady called on Al Ghelfi, who asked Mr. Geddes to contact
Mr. Cady to evaluate the seriousness of the inquiry and the qualifications of
the potential acquiror. Mr. Geddes spoke by telephone with Mr. Cady on September
12, 1996 and again on October 2, 1996. In each conversation, Mr. Cady discussed
in general terms a price of approximately $22 per share, which represented a
premium over the closing price on October 2 of $19.50 per share, but expressed
interest only in an acquisition of the majority ownership position of Mr. Ghelfi
and his affiliates in Cavco. Mr. Ghelfi instructed Mr. Geddes to advise Mr. Cady
that Mr. Ghelfi would only be interested in discussing a potential transaction
in which all Shareholders could participate. Mr. Cady was unwilling to discuss
such a transaction. Accordingly, Geddes and Company did not attempt to verify
the identity or qualifications of the company Mr. Cady purported to represent or
Mr. Cady's authority to act on behalf of that company, and no offer or
definitive price was ever discussed.
During the weeks of September 2, September 9, and September 16, 1996,
representatives of Geddes and Company engaged in a series of extensive telephone
conversations with Mr. Hirsch and other representatives of Centex to discuss the
feasibility and desirability of a business combination of some kind between
Cavco and Centex. They discussed generally the possible terms and structure of
such a transaction, including tax and accounting issues, and Centex's
requirements with respect to continuity of management and the retention of an
equity interest by Al Ghelfi and his affiliates. Representatives of Centex
stated that Centex was primarily interested in the manufactured housing business
of Cavco and raised the possibility of a purchase of that business and the real
estate development business only, with a sale or spinoff of NSC to Mr. Ghelfi
and his affiliates, to the Shareholders or to a third party. The participants
also continued to discuss pricing models and assumptions. In this connection,
Geddes and Company advocated Cavco management's position that the $23 to $24 per
share price range initially proposed by Mr. Hirsch was inadequate for a variety
of reasons, including anticipated growth in Cavco earnings and likely synergies
and cost savings to be derived from a potential transaction.
Throughout this period, representatives of Geddes and Company met
frequently with Al Ghelfi, Brent Ghelfi and representatives of Osborn Maledon to
report on the progress of their discussions with Centex. During the week of
September 16, Mr. Geddes advised Al Ghelfi and Brent Ghelfi that he believed
additional progress could be made toward a more definitive proposal from Centex
if certain non-public information regarding the prospects of the Company could
be provided to Centex in support of Cavco's position with
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respect to value and price. On September 20, 1996, Al Ghelfi instructed Osborn
Maledon to prepare and submit to Centex a confidentiality agreement to protect
the confidentiality of any non-public and proprietary information to be provided
by Cavco in the negotiations. On September 26, 1996, Mr. Hirsch executed a
confidentiality agreement on behalf of Centex.
On September 30 and October 1, 1996, Mr. Geddes and Mr. Hirsch had
additional extensive conversations regarding the value of Cavco and the pricing
of a potential transaction. The conversations also included a discussion of the
terms and conditions under which Mr. Ghelfi and his affiliates might be willing
to retain a minority equity interest in the Company, including put and call
options to purchase the retained Ghelfi interests after a period of time. During
these conversations, Mr. Hirsch advised Mr. Geddes that Centex management was
nearing completion of its preliminary study of the manufactured housing industry
and a possible acquisition of Cavco. He stated that Centex management intended
to report its preliminary conclusions to the Centex board of directors at a
board meeting on October 2, 1996 and to recommend to the Centex board of
directors that Centex proceed to conduct a due diligence investigation and begin
definitive negotiations toward an acquisition of a controlling interest in
Cavco.
On October 3, 1996, Mr. Hirsch called Mr. Geddes to inform him that the
Centex board of directors had authorized Centex management to move forward with
negotiations and due diligence.
From the inception of discussions with Centex, Al Ghelfi and Brent Ghelfi
had periodic individual conversations with outside directors Kleemann and Wold
to advise them of the progress of the discussions and to ascertain whether the
Board was likely to regard a possible transaction with Centex as a viable
strategic alternative for Cavco. Al Ghelfi also discussed these matters with
director Ruth Smith in early October 1996. Al Ghelfi and Brent Ghelfi advised
these directors that any definitive indication of interest from Centex would be
presented to the Board to determine whether to authorize negotiations and due
diligence.
On October 8, 1996, Centex submitted to Geddes and Company a nonbinding
preliminary term sheet prepared as a basis for negotiations among Centex, Cavco
and Al Ghelfi and his affiliates. The preliminary term sheet proposed that
Centex would acquire all of the Common Stock held by the Independent
Shareholders for not less than $26 per share. Centex also proposed to acquire a
portion of the Common Stock held by Al Ghelfi and his affiliates, representing
approximately 32% of the outstanding shares, for the same price. (Centex
originally proposed to acquire the initial 32% block of shares from Al Ghelfi
and his affiliates pursuant to put and call options during the first and second
years following the closing, but later determined to purchase the initial block
of Ghelfi shares at the same time and in the same transaction as the purchase
from the Independent Shareholders.) Centex proposed to acquire the remaining
Common Stock held by Al Ghelfi and his affiliates, representing approximately
20% of the outstanding shares, pursuant to put and call options at a formula
price based on specified multiples of earnings before taxes, beginning after the
third anniversary of the closing date. The preliminary term sheet further
proposed agreements that would apply during the period Al Ghelfi and his
affiliates retained their 20% equity interest with respect to payment of
dividends, exclusion of certain amounts from the option price formulas,
representation on the Board and other matters. The preliminary term sheet also
contemplated employment or consulting arrangements with Al Ghelfi and other key
employees, together with non-competition agreements on terms and conditions
satisfactory to the parties. Centex representatives explained that the
preliminary term sheet contemplated an acquisition of all of Cavco's businesses
in order to avoid the delays and complexities of a separate sale or spinoff of
the Leasing Business. However, Centex representatives also indicated a
willingness to consider granting to Mr. Ghelfi and his affiliates a right of
first refusal to purchase the Leasing Business if Centex were to decide to sell
it after acquiring Cavco. The preliminary term sheet stated that the exact
structure of the acquisition would be determined by mutual agreement of the
parties based on regulatory, tax and other considerations.
Mr. Hirsch advised Mr. Geddes that as a prerequisite to its willingness to
enter into discussions on the basis of the preliminary term sheet, Centex would
require Cavco to enter into a due diligence agreement whereby Cavco would agree
to grant access for a period of 30 days to the books, records, facilities and
selected personnel of Cavco for purposes of conducting a due diligence
investigation. Mr. Hirsch also indicated that Centex was unwilling to proceed to
invest the significant time and resources required for a due diligence
investigation unless Cavco also agreed in the due diligence agreement to a
"no-shop" provision under which Cavco would refrain from marketing the Company
or discussing alternative transactions with third parties
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during the 30-day due diligence period. Mr. Hirsch provided a draft of Centex's
proposed due diligence agreement together with the preliminary term sheet on
October 8, 1996.
On October 9, 1996, representatives of Geddes and Company met with Al
Ghelfi, Brent Ghelfi and a representative of Osborn Maledon to discuss the
proposed preliminary term sheet and due diligence agreement. Mr. Geddes reviewed
the extensive history of discussions and negotiations with Centex and others, as
well as various other strategic alternatives under consideration, including a
potential secondary public offering and the possible disposition or spin-off of
NSC, as previously discussed by the Board and Cavco management. He indicated
that the discussion proposal submitted by Centex represented a very significant
premium over the price ranges discussed with Champion, as well as an improvement
over the $23 to $24 price range discussed in initial conversations with Mr.
Hirsch. Mr. Geddes indicated that based on his conversations with Mr. Hirsch, he
believed that Centex might be induced to improve its offer if it were allowed to
conduct a full due diligence examination to address certain concerns relating to
asset values, future prospects and contingencies. Based on the information
available to them, Al Ghelfi and Brent Ghelfi expressed the view that the Centex
proposal presented an opportunity that should be evaluated by the Board in light
of other available alternatives, and that the Board should determine whether to
authorize Centex to conduct a due diligence review of the Company. Therefore, Al
Ghelfi and Brent Ghelfi determined that the proposed Centex preliminary term
sheet and due diligence agreement should be presented to the Board as soon as
possible.
On October 14, 1996, a meeting of the Board was held at the offices of
Osborn Maledon. All directors except William Blandin were present, together with
Messrs. Geddes and Berg of Geddes and Company and a representative of Osborn
Maledon. Brent Ghelfi reported to the Board with respect to the discussions,
negotiations and other matters discussed above. Mr. Berg reviewed with the Board
certain publicly available summary information regarding the business cycle,
structure, economic characteristics and recent consolidation trends in the
manufactured housing industry. Mr. Berg also reviewed information relating to
strategic alternatives, stock market valuations of selected manufactured housing
companies, the stock price history of Cavco and selected manufactured housing
merger and acquisition transactions, including the recently-announced merger
between Champion Enterprises, Inc. and Redman Industries, Inc.
At the October 14, 1996 Board meeting, Mr. Geddes then reviewed the history
and current status of the discussions with Centex, focusing on the terms and
conditions of the preliminary term sheet and proposed due diligence agreement.
Mr. Geddes advised the Board that Centex's stated motivation in proposing the
transaction was to enter the manufactured housing business through the
acquisition of a company with proven, successful management. Mr. Geddes
indicated his belief that this desire could lead Centex to pay a larger premium
over the market price than an acquiror with existing manufactured housing
operations. Al Ghelfi and Mr. Geddes both stated their belief that such a
transaction might provide a more favorable strategic alternative for the Company
than those previously discussed by the Board and Cavco management, but that
Centex would not be willing to make a more definitive proposal without an
opportunity to conduct due diligence. Mr. Geddes further indicated that Cavco's
entry into the due diligence and "no-shop" agreement was a stated condition of
Centex's willingness to proceed. A representative of Osborn Maledon reviewed the
terms of the proposed due diligence and "no-shop" agreement with the directors.
The directors discussed the effects of the proposed "no-shop" agreement,
including the fact that it might preclude a public auction or other broad market
test of interest in acquiring the Company for the period during which such
agreement remained in effect. Based on various considerations, the Board
regarded the continuation of negotiations with Centex as a more favorable
alternative than attempting to initiate a public auction or other broad market
test. See "-- Recommendation and Reasons for the Merger." Accordingly, the Board
approved in concept the proposed due diligence and "no-shop" agreement, but
instructed Geddes and Company and counsel to negotiate to limit the scope of the
"no-shop" agreement to permit marketing of the Leasing Business and the Real
Estate Development Business during the "no-shop" period and to expand the
"fiduciary out" provisions to permit Cavco to negotiate with respect to
unsolicited inquiries during the "no-shop" period. After extensive additional
discussion, the Board unanimously authorized Cavco management to enter into the
due diligence and "no-shop" agreement with Centex, subject to the foregoing
changes, and to negotiate to induce Centex to make a definitive proposal for
further consideration by the Board. Cavco representatives negotiated the changes
to the due diligence and "no-shop" agreement specified by the Board and the
agreement was signed on October 15, 1996.
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On October 22, 1996, several representatives of Centex, including Mr.
Hirsch, Michael Albright, vice president of finance, Mr. Ziifle and Mr. Sefzik,
met in Phoenix with Al Ghelfi, Brent Ghelfi, Bob Ward, and Messrs. Geddes and
Berg of Geddes and Company. Cavco management made a general presentation
regarding various aspects of the Company's businesses.
During the week following the October 22 meeting and the week of October
28, 1996, Centex representatives continued to meet with representatives of Cavco
and Geddes and Company in Phoenix to commence Centex's due diligence
investigations and continue negotiations with respect to the preliminary
proposal. During this time period, Centex expressed certain valuation concerns
and indicated that an increase in the proposed $26 price was unlikely and that
Centex might request a reduction in the proposed price to account for such
concerns if they remained unresolved. Cavco management and Geddes and Company
continued to provide information to address Centex's valuation concerns and to
negotiate for an increase in the price. During this time period, Mr. Hirsch and
Centex counsel also stated that Centex would be unwilling to proceed with an
acquisition of Cavco unless Al Ghelfi and his affiliates agreed to vote their
Common Stock in favor of the proposed transaction and unless, in the event the
proposed transaction was not completed for various reasons, Cavco agreed to pay
certain "breakup" fees and Al Ghelfi and his affiliates agreed to sell a
substantial block of their Common Stock to Centex. Mr. Ghelfi and Mr. Geddes
both emphasized to Mr. Hirsch that Cavco and Mr. Ghelfi and his affiliates would
be willing to consider entering into arrangements of that kind only if such
arrangements would lead to an increased purchase price per share and a
transaction that otherwise was in the best interests of Cavco and its
Shareholders.
On November 4, 1996, the Board met again to consider the progress of the
negotiations with Centex. All directors were present with the exception of Al
Ghelfi and William Blandin, who were traveling. Also present were Messrs. Geddes
and Berg of Geddes and Company, James S. Freedman, counsel to the Company, and a
representative of Osborn Maledon. Mr. Geddes reviewed with the Board the status
of the ongoing negotiations and due diligence process. He indicated that Centex
continued to express a positive view of the manufactured housing business, with
continuing favorable comments regarding the Company's management, manufacturing
operations, marketing expertise, and perceived synergies and strategic
opportunities of a combined Centex/Cavco business. Mr. Geddes discussed various
concerns and factors identified by Centex during the negotiation process that
might be utilized by Centex to negotiate toward a possible reduction in the $26
per share price range specified in the preliminary term sheet. Mr. Geddes
stated, however, that he believed the due diligence and negotiations were
progressing well and that a definitive offer in the range contemplated by the
preliminary term sheet would be forthcoming in the near future.
The Board observed that the Centex proposals contemplated that Al Ghelfi
and his affiliates would retain a significant equity interest in the Company and
that Al Ghelfi and Brent Ghelfi would continue in management of the surviving
company, with long-term compensation arrangements to be negotiated. In addition,
the Board noted that Centex had conditioned its proposal on Al Ghelfi and his
affiliates agreeing to vote in favor of the proposed transaction with Centex and
to sell a substantial block of Common Stock to Centex in the event that the
transaction was not consummated for various reasons. For these and other
reasons, Brent Ghelfi advised the Board that he and Al Ghelfi may have
potentially conflicting interests with respect to any proposed transaction with
Centex. The other directors discussed these factors and the desirability of
appointing a special committee of disinterested directors to review, evaluate
and negotiate a potential transaction. The Board then unanimously appointed
Steven Kleemann and Robert Wold as a Special Committee of the Board to review,
evaluate and negotiate with respect to any business combination proposals
received from Centex or others. The Board determined that the Special Committee
should be authorized in its sole discretion to engage its own legal counsel and
financial advisors, at the Company's expense, that the Special Committee would
not be subject to any direction or control by the Board with respect to its
consideration of any proposal and that the unanimous vote of the Special
Committee would be required for action on any proposal.
Immediately following the November 4, 1996 meeting of the Board, the
Special Committee met with Messrs. Geddes and Berg of Geddes and Company,
outside counsel James S. Freedman and a representative of Osborn Maledon. The
Special Committee discussed the need to engage separate counsel to represent the
Special Committee in connection with its exercise of its responsibilities. The
members of the Special
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Committee noted that Mr. Freedman has represented the Company as outside counsel
in securities and related matters since 1969, has substantial knowledge and
experience with respect to the Company and is unaffiliated with Osborn Maledon
or any other firm. The Special Committee then unanimously engaged Mr. Freedman
as counsel for the Special Committee.
At its November 4 meeting, the Special Committee reviewed the terms and
conditions of the Company's prior engagement of Geddes and Company as financial
advisor, including provisions for consulting fees and a success fee payable by
Cavco to Geddes and Company upon completion of any transaction, in an aggregate
amount equal to 1.2% of the transaction value. Mr. Geddes advised the Special
Committee that as principal negotiator for the proposed Centex transaction,
Geddes and Company would also be negotiating the terms and conditions of the
separate agreements and arrangements between Centex and Al Ghelfi and his
affiliates. The Special Committee determined that in light of the knowledge
Geddes and Company had developed regarding Cavco and the proposed transaction,
the working relationship established by Geddes and Company with Centex and its
representatives and the need to maintain continuity in the negotiations, Geddes
and Company should continue in its role as principal negotiator on behalf of the
Company and the Special Committee. Geddes and Company was instructed to report
to and consult with the Special Committee and its counsel as appropriate during
the negotiations. In addition, the Special Committee determined that a separate
financial advisor should be retained on behalf of the Special Committee and the
Board to study the terms and conditions of any offer from the standpoint of the
Independent Shareholders and issue a fairness opinion regarding any proposed
transaction. The Special Committee instructed its counsel to work with Geddes
and Company to identify appropriate candidates to serve as financial advisor for
that purpose, to be interviewed by the Special Committee.
On November 6, 1996, counsel for Centex delivered a first draft of the
Merger Agreement to counsel for the Special Committee and Osborn Maledon. On
November 7, 1996, counsel for Centex delivered first drafts of the Stock
Purchase Agreement and Voting Agreement. These draft agreements set forth
Centex's requirements that Al Ghelfi and his affiliates vote in favor of the
Merger Agreement (and against any inconsistent transactions) and consummate the
Subject Share Purchase if the proposed transaction is not consummated for
certain reasons. The draft agreements also set forth Centex's requirement that
the Special Committee approve the transactions contemplated by the Stock
Purchase Agreement and Voting Agreement for purposes of the Arizona Takeover
Statute. See "The Merger Agreement -- Arizona Takeover Statute Matters." Counsel
for and representatives of the Company, the Special Committee and Centex
continued to negotiate various issues and draft the applicable agreements during
the following week.
On November 10, 1996, counsel for Centex delivered a first draft of the
proposed Shareholders' Agreement. On November 18, 1996, counsel for Centex
delivered first drafts of a proposed Consulting Agreement with Al Ghelfi and a
proposed Employment Agreement with Brent Ghelfi.
On November 12, 1996, the Special Committee met with its counsel and
representatives of Geddes and Company and Osborn Maledon. Mr. Geddes informed
the Special Committee that representatives of Goldman Sachs and another national
investment banking firm would be available that day to make proposals to the
Special Committee to serve as financial advisor. The Special Committee met with
representatives of the two investment banking firms, and based on the firms'
presentations, the Special Committee's consideration of factors such as
expertise in the manufactured housing industry, cost and ability to respond
promptly, the Special Committee unanimously determined to engage Goldman Sachs
as financial advisor.
At the November 12, 1996 Special Committee meeting, Geddes and Company and
counsel reported to the Special Committee on the status of the negotiations,
focusing in particular on open issues affecting price. The members of the
Special Committee extensively discussed with representatives of Geddes and
Company the strategy and factors to be utilized in the pricing negotiations. The
Special Committee and its counsel also discussed the request by Centex that the
Special Committee approve the Stock Purchase Agreement and Voting Agreement to
be entered into between Centex and Al Ghelfi and his affiliates, for purposes of
the Arizona Takeover Statute. The Special Committee expressed its concern that
if the Subject Share Purchase contemplated by the Stock Purchase Agreement were
consummated, Centex would be in a position to control or significantly influence
the control of Cavco, that there could be no assurance that Centex would propose
an alternative transaction in which the Independent Shareholders could
participate, and that these circumstances
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could make it more difficult for a third party to make a competing proposal for
such a transaction. The Special Committee instructed counsel and Geddes and
Company to advise Centex that the Special Committee would consider approval of
the Stock Purchase Agreement and Voting Agreement only if Centex were to
increase the price of its offer and only if Centex committed to make another
acquisition proposal to the Independent Shareholders on comparable terms in the
event that the Merger Agreement were terminated and Centex consummated the
Subject Share Purchase. The Special Committee also instructed the Company's
negotiators to seek reductions in the termination fees and expenses proposed by
Centex. Mr. Geddes advised the Special Committee that Centex had requested an
extension of the due diligence and "no-shop" period through December 5, 1996 in
exchange for Centex's agreement to pay certain transaction expenses incurred by
Cavco if no transaction was completed. The Special Committee authorized Geddes
and Company and counsel to negotiate such an extension.
On November 19, 1996, Cavco and Centex entered into an agreement extending
the due diligence and "no-shop" period through December 5, and providing for the
payment by Centex of transaction expenses up to $200,000 in the event a
definitive agreement satisfactory to the parties was not reached by such date
for any reason.
Also on November 19, 1996, Mr. Hirsch and other representatives of Centex
met with Mr. Freedman and representatives of Geddes and Company and Osborn
Maledon in Phoenix. Counsel for all parties met to work on the Merger Agreement
and related agreements. Representatives of Centex and Geddes and Company met to
continue negotiations. As a result of these negotiations, on November 20, 1996,
Centex agreed to increase its offer to $26.75 per share and to make another
acquisition proposal to the Independent Shareholders if the Subject Share
Purchase is consummated, subject to the agreement of Mr. Ghelfi and his
affiliates to enter into the Stock Purchase Agreement and Voting Agreement and
the willingness of the Special Committee to approve such agreements, as well as
satisfactory completion of due diligence and remaining negotiations. Centex also
reduced the amounts of its proposed termination fees and expenses.
On November 21, 1996, a telephone meeting of the Special Committee was held
by Messrs. Kleemann and Wold, together with Mr. Freedman and representatives of
Geddes and Company and Osborn Maledon. Mr. Geddes and counsel reported on status
of negotiations. Counsel described the terms of the Merger Agreement, as well as
the terms and conditions of the proposed Stock Purchase Agreement, Shareholders'
Agreement, Voting Agreement, and the Consulting Agreement and Employment
Agreement with Al Ghelfi and Brent Ghelfi, respectively.
During the November 21, 1996 Special Committee meeting, representatives of
Goldman Sachs joined the meeting by telephone to present a preliminary report of
their analysis of the proposed transaction. The Goldman Sachs representatives
discussed the basis of their analysis in detail with the members of the Special
Committee and its counsel. The Goldman Sachs representatives indicated that
while not yet complete, their analysis to date was supportive of an opinion that
the consideration of $26.75 per share in cash to be received by the Independent
Shareholders in the proposed transaction would be fair to the Independent
Shareholders.
Prior to the Thanksgiving holiday during the week of November 25, and
continuing on December 2 and 3, 1996, counsel for and representatives of Cavco
and Centex drafted the Merger Agreement and related documents and Goldman Sachs
completed work on the analysis underlying its fairness opinion. The parties
agreed at that time that CREC, a 99.9% subsidiary of Centex, would be the entity
to enter into the Merger Agreement and the various other transactions and
agreements with Cavco and Mr. Ghelfi and his affiliates.
The Special Committee met on the afternoon of December 4, 1996 to consider
the Merger and discussed the factors described below under "-- Recommendations
and Reasons for the Merger." Al Ghelfi and Brent Ghelfi were not invited to and
did not attend or otherwise participate in the meeting of the Special Committee.
During the Special Committee meeting, Mr. Hirsch advised Cavco counsel by
telephone that the Centex board of directors had approved the Merger and related
transactions. Geddes and Company and counsel summarized the final agreements and
responded to questions from the committee members. Representatives of Goldman
Sachs were present at the meeting and reviewed with the Special Committee the
analysis underlying its fairness opinion. See "-- Opinion of Financial Advisor."
At the conclusion of its presentation, Goldman Sachs delivered to the Special
Committee its written opinion that, as of such date, the consideration of $26.75
per share in cash to be received by the Independent Shareholders pursuant to the
Merger
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Agreement is fair to the Independent Shareholders. The Special Committee found
that the Merger Agreement was fair to, and in the best interests of, the Company
and the Independent Shareholders and voted unanimously to approve, adopt and
recommend to the Board and the Shareholders the Merger Agreement and the
transactions contemplated thereby. The Special Committee also voted unanimously
to approve the Stock Purchase Agreement and Voting Agreement for purposes of the
Arizona Takeover Statute.
After the Special Committee meeting, the full Cavco Board met in the late
afternoon and early evening of December 4, 1996. All directors were present,
together with Mr. Freedman and representatives of Geddes and Company and Osborn
Maledon. Messrs. Kleemann and Wold advised the Board that the Special Committee
had approved and adopted the Merger Agreement and the transactions contemplated
thereby and recommended such approval to the entire Board and the Shareholders.
The members of the Special Committee also advised the Board that Goldman Sachs
had rendered its fairness opinion to the Special Committee and the Board.
Representatives of Goldman Sachs summarized for the Board the analysis
underlying its fairness opinion. Mr. Geddes and counsel then reviewed with the
Board the terms and conditions of the Merger Agreement and related agreements
and the results of final negotiations. Al Ghelfi and Brent Ghelfi advised the
Board that they would abstain from voting on the Merger Agreement due to their
individual interests in the transactions contemplated by the Merger Agreement
and related agreements and left the meeting. After consideration of the factors
described below under "-- Recommendation and Reasons for the Merger," the Board
then found that the Merger Agreement was fair to, and in the best interests of,
the Company and the Independent Shareholders and voted, by the unanimous vote of
those directors voting, to approve and adopt the Merger Agreement and the
transactions contemplated thereby, to submit the Merger Agreement to the
Shareholders for their approval and to recommend to the Shareholders that the
Merger Agreement be approved.
Following approval of the Merger Agreement by the Board, the Merger
Agreement was signed on the evening of December 4, 1996. On the following
morning, a joint press release with respect to the Merger was issued by Cavco
and Centex.
PURPOSE OF THE MERGER
The purpose of the Merger is to effect the acquisition by CREC, through its
ownership of shares in the Holding Company, of an approximate 78% indirect
equity interest in Cavco. The remaining approximately 22% indirect equity
interest in Cavco will be retained by the Ghelfi Parties through their ownership
of shares in the Holding Company.
RECOMMENDATION AND REASONS FOR THE MERGER
Special Committee and the Board. The Special Committee and the Board have
determined that the Merger Agreement is fair to, and in the best interests of,
the Company and the Independent Shareholders, have approved and adopted the
Merger Agreement and the transactions contemplated thereby and have recommended
to the Independent Shareholders that they vote for the approval of the Merger
Agreement. In taking these actions, the Board and the Special Committee
considered many factors, including, among others, the following:
(i) Cavco's Business, Condition and Prospects. In evaluating the
Merger Agreement, the Special Committee and the Board considered, among
other things, information concerning the financial condition, results of
operations, capital requirements, assets and liabilities of Cavco on both a
historical and prospective basis, together with current industry, economic
and market conditions. The members of the Board were generally familiar
with and knowledgeable about the Company's affairs due to their service as
directors. In evaluating the Company's prospects, the Board considered
information concerning recent trends toward consolidation in the
manufactured housing industry and increasing competition from large,
vertically integrated and geographically diversified competitors. The Board
considered the risks to the Company from these trends and took into account
the ability of Centex to provide additional financial capability, as well
as experience and resources for possible development of a retail sales
network, mortgage financing, insurance and other complementary services to
address these competitive factors.
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(ii) Opinion of Goldman Sachs. In making their determinations that
the Merger Agreement is fair to, and in the best interests of, the
Independent Shareholders, the Board and the Special Committee considered
the opinion of Goldman Sachs that the consideration of $26.75 to be
received by the Independent Shareholders pursuant to the Merger Agreement
is fair to the Independent Shareholders, as well as the presentations made
by Goldman Sachs to the Special Committee and the Board. In evaluating the
opinion and presentations of Goldman Sachs, the Special Committee and the
Board considered as favorable the facts that in the Goldman Sachs analysis
of selected transactions in the manufactured housing industry since 1994,
the Merger Consideration exceeded the high end of the valuation ranges
based upon multiples of revenue, multiples of EBITDA (as defined below),
multiples of operating income and multiples of net income and exceeded the
median of the range for multiples of book value. The Special Committee and
the Board also considered as favorable the implied per share values
computed by Goldman Sachs in its discounted cash flow analysis, and the
fact that the Merger Consideration exceeded fifteen of the eighteen implied
share values derived by Goldman Sachs from this analysis utilizing two sets
of management projections. The Special Committee and the Board also
considered as favorable Goldman Sachs' analysis of the present value of
future consideration likely to be received by the Ghelfi Parties for their
Holding Company Common Stock pursuant to the put and call options set forth
in the Shareholders' Agreement, based upon the Company's projections and
various discount rates applied by Goldman Sachs. See "-- Opinion of
Financial Advisor."
(iii) Historical and Recent Market Prices. The Board reviewed the
historical market prices and recent trading activity of the Common Stock.
The Board considered as favorable to its determination the fact that the
$26.75 per share price to be paid in the Merger is higher than the highest
market closing price reached by the Common Stock prior to December 4, 1996,
which was $23.25 on November 25, 1996. The high and low sales prices of the
Common Stock on December 4, 1996, the last full trading day prior to the
first public announcement of the Merger, were $24.00 and $23.625 per share,
respectively. The Board also considered as favorable the fact that the
Merger Consideration represents a premium of 20.0% over the $22.29 per
share average market closing price for the last 10 days prior to
announcement of the Merger, a premium of 25.5% based on the average market
closing price of $21.32 for the last month preceding announcement of the
Merger, a premium of 112.3% based on the last three years average market
closing price of $12.60 per share and a premium of 174.4% based on the last
five years average market closing price of $9.75 per share. See "-- Opinion
of Financial Advisor."
(iv) No Financing Condition; Strong Acquiror. The Special Committee
and the Board regarded as favorable to their determinations the facts that
the Merger Agreement does not contain a financing condition, that CREC is a
financially strong enterprise with a very strong balance sheet and that
accordingly, the Merger has a low risk of noncompletion due to any
financial inability of CREC.
(v) Willingness of Ghelfi Parties to Participate in the Merger. The
Special Committee and the Board considered as favorable to their
determinations the willingness of the Ghelfi Parties, the controlling
shareholders of Cavco, to sell to CREC (either pursuant to the Merger or
the Subject Share Purchase) the majority of their Common Stock at the same
price to be paid to the Independent Shareholders in the Merger. The Special
Committee and the Board noted that CREC required the Ghelfi Parties to
retain a portion of their interest as a condition of the transaction. See
"-- Background of the Merger."
(vi) Additional Benefits and Detriments to the Ghelfi Parties under
the Related Agreements. In arriving at their determinations, the Special
Committee and the Board also considered the terms of the Shareholders'
Agreement, the Consulting Agreement and the Employment Agreement. See
"Related Agreements -- Shareholders' Agreement," "-- Consulting Agreement"
and "-- Employment Agreement." The Special Committee and the Board
generally considered the terms of the Shareholders' Agreement to be neutral
to their determinations. In this regard, they noted that the Shareholders'
Agreement will afford to the Ghelfi Parties certain rights in connection
with the management of Cavco after the consummation of the Merger, but they
also considered the fact that the Ghelfi Parties, as controlling
shareholders of the Company, are currently able to direct the management of
the business and affairs of the Company to a significantly greater extent
than they will be able to do under the terms of the Shareholders'
Agreement. The Special Committee and the Board also considered the put and
call options
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set forth in the Shareholders' Agreement, pursuant to which CREC may
acquire the remaining indirect equity interest in the Company held by the
Ghelfi Parties at a price based upon specified multiples of the Holding
Company's adjusted earnings before taxes. The Special Committee and the
Board noted that it is not possible at the present time to determine the
exact price that would be received by the Ghelfi Parties upon the exercise
of such put and call options. In the case of the put options, the price
received by the Ghelfi Parties could be less than, equal to or greater than
the consideration of $26.75 per share to be paid to the Independent
Shareholders in the Merger. In the case of the call options, the price
received could be equal to or greater than such consideration. However, the
Special Committee and the Board noted that the analysis conducted by
Goldman Sachs of the present value of the consideration likely to be
payable upon the exercise of such options indicated that the consideration
of $26.75 per share to be paid to the Independent Shareholders in the
Merger exceeded the median of the range of values projected for the put and
call options. Such analysis took into account the fact that the
consideration payable upon exercise of such options will be deferred for
periods of at least three years (in the case of the put options) to five
years (in the case of the call option). The Special Committee and the Board
also noted that the Shareholders' Agreement grants the Ghelfi Parties
certain other rights and benefits, including a right of first negotiation
and right of first refusal with respect to any sale of the Leasing
Business. The Special Committee and the Board generally considered the
terms of the Consulting Agreement and the Employment Agreement to be
favorable to their determinations, noting in particular that the amount of
compensation to be paid by the Company pursuant to such agreements will, in
the case of Al Ghelfi, be substantially less than or, in the case of Brent
Ghelfi, be generally comparable to, the compensation payable to them under
their existing employment arrangements with the Company. The Special
Committee and the Board also noted that Al Ghelfi and Brent Ghelfi are
subject to certain additional covenants and restrictions under the
Consulting Agreement and Employment Agreement, including non-competition
covenants that generally extend for a period of three years after the
termination thereof.
(vii) Fiduciary Out; Reasonable Break-up Fees. The Special Committee
and the Board considered the fact that the Merger Agreement does not
provide for unreasonable termination fees which would have the effect of
unreasonably discouraging competing bids and that, subject to the
satisfaction of certain conditions, the Board is able to withdraw or modify
its recommendation to the Shareholders regarding the Merger and enter into
an agreement with respect to a more favorable transaction with a third
party, if such a transaction becomes available prior to the consummation of
the Merger. In considering the effect of this fiduciary out, however, the
Board noted that the terms of the Stock Purchase Agreement and the Voting
Agreement might discourage other potential acquirors from making competing
proposals to acquire the Company.
(viii) Procedural Fairness. The Special Committee and the Board
considered that, although the Merger is not structured to require the
approval of a majority of the Independent Shareholders, the Merger is
procedurally fair because (i) the Board appointed a Special Committee
consisting of two disinterested directors authorized to review, evaluate
and negotiate with respect to the Merger on behalf of the Independent
Shareholders; (ii) one of the members of the Special Committee, Mr.
Kleemann, is himself an Independent Shareholder who beneficially owns
approximately 7.7% of the outstanding Common Stock, and whose interests are
therefore aligned with the Independent Shareholders; (iii) the Special
Committee was authorized to engage in its own legal counsel and financial
advisors, in its sole discretion and at the Company's expense, and was not
subject to any direction or control by the Board with respect to its
consideration of any proposals; (iv) the Special Committee retained Mr.
Freedman as its independent legal counsel and Goldman Sachs as its
financial advisor; (v) the consideration of $26.75 to be received by the
Independent Shareholders pursuant to the Merger Agreement, and the other
terms and conditions of the Merger Agreement, resulted from active
arms-length bargaining between the Special Committee and its advisors and
Centex; and (vi) Independent Shareholders who exercise their rights to
dissent from the Merger will be entitled to dissenters' rights under the
Arizona Act.
(ix) Absence of Public Auction or Other Similar Market Test. The
Board and the Special Committee also considered a public auction or other
broad market test of possible interest in an acquisition of the Company.
This alternative was rejected for the following reasons: (i) the CREC
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proposal developed from an unsolicited indication of interest from Centex,
prior to which an auction or other similar market test had not been
considered; (ii) the Centex proposal represented a significant premium over
current and historical trading prices of the Common Stock, as well as prior
indications of interest that the Company had received from other parties
and the ranges of values realized in other transactions in the manufactured
housing industry; (iii) Centex advised the Company that it was unwilling to
continue negotiations or hold open its offer unless the Company entered
into a "no-shop" agreement that would preclude an auction or similar
process; (iv) the Company and its advisors believed that Centex's desire to
enter the manufactured housing business through the acquisition of a
company with proven successful management might lead Centex to pay a larger
premium than would be likely to be offered by an acquiror with existing
manufactured housing operations; (v) an auction process would have required
significant time, effort and expense to deal with multiple parties who
would each have extensive due diligence requirements on account of the
Company's significant real estate holdings and manufacturing operations;
(vi) such an auction would have been of concern to the Company's customers
and employees and otherwise disruptive to the Company's business,
particularly if one or more prospective bidders were perceived to be likely
to relocate or substantially restructure the Company's operations, with no
assurance that an offer would be received or that any such offer would be
equal or superior to the Centex proposal; and (vii) the "fiduciary out"
provisions of the Merger Agreement would afford a limited market check on
the Merger. Accordingly, no auction was conducted and no other bids for the
Company were solicited by the Special Committee or the Board.
In addition to the factors described above, the Board also considered as
favorable to its determination the fact that the Special Committee, which
consisted of two disinterested directors of Cavco, unanimously determined that
the Merger Agreement and the transactions contemplated thereby are fair to, and
in the best interests of, the Independent Shareholders and unanimously
recommended that the Board vote to approve the Merger Agreement. In this regard,
the Board noted that the Special Committee had been authorized in its sole
discretion to engage its own legal counsel and financial advisors, at the
Company's expense, and that the Special Committee had engaged James S. Freedman
as its legal counsel and Goldman Sachs as its financial advisor.
The foregoing description of the factors considered by the Special
Committee and Board is not exhaustive but covers the principal matters discussed
in detail by the Board and the Special Committee. In view of the wide variety of
factors considered, neither the Board nor the Special Committee considered it
practical to, nor did they attempt to, quantify or attach any particular weight
to any of the factors reviewed in reaching their conclusions to recommend the
Merger Agreement to the Independent Shareholders as being in their best
interests.
Ghelfi Parties. The Ghelfi Parties may have certain interests in the
Merger Agreement and the transactions contemplated thereby that are different
from or in addition to the interests of the Independent Shareholders. Therefore,
the Ghelfi Parties did not participate in the approval and recommendation of the
Merger by the Special Committee and the Board. However, the Ghelfi Parties
believe that the Merger Agreement is fair to, and in the best interests of, the
Independent Shareholders based on the same conclusions, and the factors and
reasons therefor, reached by the Special Committee and the Board in approving
the Merger as set forth above, and based on the fact that the Merger was
approved and adopted by the Special Committee and the Board, which were advised
by experienced and independent counsel and financial advisors. See "-- Interests
of Certain Persons in the Merger."
The Ghelfi Parties have adopted the description of the factors considered
by the Special Committee and the Board set forth above to describe the Ghelfi
Parties' consideration of the Merger Agreement. That description is not
exhaustive, but covers the principal matters considered by the Ghelfi Parties,
in addition to the fact that the Merger was approved by the Special Committee
and the Board, in the manner described herein.
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OPINION OF FINANCIAL ADVISOR
On December 4, 1996, Goldman Sachs delivered its written opinion to the
Special Committee and the Board that, as of the date of such opinion, the
consideration of $26.75 per share in cash to be received by the Independent
Shareholders pursuant to the Merger Agreement is fair to the Independent
Shareholders.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, WHICH SETS FORTH
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN
CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT
AND IS INCORPORATED HEREIN BY REFERENCE. INDEPENDENT SHAREHOLDERS ARE URGED TO
READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement, the Voting Agreement, the Shareholders' Agreement and
the Stock Purchase Agreement; (ii) the Annual Reports to Shareholders and Annual
Reports on Form 10-K of the Company for the five fiscal years ended September
30, 1995 and preliminary financial statements for the fiscal year ended
September 30, 1996; (iii) certain interim reports to shareholders and Quarterly
Reports on Form 10-Q of the Company; (iv) certain other communications from the
Company to its shareholders; and (v) certain internal financial analyses and
forecasts for the Company prepared by its management. Goldman Sachs also held
discussions with members of the senior management of the Company regarding its
past and current business operations, financial condition and future prospects.
In addition, Goldman Sachs reviewed the reported price and trading activity for
the Common Stock, compared certain financial and stock market information for
the Company with similar information for certain other companies the securities
of which are publicly traded, reviewed the financial terms of certain recent
business combinations in the manufactured housing industry specifically and in
other industries generally and performed such other studies and analyses as it
considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In that regard, Goldman Sachs assumed, with the consent
of the Special Committee and the Board, that the financial analyses and
forecasts related to the Company and its business operations, financial
condition and future prospects had been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of the Company and that such forecasts will be realized at the times
contemplated therein. In addition, Goldman Sachs did not make an independent
evaluation or appraisal of the assets and liabilities of the Company or any of
its subsidiaries and Goldman Sachs was not furnished with any such evaluation or
appraisal.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its written opinion to the Special
Committee and the Board on December 4, 1996.
(i) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for the Common Stock. In addition, Goldman
Sachs analyzed the consideration to be received by Independent Shareholders
pursuant to the Merger Agreement in relation to the high, low and average market
closing prices of the Common Stock over the last ten days, the last month, the
last twelve months ("LTM"), the last three years, the last five years and the
last ten years prior to December 4, 1996, the date on which the Merger Agreement
was executed. Such analysis indicated that the price per share to be received by
Independent Shareholders pursuant to the Merger Agreement represented a premium
of 15.1% based on the LTM high market closing price of $23.25 per share, 143.2%
based on the LTM low market closing price of $11.00 per share and 69.1% based on
the LTM average market closing price of $15.81 per share. Such consideration
represented a premium of 20.0% based on the last ten days average market closing
price of $22.29 per share, 25.5% based on the last month average market closing
price of $21.32, 112.3% based on the last three years average market closing
price of $12.60 per share and 174.4% based on the last five years average market
closing price of $9.75 per share.
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(ii) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to the Company to corresponding financial
information, ratios and public market multiples for 7 publicly traded
corporations: American Homestar Corporation, Cavalier Homes, Inc., Liberty
Homes, Inc., Nobility Homes, Inc., Schult Homes Corporation, Skyline
Corporation, and Southern Energy Homes, Inc. (the "Selected Companies"). The
Selected Companies were chosen because they are publicly-traded companies with
operations that for purposes of analysis may be considered similar to the
operations of the Company. Goldman Sachs calculated and compared various
financial multiples and ratios. The multiples of the Company were calculated
using a price of $22.50 per share, the last reported sale price of the Common
Stock on the National Association of Securities Dealers Automated Quotation
System on December 2, 1996. The multiples and ratios for the Company were based
on information provided by the Company's management and the multiples for each
of the Selected Companies were based on the most recent publicly available
information. With respect to the Selected Companies, Goldman Sachs considered
levered market capitalization (i.e., market value of common equity plus total
debt) as a multiple of LTM free cash flow and as a multiple of LTM earnings
before interest, taxes and depreciation and amortization ("EBITDA"). Goldman
Sachs' analyses of the Selected Companies indicated levered multiples of LTM
free cash flow, which ranged from 31.1x to 0.0x and LTM EBITDA, which ranged
from 10.4x to 5.1x, compared to levered multiples of 14.8x and 7.2x,
respectively, for the Company. Goldman Sachs also considered for the Selected
Companies estimated 1996 LTM price/earnings ratios, which ranged from 16.0x to
10.7x compared to an actual 1996 LTM price/earnings ratio of 12.2x for the
Company; estimated 1996 and 1997 price/earnings ratios, which ranged from 14.9x
to 10.2x for estimated 1996 and 21.3x to 8.6x for estimated 1997 compared to
12.2x and 9.9x, respectively, for the Company; debt to total market
capitalization ratios, which ranged from 5.3% to 0% compared to 19.6% for the
Company; and dividend yields for the current fiscal year ranging from 8.3% to
0.0% compared to 0.0% for the Company.
(iii) Discounted Cash Flow Analysis. Goldman Sachs performed a discounted
cash flow analysis under the following two scenarios: (a) using the Company's
management projections, which assumed, among other things, that there will be no
economic recession during the period 1997 through 2001, the Company's proposed
New Mexico plant will be completed and become operational without significant
delays, the Company's leasing segment's cash flow and utilization will increase
significantly in 1997 and build steadily thereafter, the Company's revenue
growth will increase at various rates ranging from 2.0% to 24.8% over the period
1997 through 2001 and the Company's EBITDA margin will range from 11.3% to 11.8%
over the period 1997 through 2001 ("Management Case No. 1"); and (b) using the
projections of Management Case No. 1, except that it was assumed, among other
things, that a moderate to significant economic recession will occur in fiscal
year 1997, which will cause unit volumes in the Company's manufactured housing
division to decline, but that revenue growth in the manufactured housing
division will resume at an annual rate of 8% thereafter, that earnings before
interest and taxes ("EBIT") of the Company's manufactured housing division will
increase at an average annual rate of 5.2% from fiscal year 1996 through fiscal
year 2001, and that the EBIT of the Company's leasing division will grow 66%
from fiscal year 1996 to fiscal year 1997 and will continue to grow to $2.5
million in fiscal year 2001 ("Management Case No. 2"). Goldman Sachs calculated
a net present value of free cash flows for the fiscal years 1997 through 2001
using discount rates ranging from 16% to 20%. Goldman Sachs calculated the
Company's terminal values in fiscal year 2001 based on a range of multiples of
EBITDA. These terminal values were then discounted to present value using
discount rates from 16% to 20%.
Using the Company's terminal values in fiscal year 2001 based on a range of
multiples of 5.5x to 7.5x EBITDA and discounting these terminal values to
present value using discount rates ranging from 16% to 20%, the implied per
share values ranged from $20.66 to $31.04 in Management Case No. 1, and from
$14.93 to $23.12 in Management Case No. 2.
(iv) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to selected transactions in the manufactured housing
industry since 1994 (the "Selected Transactions"). Such analysis indicated that
for the Selected Transactions (i) aggregate consideration as a multiple of book
value ranged from 1.8x to 4.8x as compared to 3.3x for the consideration to be
received by Independent Shareholders in the Merger; (ii) aggregate consideration
as a multiple of revenues ranged from 0.15x to 0.53x as compared to 0.78x for
the consideration to be received by Independent Shareholders in the Merger;
(iii) aggregate consideration as a multiple of EBITDA ranged from 3.7x to 7.2x
as compared to 7.3x for the consideration to
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be received by Independent Shareholders in the Merger; (iv) aggregate
consideration as a multiple of operating income ranged from 3.7x to 8.1x as
compared to 8.4x for the consideration to be received by Independent
Shareholders in the Merger; and (v) aggregate consideration as a multiple of net
income ranged from 6.2x to 13.2x as compared to 15.3x for the consideration to
be received by Independent Shareholders in the Merger.
(v) Analysis of Future Consideration to Ghelfi Parties. Goldman Sachs
analyzed the future consideration likely to be received by the Ghelfi Parties
for the sale to CREC of their approximate 22% retained indirect equity interest
in Cavco pursuant to the put options and call options contemplated by the
Shareholders' Agreement, in either the third, fourth or fifth year following the
Merger, as well as the percentage change in the Company's projections needed for
the Ghelfi Parties to receive a present value of $26.75 for their position. See
"Related Agreements -- Shareholders' Agreement." For purposes of such
calculation, Goldman Sachs applied the option price formula set forth in the
Shareholders' Agreement (which is based in part on specified multiples of the
Holding Company's adjusted earnings before taxes) to the Company's management
projections in Management Case No. 1 and discounted such projected option
purchase prices using discount rates ranging from 14% to 20%.
Using the projections in Management Case No. 1 to derive projected option
purchase prices and discounting these projected prices to present value using
discount rates ranging from 14% to 20%, the projected per share present value of
the Ghelfi Parties' approximate 22% retained indirect equity interest in Cavco
ranged from $20.50 to $23.91 for an exercise of the put option in year three
(which indicates the Company would have to exceed its projections by an amount
ranging from 30.5% to 11.9% in order for the Ghelfi Parties to receive a present
value of $26.75), from $21.89 to $26.88 for an exercise of the put option in
year four (which indicates the Company would have to exceed/miss its projections
by an amount ranging from 22.2% to (.5)% in order for the Ghelfi Parties to
receive a present value of $26.75), and from $21.91 to $28.32 for an exercise of
either the put option or the call option in year five (which indicates the
Company would have to exceed/miss its projections by an amount ranging from
22.1% to (5.5)% in order for the Ghelfi Parties to receive a present value of
$26.75).
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
the Company or the proposed transaction. The analyses were prepared solely for
purposes of Goldman Sachs' providing its opinion to the Special Committee and
the Board as to the fairness of the consideration of $26.75 per Share in cash to
be received by the Independent Shareholders pursuant to the Merger Agreement and
do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control the parties or their respective
advisors, none of the Company, CREC, the Ghelfi Parties, Goldman Sachs or any
other person assumes responsibility if future results are materially different
from those forecast. As described above, Goldman Sachs' opinion to the Special
Committee and the Board was one of many factors taken into consideration by the
Special Committee and the Board in making their determinations to approve the
Merger Agreement. The foregoing summary does not purport to be a complete
description of the analysis performed by Goldman Sachs and is qualified by
reference to the written opinion of Goldman Sachs set forth in Appendix B
hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwriting, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. The Special Committee
and the Board selected Goldman Sachs as their financial advisor because, among
other things, it is a nationally recognized investment banking firm that has
substantial experience in transactions similar to the Merger.
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Pursuant to a letter agreement dated November 15, 1996 (the "Engagement
Letter"), the Special Committee engaged Goldman Sachs to undertake a study to
enable Goldman Sachs to render its opinion with respect to the cash
consideration to be received for each share held by Independent Shareholders in
the proposed Merger. Pursuant to the terms of the Engagement Letter, the Company
has agreed to pay Goldman Sachs a fee of $400,000 of which $300,000 was paid
following the delivery of Goldman Sachs' written opinion on December 4, 1996,
and the remainder of which will be paid upon consummation of the Merger. The
Company has agreed to reimburse Goldman Sachs for its reasonable out-of-pocket
expenses, including attorney's fees and disbursements, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board with respect to the Merger
Agreement and the transactions contemplated thereby, Shareholders should be
aware that the Ghelfi Parties and certain directors and officers of Cavco may
have certain interests in the Merger Agreement and the transactions contemplated
thereby that are different from or in addition to the interests of the
Independent Shareholders, including but not limited to the interests described
below.
Interests of Ghelfi Parties in the Holding Company and Surviving
Corporation; Shareholders' Agreement. Of the 1,830,729 shares of Common Stock
held by the Ghelfi Parties, 1,047,288 shares will be converted in the Merger
into the right to receive the Merger Consideration on the same terms and
conditions as the shares of Common Stock held by the Independent Shareholders.
Contemporaneously with the Merger, in exchange for Holding Company Common Stock,
the Ghelfi Parties will contribute the remaining 783,441 shares of Common Stock
held by them to the Holding Company. As a result of the Merger and the other
transactions contemplated by the Merger Agreement, CREC will hold approximately
78% of the Holding Company Common Stock and the Ghelfi Parties will hold the
remaining approximately 22% of the Holding Company Common Stock. Cavco, as the
surviving corporation, will be a wholly owned subsidiary of the Holding Company.
Accordingly, the Ghelfi Parties will retain, through their ownership of Holding
Company Common Stock, an approximate 22% indirect equity interest in Cavco. As a
result of these transactions, the indirect interest of the Ghelfi Parties in the
net book value and net earnings of Cavco will decline from approximately 52%
($15,719,074 and $810,333, respectively, based on the unaudited financial
statements of Cavco as of December 31, 1996 and for the three months then ended)
to approximately 22% ($6,650,377 and $342,833, respectively as of the same date
and for the same period). See "The Merger Agreement."
CREC, the Holding Company and the Ghelfi Parties have agreed to enter into
the Shareholders' Agreement upon consummation of the Merger. The Shareholders'
Agreement will provide that CREC and the Ghelfi Parties will each have the right
to designate a specified number of members of the board of directors of the
Holding Company and that certain actions may not be taken by the Holding Company
unless authorized by a vote of at least two-thirds of the total number of
Holding Company directors. Under the Shareholders' Agreement, all of the Holding
Company Common Stock will be subject to certain transfer restrictions, and the
shares held by the Ghelfi Parties will be subject to certain annual put options
exercisable by the Ghelfi Parties (beginning in 2000) and certain annual call
options exercisable by CREC (beginning in 2002) whereby CREC may acquire all of
the Ghelfi Parties' shares of Holding Company Common Stock at a formula price
based on specified multiples of the Holding Company's adjusted earnings before
taxes. The Shareholders' Agreement also contains agreements relating to the
payment of dividends and grants the Ghelfi Parties a right of first refusal with
respect to the sale of the Leasing Business. See "Related Agreements --
Shareholders' Agreement."
Voting Agreement and Stock Purchase Agreement. Concurrently with the
execution of the Merger Agreement, the Ghelfi Parties, who beneficially owned as
of the Record Date approximately 52% of the outstanding shares of Common Stock,
entered into the Voting Agreement and the Stock Purchase Agreement with CREC.
Pursuant to the Voting Agreement, the Ghelfi Parties have agreed to vote all of
the shares of Common Stock owned by them to approve the Merger Agreement and
against any inconsistent transactions. Pursuant to the Stock Purchase Agreement,
the Ghelfi Parties have agreed to sell to CREC, and CREC has agreed to purchase,
pursuant to the Subject Share Purchase, an aggregate of 1,047,288 shares of
Common
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Stock, representing approximately 30% of the outstanding shares, for $26.75 per
share in the event the Merger Agreement is terminated for specified reasons. If
the Merger Agreement is terminated and the transactions contemplated by the
Stock Purchase Agreement are consummated, the Ghelfi Parties and CREC have
agreed to enter into a shareholders' agreement (the "Cavco Shareholders'
Agreement") and to use their best efforts to cause Cavco to become a party
thereto. The terms and conditions of the Cavco Shareholders' Agreement are
substantially similar to the terms and conditions of the Shareholders'
Agreement, with certain exceptions. Among other things, the Cavco Shareholders'
Agreement will provide that CREC and the Ghelfi Parties will each have the right
to designate a specified number of Cavco directors, with CREC having the right
to designate a majority of directors, and that Cavco will not take certain
actions or engage in certain transactions, including a merger, consolidation or
sale of all or substantially all of its assets, unless authorized by a vote of
at least two-thirds of the total number of Cavco directors. See "Certain Other
Agreements Between CREC and the Ghelfi Parties -- Stock Purchase Agreement."
The Company believes that one effect of the Stock Purchase Agreement and
the Voting Agreement is to increase the likelihood that the Merger will be
consummated by making it more difficult for a third party to make a competing
proposal to acquire the Company. See "Special Factors -- Recommendation and
Reasons for the Merger" and "Certain Agreements Between CREC and the Ghelfi
Parties."
Consulting Agreement. Al Ghelfi, the Chairman of the Board, has entered
into a Consulting Agreement with Cavco, which will become effective upon the
consummation of the transactions contemplated by the Merger Agreement or upon
consummation of the Subject Share Purchase pursuant to the Stock Purchase
Agreement, as the case may be. The Consulting Agreement has a term of five years
(subject to earlier termination by either party if CREC acquires all of the
shares of Common Stock or Holding Company Common Stock, as the case may be, held
by the Ghelfi Parties) and provides, among other things, that Al Ghelfi will
receive an annual consulting fee in the amount of $350,000. See "Related
Agreements -- Consulting Agreement."
Employment Agreement. Brent Ghelfi, the President and Chief Executive
Officer of Cavco, has entered into an Employment Agreement with Cavco, which
will become effective upon consummation of the transactions contemplated by the
Merger Agreement or upon consummation of the Subject Share Purchase pursuant to
the Stock Purchase Agreement, as the case may be. The Employment Agreement has a
term of five years and provides, among other things, that Brent Ghelfi will
receive a salary of $78,000 per annum, as well as monthly bonuses in amounts to
be determined in accordance with the existing policies and practices of Cavco
currently in effect with respect to the payment of bonuses to its Chief
Executive Officer. During the fiscal year ended September 30, 1996 (in which
Brent Ghelfi served as Executive Vice President and Chief Operating Officer of
Cavco), Brent Ghelfi received monthly bonuses from Cavco in the aggregate amount
of approximately $390,000. See "Related Agreements -- Employment Agreement."
Directors and Officers of the Surviving Corporation. Following the Merger,
the board of directors of the Surviving Corporation will consist of Al Ghelfi,
Brent Ghelfi, Laurence E. Hirsch, David W. Quinn and William J. Gillilan III.
Messrs. Hirsch, Quinn, and Gillilan are also directors and officers of Centex.
In addition, following the Merger, the executive officers of the Surviving
Corporation will include the present executive officers of Cavco. See "The
Merger Agreement -- Governing Documents; Directors and Officers."
Indemnification of Directors, Officers and Ghelfi Parties. Pursuant to the
Merger Agreement, the Company will indemnify and hold harmless the directors and
officers of the Company to the maximum extent permitted under applicable law,
the provisions of its certificate of incorporation and bylaws as in effect on
the date of the Merger Agreement and any indemnification agreement to which the
Company and any such person are parties with respect to matters occurring prior
to the Effective Time, including, but not limited to, all matters arising out of
or relating to the Merger or any other transactions contemplated by the Merger
Agreement, and will advance reasonable expenses to such directors and officers
upon request and delivery of any undertaking required by law. Cavco is a party
to a separate indemnification agreement with each director of Cavco. In the
event that the Company fails to comply with the foregoing obligations with
respect to the indemnification of directors and officers, CREC will be
responsible therefor and, to the fullest extent permitted under applicable law,
will perform such obligations unconditionally without regard to any defense or
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other basis for nonperformance which the Company may be entitled to assert. See
"The Merger Agreement -- Indemnification of Directors and Officers."
Pursuant to the Stock Purchase Agreement, CREC has agreed to indemnify and
hold harmless the Ghelfi Parties, in their capacities as majority shareholders
or controlling persons of the Company (but not in their capacities as general
partners of any partnership or trustees of any trust owing fiduciary duties or
obligations to the partners of any such partnership or beneficiaries of any such
trust) for, from and against (i) any and all demands, claims, actions, causes of
action or proceedings made or brought by a Shareholder (whether on behalf of
such Shareholder or derivatively in the name and on behalf of the Company)
alleging a breach of the duties and obligations of the Ghelfi Parties to the
Independent Shareholders or the Company which arises out of or is based upon the
Stock Purchase Agreement or the Voting Agreement or the Subject Share Purchase
or the other transactions contemplated thereby or any action or omission taken
or omitted to be taken by the Ghelfi Parties in order to effectuate any such
transactions and (ii) any and all assessments, losses, damages, liabilities,
settlements, judgments, fines, penalties, interest, costs and expenses
(including fees and disbursements of counsel) which are asserted against,
imposed upon or incurred by any such Ghelfi Party as a result of or in
connection with any such demands, claims, actions, causes of action or
proceedings. See "Certain Other Agreements Between CREC and the Ghelfi
Parties -- Stock Purchase Agreement."
Certain Employee Stock Options. Wendell Hargis, Executive Vice President
of Plant Development of Cavco, holds an option to purchase 45,000 shares of
Common Stock. Cavco and Mr. Hargis have agreed that in connection with the
transactions contemplated by the Merger Agreement, the Company will accelerate
the vesting of such options and Mr. Hargis will exercise such options, as a
result of which the Common Stock received upon such exercise will be converted
into the right to receive the Merger Consideration in the Merger. In accordance
with the terms of the applicable stock option agreement, Cavco will loan the
exercise price of such options to Mr. Hargis, which Mr. Hargis has agreed to
repay through an offset against the Merger Consideration he will be entitled to
receive in the Merger. See "Security Ownership of Certain Beneficial Owners and
Management."
CERTAIN EFFECTS OF THE MERGER; PLANS FOR THE COMPANY AFTER THE MERGER
If the Merger is consummated, the Independent Shareholders will no longer
have an equity interest in Cavco and, therefore, will not share in its future
earnings and growth. Instead, each Independent Shareholder will have the right
to receive $26.75 per share in cash (or, in the case of Dissenting Shareholders,
the fair value of their shares as determined in accordance with Arizona law).
Cavco will, as a result of the Merger, become a wholly owned subsidiary of
the Holding Company, the shares of which will be owned approximately 78% by CREC
and approximately 22% by the Ghelfi Parties. The Common Stock will cease to be
traded on the Nasdaq SmallCap Market, the registration of Common Stock under the
Exchange Act will be terminated, Cavco will be relieved of the obligation to
comply with the proxy rules of Regulation 14A under Section 14 of the Exchange
Act, and its officers, directors and beneficial owners of more than 10% of the
Common Stock will be relieved of the reporting requirements and restrictions on
insider trading under Section 16 of the Exchange Act. Accordingly, less
information about Cavco will be required to be made publicly available than
presently is the case. Certain information about Cavco will continue to be
available through the public reports of Centex.
After the Merger, as a result of its approximate 78% indirect ownership
interest in Cavco and its ability to designate a majority of the members of the
board of directors of the Holding Company, CREC will be in a position, subject
to the provisions of the Shareholders' Agreement, to control the business and
affairs of Cavco. Any changes that CREC may wish to effect in the corporate
structure, operations, properties, policies, management and personnel of the
Holding Company following the Merger are limited in certain significant respects
by the terms of the Shareholders' Agreement. For example, under the
Shareholders' Agreement, the consent of the members of the board of directors
designated by the Ghelfi Parties will be required in order for the Holding
Company to take certain specified actions, including but not limited to (i) a
merger involving the Holding Company or Cavco, (ii) a sale or other disposition
of all or substantially all of the properties and assets of the Holding Company
or Cavco and (iii) the appointment or dismissal of the chief executive officer
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or chief financial officer of the Holding Company or Cavco. See "Related
Agreements -- Shareholders' Agreement."
Following the consummation of the Merger, CREC plans to continue to
evaluate whether significant benefits could be derived from coordinating Cavco's
manufactured housing and real estate development operations with those of one or
more subsidiaries of Centex. Among other things, CREC believes that it may be
possible to derive substantial cost savings and other benefits by establishing
joint supply arrangements with certain third parties capable of providing raw
materials utilized both in CREC's existing home building operations and in the
manufactured housing operations conducted by Cavco in Arizona and New Mexico.
CREC also believes that the real estate development operations conducted by
Cavco may benefit from the experience and expertise of Centex's management and
other personnel in planning and developing residential housing communities.
Furthermore, CREC will evaluate whether significant benefits could be derived
from a reorganization of its Cavco holdings or a consolidation of Cavco's
business activities with those of one or more subsidiaries of Centex. In
evaluating its alternatives, CREC will focus on, among other things, the extent
to which such alternatives will enable it to take advantage of existing
opportunities for expanding and developing Cavco's operations in a profitable
manner.
In addition, following the consummation of the Merger, CREC plans to
evaluate a possible sale or other disposition of the Leasing Business currently
conducted by Cavco to either the Ghelfi Parties or one or more third parties.
Under the terms of the Shareholders' Agreement, if the board of directors of the
Holding Company determines to effect a sale or other disposition of the Leasing
Business, the Ghelfi Parties will have the exclusive right to negotiate with the
Holding Company with respect to an acquisition of the Leasing Business for a
period of 90 days. Moreover, if the Holding Company decides at any time to sell
the leasing business to one or more third parties, the Ghelfi Parties will have
a right of first refusal to purchase the leasing business on the same terms and
conditions as those contemplated by the transactions with such third parties.
See "Related Agreements -- Shareholders' Agreement."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations relevant to the Merger that are generally applicable to holders
of Common Stock who hold their shares as capital assets. The discussion does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, tax-exempt entities, non-resident aliens or
foreign corporations. This discussion is based on currently existing provisions
of the Internal Revenue Code of 1986, as amended ("Internal Revenue Code"),
existing and proposed Treasury Regulations thereunder and current administrative
rulings and court decisions, all of which are subject to change. Any such
change, which may or may not be retroactive, could alter the tax consequences to
Shareholders as described herein.
The receipt of cash by a Shareholder, in the Merger or through the exercise
of dissenters' rights, for shares of Common Stock will be a taxable transaction
for federal income tax purposes. Each Shareholder's gain or loss per share will
be equal to the difference between the proceeds per share received as a result
of the Merger or exercise of dissenters' rights and the Shareholder's tax basis
per share in the Common Stock. If a Shareholder holds the Common Stock as a
capital asset, the gain or loss from the exchange will be a capital gain or
loss. This gain or loss will be long term if the Shareholder's holding period is
more than one year.
Capital losses are deductible against capital gains recognized in the same
year plus, for noncorporate taxpayers, up to $3,000 of ordinary income for such
year. Capital losses which exceed this limit may be carried forward to future
tax years, subject to the same limitation on deductibility.
For shares of Common Stock which were acquired through the exercise of
employee incentive stock options and which have not been held for a period of
two years since the option was granted and a period of one year since the option
was exercised and other shares that are not held as capital assets, gain on such
shares will be subject to federal income tax at ordinary income tax rates.
Unless an exemption applies, the Paying Agent will be required to withhold
31% of the Merger Consideration payable to a holder of Common Stock or other
payee unless such Shareholder or other payee
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provides the Paying Agent with his, her or its taxpayer identification number
(in the case of an individual, a social security number) and certifies certain
other information. The letter of transmittal that will be mailed to Shareholders
following consummation of the Merger will contain a form that may be completed
by each Shareholder or other payee to provide the information and certification
necessary to avoid this withholding requirement.
The receipt by the Ghelfi Parties of shares of Holding Company Common Stock
in exchange for their contribution of the Contributed Company Shares to the
Holding Company will not be a taxable transaction for federal income tax
purposes.
THE FOREGOING TAX DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND
IS BASED UPON PRESENT FEDERAL INCOME TAX LAW. EACH SHAREHOLDER SHOULD CONSULT
SUCH SHAREHOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO SUCH SHAREHOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL,
STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECT OF CHANGES IN SUCH TAX
LAWS. SPECIAL RULES APPLY TO COMMON STOCK RECEIVED PURSUANT TO THE EXERCISE OF
EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION.
REGULATORY CONSIDERATIONS
Hart-Scott-Rodino Antitrust Improvements Act. Under the Merger Agreement,
the parties' respective obligations to consummate the transactions contemplated
by the Merger Agreement are subject to the expiration or termination of any
waiting periods applicable to such transactions under the Hart-Scott-Rodino
Antitrust Improvements Act. Pursuant to the HSR Act and the rules promulgated
thereunder, on or about December 26, 1996, Centex and Cavco filed notification
and report forms. Early termination was granted with respect to the applicable
waiting periods as of December 31, 1996.
Arizona Takeover Statute. Chapter 23 of the Arizona Act (the "Arizona
Takeover Statute") provides certain regulations applicable to corporate
takeovers. Article 3 of the Arizona Takeover Statute (the "Arizona Business
Combination Statute") imposes certain restrictions on the ability of an
"interested shareholder" of an "issuing public corporation" (as defined therein)
to engage in certain business combinations and other corporate actions for a
period of three years following the date the interested shareholder became an
interested shareholder. An "interested shareholder" is any shareholder that is
either the beneficial owner, directly or indirectly, of ten percent or more of
the voting power of the corporation's shares or an affiliate or associate of the
corporation who at any time during the three-year period prior to the date in
question beneficially owned ten percent or more of such voting power. The
Arizona Business Combination Statute does not apply to business combinations
with persons who became interested shareholders on or before July 22, 1987, if
the business combination is approved by a simple majority of a committee of
disinterested directors. Under the Arizona Business Combination Statute, certain
business combinations are prohibited unless, prior to the date the interested
shareholder becomes an interested shareholder, a special committee of
disinterested directors of the corporation approves, either (i) the proposed
business combination with such interested shareholder, or (ii) the proposed
acquisition of shares by such interested shareholder. On December 4, 1996, the
Special Committee (comprised entirely of "disinterested directors" as such term
is defined in the Arizona Act) approved the transactions with CREC contemplated
by the Voting Agreement, the Stock Purchase Agreement and the Merger Agreement,
thereby exempting such transactions from the Arizona Business Combination
Statute. See "The Merger Agreement -- Arizona Takeover Statute Matters."
Article 2 of the Arizona Takeover Statute (the "Arizona Control Share
Acquisition Statute") provides that shares of an issuing public corporation
acquired in a "control share acquisition" have no voting rights except to elect
directors and except to the extent approved by a vote of a majority of the votes
entitled to be cast on the matter, excluding shares of stock owned by the
acquiror, its affiliates and associates, or by officers or directors of the
corporation. Shares are acquired in a "control share acquisition" if the
acquisition of such shares, when added to all other shares of stock beneficially
owned by the acquiror, would entitle the acquiror to exercise voting power in
electing directors within one of the following ranges of voting power: (a) 20%
or more
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but less than 33 1/3%; (b) 33 1/3% or more but less than a majority; or (c) a
majority of all voting power. A person who has made or proposed to make a
control share acquisition, upon satisfaction of certain conditions, may compel
the corporation to call a special meeting of stockholders to consider the voting
rights of the shares. If voting rights are not approved at the meeting (subject
to certain conditions and limitations), the corporation may redeem any or all of
the shares acquired in the control share acquisition for market value. Cavco
will, as a result of the Merger, become a wholly owned subsidiary of the Holding
Company. Following the Merger, the voting rights of the common stock of the
Surviving Corporation will not be limited by the Arizona Control Share
Acquisition Statute. See "The Merger Agreement -- Arizona Takeover Statute
Matters."
FINANCING THE MERGER
The total amount of funds required to effect the Merger and pay all amounts
due to the Independent Shareholders is estimated to be approximately
$74,300,000.
It is expected that the total Merger Consideration, together with any cash
to be paid to Dissenting Shareholders, will be funded through the cash
contributed by CREC to the Holding Company in exchange for Holding Company
Common Stock. CREC has represented and warranted in the Merger Agreement that it
has, or will have at the time of the consummation of the Merger, the funds
necessary to pay the purchase price for such Holding Company Common Stock.
Estimated costs and fees to be incurred by the Company in connection with
the Merger Agreement and the transactions contemplated thereby, all of which
will be paid by the Company, are as follows:
<TABLE>
<S> <C>
Goldman Sachs fee........................................................ $ 400,000
Geddes and Company fee................................................... 1,300,000
Legal fees............................................................... 350,000
Printing costs........................................................... 17,300
Commission filing fees................................................... 14,860
Solicitation and distribution expenses................................... 10,000
Miscellaneous............................................................ 17,840
----------
TOTAL.......................................................... $2,110,000
==========
</TABLE>
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement, a
copy of which is attached hereto as Appendix A and is incorporated by reference
herein. All references to and summaries of the Merger Agreement contained in
this Proxy Statement are qualified in their entirety by reference to the Merger
Agreement. Shareholders are urged to review the Merger Agreement in its entirety
prior to voting with respect to the approval thereof at the Special Meeting.
GENERAL; PARTIES
On December 4, 1996, CREC, the Holding Company, the Merger Subsidiary, the
Company, Al Ghelfi, Janet Ghelfi and Janal entered into the Merger Agreement,
which provides for the consummation of the Merger and the other transactions
described herein. The Holding Company is a corporation wholly owned by Janal and
the Merger Subsidiary is a wholly owned subsidiary of the Holding Company.
THE MERGER
The Merger Agreement provides that, as promptly as practicable following
the satisfaction or waiver of the conditions described below under
"-- Conditions to the Closing," the Merger Subsidiary will be merged with and
into the Company, whereupon the separate corporate existence of the Merger
Subsidiary will cease and the Company will continue as the surviving corporation
in the Merger (the "Surviving Corporation"). The Merger will be effected through
the filing of the Merger Agreement (or a plan of merger summarizing
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<PAGE> 45
certain of the principal terms thereof) and articles of merger with the Arizona
Corporation Commission, and will be effective at the time of such filing, or at
such later time as may be agreed upon by the Merger Subsidiary and the Company.
As a result of the Merger, the Surviving Corporation will become a wholly owned
subsidiary of the Holding Company.
GOVERNING DOCUMENTS; DIRECTORS AND OFFICERS
The Merger Agreement provides that the articles of incorporation and the
bylaws of the Merger Subsidiary as in effect immediately prior to the Effective
Time will be the articles of incorporation and the bylaws of the Surviving
Corporation.
Pursuant to the Merger Agreement, the number of Cavco directors will be
reduced from six to five, and the initial directors of the Surviving Corporation
will be Al Ghelfi, Brent Ghelfi, Laurence E. Hirsch, David W. Quinn and William
J. Gillilan III. Al Ghelfi and Brent Ghelfi are currently members of the Board
of the Company and serve as its Chairman of the Board and its President and
Chief Executive Officer, respectively. Laurence E. Hirsch, David W. Quinn and
William J. Gillilan III are currently members of the board of directors of
Centex, and serve as its Chairman and Chief Executive Officer, Vice Chairman and
Chief Financial Officer and President and Chief Operating Officer, respectively.
The terms of current Cavco directors William Blandin, Stephen Kleemann, Ruth
Smith and Robert Wold will terminate at the time of the Merger.
Pursuant to the Merger Agreement, all of the current officers of Cavco will
continue as officers of the Surviving Corporation and certain current officers
of Centex will also become officers of the Surviving Corporation. The initial
officers of the Surviving Corporation will be Al Ghelfi, Chairman of the Board;
Brent Ghelfi, President and Chief Executive Officer; Robert Ward, Vice President
and Chief Financial Officer; David Blank, Vice President of Operations; Wendell
Hargis, Executive Vice President of Plant Development; Sam Parlette, Vice
President of Sales and Marketing; Raymond G. Smerge, Vice President, General
Counsel and Secretary; Richard C. Harvey, Assistant Vice President; and Betty L.
Newman, Assistant Secretary. Al Ghelfi, Brent Ghelfi, Robert Ward, David Blank,
Wendell Hargis and Sam Parlette currently serve as officers of the Company.
Raymond G. Smerge, Richard C. Harvey and Betty L. Newman currently serve as
officers of Centex.
Cavco has entered into a Consulting Agreement with Al Ghelfi and an
Employment Agreement with Brent Ghelfi, each of which will become effective upon
consummation of the Merger. See "Related Agreements -- Consulting Agreement" and
"-- Employment Agreement."
HOLDING COMPANY TRANSACTIONS
The Merger Agreement provides that, immediately prior to or concurrently
with the Merger, CREC will contribute to the Holding Company the CREC Purchase
Price (which will be an amount in cash equal to the Merger Consideration to be
paid to the Shareholders pursuant to the Merger Agreement). In exchange for the
CREC Purchase Price, the Holding Company will issue to CREC the number of shares
(the "CREC Holding Company Shares") of Holding Company Common Stock which bears
the same ratio to the number of shares of Holding Company Common Stock to be
held by the Ghelfi Parties after giving effect to the Shareholder Party
Contribution as the number of shares of Company Common Stock that are converted
into the Merger Consideration as a result of the Merger (plus any shares held by
Dissenting Shareholders) bears to the number of Contributed Company Shares.
In addition, immediately prior to or concurrently with the Merger, the
Ghelfi Parties will transfer and contribute to the Holding Company the
Contributed Company Shares (which consist of an aggregate of 783,441 shares of
Common Stock) (the "Shareholder Party Contribution") in exchange for the
issuance by the Holding Company of 7,824.41 shares of Holding Company Common
Stock.
As a result of the foregoing transactions, immediately after the Merger,
approximately 78% of the outstanding shares of Holding Company Common Stock will
be owned by CREC and approximately 22% of the outstanding shares of Holding
Company Common Stock will be owned by the Ghelfi Parties.
CONVERSION OF SECURITIES
The Merger Agreement provides that each share of Common Stock that is
issued and outstanding immediately prior to the Effective Time (other than the
Contributed Company Shares and any shares held by
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<PAGE> 46
Dissenting Shareholders) will, at such time, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into the right to
receive the Merger Consideration. Each share of Common Stock so converted will
automatically be canceled at the Effective Time, and each holder of a
certificate evidencing any such share of Common Stock will cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration. Each share of Common Stock held in the treasury of the Company
and each Contributed Company Share will, at the Effective Time, be canceled and
retired and cease to exist, and no payment will be made in respect thereof.
Each share of Merger Subsidiary Common Stock that is issued and outstanding
immediately prior to the Effective Time will, at such time, by virtue of the
Merger and without any action on the part of the Holding Company (as the sole
holder of shares of Merger Subsidiary Common Stock) be converted into the right
to receive one share of common stock of the Surviving Corporation. Each share of
Merger Subsidiary Common Stock so converted will automatically be canceled at
the Effective Time, and the Holding Company will cease to have any rights with
respect thereto, except the right to receive the foregoing consideration.
The Merger Agreement provides that, at the Effective Time, all outstanding
options to purchase shares of Common Stock ("Company Stock Options"), whether or
not exercisable, will be canceled. Pursuant to the Merger Agreement, the Company
has agreed to use its best efforts and take all action necessary to ensure that
all of the outstanding Company Stock Options are canceled, including, but not
limited to, obtaining the written consent to the cancellation thereof from each
holder of unexercised Company Stock Options. See "Interests of Certain Persons
in the Merger -- Certain Employee Stock Options."
DISSENTERS' RIGHTS
Pursuant to the Merger Agreement, shares of Common Stock which are issued
and outstanding immediately prior to the Effective Time and which are held by
Shareholders who (i) have not voted such shares to approve the Merger Agreement
and (ii) have delivered a written notice of their intent to demand payment for
their shares in accordance with Section 10-1321 of the Arizona Act will not be
converted into the right to receive the Merger Consideration, but will instead
become the right to receive such cash consideration as may be determined to be
due to such Shareholders under the Arizona Act. If a Shareholder fails to
perfect or effectively withdraws or loses such Shareholder's right to demand
payment under the Arizona Act, such Shareholder's shares of Common Stock will
thereupon be deemed to have been converted into, as of the Effective Time, the
right to receive the Merger Consideration, without any interest thereon.
If the CREC Purchase Price is not sufficient to enable the Holding Company
to cause the Surviving Corporation to pay (in addition to the Merger
Consideration payable pursuant to the Merger Agreement) the cash consideration,
if any, due to Dissenting Shareholders in accordance with the Arizona Act, CREC
will provide the Surviving Corporation, as additional consideration for the
issuance of the CREC Holding Company Shares, the funds necessary to pay such
consideration on a timely basis.
Each of the Ghelfi Parties has irrevocably waived any right in connection
with the Merger to demand payment for the shares of Common Stock held by such
Ghelfi Party under Section 10-1321 of the Arizona Act.
EXCHANGE PROCEDURES
From time to time after the Effective Time, the Holding Company will
provide to the Surviving Corporation, and will cause the Surviving Corporation
to provide to the Paying Agent, the funds necessary for the payment of the
Merger Consideration to holders of shares of Common Stock on a timely basis.
Promptly after the Effective Time, the Paying Agent will mail to each
record holder of an outstanding certificate or certificates (the "Certificates")
evidencing any shares of Common Stock to be converted into the Merger
Consideration a letter of transmittal (which will specify that delivery will be
effected, and risk of loss and title to the Certificates will pass, only upon
proper delivery of the Certificates to the Paying Agent) and instructions for
use in effecting the surrender of the Certificates for payment therefor. Upon
surrender to the Paying Agent of a Certificate, together with a duly executed
letter of transmittal and any other required documents, the holder of such
Certificate will receive the Merger Consideration in exchange for each share of
Common Stock, and such Certificate will forthwith be canceled. No interest will
be paid or accrued on the cash payable upon the surrender of the Certificates.
At any time after the expiration of 90 days following the
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<PAGE> 47
Effective Time, the Surviving Corporation will be entitled to require the Paying
Agent to deliver to it any cash (including any interest received with respect
thereto) which has been made available to the Paying Agent and which has not
been disbursed to holders of Certificates, and thereafter such holders will be
entitled to look only to the Surviving Corporation (subject to abandoned
property, escheat or other similar laws) as general creditors thereof with
respect to the cash payable upon due surrender of their Certificates. The right
of any holder of shares of Common Stock to receive the Merger Consideration will
be reduced by the amount of any required tax withholding obligation.
Pursuant to the Merger Agreement, from and after the Effective Time, each
Certificate will, until surrendered to the Paying Agent, represent only the
right to receive, in full satisfaction of all rights in respect of any shares of
Common Stock evidenced by such Certificate, consideration equal to the Merger
Consideration multiplied by the number of shares of Common Stock evidenced
thereby, without any interest thereon. From and after the Effective Time,
holders of Certificates will have no right to vote or to receive any dividends
or other distributions with respect to any shares of Common Stock which were
theretofore represented by such Certificates, other than any dividends or other
distributions payable to holders of record as of a date prior to the Effective
Time, and will have no other rights other than as described herein or provided
by law. Moreover, from and after the Effective Time, there will be no transfers
of the shares of Common Stock which were outstanding immediately prior to the
Effective Time on the stock transfer books of the Surviving Corporation. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they will be canceled and exchanged for the Merger
Consideration in accordance with the exchange procedures described above.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties on the part of the Company relating to (i) the organization of the
Company and other corporate matters, (ii) the authorization, execution, delivery
and performance of the Merger Agreement by the Company, (iii) consents and
approvals to be obtained in connection with the Merger, (iv) this Proxy
Statement and the Schedule 13E-3, (v) the fairness opinion delivered by Goldman
Sachs and the actions taken by the Board in connection with the approval of the
Merger Agreement, (vi) the capitalization of the Company, (vii) the subsidiaries
of the Company, (viii) documents filed by the Company with the Commission and
the accuracy of the information contained therein, (ix) the financial statements
of the Company, (x) the absence of undisclosed liabilities, (xi) the absence of
certain changes and events, (xii) real and personal property, (xiii) contracts
and agreements, (xiv) litigation, (xv) compliance with laws, (xvi) environmental
matters, (xvii) tax matters, (xviii) employee benefit matters, (xix) labor
matters, (xx) intellectual property rights, (xxi) permits and licenses, (xxii)
insurance matters, (xxiii) transactions with affiliates, (xxiv) the absence of
certain business practices and (xxv) brokers' and finders' fees.
In addition, the Merger Agreement contains various customary
representations and warranties on the part of the Ghelfi Parties relating to (i)
the organization of the Holding Company and the Merger Subsidiary and other
corporate matters, (ii) the authorization, execution, delivery and performance
of the Merger Agreement by each of the Holding Company, the Merger Subsidiary
and the Ghelfi Parties, (iii) consents and approvals to be obtained in
connection with the Merger, (iv) the information supplied by the Ghelfi Parties
or the Holding Company for inclusion in this Proxy Statement and the Schedule
13E-3, (v) title to shares of Common Stock owned by the Ghelfi Parties, (vi) the
capitalization of the Holding Company and the Merger Subsidiary, (vii) the
absence of material assets, liabilities or operations of the Holding Company and
the Merger Subsidiary and (viii) brokers' and finders' fees.
The Merger Agreement also contains various customary representations and
warranties on the part of CREC relating to (i) the organization of CREC and
other corporate matters, (ii) the authorization, execution, delivery and
performance of the Merger Agreement by CREC, (iii) consents and approvals to be
obtained in connection with the Merger, (iv) governmental consents, (v) the
financing necessary to pay the CREC Purchase Price and (vi) brokers' and
finders' fees.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement provides that, until the date of the consummation of
the Merger (the "Closing Date"), the Company and its subsidiaries will conduct
their businesses in the ordinary course of business and
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<PAGE> 48
in a manner that is consistent in all material respects with past practice and
the Company and its subsidiaries will preserve intact their business
organizations, and use their best efforts to keep available certain key
employees of the Company and (subject to specified exceptions) maintain their
present relationships with material dealers, retailers, suppliers, insurers,
lessors and licensees and with all governmental authorities and other persons
having material business relationships with the Company or any of its
subsidiaries. Furthermore, until the Closing Date, neither the Company nor any
of its subsidiaries will, without the prior written consent of CREC, take any of
the following actions, except in accordance with the express terms of the Merger
Agreement: (i) amend its charter or bylaws; (ii) issue, sell, pledge, dispose of
or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance
of, any shares of capital stock or other equity securities of, or other
ownership interests in, the Company or any of its subsidiaries (except in
connection with the exercise of any outstanding Company Stock Options), or any
options, warrants, calls or other rights to acquire any shares of capital stock
or other equity securities of, or ownership interests in, the Company or any of
its subsidiaries; (iii) sell, lease, transfer or otherwise dispose of any
material properties or assets of the Company or any of its subsidiaries, other
than in the ordinary course of business; (iv) consolidate with, or merge with or
into, any corporation or other person, except as contemplated by the Merger
Agreement; (v) declare, set aside or pay any dividend or other distribution with
respect to the capital stock of the Company or redeem, purchase or otherwise
acquire any capital stock or other equity interests of, or ownership interests
in, the Company or any of its subsidiaries, except in connection with the
exercise of any outstanding Company Stock Options; (vi) reclassify, combine,
split or subdivide any shares of the capital stock of the Company or any of its
subsidiaries; (vii) incur or assume any indebtedness for borrowed money or issue
any debentures, notes or other debt securities or assume, guarantee, endorse or
otherwise become liable for the obligations of any other person, except in the
ordinary course of business (provided, however, that the aggregate amount of
indebtedness permitted to be incurred or assumed by the Company and its
subsidiaries after the date of the Merger Agreement will not exceed $2,000,000);
(viii) make any loans, advances or capital contributions to, or investments in,
any other person (other than any direct or indirect wholly owned subsidiary),
except for (A) investments to be made in accordance with existing financial and
operating plans disclosed by the Company to CREC prior to the date of the Merger
Agreement and (B) temporary cash investments made in the ordinary course of
business and consistent with past practice; (ix) acquire, by merger,
consolidation or acquisition of stock or assets, any corporation, partnership or
other business organization or division thereof; (x) create or incur any liens
upon any material properties or assets of the Company or any of its subsidiaries
(except for permitted encumbrances specified in the Merger Agreement); (xi)
enter into any material contracts or commitments or engage in any material
transactions (other than the Merger Agreement and the Merger and the other
transactions contemplated hereby) not in the ordinary course of business and
consistent with past practice; (xii) engage in any transactions with any
affiliate (other than (A) the Merger and the other transactions contemplated by
the Merger Agreement or (B) transactions between the Company and any of its
direct or indirect wholly owned subsidiaries), except on terms and conditions at
least as favorable to the Company as those that would apply in the case of a
similar arm's-length transaction; (xiii) enter into any agreement, arrangement
or understanding with any director, officer or employee of the Company or any of
its subsidiaries providing for the employment of any such director, officer or
employee or any increase in the compensation, severance or termination benefits
payable or to become payable by the Company or any of its subsidiaries to any
such director, officer or employee (except for certain types of contracts and
compensation arrangements entered into in the ordinary course of business and
consistent with past practice) or make any loan to or enter into any other
material transaction or arrangement with any such director, officer or employee;
(xiv) increase the benefits payable by the Company or any of its subsidiaries
under any bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option, stock purchase or other employee
benefit plan, program or arrangement made to, for or with any of the directors,
officers or employees of the Company or any of its subsidiaries, other than any
scheduled increase pursuant to the existing terms thereof; (xv) fail to keep all
of the material properties and assets of insurable character of the Company or
any of its subsidiaries insured at least to the extent described in or pursuant
to the Merger Agreement, or take any action that would enable any insurance
company or association to avoid liability under any insurance policy for claims
arising out of occurrences prior to the consummation of the Merger; (xvi) cancel
or compromise any material claim, waive or release any material rights or change
in any material respect or terminate any material contract (except that the
Company and its subsidiaries may terminate or replace, or modify the terms
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of their contractual relationships with, dealers, retailers, suppliers,
insurers, lessors and licensees to the extent that such terminations,
replacements and changes are effected in the ordinary course of business and are
not reasonably likely to have a material adverse effect on the Company and its
subsidiaries, taken as a whole); (xvii) fail to maintain in full force and
effect all material permits that are required in connection with the conduct of
the businesses of the Company or any of its subsidiaries or sell, transfer,
license or otherwise dispose of any material rights or interests under any such
permits; (xviii) change any significant accounting principles, methods or
practices of the Company or any of its subsidiaries, except as required as a
result of any mandatory change in accounting standards; (xix) fail to maintain
the books and records of the Company or any of its subsidiaries in all material
respects in the usual, regular and ordinary manner on a basis consistently
applied; (xx) make any tax elections or settle or compromise any income tax
liability, except in the ordinary course of business and consistent with past
practice; and (xxi) take any action which would cause any representation or
warranty of the Company contained in the Merger Agreement to be untrue or
incorrect in any material respect as of the date when made or as of a future
date.
NO SOLICITATION; FIDUCIARY OUT
The Merger Agreement provides that, until the Closing Date, the Company and
its subsidiaries will not, and will not permit any of their respective
affiliates, directors, officers, agents or other representatives to, initiate
any contact with, solicit, encourage or enter into or continue any discussions,
negotiations, understandings or agreements with any third party with respect to,
or furnish or disclose any non-public information regarding the Company or any
of its subsidiaries or their respective businesses to any third party in
connection with, an Acquisition Proposal (as defined below). Notwithstanding the
foregoing, to the extent that the Board or the Special Committee reasonably
determines based on the advice of its counsel that it is required to do so by
virtue of its fiduciary obligations under applicable law, the Company may (i) in
response to an unsolicited request therefor, furnish non-public information with
respect to the Company or its subsidiaries or their respective businesses to a
third party (a "Qualified Third Party") who the Board or the Special Committee
has reasonably determined is financially able to consummate an Overbid
Transaction (as defined below) pursuant to a customary confidentiality agreement
and discuss such information (but not any non-public information relating to the
structure of the Merger or the other transactions contemplated thereby, other
than any such information which the Company demonstrates was independently
developed solely by the Company and its affiliates, directors, officers, agents
and other representatives) with such Qualified Third Party, (ii) upon receipt of
a bona fide, unsolicited Acquisition Proposal from a Qualified Third Party which
the Board or the Special Committee has reasonably determined would, if
consummated, constitute an Overbid Transaction (a "Qualified Acquisition
Proposal"), participate in discussions and negotiations with such Qualified
Third Party regarding such Qualified Acquisition Proposal (but not enter into
any agreements with respect thereto except as permitted pursuant to clause (iii)
below) if each of the Overbid Negotiation Conditions (as defined below) is
satisfied and (iii) enter into an agreement with a Qualified Third Party with
respect to an Overbid Transaction if each of the Overbid Transaction Conditions
(as defined below) is satisfied. Unless each of the Overbid Transaction
Conditions is satisfied, neither the Board nor any committee thereof will (a)
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
CREC, the approval or recommendation by such Board of the Merger Agreement or
the Merger, (b) approve or recommend, or propose to approve or recommend, any
Acquisition Proposal or (c) cause the Company to authorize or commit to enter
into any agreement with respect to an Acquisition Proposal.
In addition, in the event that the Company or any of the Ghelfi Parties
receives any offer, proposal or inquiry relating to an Acquisition Proposal,
such party will notify CREC within one business day after the receipt of such
offer, proposal or inquiry and will, in any such notice to CREC, indicate the
identity of the offeror and set forth the material terms of such offer, proposal
or inquiry.
As used herein, the terms set forth below have the following meanings:
"Acquisition Proposal" means a proposal by a third party relating to
an acquisition (whether by merger, consolidation, purchase of assets,
purchase of stock or otherwise) of the Company or any of its capital stock
(other than an acquisition of capital stock in connection with the
prepayment or conversion of the outstanding principal amount of the
Convertible Note (as defined below) or the exercise of any
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<PAGE> 50
outstanding Company Stock Options) or any substantial part of its assets or
any other business combination or transaction of a similar nature that is
inconsistent with the Merger or the other transactions contemplated by the
Merger Agreement; provided, however, that the term "Acquisition Proposal"
does not include any proposal relating to a Permitted Sale Transaction (as
defined below).
"Overbid Negotiation Conditions" means, in the case of any Qualified
Acquisition Proposal, each of the following conditions: (i) the Company has
complied fully and in a timely manner with its obligations under the Merger
Agreement to notify CREC of the receipt of such Qualified Acquisition
Proposal (and the identity of the offeror and the material terms of such
proposal); (ii) the Company has delivered to CREC a written notice (an
"Overbid Notice") with regard to the determination of the Board or the
Special Committee as to such Qualified Acquisition Proposal; and (iii) CREC
has not delivered to the Company a Topping Offer (as defined below) with
respect to such Qualified Acquisition Proposal.
"Overbid Transaction" means a transaction contemplated by an
Acquisition Proposal received from a Qualified Third Party (i) which would
provide for consideration attributable to the shares of Common Stock held
by the Independent Shareholders having a fair market value, as reasonably
determined by the Board after consultation with its financial advisors,
that is at least $1,000,000 greater than the product of (A) $26.75 and (B)
the total number of shares of Common Stock held by the Independent
Shareholders, (ii) the terms and conditions of which, when taken in their
entirety, are no less favorable to the Independent Shareholders than the
terms and conditions set forth in the Merger Agreement and (iii) which is
not subject to any conditions or other limitations as a result of which
such transaction is not reasonably likely to be consummated on the terms
proposed by the Qualified Third Party.
"Overbid Transaction Conditions" means, in the case of a Qualified
Acquisition Proposal, each of the following conditions: (i) each of the
Overbid Negotiation Conditions has been satisfied with respect to such
Qualified Acquisition Proposal; (ii) at least ten days have expired from
the date upon which the Company delivered an Overbid Notice to CREC with
respect to such Qualified Acquisition Proposal and CREC has not delivered a
Topping Offer to the Company; (iii) the terms of such Qualified Acquisition
Proposal have not been modified in any manner materially adverse to the
Company or the Independent Shareholders since the date of the Overbid
Notice; and (iv) the Company has paid to CREC the full amount of the
Termination Payments (as defined below).
"Permitted Sale Transaction" means any sale or disposition by the
Company or its subsidiaries (whether through a stock sale, asset sale,
joint venture or otherwise) of the Leasing Business, or the Real Estate
Development Business, in whole or in part, if such sale or disposition does
not have the purpose or effect of hindering, preventing or delaying the
consummation of the Merger or the other transactions contemplated by the
Merger Agreement.
"Topping Offer" means, with respect to any Qualified Acquisition
Proposal, a written offer by CREC to amend the Merger Agreement in order to
provide for consideration attributable to the shares of Common Stock held
by the Independent Shareholders having a value at least $1,000,000 greater
than the value of the consideration provided to the Independent
Shareholders under such Qualified Acquisition Proposal, which offer must
state that it may not be withdrawn or revoked by CREC unless the parties do
not enter into an amendment to the Merger Agreement to reflect the
acceptance of the Topping Offer by the Company and the Ghelfi Parties
within ten calendar days after receipt thereof by the Company.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the Merger Agreement, the Company will indemnify and hold
harmless the directors and officers of the Company to the maximum extent
permitted under applicable law, the provisions of its articles of incorporation
and bylaws as in effect on the date of the Merger Agreement and any
indemnification agreement to which the Company and any such person are parties
with respect to matters occurring prior to the Effective Time, including, but
not limited to, all matters arising out of or relating to the Merger or any
other transactions contemplated by the Merger Agreement, and will advance
reasonable expenses to such directors and officers upon request and delivery of
any undertaking required by law. In the event that the Company fails to comply
with the foregoing obligations with respect to the indemnification of directors
and officers, CREC
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will be responsible therefor and, to the fullest extent permitted under
applicable law, will perform such obligations unconditionally without regard to
any defense or other basis for nonperformance which the Company may be entitled
to assert.
CONVERTIBLE NOTE
Pursuant to the Merger Agreement, prior to the Effective Time, the Company
agreed to prepay in cash one-half of the outstanding principal amount of the
promissory note, dated as of April 28, 1994 (the "Convertible Note"), in the
aggregate principal amount of $4,100,000 issued by the Company to Carl H.
Osterman, as trustee of the CAVCO Convertible Note Trust and to cause the
remainder of the outstanding principal amount of the Convertible Note to be
converted into an aggregate of 128,125 shares of Common Stock. In November 1996,
the Company prepaid in cash one-half of the outstanding principal amount of the
Convertible Note using internally generated funds.
ARIZONA TAKEOVER STATUTE MATTERS
The Merger Agreement provides that the Company will take all action
required in order to ensure that the provisions of the Arizona Business
Combination Statute do not prohibit or restrict the Merger or any of the other
transactions contemplated by the Merger Agreement.
Pursuant to the Merger Agreement, the Company represented and warranted to
CREC that a committee of disinterested directors of the Company has approved the
Subject Share Purchase, in which CREC will acquire an aggregate of 1,047,288
shares of Common Stock (the "Aggregate Subject Shares") from the Ghelfi Parties
pursuant to the Stock Purchase Agreement in the event that the Merger Agreement
is terminated for certain reasons, and that the effect of such approval is to
ensure that the Company is not prohibited from consummating a "business
combination" (as defined for purposes of the Arizona Business Combination
Statute) with CREC for a period of three years after the date of the Subject
Share Purchase. See "Special Factors -- Regulatory Considerations -- Arizona
Takeover Statute."
Pursuant to the Merger Agreement, the Company irrevocably waived any right
that it may have under the Arizona Control Share Acquisition Statute to redeem
or repurchase the Aggregate Subject Shares purchased by CREC. Furthermore,
unless prohibited by law, the Ghelfi Parties agreed to take all reasonable
action within their control necessary to ensure that the Company does not
exercise or attempt to exercise any such right. See "Special
Factors -- Regulatory Considerations -- Arizona Takeover Statute."
The Company and the Ghelfi Parties also agreed that, if the Subject Share
Purchase is consummated, they will take all reasonable action within their
control to ensure that the Aggregate Subject Shares will have the same voting
rights as any other outstanding shares of Common Stock, unless prohibited by
law. Without limiting the generality of the foregoing, if CREC so requests and
provides any undertaking required by law (which undertaking the Company agreed
to waive to the fullest extent permitted by law), the Company will convene a
meeting of the Shareholders as promptly as practicable to consider and vote upon
the approval of a resolution providing that the Aggregate Subject Shares will
have the same voting rights as any other outstanding shares of Common Stock. See
"Special Factors -- Regulatory Considerations -- Arizona Takeover Statute."
POST-TERMINATION PROPOSALS
The Merger Agreement provides that, if such agreement is terminated and the
Subject Share Purchase is consummated in accordance with the Stock Purchase
Agreement, within 30 days after the consummation of the Subject Share Purchase
(or, if applicable, the termination of any agreement with a third party with
respect to an Overbid Transaction within 60 days after the consummation of the
Subject Share Purchase), CREC will make a written proposal (a "Post-Termination
Proposal") to the Board with respect to a transaction pursuant to which CREC or
one or more of its affiliates would acquire all of the outstanding shares of
Common Stock which are held by the Independent Shareholders at a price of $26.75
per share and on terms and conditions no less favorable to such shareholders
than the terms and conditions of the Merger Agreement. Notwithstanding the
foregoing, CREC will not be required to submit a Post-Termination Proposal to
the Board if, at the time
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such proposal would otherwise be required to be submitted hereunder, (i) the
Company is a party to an agreement with a third party with respect to an Overbid
Transaction (and such agreement is not terminated within 60 days), (ii) the
Company or the Ghelfi Parties are in breach in any material respect of their
obligations under the provisions of the Merger Agreement described under
"-- Arizona Takeover Statute Matters" above or (iii) there has been issued and
is in effect any order, writ, injunction, judgment or decree of any federal or
state court or other governmental authority which has the effect of making
illegal, impeding, restraining or prohibiting CREC from making a
Post-Termination Proposal, entering into an agreement with respect to such
proposal or consummating a Post-Termination Proposal.
CERTAIN ADDITIONAL COVENANTS
The Merger Agreement includes various other covenants, including, but not
limited to, covenants that (i) give CREC and its representatives the right to
perform a due diligence investigation of the business, prospects, financial
condition and results of operations of the Company and its subsidiaries and to
be afforded access to their books, records and other documents, (ii) require the
parties to use their reasonable best efforts to comply with all applicable laws
and to obtain all necessary governmental consents to consummate the transactions
contemplated by the Merger Agreement, (iii) require the Ghelfi Parties to use
their reasonable best efforts to cause each of the Company, the Holding Company
and the Merger Subsidiary to perform all of their obligations under the Merger
Agreement and consummate the transactions contemplated thereby, (iv) require the
Company to take all action necessary to terminate all employee stock option
plans prior to the Effective Time, (v) require the Company and the Ghelfi
Parties to notify CREC promptly of certain pending or threatened legal actions
or other matters which relate to the transactions contemplated by the Merger
Agreement or which are likely to have a material adverse effect on the business,
prospects, properties, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole, and (vi) require the Company to
supplement the disclosures made to CREC pursuant to the Merger Agreement.
CONDITIONS TO THE CLOSING
The Merger Agreement provides that the respective obligations of the
parties to the Merger Agreement to consummate the transactions contemplated
thereby are subject to the fulfillment of the following conditions: (i) the
Merger Agreement will have been approved by the affirmative vote of the holders
of at least a majority of the outstanding shares of Common Stock; (ii) no
statute, rule, regulation, order, writ, injunction, judgment or decree will have
been enacted, promulgated, entered, or enforced by any federal or state court or
governmental authority which has the effect of making illegal, impeding or
otherwise restraining or prohibiting such transactions; and (iii) any waiting
period applicable to such transactions under the HSR Act will have terminated or
expired.
The obligations of CREC to consummate the transactions contemplated by the
Merger Agreement (including the transactions described under "-- Holding Company
Transactions" above) will be subject to the fulfillment of the following
conditions (any one or more of which may be waived by CREC): (i) each of the
representations and warranties of the Company contained in the Merger Agreement
(as qualified by the Schedules thereto) will be true and correct as of the
Closing Date as if made on such date and each of the representations and
warranties of the Ghelfi Parties contained in the Merger Agreement will be true
and correct in all material respects as of the Closing Date as if made on such
date (provided, however, that the failure of any such representations or
warranties of the Company to be true and correct will not be a condition to the
obligations of CREC unless the Claims Reserve (as defined below) is less than or
equal to zero); (ii) the Company, the Holding Company and the Ghelfi Parties
will have performed and complied in all material respects with all provisions,
covenants and conditions contained in the Merger Agreement which are required to
be performed or complied with by them prior to or on the Closing Date; (iii)
there will be no outstanding Company Stock Options immediately prior to the
Effective Date; (iv) the Company and the Ghelfi Parties will have delivered to
CREC certificates, dated as of the Closing Date, certifying that the conditions
specified in clauses (i) and (ii) above have been fulfilled; and (v) CREC will
have received an opinion, dated as of the Closing Date, of Osborn Maledon,
counsel for the Company, in the form attached to the Merger Agreement.
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The obligations of the Company and the Ghelfi Parties to consummate the
transactions contemplated by the Merger Agreement (including the Merger and the
transactions described under "-- Holding Company Transactions" above) will be
subject to the fulfillment of the following conditions (any one or more of which
may be waived by the Company and the Ghelfi Parties jointly): (i) each of the
representations and warranties of CREC contained in the Merger Agreement will be
true and correct in all material respects as of the Closing Date as if made on
such date; (ii) CREC will have performed and complied in all material respects
with all provisions, covenants and conditions contained in the Merger Agreement
which are required to be performed or complied with by it prior to or on the
Closing Date; (iii) CREC will have delivered to the Company and the Ghelfi
Parties a certificate, dated as of the Closing Date, certifying that the
conditions specified above have been fulfilled; and (iv) the Company will have
received an opinion, dated as of the Closing Date, of Raymond G. Smerge, Vice
President and Chief Legal Officer of CREC, in the form attached to the Merger
Agreement.
As used herein, the term "Claims Reserve" means the excess, if any, of (i)
the consolidated net worth of the Company as of the end of the most recently
completed calendar month, less the aggregate amount of losses, damages,
liabilities, settlements, judgments, fines, penalties, interest, costs and
expenses reasonably likely to be imposed upon or incurred by either the Company
or CREC as a result of or in connection with the violation or breach by the
Company of any of its representations and warranties contained in the Merger
Agreement (with all such representations and warranties being construed as if
they were not qualified in any manner as to materiality) over (ii) $26,170,656
(which represents the consolidated net worth of the Company as of September 30,
1996, less $2,500,000).
INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS
The Merger Agreement provides that the Ghelfi Parties will jointly and
severally indemnify and hold harmless CREC and its affiliates, directors,
officers, agents and other representatives for, from and against all demands,
claims, actions, causes of action, proceedings, assessments, losses, damages,
liabilities, settlements, judgments, fines, penalties, interest, costs and
expenses (including fees and disbursements of counsel) which are asserted
against, imposed upon or incurred by any of the foregoing persons as a result of
or in connection with the breach or alleged breach by the Ghelfi Parties of
their representations, warranties, covenants or agreements contained in the
Merger Agreement (the "CREC Merger Agreement Claims"); provided, however, that
the Ghelfi Parties will only be obligated to indemnify the foregoing persons if
and to the extent that the aggregate of all CREC Merger Agreement Claims exceeds
$50,000.
The Merger Agreement also provides that CREC will indemnify and hold
harmless the Ghelfi Parties and their respective affiliates, directors,
officers, agents and other representatives for, from and against all demands,
claims, actions, causes of action, proceedings, assessments, losses, damages,
liabilities, settlements, judgments, fines, penalties, interest, costs and
expenses (including fees and disbursements of counsel) which are asserted
against, imposed upon or incurred by the foregoing persons as a result of or in
connection with the breach or alleged breach by CREC of its representations,
warranties, covenants or agreements contained in the Merger Agreement (the
"Shareholder Party Merger Agreement Claims"); provided, however, that CREC will
only be obligated to indemnify the foregoing persons if and to the extent that
the aggregate of all Shareholder Party Merger Agreement Claims exceeds $50,000.
The representations and warranties made by the Company in the Merger
Agreement will not survive the Merger. The representations and warranties made
by CREC and the Ghelfi Parties in the Merger Agreement will survive the Merger
and continue in effect after the Closing Date.
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TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether prior to or after the approval of the Merger Agreement by the
Shareholders, as follows:
(a) by the mutual written consent of CREC and the Company.
(b) by either CREC or the Company if: (i) any federal or state court
or other governmental authority issues an order, writ, injunction, judgment
or decree which has the effect of making illegal, impeding or otherwise
restraining or prohibiting the transactions contemplated by the Merger
Agreement and such order, writ, injunction, judgment or decree becomes
final and nonappealable; or (ii) the Company fails to obtain the required
vote of the Shareholders in favor of the Merger Agreement at the Special
Meeting or any adjournment thereof.
(c) by CREC if: (i) the Overbid Transaction Conditions are satisfied;
(ii) there has been any violation or breach in any material respect on the
part of the Company or any of the Ghelfi Parties of the covenants or
agreements described under "-- No Solicitation; Fiduciary Out" above or
certain of the covenants or agreements described under "-- Certain
Additional Covenants" above; (iii) there has been any violation or breach
in any material respect on the part of the Company or any of the Ghelfi
Parties of any other covenant or agreement contained in the Merger
Agreement which has not been cured within 30 days after receipt of notice
of such violation or breach from CREC; (iv) there has been any violation or
breach on the part of the Company or any violation or breach in any
material respect on the part of the Ghelfi Parties of any representation or
warranty contained in the Merger Agreement (except that CREC may not
terminate the Merger Agreement pursuant to this clause (iv) as a result of
a violation or breach on the part of the Company unless the Claims Reserve
is less than or equal to zero); or (v) the Merger has not been consummated
prior to or on December 31, 1997; provided, however, that, in the case of
any termination pursuant to clause (iii), (iv), or (v) above, CREC will
only be entitled to terminate the Merger Agreement if it has diligently and
in good faith performed or complied in all material respects with the
agreements and covenants required to be performed by it pursuant to the
Merger Agreement.
(d) by the Company and the Ghelfi Parties jointly if: (i) the Board
has modified or withdrawn, in a manner adverse to CREC, the approval or
recommendation by such Board of the Merger Agreement or the Merger and has
authorized the Company to enter into an agreement with a third party with
respect to an Acquisition Proposal as permitted pursuant to the Merger
Agreement; (ii) there has been any violation or breach in any material
respect on the part of CREC of any covenant or agreement contained in the
Merger Agreement which has not been cured within 30 days after receipt of
notice of such violation or breach from the Company; (iii) there has been
any violation or breach in any material respect on the part of CREC of any
representation or warranty contained in the Merger Agreement; or (iv) the
Merger has not been consummated prior to or on December 31, 1997; provided,
however, that, in the case of any termination pursuant to clause (ii),
(iii) or (iv) above, the Company and the Ghelfi Parties will only be
entitled to terminate the Merger Agreement if they have diligently and in
good faith performed or complied in all material respects with the
agreements and covenants required to be performed by them pursuant to the
Merger Agreement.
In the event that the Merger Agreement is terminated, such agreement will
become void and of no further force or effect, and there will be no liability
thereunder on the part of any party or its affiliates, directors, officers,
shareholders, agents or other representatives; provided, however, that certain
provisions of the Merger Agreement, including, but not limited to, those
described under "-- Arizona Takeover Statute Matters" and "-- Post-Termination
Proposals" above and under "-- Expenses" below, will survive any termination of
the Merger Agreement. Nothing contained in the Merger Agreement will relieve any
party from liability for a breach of the Merger Agreement.
If the Merger Agreement is terminated for any reason (other than pursuant
to the provisions described in paragraphs (a), (b)(i) (solely by reason of an
order, writ, injunction, judgment or decree issued in an action brought by a
plaintiff that is a governmental authority), (c)(v), (d)(ii) or (d)(iii) above),
the Company will pay the Termination Payments to CREC. On the other hand, if the
Merger Agreement is terminated pursuant
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to the provisions described in paragraphs (c)(v), (d)(ii) or (d)(iii) above,
CREC will pay the Termination Payments to the Company. In either case, the
Termination Payments will be made in immediately available funds no later than
one business day after the termination of the Merger Agreement.
As used herein, the term "Termination Payments" means the following cash
payments: (i) a fee in the amount of $2,500,000; (ii) reimbursement of all costs
and expenses incurred in connection with the transactions contemplated by the
Merger Agreement by the party entitled to receive the Termination Payments (the
"Recipient") in an amount of up to $300,000 in the aggregate; and (iii) in the
event that the Company or CREC, as the case may be, fails to pay the Recipient
any of the foregoing payments when due, the costs and expenses actually incurred
or accrued by the Recipient (including, but not limited to, reasonable fees and
expenses of counsel) in connection with the collection of the Termination
Payments, together with interest on such unpaid Termination Payments at a rate
of 10% per annum.
EXPENSES
The Merger Agreement provides that, except as expressly provided therein,
all fees and expenses incurred in connection with the Merger Agreement or the
other transactions contemplated thereby will be paid by the party incurring such
fees and expenses.
AMENDMENT OR WAIVER
The Merger Agreement provides that the terms and provisions thereof may be
modified or amended only by a written instrument executed by each of the
parties, and compliance with any term or provision thereof may be waived only by
a written instrument executed by each of the parties entitled to the benefits of
such term or provision.
RELATED AGREEMENTS
The following is a summary of certain provisions of the Shareholders'
Agreement, which will be entered into among CREC, the Holding Company and the
Ghelfi Parties upon consummation of the Merger, and the Consulting Agreement
between Cavco and Al Ghelfi and the Employment Agreement between Cavco and Brent
Ghelfi, each of which was entered into on December 4, 1996. For more detailed
information regarding the Shareholders' Agreement, the Employment Agreement and
the Consulting Agreement, reference is made to the Annual Report on Form 10-K
for the fiscal year ended September 30, 1996, filed by the Company with the
Commission, which includes the full text of such agreements as Exhibits 2.1
(Exhibit D thereto), 10.10 and 10.9 thereto.
SHAREHOLDERS' AGREEMENT
Pursuant to the Merger Agreement, CREC, the Holding Company, and the Ghelfi
Parties have agreed to execute and deliver the Shareholders' Agreement at the
closing of the transactions contemplated by the Merger Agreement.
Directors. The Shareholders' Agreement provides that each Holding Company
shareholder will use its best efforts and take all actions within its power to
cause the Holding Company to have a board of directors consisting of five
persons, two of which will be designated by the Ghelfi Shareholder
Representative (as defined below) so long as the Ghelfi Shareholders (as defined
below) own the Option Shares (as defined below) and all of the remaining members
of which will be designated by CREC. The directors initially designated by the
Ghelfi Shareholder Representative are Al Ghelfi and Brent Ghelfi. The directors
initially designated by CREC are Laurence E. Hirsch, David W. Quinn and William
J. Gillilan III.
Actions Requiring Supermajority Board Vote. The Shareholders' Agreement
provides that the Holding Company will not (and each Holding Company shareholder
will use its best efforts and take all actions within its power to cause the
Holding Company not to) take any of the following actions unless approved by a
vote of at least two-thirds of the total number of members of the Holding
Company board of directors: (i) an amendment to the charter or bylaws of the
Holding Company that abolishes or alters in any material respect
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the rights, privileges or preferences of the holders of Holding Company Common
Stock or the rights, privileges or immunities of directors or officers of the
Holding Company; (ii) a consolidation of the Holding Company with, or merger of
the Holding Company or Cavco with or into, any person; (iii) a sale, lease,
pledge, transfer or other disposition to any person (other than a wholly owned
subsidiary of the Holding Company) of (a) all or substantially all of the
properties and assets of the Holding Company or Cavco or (b) any properties or
assets of the Holding Company or any of its subsidiaries (other than (1)
properties or assets used in connection with the Leasing Business or the Real
Estate Development Business or (2) manufactured housing units or other products
sold, leased, transferred or otherwise disposed of in the ordinary course of
business) with a fair market value in excess of $2,000,000; (iv) a sale,
transfer, pledge or other disposition to any person (other than a wholly owned
subsidiary of the Holding Company) of any capital stock of Cavco; (v) a change
in the general nature of the principal businesses conducted by the Holding
Company and its subsidiaries as of the date of the Shareholders' Agreement; (vi)
the issuance or transfer to any person (other than a wholly owned subsidiary of
the Holding Company) of any shares of Holding Company Common Stock or other
capital stock of the Holding Company or any of its subsidiaries; (vii) the
acquisition of any shares of Holding Company Common Stock or other capital stock
of the Holding Company or any of its subsidiaries; (viii) the approval of the
annual budget of the Holding Company for any fiscal year; (ix) an acquisition of
a business (whether in the form of a stock purchase, asset purchase, merger or
otherwise) or operating properties or assets from any person (A) not related to
or for use in the principal businesses of the Holding Company or (B) for a
purchase price in excess of $5,000,000, other than as contemplated by the annual
budget for the fiscal year of the Holding Company in which such acquisition is
consummated; (x) a determination not to have the consolidated financial
statements of the Holding Company and its consolidated subsidiaries for any
fiscal year audited by a firm of independent public accountants or to have such
consolidated financial statements audited by any firm other than Arthur Andersen
LLP; (xi) a change in the fiscal year of the Holding Company; (xii) the payment
of any dividend in respect of the capital stock of the Holding Company not
required to be declared and paid pursuant to the Shareholders' Agreement; (xiii)
any payment or reimbursement by the Holding Company or any of its subsidiaries
to CREC or any of its affiliates of certain prohibited intercompany charges;
(xiv) any sale or lease of goods by CREC or any of its affiliates (other than
the Holding Company or any of its subsidiaries) to the Holding Company or any of
its subsidiaries, or by the Holding Company or any of its subsidiaries to CREC
or any of its affiliates (other than the Holding Company or any of its
subsidiaries), except on terms that are at least as favorable to the Holding
Company and its subsidiaries as could be obtained in an arm's-length transaction
with an unaffiliated third party; (xv) any amendment to, or change in the terms
of, the Tax Agreement (as defined below) that is material and adverse to the
Holding Company; (xvi) the appointment or dismissal of the chief executive
officer or the chief financial officer of the Holding Company or Cavco; (xvii)
the filing of any petition seeking to reorganize the Holding Company or Cavco
pursuant to, or to obtain relief under, any federal or state bankruptcy or
insolvency law; and (xviii) the dissolution, liquidation or winding-up of the
affairs of the Holding Company or Cavco.
Dividends. Pursuant to the Shareholders' Agreement, the Holding Company
will, and each Holding Company shareholder will use its best efforts and take
all actions within its power to cause the Holding Company to, declare and pay to
the holders of Holding Company Common Stock annual cash dividends in an amount
equal to 20% of the Adjusted Consolidated Net Income (as defined below) of the
Holding Company (and which will be paid pro rata for any partial year in the
event of a transfer of Holding Company Common Stock pursuant to the terms of the
Shareholders' Agreement). The Shareholders' Agreement further provides for the
payment of dividends in an amount equal to (and in the same form as) the net
proceeds received by the Holding Company or any of its subsidiaries from the
sale or other disposition of the Leasing Business.
Intercompany Indebtedness. Pursuant to the Shareholders' Agreement, each
Holding Company shareholder has agreed to use its best efforts and take all
actions within its power to cause all intercompany indebtedness between the
Holding Company and its subsidiaries and CREC or any of its affiliates (other
than the Holding Company and its subsidiaries) to bear interest at the weighted
average rate of interest charged from time to time on the outstanding long- and
short-term indebtedness of Centex and its subsidiaries, as calculated by Centex
no less frequently than weekly. However, the Shareholders' Agreement provides
that if the Holding Company directors designated by the Ghelfi Shareholder
Representative have proposed capital
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projects that meet certain investment criteria and such capital projects have
been rejected or deferred by the Holding Company board of directors, then a
defined portion of such intercompany indebtedness will bear interest at the rate
of 12.5% per annum.
Right of First Refusal to Acquire Leasing Business. The Shareholders'
Agreement provides that if the board of directors of the Holding Company
determines to effect a sale or other disposition of the Leasing Business
(whether in the form of a stock sale, asset sale, merger or otherwise) the
Ghelfi Shareholders and any other persons designed by the Ghelfi Shareholder
Representative ("Ghelfi Purchasers") will have a 90-day right of first
negotiation with respect to an acquisition of the Leasing Business (including
all or substantially all of the property and assets of the Holding Company and
its subsidiaries used in connection therewith and all or substantially all of
the debts, liabilities and obligations arising therefrom). In addition, the
Shareholders' Agreement provides that the Ghelfi Purchasers will have a right of
first refusal to purchase the Leasing Business on the same terms and conditions
as the Holding Company proposes to sell or dispose of the Leasing Business to
any other person. The Ghelfi Purchasers will have such right of first refusal
regardless of whether the Ghelfi Shareholder Representative exercised its right
of first negotiation with respect to any proposed sale or other disposition.
Transfer Restrictions on Holding Company Common Stock. The Shareholders'
Agreement provides that for a period of five years after the Closing Date, no
Holding Company shareholder will transfer shares of Holding Company Common Stock
held by such shareholder to any person other than a Permitted Transferee (as
defined below) unless, in the case of a transfer by a Ghelfi Shareholder, such
transfer has been approved in writing by CREC or, in the case of a transfer by
CREC, such transfer has been approved in writing by the Ghelfi Shareholder
Representative. The Shareholders' Agreement further provides that no Holding
Company shareholder will effect a transfer of Holding Company Common Stock
unless the transferee has executed a supplemental agreement agreeing that its
ownership of such shares will be subject to, and that such transferee will
comply with, the Shareholders' Agreement.
A Holding Company shareholder may pledge shares of Holding Company Common
Stock to certain financial institutions or to a Permitted Transferee as security
for bona fide indebtedness; provided that the pledgee has executed and delivered
an appropriate agreement that in the event of foreclosure or other realization
such Holding Company Common Stock will continue to be subject to the terms and
conditions of the Shareholders' Agreement.
If either a Ghelfi Shareholder or CREC (an "Offeror") desires to make a
voluntary transfer of any shares of Holding Company Common Stock at any time
after the fifth anniversary of the Closing Date to any person other than a
Permitted Transferee, such Offeror will extend a right of first refusal offer to
the Ghelfi Shareholder Representative (in the case of a proposed transfer by
CREC) or to CREC (in the case of a proposed transfer by a Ghelfi Shareholder)
pursuant to which such Offeror will irrevocably offer to sell such Holding
Company Common Stock (the "Offered Stock") to such offeree (the "Offeree"). The
notice of such offer ("Offering Notice") will specify (i) the number of shares
of Offered Stock, (ii) the proposed offering price (including a good faith
estimate of the fair market value of any non-cash consideration) (the "Offering
Price") or in the case of a transaction other than a sale or transfer for value,
a description of the proposed transfer, (iii) the name and address of the
prospective transferee, and (iv) the other terms of the proposed transfer, if
any. The Offeree will have 30 days (180 days if the Offeree is the Ghelfi
Shareholder Representative) to give written notice to the Offeror stating
whether it elects to purchase the Offered Stock. The purchase price for the
Offered Stock will be the Offering Price, in the case of a voluntary sale or
other transfer for value, or $2,675.00 per share of Offered Stock, in the case
of any other transfer. The Shareholders' Agreement further provides that if CREC
delivers an Offering Notice to the Ghelfi Shareholder Representative with
respect to a proposed transfer for value (a "CREC Sale Transaction"), CREC will
include in such notice a "tag along" offer to include in such CREC Sale
Transaction a pro rata number of shares owned by the Ghelfi Shareholders, based
on the respective numbers of shares of Holding Company Common Stock owned by
CREC and the Ghelfi Shareholders. The Shareholders' Agreement provides that any
involuntary transfer of Holding Company Common Stock (other than by will, trust
or intestate succession) will be subject to the restrictions set forth in such
agreement and the person seeking to effect such involuntary transfer will be
required to effect the same in compliance with the transfer restrictions
described above.
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Put and Call Options. The Shareholders' Agreement provides for certain put
options (each, a "Put Option") that may be exercised by the Ghelfi Shareholders
to cause CREC to purchase all, but not less than all, of the Holding Company
Common Stock held by the Ghelfi Shareholders (the "Option Shares"). The Ghelfi
Shareholders will be entitled to exercise the Put Option at any time during the
period of 60 days after the distribution of audited financial statements of the
Holding Company to its shareholders ("Availability Date") for the fiscal years
of the Holding Company ending March 31, 2000, 2001 and 2002 and each even
numbered fiscal year thereafter. In addition, the Shareholders' Agreement
provides for certain call options (each, a "Call Option") that may be exercised
by CREC to purchase all, but not less than all, of the Option Shares. CREC will
be entitled to exercise the Call Option at any time during a period of 60 days
after the Availability Date with respect to the financial statements for the
fiscal year ending March 31, 2002 and each even numbered year thereafter. The
purchase price for the Holding Company Common Stock purchased by CREC pursuant
to the Put Option or the Call Option will be an amount equal to the product of
the Formula Price (as defined below) and the Retained Interest Fraction (as
defined below); provided, that in the case of a purchase by CREC pursuant to the
Call Option, the purchase price will in no event be less than $2675.00 per share
of Holding Company Common Stock.
Excluded Projects. The Shareholders' Agreement provides that the Ghelfi
Shareholder Representative may designate certain projects involving investments
or capital expenditures in an aggregate amount exceeding $2,000,000 as excluded
projects (the "Excluded Projects"), for purposes of the Shareholders' Agreement.
If a project has been designated as an Excluded Project, the Holding Company
will establish separate accounts on its books and records relating to the
Excluded Project, and the activities and operations of the Holding Company and
its subsidiaries in connection with such Excluded Project will in all respects
be treated as a separate division of the Holding Company. In order to ensure
that the benefits and detriments of an Excluded Project are enjoyed or borne
solely by CREC, the Shareholders' Agreement provides that on a quarterly basis,
if the aggregate income from all Excluded Projects exceeds the aggregate expense
incurred in connection therewith, the Holding Company will make a payment in
cash to CREC in an amount equal to such excess, and if the aggregate of such
expense exceeds the aggregate of such income, CREC will make a payment in cash
to the Holding Company in an amount equal to such excess.
Tax Agreement. The Shareholders' Agreement contemplates that in connection
with the consummation of the Merger or the Subject Share Purchase, as the case
may be, Cavco and Centex will execute and deliver a Tax Sharing and Tax Benefit
Reimbursement Agreement (the "Tax Agreement"). The Tax Agreement will not become
effective unless and until Cavco becomes a consolidated subsidiary included in
the affiliated group of which Centex is the common parent (the "Group"), which
in general will occur if and when Centex and its subsidiaries own at least 80%
of the stock of Cavco. The Tax Agreement provides that, with respect to each
taxable period for which a consolidated tax return is filed by Centex which
includes Cavco, (i) Cavco will pay to Centex an amount equal to Cavco's Separate
Return Tax Liability (as defined below); (ii) Centex will compensate Cavco for
the utilization of any net operating loss or credit of Cavco in an amount equal
to the income tax benefit obtained by Centex as a result of such utilization;
and (iii) in the event that Cavco or its subsidiaries, if any, for any reason
becomes disaffiliated from the Group as a result of failing to meet the
requirements for inclusion in the Group prescribed under the Internal Revenue
Code, the portion of the economic burdens and benefits of tax payments,
deficiencies and refunds of the Group which is attributable to the period in
which such disaffiliation occurs and for prior consolidated return periods in
which Cavco or any such subsidiary was included in the Group will be allocated
to Centex and Cavco as provided therein. For purposes of the Tax Agreement, the
"Separate Return Tax Liability" of Cavco and its subsidiaries will mean the
hypothetical federal, state or local income tax liability, with certain
adjustments specified therein, determined as if Cavco and its subsidiaries had
filed a separate consolidated, unitary or combined income tax return for the
applicable period and their income were taxable at the rates that would have
been applicable for such period. If the computation of the Separate Return Tax
Liability of Cavco and its subsidiaries for a taxable period does not result in
a positive tax liability, then the Separate Return Tax Liability will be deemed
to be zero. If Cavco is required to pay to the Internal Revenue Service or any
state or local taxing authority any tax liability in excess of its Separate
Return Tax Liability, Cavco will be entitled to reimbursement within 60 business
days of such payment by Centex. If Centex is required to pay to the Internal
Revenue Service or any state or local taxing authority additional taxes due to
the disallowance or all or any part of any item
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utilized by Centex for which Cavco received credit under the Tax Agreement,
Cavco will pay to Centex the amount of such additional tax paid by Centex (or
which Centex would have been required to pay but for other adjustments), subject
to certain limitations specified in the Tax Agreement. The Tax Agreement
provides that interest, penalties and expenses incurred by Centex in connection
with the amendment of any consolidated, combined or unitary tax return, and/or
the examination of any such return will be borne equitably by those parties
whose tax liability may be affected thereby. Pursuant to the Tax Agreement,
Centex is authorized to act as agent for members of the Group, including Cavco,
for purposes of the Group's consolidated combined or unitary tax returns and
Centex will have the responsibility and authority to allocate state or local
income, franchise or excise tax liabilities among members of the Group in an
equitable manner.
Representations and Warranties. The Shareholders' Agreement contains
certain customary representations and warranties on the part of the Holding
Company relating to (i) the due incorporation and good standing of the Holding
Company, (ii) the authorization, execution, delivery and performance of the
Shareholders' Agreement by the Holding Company, and (iii) consents and approvals
to be obtained in connection with the execution and delivery of the
Shareholders' Agreement.
The Shareholders' Agreement also contains certain customary representations
and warranties on the part of each Holding Company shareholder relating to (i)
the organization of each corporate shareholder and other corporate matters, (ii)
the authorization, execution, delivery and performance of the Shareholders'
Agreement by each such shareholder, (iii) consents and approvals to be obtained
in connection with the Shareholders' Agreement, and (iv) if such shareholder is
a Ghelfi Shareholder, that such shareholder has duly appointed the Ghelfi
Shareholder Representative as its agent and representative under the
Shareholders' Agreement.
Termination. The Shareholders' Agreement may be terminated by the mutual
written consent of the Holding Company, CREC and the Ghelfi Shareholder
Representative, and will automatically terminate upon the closing of the
purchase by CREC or the Ghelfi Shareholders, as the case may be, of all of the
outstanding shares of Holding Company Common Stock held by the other
shareholders.
Certain Definitions. As used herein, the terms set forth below have the
following meanings:
"Adjusted Consolidated Net Income" means the Consolidated Net Income
(as defined below) of the Holding Company for the applicable period,
adjusted to exclude (to the extent included in computing Consolidated Net
Income) each of the following: (i) all income, expenses, gains or losses
arising from the Leasing Business or the Real Estate Development Business;
(ii) all income, expenses, gains or losses arising from the Excluded
Projects; (iii) all gains or losses which are extraordinary (as determined
in accordance with GAAP (as defined below)); (iv) all income, expenses,
gains or losses arising from the sale or other disposition of assets
outside the ordinary course of business; (v) all interest, if any, expended
by the Holding Company or its consolidated subsidiaries during such fiscal
year in respect of all indebtedness incurred to finance the transactions
contemplated by the Merger Agreement and any related finance charges and
expenses; (vi) all gains or losses arising from investments in marketable
securities; and (vii) all charges or credits relating to the amortization
of acquisition costs, intangible assets, deferred taxes (and all write
downs of any such items) and similar charges or credits for depreciation or
amortization arising from any purchase accounting adjustments and write
downs or reserves attributable to purchase accounting write ups as a result
of the Merger and the other transactions contemplated by the Merger
Agreement or any future reorganization or restructuring of the Holding
Company or its subsidiaries.
"Adjusted EBT" means the Adjusted Consolidated Net Income of the
Holding Company for the applicable period, adjusted to exclude (to the
extent included in computing Adjusted Consolidated Net Income) consolidated
income tax expense for such fiscal year.
"Consolidated Net Income" means the net income (or loss) of the
Holding Company and its consolidated subsidiaries for the applicable
period, determined in accordance with GAAP, applied on a basis consistent
with past practices.
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"Formula Price" means the sum of the following amounts:
(i) the applicable amount set forth below in paragraph (A), (B) or (C)
below:
(A) in the case of a sale of the Option Shares to CREC upon the
exercise of the Put Option after the Availability Date with respect to
the financial statements for the fiscal year ending March 31, 2000 (but
prior to the Availability Date for the financial statements for the next
succeeding fiscal year), an amount equal to six times the Adjusted EBT
for such fiscal year;
(B) in the case of a sale of the Option Shares to CREC upon the
exercise of the Put Option after the Availability Date with respect to
the financial statements for the fiscal year ending March 31, 2001 (but
prior to the Availability Date for the financial statements for the next
succeeding fiscal year), an amount equal to seven times the Adjusted EBT
for such fiscal year; or
(C) in the case of a sale of the Option Shares to CREC upon the
Exercise of the Put Option at any time after the Availability Date with
respect to the financial statements for the fiscal year ending March 31,
2002 or upon the exercise of the Call Option at any time, an amount
equal to eight times the Adjusted EBT for such fiscal year;
(ii) the fair market value of all remaining portions of the Leasing
Business and the Real Estate Development Business (as determined pursuant
to a third party appraisal in accordance with the procedures set forth in
the Shareholders' Agreement); and
(iii) the aggregate amount of the net proceeds received by the Holding
Company and its subsidiaries from any sale or other disposition of all or
any part of the properties, assets and operations of the Real Estate
Development Business held by the Holding Company as of the date of the
Shareholders' Agreement (including the stock of any subsidiary of the
Holding Company engaged in such business).
"GAAP" means generally accepted accounting principles as in effect in
the United States on the date of the Merger Agreement.
"Ghelfi Shareholder Representative" means Al Ghelfi or such other
person as is designated from time to time by the holders of at least a
majority of the outstanding shares of Holding Company Common Stock held by
the Ghelfi Shareholders.
"Ghelfi Shareholders" means Al Ghelfi, Janet Ghelfi and Janal and any
person who acquires shares of Holding Company Common Stock directly or
indirectly from such Ghelfi Shareholders in accordance with the
Shareholders' Agreement.
"Permitted Transferee" means (i) in the case of a proposed transfer by
CREC, any subsidiary of Centex of which at least 80% of the equity
securities are owned, directly or indirectly, by Centex or (ii) in the case
of a proposed transfer by a Ghelfi Shareholder, any person that is a Ghelfi
Shareholder named in the Shareholders' Agreement and any spouse or lineal
ancestor or descendant of any such Ghelfi Shareholder, any entity the
entire equity interest in which is owned by any of the foregoing persons,
certain qualified trusts (consisting of trusts of which the sole trustees
are persons who are named as Ghelfi Shareholders in the Shareholders'
Agreement or any spouse or lineal ancestor or descendent of any such Ghelfi
Shareholder and the sole beneficiaries of which are any of the foregoing
persons or any charity designated by the grantors or trustees of such
trust) and any executor or administrator of the estate of any of the
foregoing persons.
"Retained Interest Fraction" means a fraction the numerator of which
is the number of Option Shares and the denominator of which is the total
number of shares of Holding Company Common Stock that are outstanding as of
the date upon which the Put Option or the Call Option, as the case may be,
is exercised.
CONSULTING AGREEMENT
Cavco and Al Ghelfi, the Chairman of the Board, have entered into the
Consulting Agreement, which will become effective upon the consummation of the
transactions contemplated by the Merger Agreement or
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upon consummation of the Subject Share Purchase, as the case may be ("Consulting
Agreement Effective Date"). The Consulting Agreement has a term of five years
from and after the Consulting Agreement Effective Date, subject to extension by
written agreement of the parties or earlier termination in the circumstances
provided below; however, either party may elect to accelerate the date upon
which such term expires upon written notice to the other party within 60 days
after the date upon which CREC acquires all of the shares of Common Stock or
Holding Company Common Stock, as the case may be, held by the Ghelfi Parties.
During the term of the Consulting Agreement, Al Ghelfi has agreed to
provide such consulting services as the Board may reasonably request from time
to time in connection with the business of the Company and to devote such time,
attention and energies to the business of the Company as is reasonably necessary
to provide such services.
The Consulting Agreement provides that during its term, Al Ghelfi will be
entitled to receive a consulting fee in the amount of $350,000 per annum, which
will be paid in equal monthly installments on the last day of each month. Al
Ghelfi will be entitled to receive prompt reimbursement for all reasonable
out-of-pocket expenses incurred in the performance of his duties under the
Consulting Agreement in accordance with the Company's regular reimbursement
practices. In addition, Al Ghelfi (to the extent he is eligible) will be
entitled to participate in all group benefit plans (including, but not limited
to, disability, accident, medical, life insurance and hospitalization plans)
maintained by the Company from time to time.
The Consulting Agreement will terminate upon expiration of its stated term,
upon the death of Al Ghelfi or if the Consulting Agreement Effective Date does
not occur on or before December 31, 1997. The Consulting Agreement may be
terminated by Al Ghelfi if the Company commits a material breach of the terms
and conditions of the Consulting Agreement and fails to cure such breach after
notice and opportunity to cure as specified therein. The Consulting Agreement
may be terminated by the Company in any of the following circumstances: (i) for
cause, as defined therein; (ii) if Al Ghelfi materially breaches the Consulting
Agreement or habitually neglects his duties thereunder, as determined by a vote
of two-thirds of the total number of members of the Board after notice and an
opportunity to be heard; (iii) if Al Ghelfi is unable to perform his material
duties thereunder as a result of illness or incapacity for 90 consecutive days
during any 360 day period; or (iv) if the Company determines that it no longer
requires Al Ghelfi's services for any other reason. If the Consulting Agreement
is terminated because of a material breach by the Company or on the grounds
specified in clause (iv) above, Al Ghelfi will be entitled to continue to
receive the consulting fee described above for the balance of the term. If the
Consulting Agreement is terminated upon the death of Al Ghelfi or on the grounds
specified in clauses (i), (ii) or (iii) above, the Company will pay to Al Ghelfi
the consulting fee described above through the date of termination. Furthermore,
if the Consulting Agreement is terminated on the grounds specified in clauses
(iii) or (iv) above, or upon expiration of the term of the Consulting Agreement,
Al Ghelfi will be entitled to receive, in addition to any continuation of
consulting fees thereunder, an amount equal to $150,000 per annum for a period
of three years after the date of termination in consideration of Al Ghelfi's
obligations following termination as described below.
The Consulting Agreement provides that during and after the term of the
Consulting Agreement, Al Ghelfi will not reveal, divulge, discuss, use or
exploit any trade secrets or confidential information of the Company. Al Ghelfi
has also agreed that for a period of three years following termination of the
Consulting Agreement (other than a Termination by Al Ghelfi due to a material
breach of the terms and conditions of the Consulting Agreement by the Company),
he will not, among other things, engage in the business (the "Covered
Businesses") of (i) designing, manufacturing and selling manufactured housing to
be used for residential, recreational and other purposes and (ii) developing
housing subdivisions and selling manufactured, modular and conventional housing
units or lots located therein, in Arizona, California, Colorado, Idaho, Nevada,
New Mexico, Texas or Utah.
EMPLOYMENT AGREEMENT
Cavco and Brent Ghelfi, the President and Chief Executive Officer of Cavco,
have entered into the Employment Agreement, which will become effective upon the
consummation of the transactions contem-
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plated by the Merger Agreement or upon consummation of the Subject Share
Purchase, as the case may be (the "Employment Agreement Effective Date"). The
Employment Agreement provides for a term of five years from and after the
Employment Agreement Effective Date, subject to extension by written agreement
of the parties or earlier termination for certain reasons discussed below.
During the term of the Employment Agreement, Brent Ghelfi will continue to
serve as President and Chief Executive Officer of the Company, subject to the
direction of the Board, and will devote substantially all of his business time,
attention and energies to the performance of such duties.
The Employment Agreement provides that during its term, Brent Ghelfi will
be entitled to receive a base salary of $78,000 per year, subject to periodic
review and possible upward adjustment by the Company. In addition, Brent Ghelfi
will be entitled to monthly bonuses to be determined in accordance with the
existing policies and practices of Cavco currently in effect with respect to the
payment of bonuses to its Chief Executive Officer, except that for any fiscal
years ending on or after March 31, 1999, the amount of the monthly bonus will be
an amount not less than the lesser of $27,100 or the amount determined under
such existing policies. Under Cavco's existing policies and practices, the Chief
Executive Officer of Cavco is entitled to bonuses based on a percentage of
pre-tax operating income of the Company's manufactured housing facilities. In
fiscal 1996, during which Brent Ghelfi served as Executive Vice President and
Chief Operating Officer of Cavco, Brent Ghelfi earned a bonus of approximately
$390,000 under these policies and practices. In connection with the Employment
Agreement, Centex has agreed to use its best efforts to cause its board of
directors to grant to Brent Ghelfi non-qualified stock options, under an
existing stock option plan of Centex, to purchase an aggregate of 50,000 shares
of the common stock of Centex, par value $.25 per share, having an exercise
price equal to the fair market value per share of such stock on the date of
grant and a term of ten years from the date of grant. With respect to 25,000 of
such shares, the options will vest and become exercisable as to 20% of such
shares on each of the first, second, third, fourth and fifth anniversaries of
the Employment Agreement Effective Date. With respect to the remaining 25,000 of
such shares, the options will vest and become exercisable in accordance with a
schedule based on the attainment of certain performance goals or measures
relating to the Company to be determined by Centex. During the term of the
Employment Agreement, Brent Ghelfi will be entitled to receive prompt
reimbursement for all reasonable out-of-pocket expenses incurred in the
performance of his duties thereunder, in accordance with the Company's regular
reimbursement practices. In addition, Brent Ghelfi will be entitled to
participate in incentive, savings and retirement plans and group benefit plans
(including, but not limited to, disability, accident, medical, life insurance
and hospitalization plans) maintained by the Company from time to time.
The Employment Agreement will terminate upon expiration of its stated term,
upon the death of Brent Ghelfi or if the Employment Agreement Effective Date
does not occur on or before December 31, 1997. The Employment Agreement may be
terminated by Brent Ghelfi if the Company commits a material breach of the terms
and conditions of the Employment Agreement and fails to cure such breach after
notice and opportunity to cure as specified therein. The Employment Agreement
may be terminated by the Company in any of the following circumstances: (i) for
cause, as defined therein; (ii) if Brent Ghelfi materially breaches the
Employment Agreement or habitually neglects his duties thereunder, as determined
by a vote of two-thirds of the total number of members of the Board after notice
and an opportunity to be heard; (iii) if Brent Ghelfi is unable to perform his
material duties thereunder as a result of illness or incapacity for 90
consecutive days during any 360 day period; or (iv) if the Company determines
that it no longer requires Brent Ghelfi's services for any other reason. If the
Employment Agreement is terminated because of a material breach by the Company,
or on the grounds specified in clause (iv) above, Brent Ghelfi will be entitled
to receive a cash payment in the amount of $300,000 per annum for the balance of
the term of the Employment Agreement in accordance with the Company's general
payroll practices. If the Employment Agreement is terminated upon the death of
Brent Ghelfi or on the grounds specified in clauses (i), (ii) or (iii) above,
the Company will pay to Brent Ghelfi the base salary described above through the
date of termination. Furthermore, if the Employment Agreement is terminated on
the grounds specified in clauses (iii) or (iv) above, or upon expiration of the
term of the Employment Agreement, the Company may elect in its sole discretion
to pay Brent Ghelfi $300,000 per annum (less any amounts already payable as
described herein in the event that the Employment Agreement is terminated on the
grounds specified in clause (iv) above) (the "Non-Competition
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Extension Payments") for a period of three years after the date of termination
in consideration of Brent Ghelfi's obligations following termination as
described below.
The Employment Agreement provides that during and after the term of the
Employment Agreement, Brent Ghelfi will not reveal, divulge, disclose, use or
exploit any trade secrets or confidential information of the Company. Brent
Ghelfi has also agreed that for a period of three years following termination of
the Employment Agreement (other than a termination by Brent Ghelfi due to a
material breach of the terms and conditions of the Employment Agreement by the
Company) he will not, among other things, engage in the Covered Businesses in
Arizona, California, Colorado, Idaho, Nevada, New Mexico, Texas or Utah;
provided, that if the Employment Agreement is terminated on the grounds
specified in clauses (iii) or (iv) in the preceding paragraph, or upon
expiration of the term of the Employment Agreement, Brent Ghelfi will not be
subject to such obligations unless the Company elects to make the
Non-Competition Extension Payments.
CERTAIN OTHER AGREEMENTS BETWEEN
CREC AND THE GHELFI PARTIES
The following is a summary of certain provisions of the Stock Purchase
Agreement and the Voting Agreement, which were entered into by CREC and the
Ghelfi Parties on December 4, 1996. For more detailed information regarding the
Stock Purchase Agreement and the Voting Agreement, reference is made to the
accompanying Annual Report on Form 10-K for the fiscal year ended September 30,
1996, filed by the Company with the Commission, which incorporates by reference
the full text of such agreements as Exhibits 99.2 and 99.1 thereto.
GENERAL
The Ghelfi Parties entered into the Stock Purchase Agreement and the Voting
Agreement on December 4, 1996 in order to induce CREC to enter into the Merger
Agreement. The Company is not a party to the Stock Purchase Agreement or the
Voting Agreement and is not legally bound by the provisions thereof. However, at
the request of CREC, on December 4, 1996, the Special Committee approved the
transactions contemplated by the Stock Purchase Agreement and the Voting
Agreement in order, among other things, to induce CREC to enter into the Merger
Agreement and to ensure that, if a Termination Event (as defined below) occurs
and the Subject Share Purchase is consummated, the Company will not be
prohibited from consummating a "business combination" with CREC for a period of
three years under the terms of the Arizona Business Combination Statute. See
"Special Factors -- Background of the Merger" and "Regulatory
Considerations -- Arizona Takeover Statute." The Company believes that one
effect of the Stock Purchase Agreement and the Voting Agreement is to increase
the likelihood that the Merger will be consummated by making it more difficult
for a third party to make a competing proposal to acquire the Company. See
"Special Factors -- Recommendation and Reasons for the Merger." Accordingly, you
are urged to carefully review the description of the Stock Purchase Agreement
and the Voting Agreement set forth below.
STOCK PURCHASE AGREEMENT
Subject Share Purchase. Upon the terms and conditions set forth in the
Stock Purchase Agreement, if a Termination Event occurs, the Ghelfi Parties will
sell to CREC, and CREC will purchase from the Ghelfi Parties, the Aggregate
Subject Shares (which consist of a total of 1,047,288 shares of Common Stock,
representing approximately 30% of the outstanding shares of Common Stock). As
used herein, the term "Termination Event" means a termination of the Merger
Agreement for any reason, other than a termination (i) by mutual written consent
of CREC and the Company, (ii) by CREC on the grounds that the Merger has not
been consummated prior to or on December 31, 1997, (iii) by the Company and the
Ghelfi Parties jointly on the grounds that there has been a violation or breach
in any material respect on the part of CREC of any covenant or agreement
contained in the Merger Agreement which has not been cured within 30 days after
receipt of notice of such violation or breach from the Company or (iv) by the
Company and the Ghelfi Parties jointly on the grounds that there has been a
violation or breach in any material respect on the part of CREC
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of any representation or warranty contained in the Merger Agreement. See "The
Merger Agreement -- Termination."
Conditions to the Subject Share Purchase. The Stock Purchase Agreement
provides that the respective obligations of the parties to consummate the
Subject Share Purchase are subject to the fulfillment of each of the following
conditions: (i) any waiting period applicable to the Subject Share Purchase
under the HSR Act will have expired or been terminated; and (ii) no statute,
rule, regulation, order, writ, injunction, judgment or decree will have been
enacted, promulgated, entered or enforced by any federal or state court or other
governmental authority which has the effect of making illegal, impeding or
otherwise restraining or prohibiting the Subject Share Purchase.
The obligations of CREC to purchase and pay for the Aggregate Subject
Shares are subject to the fulfillment of each of the following conditions (any
one or more of which may be waived by CREC): (i) each of the representations and
warranties of the Company contained in the Merger Agreement (as qualified by the
Schedules thereto) will be true and correct and each of the representations and
warranties of the Ghelfi Parties contained in the Merger Agreement will be true
and correct in all material respects (provided, however, that the failure of any
such representations or warranties of the Company to be true and correct will
not be a condition to the obligations of CREC unless the Claims Reserve is less
than or equal to zero); (ii) the Company, the Holding Company and the Ghelfi
Parties will have performed and complied in all material respects with all
provisions, covenants and conditions contained in the Merger Agreement which are
required to be performed or complied with by them; (iii) each of the
representations and warranties of the Ghelfi Parties contained in the Stock
Purchase Agreement will be true and correct in all material respects as of the
date of the consummation of the Subject Share Purchase as if made on such date;
and (iv) the Ghelfi Parties will have performed and complied in all material
respects with all provisions, covenants and conditions contained in the Stock
Purchase Agreement required to be performed or complied with by them prior to or
on the date of consummation of the Subject Share Purchase.
The obligations of the Ghelfi Parties to sell and deliver the Aggregate
Subject Shares are subject to the fulfillment of each of the following
conditions (any one or more of which may be waived by the Ghelfi Parties, but
only if all Ghelfi Parties waive the condition with respect to the Aggregate
Subject Shares): (i) each of the representations and warranties of CREC
contained in the Stock Purchase Agreement will be true and correct in all
material respects as of the date of the consummation of the Subject Share
Purchase as if made on such date; and (ii) CREC will have performed and complied
in all material respects with all provisions, covenants and conditions contained
in the Stock Purchase Agreement required to be performed or complied with by it
prior to or on the date of consummation of the Subject Share Purchase.
Representations and Warranties. The Stock Purchase Agreement contains
certain customary representations and warranties on the part of the Ghelfi
Parties relating to (i) the authorization, execution, delivery and performance
of the Stock Purchase Agreement by the Ghelfi Parties, (ii) consents and
approvals to be obtained in connection with the Subject Share Purchase, (iii)
title to the shares of Common Stock owned by the Ghelfi Parties and (iv)
brokers' and finders' fees. The Stock Purchase Agreement also contains certain
customary representations and warranties on the part of CREC relating to (i) the
authorization, execution, delivery and performance of the Stock Purchase
Agreement by CREC, (ii) consents and approvals to be obtained in connection with
Subject Share Purchase, (iii) the acquisition by CREC of the Aggregate Subject
Shares for investment, (iv) the financing necessary to consummate the Subject
Share Purchase and (v) brokers' and finders' fees.
Distributions. The Stock Purchase Agreement provides that if CREC
purchases the Aggregate Subject Shares, any dividends or other distributions by
the Company with respect to such shares with a record date after the occurrence
of the Termination Event will belong to CREC. If any such dividend or
distribution is paid by the Company to the Ghelfi Parties, each Ghelfi Party
will hold such dividend or distribution in trust for the benefit of CREC and
will promptly remit such dividend or distribution to CREC in exactly the form
received.
Shareholders' Agreement. The Stock Purchase Agreement provides that, if
CREC purchases the Aggregate Subject Shares, CREC and the Ghelfi Parties will
execute and deliver the Cavco Shareholders'
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<PAGE> 65
Agreement and will use their reasonable best efforts to cause the Company to
become a party thereto. The terms of the Cavco Shareholders' Agreement will be
substantially the same as the terms of the Shareholders' Agreement described
above with the following exceptions, among others: (i) the Cavco Shareholders'
Agreement would relate to Cavco and not the Holding Company and, accordingly,
provides for certain arrangements in connection with the management of the
Company and the respective holdings of Common Stock by the parties thereto; (ii)
Cavco may, but is not obligated to, become a party to the Cavco Shareholders'
Agreement; (iii) the Ghelfi Parties will have no right of first negotiation or
right of first refusal with respect to a sale of the Leasing Business; (iv) the
Ghelfi Parties will not have the right to designate certain capital projects as
Excluded Projects; (v) the Cavco Shareholders' Agreement will contain additional
super-majority board approval requirements relating to a sale of the Leasing
Business and certain capital projects; (vi) CREC will have the right to
designate independent directors in addition to the three directors designated by
CREC and two directors designated by the Ghelfi Parties; and (vii) the vote of
at least one director designated by the Ghelfi Shareholder Representative will
be required to satisfy the super-majority board approval requirements. See
"Related Agreements -- Shareholders' Agreement."
Indemnification; Survival of Representations. The Stock Purchase Agreement
provides that the Ghelfi Parties will jointly and severally indemnify and hold
harmless CREC and its affiliates, directors, officers, agents and other
representatives for, from and against all demands, claims, actions, causes of
action, proceedings, assessments, losses, damages, liabilities, settlements,
judgments, fines, penalties, interest, costs and expenses (including fees and
disbursements of counsel) which are asserted against, imposed upon or incurred
by any of the foregoing persons as a result of or in connection with the breach
or alleged breach by the Ghelfi Parties of any of their representations and
warranties, covenants or agreements contained in the Stock Purchase Agreement
(the "CREC Stock Purchase Agreement Claims"); provided, however, that the Ghelfi
Parties will only be obligated to indemnify the foregoing persons if and to the
extent that the aggregate of all CREC Stock Purchase Agreement Claims exceeds
$50,000.
In addition, the Stock Purchase Agreement provides that CREC will indemnify
and hold harmless the Ghelfi Parties and their respective affiliates, directors,
officers, agents and other representatives for, from and against all demands,
claims, actions, causes of action, proceedings, assessments, losses, damages,
liabilities, settlements, judgments, fines, penalties, interest, costs and
expenses (including fees and disbursements of counsel) which are asserted
against, imposed upon or incurred by any such persons as a result of or in
connection with the breach or alleged breach by CREC of any of its
representations and warranties, covenants or agreements contained in the Stock
Purchase Agreement (the "Shareholder Party Stock Purchase Agreement Breach
Claims"); provided, however, that CREC will only be obligated to indemnify the
foregoing persons if and to the extent that the aggregate of all Shareholder
Party Stock Purchase Agreement Breach Claims exceeds $50,000. Furthermore, the
Stock Purchase Agreement provides that CREC will indemnify and hold harmless the
Ghelfi Parties, in their capacities as majority shareholders or controlling
persons of the Company (but not in their capacities as general partners of any
partnership or trustees of any trust owing fiduciary duties or obligations to
the partners of any such partnership or beneficiaries of any such trust) for,
from and against (i) any and all demands, claims, actions, causes of action or
proceedings made or brought by a Shareholder (whether on behalf of such
Shareholder or derivatively in the name and on behalf of the Company) alleging a
breach of the duties and obligations of the Ghelfi Parties to the Independent
Shareholders or the Company which arises out of or is based upon the Stock
Purchase Agreement or the Voting Agreement or the Subject Share Purchase or the
other transactions contemplated thereby or any action or omission taken or
omitted to be taken by the Ghelfi Parties in order to effectuate any such
transactions and (ii) any and all assessments, losses, damages, liabilities,
settlements, judgments, fines, penalties, interest, costs and expenses
(including fees and disbursements of counsel) which are asserted against,
imposed upon or incurred by any such Ghelfi Party as a result of or in
connection with any such demands, claims, actions, causes of action or
proceedings.
The Stock Purchase Agreement provides that the representations and
warranties made by the Ghelfi Parties and CREC in the Stock Purchase Agreement
will survive the Subject Share Purchase and will continue in effect after the
consummation thereof.
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<PAGE> 66
Termination. The Stock Purchase Agreement may be terminated either by CREC
or by the Ghelfi Parties jointly if the Subject Share Purchase has not been
consummated prior to or on the later of (i) 30 days after termination of the
Merger Agreement in accordance with its terms or (ii) December 31, 1997;
provided, however, that a party or parties will only be entitled to terminate
the Stock Purchase Agreement if it has diligently and in good faith performed or
complied in all material respects with the agreements and covenants required to
be performed by it or them under the Stock Purchase Agreement.
Expenses. Except as otherwise provided in the Stock Purchase Agreement,
all fees and expenses incurred by any of the parties thereto in connection with
the Stock Purchase Agreement or any of the transactions contemplated thereby
will be borne and paid solely by the party incurring such fees and expenses.
Amendment or Waiver. The terms and provisions of the Stock Purchase
Agreement may be modified or amended only by a written instrument executed by
each of the parties thereto, and compliance with any term or provision thereof
may be waived only by a written instrument executed by each party entitled to
the benefits of such term or provision.
VOTING AGREEMENT
Agreement to Vote. The Voting Agreement provides that, for so long as such
agreement remains in effect, each Ghelfi Party will, at any meeting of the
Shareholders (including, but not limited to, the Special Meeting), and in any
action by written consent of the Shareholders in lieu of a meeting, vote all of
the shares of Common Stock owned by such Ghelfi Party as of the date of such
agreement and any additional shares of Common Stock acquired by such Ghelfi
Party (whether by purchase or otherwise) thereafter (collectively, the "Shares")
(i) in favor of the Merger Agreement (as the same may be amended from time to
time) and the Merger and the other transactions contemplated thereby and (ii)
against any Acquisition Proposal or any other action or agreement that, directly
or indirectly, is inconsistent with the Merger Agreement or the transactions
contemplated thereby or that is reasonably likely (a) to impede, interfere with,
delay or postpone the Merger or the other transactions contemplated by the
Merger Agreement, (b) to result in a breach of any covenant, representation,
warranty or any other obligation of Company under the Merger Agreement or (c) to
cause any conditions to the obligations of the parties under the Merger
Agreement not to be fulfilled. The obligation of each Ghelfi Party to vote the
Shares owned by it in the foregoing manner is unconditional, except that such
obligation will be suspended for so long as there is issued and in effect any
order, writ, injunction, judgment or decree of any federal or state court or
other governmental authority which has the effect of making illegal, impeding or
otherwise restraining or prohibiting such Ghelfi Party from voting the Shares
owned by it in the manner set forth in the Voting Agreement.
Representations and Warranties. The Voting Agreement contains certain
representations and warranties on the part of the Ghelfi Parties relating to (i)
the authorization, execution, delivery and performance of the Voting Agreement
by the Ghelfi Parties, (ii) consents and approvals to be obtained in connection
with the transactions contemplated by the Voting Agreement and (iii) title to
the shares of Common Stock owned by the Ghelfi Parties.
Encumbrances; Transfer of Shares. The Voting Agreement provides that, for
so long as the Voting Agreement remains in effect, no Ghelfi Party may, directly
or indirectly, (i) except pursuant to the terms of the Voting Agreement, grant
any proxies or enter into any voting trust or other agreement or arrangement
with respect to the Shares owned by it or (ii) except pursuant to the terms of
the Merger Agreement or the Stock Purchase Agreement or as permitted pursuant to
the terms of the Voting Agreement, sell, assign, transfer, encumber or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, assignment, transfer, encumbrance or
other disposition of, any Shares owned by it, in each case without the prior
written consent of CREC. Notwithstanding the foregoing, a Ghelfi Party may sell,
assign, transfer, encumber or otherwise dispose of any Shares owned by it to a
Permitted Transferee who agrees to be bound by the provisions of the Voting
Agreement.
Termination. The Voting Agreement will terminate on the earliest of (i)
the Effective Time of the Merger, (ii) the consummation of the Subject Share
Purchase, (iii) the failure or refusal of CREC to consummate the Subject Share
Purchase pursuant to the Stock Purchase Agreement for a period of more
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<PAGE> 67
than ten days after the scheduled date of consummation thereof or (iv) one year
from the date of the Voting Agreement.
Expenses. All fees and expenses incurred by any of the parties to the
Voting Agreement in connection with the Voting Agreement or any of the
transactions contemplated thereby will be borne and paid solely by the party
incurring such fees and expenses.
Amendment or Waiver. The terms and provisions of the Voting Agreement may
be modified or amended only by a written instrument executed by each of the
parties thereto, and compliance with any term or provision thereof may be waived
only by a written instrument executed by each party entitled to the benefits of
the same.
DISSENTERS' RIGHTS
Under Arizona law, holders of Common Stock may dissent from the Merger and
obtain payment of the fair value of their shares if the Merger is consummated. A
copy of Sections 10-1301 through 10-1331 of the Arizona Act, which govern the
procedures for the exercise of such dissenters' rights, is attached as Appendix
C to this Proxy Statement. The description of dissenters' rights set forth below
is a summary only and is qualified in its entirety by reference to the text of
Sections 10-1301 through 10-1331 of the Arizona Act.
Any Shareholder who wishes to dissent from the Merger and obtain payment of
the fair value of such Shareholder's shares must: (i) deliver to Cavco, before
the vote is taken on the Merger Agreement at the Special Meeting, written notice
of such Shareholders' intent to demand payment for such Shareholder's shares if
the Merger is effectuated; and (ii) not vote the shares in favor of the approval
of the Merger Agreement.
Under Arizona law, a Shareholder entitled to dissenters' rights may not
challenge the corporate action creating such rights unless the action is
unlawful or fraudulent with respect to the Shareholder or the Company.
If the Merger Agreement is approved by the Shareholders, Cavco will, no
later than ten days after the Effective Time, deliver a written notice (the
"Dissenters' Notice") to all holders of Common Stock who have satisfied the
statutory requirements. The Dissenters' Notice will: (i) state where the payment
demand must be sent and where and when share certificates will be deposited;
(ii) supply a form for demanding payment that includes the date of the first
announcement to news media or to Shareholders of the terms of the proposed
Merger and requires the person asserting dissenters' rights to certify whether
or not the person acquired beneficial ownership of the Common Stock before that
date; (iii) set a date by which Cavco must receive the payment demand, which
date will be at least thirty but not more than sixty days after the date the
Dissenters' Notice is delivered; and (iv) be accompanied by a copy of Sections
10-1301 through 10-1331 of the Arizona Act.
A Shareholder who is given the Dissenters' Notice and desires to assert
dissenters' rights must demand payment, certify whether such Shareholder
acquired beneficial ownership of the Common Stock before the date set forth in
the Dissenters' Notice pursuant to item (ii) above, and deposit the certificates
in accordance with the terms of the Dissenters' Notice.
A demand for payment should be executed by or on behalf of the holder of
record, fully and correctly, as such holder's name appears on such holder's
stock certificates. If the Common Stock is owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and if the Common Stock is owned of record by
more than one person as in a joint tenancy or tenancy in common, the demand
should be executed by or on behalf of all joint owners. A beneficial holder may
assert dissenters' rights as to shares held on the beneficial holder's behalf
only if (i) the beneficial holder submits to Cavco the record holder's written
consent thereto not later than the time the beneficial holder asserts the
dissenters' rights, and (ii) the beneficial holder asserts dissenters' rights
with respect to all shares of which such holder is the beneficial holder or over
which such holder has power to direct the vote. Shareholders who hold their
Common Stock in brokerage accounts or other nominee forms and who wish to
exercise
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<PAGE> 68
dissenters' rights are urged to consult with their brokers to determine the
appropriate procedures for the making of a demand by such a nominee.
ANY SHAREHOLDER WHO VOTES IN FAVOR OF THE MERGER AGREEMENT, DOES NOT DEMAND
PAYMENT IN THE MANNER PRESCRIBED OR DOES NOT DEPOSIT THE SHAREHOLDER'S
CERTIFICATES BY THE DATE SET IN THE DISSENTERS' NOTICE IS NOT ENTITLED TO
PAYMENT FOR THE SHAREHOLDER'S SHARES OF COMMON STOCK UNDER SECTIONS 10-1301
THROUGH 10-1331 OF THE ARIZONA ACT.
If a Shareholder fails to perfect or effectively withdraws or loses such
Shareholder's right to demand payment under the Arizona Act, such Shareholder's
shares of Common Stock will thereupon be deemed to have been converted into, as
of the Effective Time, the right to receive the Merger Consideration, without
any interest thereon.
Following the Effective Time, Cavco will pay each Dissenting Shareholder
the amount Cavco estimates to be the fair value of the Dissenting Shareholder's
shares of Common Stock plus accrued interest (the "Payment"). The Payment will
be accompanied by: (i) certain financial statements of Cavco as prescribed by
the Arizona Act; (ii) a statement of Cavco's estimate of the fair value of the
Common Stock; (iii) an explanation of how the interest was calculated; (iv) a
statement of the Dissenting Shareholders' right to demand payment under Section
10-1328 of the Arizona Act; and (v) a copy of Sections 10-1301 through 10-1331
of the Arizona Act.
Cavco may elect to withhold payment from a Dissenting Shareholder unless
the Dissenting Shareholder was the beneficial owner of the shares before the
date set forth in the Dissenters' Notice as the date of the first announcement
to news media or to Shareholders of the proposed Merger. To the extent Cavco
elects to so withhold payment, after consummation of the Merger, it will
estimate the fair value of the shares plus accrued interest and will pay this
amount to each Dissenting Shareholder who agrees to accept it in full
satisfaction of such Shareholder's demand. Cavco will send with its offer a
statement of its estimate of the fair value of the shares, an explanation of how
the interest was calculated and a statement of the Dissenting Shareholder's
right to demand payment under Section 10-1328.
If (i) a Dissenting Shareholder believes that the amount paid or offered is
less than the fair value of the shares or that the interest was incorrectly
calculated, or (ii) Cavco fails to make payment within sixty days after the date
set by Cavco by which Cavco must receive the payment demand, or (iii) Cavco,
having failed to consummate the Merger, does not return the deposited
certificates within sixty days after the date set for demanding payment, the
Dissenting Shareholder may give written notice (the "Additional Payment Notice")
to Cavco of the Dissenting Shareholder's estimate of the fair value of the
Dissenting Shareholder's shares and of the amount of interest due and may demand
payment of such estimate, less any payment made by Cavco. A DISSENTING
SHAREHOLDER WAIVES THE RIGHT TO DEMAND ADDITIONAL PAYMENT UNLESS HE OR SHE
CAUSES CAVCO TO RECEIVE THE ADDITIONAL PAYMENT NOTICE WITHIN THIRTY DAYS AFTER
CAVCO MADE OR OFFERED PAYMENT FOR THE DISSENTING SHAREHOLDER'S SHARES. If an
Additional Payment Notice remains unsettled, Cavco will commence a proceeding
within sixty days after receiving the Additional Payment Notice and will
petition the court to determine the fair value of the shares of Common Stock and
accrued interest. The court will assess the costs of such a proceeding against
the Company, except that the court shall assess costs against all or some of the
dissenters to the extent the court finds that the fair value does not materially
exceed the amount offered by the Company or that the dissenters acted
arbitrarily, vexatiously or not in good faith in demanding additional payment.
If Cavco does not commence such a proceeding within the sixty-day period, it
will pay to each Dissenting Shareholder whose Additional Payment Notice remains
unsettled the amount demanded therein.
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<PAGE> 69
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the Record Date (unless otherwise
indicated), information concerning the beneficial ownership of the Common Stock
by (i) any person known to the Company to be the beneficial owner of more than
5% of such stock, (ii) each director of the Company, (iii) the Chief Executive
Officer of the Company, (iv) each of the four other most highly compensated
officers of the Company, and (iv) the directors and officers of the Company as a
group. Individuals have sole voting and investment power over such stock unless
otherwise indicated in footnotes. Neither the Company, the Ghelfi Parties nor
any director or officer of the Company has acquired any securities of the
Company since September 30, 1994, except for the stock options and Common Stock
acquired by Mr. Hargis as described below.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS(1)
--------------------------------------------------------- ------------------ -----------
<S> <C> <C>
Al Ghelfi................................................ 1,830,729(2) 52.07%
Janet Ghelfi
Janal Limited Partnership
5655 N. Camelback Canyon Dr.
Phoenix, AZ 85018
Stephen H. Kleemann...................................... 272,025 7.74%
Director
526 Via Sinuosa
Santa Barbara, CA 93110
FMR Corp. ............................................... 215,950(3) 6.14%
82 Devonshire St.
Boston, MA 02109
William Blandin.......................................... -- --
Director
Brent Ghelfi............................................. 2,049(4) *
Director, Chief Executive Officer
Wendell Hargis........................................... 5,000(5) *
Executive Vice President of Plant Development
Ruth Smith............................................... 42,340(6) 1.20%
Director, Secretary
Robert Ward.............................................. 3,750 *
Chief Financial Officer
Robert Wold.............................................. -- --
Director
All directors and officers as a group (9 persons)........ 2,153,844 61.26%
</TABLE>
- ---------------
(1) Based on 3,516,052 shares of Common Stock issued and outstanding as of the
Record Date.
(2) Represents 180,729 shares held of record by Al Ghelfi and his spouse, Janet
Ghelfi, as community property, and 1,650,000 shares held of record by Janal.
The Ghelfi Trusts are the general partners of Janal. Al Ghelfi and Janet
Ghelfi are the sole trustees of the Ghelfi Trusts. Janal, the Ghelfi Trusts,
Al Ghelfi and Janet Ghelfi share voting and dispositive power with respect
to the 1,650,000 shares of Common Stock held of record by Janal. On December
4, 1996, CREC, Janal, Al Ghelfi and Janet Ghelfi entered into the Voting
Agreement, the terms of which are described under "Certain Other Agreements
Between CREC and the Ghelfi Parties -- Voting Agreement." As a result of the
Voting Agreement, Janal and the Ghelfi Trusts may be deemed to beneficially
own the 180,729 shares of Common Stock held of record by Al Ghelfi and Janet
Ghelfi. See "The Ghelfi Parties."
(3) Information regarding beneficial ownership of shares of Common Stock by FMR
Corp. is based on the most recent Schedule 13G filed with the Commission by
FMR Corp.
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<PAGE> 70
(4) Brent Ghelfi holds limited partnership interests representing 0.124% of the
outstanding partnership interests in Janal and, pursuant to the partnership
agreement of Janal, has the right to direct the vote with respect to a pro
rata portion of the 1,650,000 shares of Common Stock held by Janal. Brent
Ghelfi does not have dispositive power with respect to any shares held by
Janal.
(5) On August 18, 1995, the Company granted Mr. Hargis an option under its 1985
Incentive Stock Option Plan to purchase 50,000 shares of Common Stock for
$10.00 per share. This option becomes exercisable with respect to 5,000
shares per year during its ten-year term. In August 1996, Mr. Hargis
exercised this option with respect to 5,000 shares. The option will become
fully exercisable and be exercised in connection with the Merger. See
"Special Factors -- Interests of Certain Persons in the Merger -- Certain
Employee Stock Options."
(6) 38,840 of the shares shown are held in joint tenancy with Ruth Smith's
spouse, Robert J. Smith.
* Represents less than 1% of outstanding shares of Common Stock.
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<PAGE> 71
MARKET PRICE AND DIVIDEND INFORMATION
The Company's Common Stock is traded on the Nasdaq SmallCap Market under
the symbol "CVCO." The following quotations provided by Nasdaq reflect
inter-dealer prices without retail mark-up or mark-down or commission and may
not necessarily represent actual transactions. All prices have been adjusted
(rounded to nearest one-eighth) to reflect a three-for-two stock split effective
December 1994.
<TABLE>
<CAPTION>
BID ASKED
------------ ------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
Year Ended September 30, 1997
First Quarter.................................................. 25 3/4 18 1/4 26 1/4 19 3/8
Second Quarter (through February , 1997).....................
Year Ended September 30, 1996
First Quarter.................................................. 12 1/8 9 3/4 12 3/4 10 1/2
Second Quarter................................................. 14 3/4 11 1/2 15 1/4 12 1/4
Third Quarter.................................................. 18 13 18 1/4 13 3/4
Fourth Quarter................................................. 19 3/4 13 5/8 20 3/8 14 3/8
Year Ended September 30, 1995
First Quarter.................................................. 13 5/6 10 5/6 14 1/2 11 1/2
Second Quarter................................................. 12 9 3/4 13 10 1/4
Third Quarter.................................................. 11 3/4 8 1/2 12 3/4 9
Fourth Quarter................................................. 10 3/8 8 3/4 11 1/4 9 3/4
</TABLE>
On December 4, 1996, the last full trading day prior to the first public
announcement of the Merger, the high and low sales prices of the Common Stock
were $24.00 and $23.625, respectively.
As of the Record Date, there were approximately record holders of the
Company's Common Stock.
The Company has never paid dividends and has no plans to pay dividends in
the foreseeable future in the event that the transactions contemplated by the
Merger Agreement are not consummated for any reason. Certain financial covenants
in loan agreements to which the Company is a party restrict the payment of
dividends. In the event that the transactions contemplated by the Merger
Agreement are consummated, or alternatively, in the event that the Subject Share
Purchase is consummated, the Ghelfi Parties and CREC have agreed to cause the
Company to pay dividends in certain circumstances. See "Related Agreements --
Shareholders' Agreement" and "Certain Other Agreements Between CREC and the
Ghelfi Parties -- Stock Purchase Agreement."
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<PAGE> 72
SELECTED FINANCIAL DATA
Set forth below is certain historical consolidated financial information of
the Company. The selected financial information for, and as of the end of, each
of the fiscal years in the five-year period ended September 30, 1996, is derived
from, and should be read in conjunction with, the historical consolidated
financial statements of the Company and its subsidiaries which have been audited
by Arthur Andersen LLP, independent public accountants. The data presented for
the three-month periods ended December 31, 1996 and 1995 are derived from
unaudited financial statements and include, in the opinion of management, all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the data for such periods. More comprehensive financial
information is included in the Company's Annual Report on Form 10-K for each of
the respective fiscal years and its Quarterly Report on Form 10-Q for the period
ended December 31, 1996, and the financial information that follows is qualified
by reference to such reports and the financial statements and related notes
incorporated by reference herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, FISCAL YEARS ENDED SEPTEMBER 30,
------------------------- ---------------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
----------- ----------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net sales................... $34,086,397 $30,689,331 $130,105,136 $112,682,132 $90,596,038 $56,326,371 $41,622,896
Net income from continuing
operations................ $ 1,571,900 $ 1,722,501 $ 6,932,958 $ 4,643,662 $ 3,897,192 $ 1,897,160 $ 1,371,055
Income per share from
continuing operations..... $ 0.46 $ 0.51 $ 2.05 $ 1.37 $ 1.15 $ 0.56 $ 0.41
Net income.................. $ 1,558,332 $ 1,663,002 $ 6,237,461 $ 4,237,651 $ 6,605,678 $ 2,149,706 $ 1,691,097
Net income per share........ $ 0.46 $ 0.49 $ 1.84 $ 1.25 $ 1.95 $ 0.64 $ 0.50
BALANCE SHEET DATA:
(as of the end of the
period)
Current assets.............. $22,367,166 $26,929,459 $ 29,007,479 $ 23,626,576 $26,091,140 $11,035,719 $ 9,996,586
Current liabilities......... $16,531,408 $16,073,201 $ 19,625,495 $ 15,457,784 $17,719,922 $10,458,560 $ 8,676,310
Working capital............. $ 5,835,758 $10,856,258 $ 9,381,984 $ 8,168,792 $ 8,371,218 $ 577,159 $ 1,320,276
Total assets................ $60,483,427 $56,597,541 $ 65,445,890 $ 51,811,939 $41,878,513 $30,703,330 $25,875,595
Long term obligations....... $13,723,031 $16,478,143 $ 17,149,739 $ 13,970,960 $ 6,013,047 $ 7,853,985 $ 7,209,131
Net shareholders' equity.... $30,228,988 $24,046,197 $ 28,670,656 $ 22,383,195 $18,145,544 $11,467,392 $ 9,325,115
Book value per share........ $ 8.92 $ 7.69 $ 8.47 $ 6.61 $ 5.36 $ 3.38 $ 2.75
OTHER FINANCIAL DATA:
Ratio of earnings to fixed
charges................... 8.13 9.56 8.27 8.79 15.12 13.17 12.27
</TABLE>
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<PAGE> 73
INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements incorporated by reference in this Proxy Statement
from Cavco's Annual Report on Form 10-K for the year ended September 30, 1996,
as amended, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their reports, which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing. A
representative of Arthur Andersen LLP will be present at the Special Meeting to
answer questions by Shareholders and will have the opportunity to make a
statement, if so desired.
SHAREHOLDER PROPOSALS
Cavco intends to hold an Annual Meeting of Shareholders in 1997 only if the
Merger is not consummated on or before April 15, 1997. In the event the Merger
is not consummated on or before such date, the Board will promptly call an
Annual Meeting and circulate a proxy or information statement therefor.
Any proposal to be submitted by an eligible Shareholder for possible
inclusion in this year's proxy or information statement for the Annual Meeting,
if any, must have been received by Cavco no later than September 30, 1996.
OTHER BUSINESS
It is not expected that any matter not referred to herein will be presented
for action at the Special Meeting. If any other matters are properly brought
before the Special Meeting, the persons named in the proxies or authorized
substitutes will have discretion to vote on such matters and on matters incident
to the conduct of the Special Meeting in accordance with their best judgment.
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<PAGE> 74
APPENDIX A -- AGREEMENT AND PLAN OF MERGER
<PAGE> 75
AGREEMENT AND PLAN OF MERGER
AMONG
CENTEX REAL ESTATE CORPORATION,
MFH HOLDING COMPANY,
MFH ACQUISITION COMPANY,
CAVCO INDUSTRIES, INC.
AND
THE SHAREHOLDER PARTIES IDENTIFIED HEREIN
DATED AS OF DECEMBER 4, 1996
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TABLE OF CONTENTS
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ARTICLE I -- THE MERGER AND RELATED TRANSACTIONS....................................... A-1
SECTION 1.1. The Merger...................................................... A-1
SECTION 1.2. Effective Time.................................................. A-2
SECTION 1.3. Effects of the Merger........................................... A-2
SECTION 1.4. Charter and Bylaws.............................................. A-2
SECTION 1.5. Directors....................................................... A-2
SECTION 1.6. Officers........................................................ A-2
SECTION 1.7. Holding Company Transactions.................................... A-2
SECTION 1.8. Closing......................................................... A-2
ARTICLE II -- CONVERSION OF SECURITIES................................................. A-3
SECTION 2.1. Conversion of Capital Stock; Company Shares..................... A-3
SECTION 2.2. Conversion of Capital Stock; Merger Subsidiary Shares........... A-3
SECTION 2.3. Company Stock Options........................................... A-3
SECTION 2.4. Dissenting Company Shares....................................... A-3
SECTION 2.5. Payment for Company Shares...................................... A-4
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... A-5
SECTION 3.1. Organization and Qualification.................................. A-5
SECTION 3.2. Authority; Binding Effect....................................... A-5
SECTION 3.3. Absence of Conflicts............................................ A-5
SECTION 3.4. Governmental Consents and Filings............................... A-6
SECTION 3.5. Proxy Statement; Schedule 13E-3................................. A-6
SECTION 3.6. Fairness Opinion; Board Findings and Recommendation............. A-6
SECTION 3.7. Capitalization.................................................. A-6
SECTION 3.8. Subsidiaries.................................................... A-7
SECTION 3.9. Commission Reports.............................................. A-7
SECTION 3.10. Financial Statements............................................ A-8
SECTION 3.11. Absence of Undisclosed Liabilities.............................. A-8
SECTION 3.12. Absence of Certain Changes or Events............................ A-8
SECTION 3.13. Property........................................................ A-9
SECTION 3.14. Contracts....................................................... A-10
SECTION 3.15. Litigation...................................................... A-12
SECTION 3.16. Compliance with Laws and Other Requirements..................... A-12
SECTION 3.17. Environmental Matters........................................... A-12
SECTION 3.18. Taxes........................................................... A-13
SECTION 3.19. Employee Benefit Plans.......................................... A-15
SECTION 3.20. Labor Matters................................................... A-16
SECTION 3.21. Intellectual Property Rights.................................... A-16
SECTION 3.22. Permits......................................................... A-16
SECTION 3.23. Insurance....................................................... A-17
SECTION 3.24. Transactions with Affiliates.................................... A-17
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SECTION 3.25. Absence of Certain Business Practices........................... A-17
SECTION 3.26. Disclosure...................................................... A-17
SECTION 3.27. Brokers' or Finders' Fees....................................... A-17
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER PARTIES................
A-18
SECTION 4.1. Organization.................................................... A-18
SECTION 4.2. Authority; Binding Effect....................................... A-18
SECTION 4.3. Absence of Conflicts............................................ A-18
SECTION 4.4. Governmental Consents and Filings............................... A-19
SECTION 4.5. Proxy Statement; Schedule 13E-3................................. A-19
SECTION 4.6. Title to Company Shares......................................... A-19
SECTION 4.7. Capitalization; Issuance of Shares.............................. A-19
SECTION 4.8. No Material Operations.......................................... A-20
SECTION 4.9. Brokers' or Finders' Fees....................................... A-20
ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF CREC.................................... A-20
SECTION 5.1. Organization.................................................... A-20
SECTION 5.2. Authority; Binding Effect....................................... A-20
SECTION 5.3. Absence of Conflicts............................................ A-20
SECTION 5.4. Governmental Consents and Filings............................... A-20
SECTION 5.5. Financing....................................................... A-20
SECTION 5.6. Brokers' or Finders' Fees....................................... A-21
ARTICLE VI -- CERTAIN COVENANTS........................................................ A-21
SECTION 6.1. Conduct of Business............................................. A-21
SECTION 6.2. Other Proposals................................................. A-23
SECTION 6.3. Access to Information........................................... A-23
SECTION 6.4. Best Efforts.................................................... A-24
SECTION 6.5. Certain Actions by the Shareholder Parties...................... A-24
SECTION 6.6. HSR Act......................................................... A-24
SECTION 6.7. Special Meeting................................................. A-24
SECTION 6.8. Proxy Statement; Schedule 13E-3................................. A-24
SECTION 6.9. Company Stock Options........................................... A-25
SECTION 6.10. Indemnification of Directors and Officers....................... A-25
SECTION 6.11. Notification of Certain Other Matters........................... A-26
SECTION 6.12. Convertible Note................................................ A-26
SECTION 6.13. Arizona Takeover Statute Matters................................ A-26
SECTION 6.14. Post-Termination Proposal....................................... A-27
SECTION 6.15. Supplemental Disclosure......................................... A-27
ARTICLE VII -- CONDITIONS TO CLOSING................................................... A-28
SECTION 7.1. Conditions to the Obligations of Each of the Parties............ A-28
SECTION 7.2. Conditions to the Obligations of CREC........................... A-28
SECTION 7.3. Conditions to the Obligations of the Company and the Shareholder
Parties......................................................... A-28
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ARTICLE VIII -- INDEMNIFICATION........................................................ A-29
SECTION 8.1. Indemnification by the Shareholder Parties...................... A-29
SECTION 8.2. Indemnification by CREC......................................... A-29
SECTION 8.3. Third-Party Claims; Procedures.................................. A-29
ARTICLE IX -- TERMINATION.............................................................. A-30
SECTION 9.1. Termination..................................................... A-30
SECTION 9.2. Effect of Termination........................................... A-31
SECTION 9.3. Termination Payments............................................ A-31
ARTICLE X -- DEFINITIONS............................................................... A-32
SECTION 10.1. Definitions..................................................... A-32
ARTICLE XI -- MISCELLANEOUS............................................................ A-39
SECTION 11.1. Survival of Representation and Warranties....................... A-39
SECTION 11.2. Fees and Expenses............................................... A-39
SECTION 11.3. Notices......................................................... A-39
SECTION 11.4. Public Announcements............................................ A-40
SECTION 11.5. Amendment; Waivers.............................................. A-40
SECTION 11.6. Entire Agreement................................................ A-40
SECTION 11.7. No Additional Representations and Warranties.................... A-41
SECTION 11.8. Parties in Interest; Assignment................................. A-41
SECTION 11.9. Governing Law................................................... A-41
SECTION 11.10. Severability.................................................... A-41
SECTION 11.11. Specific Performance............................................ A-41
SECTION 11.12. Interpretation.................................................. A-41
SECTION 11.13. Counterparts.................................................... A-41
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LIST OF EXHIBITS
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Exhibit A -- Initial Directors of the Surviving Corporation
Exhibit B -- Initial Officers of the Surviving Corporation
Exhibit C -- Ownership of Shares by Shareholder Parties
Exhibit D -- Shareholders' Agreement
Exhibit E -- Opinion of Osborn Maledon
Exhibit F -- Opinion of Raymond G. Smerge
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, entered into as of December 4, 1996 (the
"Agreement"), among CENTEX REAL ESTATE CORPORATION, a Nevada corporation
("CREC"), MFH HOLDING COMPANY, a Nevada corporation (the "Holding Company"), MFH
ACQUISITION COMPANY, an Arizona corporation and a wholly owned subsidiary of the
Holding Company (the "Merger Subsidiary"), CAVCO INDUSTRIES, INC., an Arizona
corporation (the "Company"), AL R. GHELFI and JANET M. GHELFI (the "Principal
Shareholders") and JANAL LIMITED PARTNERSHIP, an Arizona limited partnership
("Janal Partnership" and, together with the Principal Shareholders, the
"Shareholder Parties"),
WHEREAS, the Board of Directors of each of CREC, the Holding Company, the
Merger Subsidiary and the Company deem it advisable and in the best interests of
their respective shareholders to consummate the merger of the Merger Subsidiary
with and into the Company (the "Merger") and the other transactions contemplated
hereby, upon the terms and subject to the conditions set forth herein;
WHEREAS, the Board of Directors of the Company has (i) determined that the
consideration to be paid to the shareholders of the Company other than the
Shareholder Parties (the "Independent Shareholders") in the Merger in exchange
for each share ("Company Share") of Common Stock, par value $.05 per share
("Company Common Stock"), held by them is fair to, and in the best interests of,
the Independent Shareholders, (ii) approved this Agreement and the Merger and
the other transactions contemplated hereby and (iii) resolved to recommend the
approval and adoption of this Agreement to the shareholders of the Company;
WHEREAS, the Boards of Directors of CREC, the Holding Company and the
Merger Subsidiary have approved this Agreement and the Merger and the other
transactions contemplated hereby and the sole shareholder of the Merger
Subsidiary has approved and adopted this Agreement;
WHEREAS, concurrently with the execution and delivery hereof, and as an
inducement to CREC to enter into this Agreement, the Shareholder Parties have
entered into (i) a Voting Agreement, dated the date hereof, with CREC (the
"Voting Agreement"), pursuant to which such Shareholder Parties have agreed to
vote all Company Shares owned by them in favor of this Agreement and (ii) a
Stock Purchase Agreement, dated the date hereof, with CREC (the "Stock Purchase
Agreement"), pursuant to which such Shareholder Parties have agreed to sell an
aggregate of 1,047,288 Company Shares owned by them (the "Aggregate Subject
Shares") to CREC (the "Subject Share Purchase") in the event that this Agreement
is terminated under the circumstances described therein;
WHEREAS, immediately prior to the Effective Time, it is contemplated that
(i) CREC will contribute cash in the amount of the CREC Purchase Price to the
Holding Company in exchange for certain Holding Company Shares, (ii) the
Shareholder Parties will contribute a total of 783,441 Company Shares owned by
them to the Holding Company in exchange for certain Holding Company Shares and
(iii) CREC and the Shareholder Parties will enter into certain arrangements with
respect to the Holding Company; and
WHEREAS, capitalized terms used in any provision of this Agreement but not
defined in such provision have the respective meanings set forth in Section
10.1;
NOW, THEREFORE, in consideration of the premises, the terms and provisions
set forth herein, the mutual benefits to be gained by the performance thereof
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
THE MERGER
AND RELATED TRANSACTIONS
SECTION 1.1. The Merger. Upon the terms and subject to the conditions set
forth herein, and in accordance with the Arizona Act, the Merger Subsidiary
shall be merged with and into the Company (the
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"Merger") as promptly as practicable following the satisfaction or waiver of the
conditions set forth in Article VII. Following the Merger, the Company shall
continue as the surviving corporation (the "Surviving Corporation") and the
separate corporate existence of the Merger Subsidiary shall cease.
SECTION 1.2. Effective Time. The Merger shall be effected through the
filing of this Agreement (or a plan of merger summarizing certain of the
principal terms hereof) and the articles of merger with the Arizona Commission
pursuant to Section 1105 of the Arizona Act (the "Articles of Merger"), and
shall be effective at the time of filing of the Articles of Merger, or at such
later time as may be agreed upon by the Merger Subsidiary and the Company and
set forth in the Articles of Merger in accordance with applicable law (the
"Effective Time").
SECTION 1.3. Effects of the Merger. The Merger shall have the effects set
forth in Section 1106 of the Arizona Act.
SECTION 1.4. Charter and Bylaws. The Charter and Bylaws of the Merger
Subsidiary as in effect immediately prior to the Effective Time shall be the
Charter and Bylaws of the Surviving Corporation.
SECTION 1.5. Directors. The persons identified in Exhibit A shall be the
initial directors of the Surviving Corporation.
SECTION 1.6. Officers. The persons identified in Exhibit B shall be the
initial officers of the Surviving Corporation and shall hold the offices set
forth opposite their respective names in such exhibit.
SECTION 1.7. Holding Company Transactions. Upon the terms and subject to
the conditions set forth herein, immediately prior to or concurrently with the
consummation of the Merger, (i) CREC shall contribute to the Holding Company an
amount in cash equal to the CREC Purchase Price in exchange for the issuance by
the Holding Company of the CREC Holding Company Shares (the "CREC Stock
Purchase"), (ii) each Shareholder Party shall transfer and contribute to the
Holding Company the number of Contributed Company Shares set forth opposite the
name of such Shareholder Party (under the caption "Contributed Company Shares")
on Exhibit C in exchange for the issuance by the Holding Company of the number
of Holding Company Shares set forth opposite the name of such Shareholder Party
(under the caption "Additional Holding Company Shares") on such exhibit (the
"Shareholder Party Contribution") and (iii) the Holding Company, CREC and the
Shareholder Parties shall enter into the Shareholders' Agreement, in the form
attached as Exhibit D (the "Shareholders' Agreement") in order to evidence their
agreement with respect to certain matters in relation to the Holding Company and
their respective holdings of Holding Company Shares.
SECTION 1.8. Closing.
(a) Upon the terms and subject to the conditions set forth herein, as
promptly as practicable following the satisfaction or waiver of the conditions
set forth in Article VII, the Merger Subsidiary and the Company shall execute
the Articles of Merger and deliver the Articles of Merger and this Agreement (or
a plan of merger summarizing certain of the principal terms hereof) to the
Arizona Commission, and the parties hereto shall take all such other and further
actions as may be required by law to make effective the Merger and the other
transactions contemplated hereby. Concurrently with the filing of the Articles
of Merger in accordance with this Section 1.8(a), a closing (the "Closing")
shall be held at the offices of Baker & Botts, L.L.P., 2001 Ross Avenue, Suite
700, Dallas, Texas 75201 (or such other place as the parties may agree) for the
purpose of confirming the consummation of the Merger and the other transactions
contemplated by this Agreement.
(b) At the Closing, the parties hereto shall take each of the following
actions to make effective the CREC Stock Purchase and the Shareholder Party
Contribution:
(i) CREC shall deliver to the Holding Company immediately available
funds in an amount equal to the CREC Purchase Price (by wire transfer to
such account as shall have been designated in writing by the Holding
Company);
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(ii) The Holding Company shall deliver to CREC a certificate, in
definitive form, dated the Closing Date and registered in the name of CREC,
evidencing the CREC Holding Company Shares;
(iii) Each Shareholder Party shall deliver to the Holding Company the
certificates evidencing the number of Contributed Company Shares set forth
opposite the name of such Shareholder Party (under the caption "Contributed
Company Shares") on Exhibit C, duly endorsed in blank or accompanied by
stock powers duly executed by such Shareholder Party in blank, in proper
form for transfer;
(iv) The Holding Company shall deliver to each Shareholder Party a
certificate, in definitive form, dated the Closing Date and registered in
the name of such Shareholder Party, evidencing the number of Holding
Company Shares set forth opposite the name of such Shareholder Party (under
the caption "Additional Holding Company Shares") on Exhibit C; and
(v) The Holding Company, CREC and the Shareholder Parties shall
execute and deliver the Shareholders' Agreement.
ARTICLE II.
CONVERSION OF SECURITIES
SECTION 2.1. Conversion of Capital Stock; Company Shares.
(a) As of the Effective Time, by virtue of the Merger and without any
action on the part of the holders of Company Shares, each Company Share that is
issued and outstanding immediately prior to such time (other than the
Contributed Company Shares and any Dissenting Company Shares) shall be converted
into the right to receive $26.75 in cash (the "Merger Consideration"), payable
to the holder thereof, without interest thereon, upon the surrender of the
certificate formerly evidencing such Company Share. The Company Shares so
converted shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a certificate evidencing
any such Company Shares shall cease to have any rights with respect thereto,
except the right to receive the Merger Consideration in accordance with the
provisions set forth herein.
(b) As of the Effective Time, by virtue of the Merger and without any
action on the part of the holders of Company Shares, each Company Share that is
held by the Company in its treasury and each Contributed Company Share shall
automatically be canceled and retired and shall cease to exist, and no payment
shall be made in respect thereof (it being understood that the Holding Company
hereby expressly consents to the cancellation of such shares without the payment
of any consideration therefor).
SECTION 2.2. Conversion of Capital Stock; Merger Subsidiary Shares. As of
the Effective Time, by virtue of the Merger and without any action on the part
of the Holding Company (as the sole holder of Merger Subsidiary Shares) each
Merger Subsidiary Share that is issued and outstanding immediately prior to such
time shall be converted into the right to receive one share of common stock of
the Surviving Corporation, which consideration shall be issuable to the Holding
Company upon the surrender of the certificate formerly evidencing the Merger
Subsidiary Shares. The Merger Subsidiary Shares so converted shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and the Holding Company shall cease to have any rights with respect
thereto, except the right to receive the consideration provided for in this
Section 2.2.
SECTION 2.3. Company Stock Options. At the Effective Time, all outstanding
Company Stock Options (whether or not exercisable) shall be canceled. The
Company shall take all action necessary to ensure that all of the outstanding
Company Stock Options are canceled as provided in this Section 2.3, including,
but not limited to, obtaining the written consent to the cancellation thereof
from each holder of a Company Stock Option who does not exercise the same prior
to the Effective Time for any reason.
SECTION 2.4. Dissenting Company Shares.
(a) Notwithstanding anything to the contrary contained in this Agreement,
Company Shares which are issued and outstanding immediately prior to the
Effective Time and which are held by shareholders of the
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Company who have not voted such Company Shares in favor of this Agreement and
who have delivered a written demand for payment for their Company Shares in
accordance with Section 1321 of the Arizona Act and have complied with all other
applicable provisions of the Arizona Act concerning the right to demand
appraisal of their Company Shares in connection with the Merger (the "Dissenting
Company Shares") shall not be converted into the right to receive the Merger
Consideration as provided in Section 2.1(a), but shall instead become the right
to receive such cash consideration as may be determined to be due to such
shareholders in accordance with the applicable provisions of the Arizona Act,
unless and until any such shareholder shall have failed to perfect or shall have
effectively withdrawn or lost his right to appraisal and payment thereunder. If
a shareholder of the Company shall have so failed to perfect or shall have
effectively withdrawn or lost such right, the Company Shares held by such
shareholder shall thereupon be deemed to have been converted into the right to
receive the Merger Consideration, without any interest thereon, as of the
Effective Time.
(b) If the CREC Purchase Price is not sufficient to enable the Holding
Company to pay (in addition to the Merger Consideration payable pursuant to
Section 2.1(a)) the cash consideration, if any, due to the holders of Dissenting
Company Shares in accordance with the applicable provisions of the Arizona Act,
then CREC shall provide to the Surviving Corporation, as additional
consideration for the issuance of the CREC Holding Company Shares, the funds
necessary to pay such consideration on a timely basis.
(c) Each of the Shareholder Parties hereby irrevocably waives any right
that it may have in connection with the Merger to demand payment for the Company
Shares held by such Shareholder Party in accordance with Section 1321 of the
Arizona Act.
(d) The Company shall give CREC prompt notice of any written demand for
payment received by the Company in accordance with Section 1321 of the Arizona
Act and shall permit CREC to participate in and direct all negotiations and
proceedings with respect to any such demands. The Company shall not make any
payment in respect of, or settle, offer to settle or otherwise negotiate, any
such demands without the prior written consent of CREC.
SECTION 2.5. Payment for Company Shares.
(a) Prior to the Effective Time, the Holding Company shall (with the
consent of CREC) designate an agent to act as Paying Agent in connection with
the Merger (the "Paying Agent"). From time to time after the Effective Time, the
Holding Company shall provide to the Surviving Corporation, and shall take all
steps necessary to enable the Surviving Corporation to provide to the Paying
Agent, the funds necessary to make the payments contemplated by Section 2.1(a)
on a timely basis.
(b) Promptly after the Effective Time, the Paying Agent shall mail to each
Person who was a record holder as of the Effective Time of an outstanding
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time evidenced any Company Shares to be converted into the Merger
Consideration in accordance with Section 2.1(a) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Paying Agent) and instructions for use in effecting the surrender of the
Certificates for payment therefor. Upon surrender to the Paying Agent of a
Certificate, together with a duly executed letter of transmittal and any other
required documents, the holder of such Certificate shall receive the Merger
Consideration in exchange for each Company Share formerly evidenced thereby, and
such Certificate shall forthwith be canceled. No interest will be paid or
accrued on the cash payable upon the surrender of the Certificates. If payment
is to be made to a Person other than the Person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the Person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a Person other than
the registered holder of the Certificate surrendered or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable. At any time after the expiration of 90 days following the Effective
Time, the Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any cash (including any interest received with respect thereto)
which has been made available to the Paying Agent and which has not been
disbursed to holders of Certificates, and thereafter such holders shall be
entitled to look only to the Surviving
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Corporation (subject to abandoned property, escheat or other similar laws) as
general creditors thereof with respect to the cash payable upon due surrender of
their Certificates. The Surviving Corporation shall pay all charges and expenses
of the Paying Agent in connection with the distribution of the Merger
Consideration upon conversion of the Company Shares.
(c) From and after the Effective Time, until surrendered in accordance with
the provisions of Section 2.5(b), each Certificate shall represent for all
purposes only the right to receive, in full satisfaction of all rights in
respect of any Company Shares evidenced by such Certificate, consideration equal
to the Merger Consideration multiplied by the number of Company Shares evidenced
thereby, without any interest thereon. From and after the Effective Time,
holders of Certificates shall have no right to vote or to receive any dividends
or other distributions with respect to any Company Shares which were theretofore
represented by such Certificates, other than any dividends or other
distributions payable to holders of record as of a date prior to the Effective
Time, and shall have no other rights other than as provided herein or by law.
(d) From and after the Effective Time, there shall be no transfers of the
Company Shares which were outstanding immediately prior to the Effective Time on
the stock transfer books of the Surviving Corporation. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged for the Merger Consideration in accordance
with the procedures set forth in this Section 2.5.
(e) The right of any holder of Company Shares to receive the Merger
Consideration shall be subject to and reduced by the amount of any required tax
withholding obligation.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to CREC as follows:
SECTION 3.1. Organization and Qualification. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Arizona and has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as presently
conducted. The Company is duly qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
its activities or the character of the properties that it owns, leases or
operates makes such qualification necessary, except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect. Schedule
3.1 sets forth a correct and complete list of all jurisdictions in which the
Company is duly qualified to transact business as a foreign corporation.
Schedule 3.1 also contains a correct and complete copy of the Charter and Bylaws
of the Company.
SECTION 3.2. Authority; Binding Effect. The Company has all requisite
corporate power and authority to enter into and perform its obligations under
this Agreement and to consummate the Merger and the other transactions
contemplated hereby. The execution and delivery by the Company of this Agreement
have been duly and validly authorized by all necessary corporate action on the
part of the Company, and no other corporate proceedings or shareholder actions
(other than, with respect to the Merger, the approval and adoption of this
Agreement by the holders of a majority of the Company Shares) on the part of or
with respect to the Company are necessary to authorize this Agreement, the
performance by the Company of its obligations hereunder or the consummation by
the Company of the Merger and the other transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with the terms hereof.
SECTION 3.3. Absence of Conflicts. The execution and delivery by the
Company of this Agreement, the performance by it of its obligations hereunder
and the consummation by it of the Merger and the other transactions contemplated
hereby will not (i) conflict with, or result in any violation or breach of, any
provision of the Charter or Bylaws of the Company or any of its Subsidiaries,
(ii) except as set forth in
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Schedule 3.3, conflict with, result in any violation or breach of, constitute a
default under, give rise to any right of termination or acceleration (with or
without notice or the lapse of time or both) pursuant to, or result in being
declared void, voidable or without further effect, any term or provision of any
material note, bond, mortgage, indenture, lease, franchise, permit, license,
Contract or other instrument or document to which the Company or any of its
Subsidiaries is a party or by which their respective properties or assets are
bound, (iii) assuming that the filings and Consents referred to in Section 3.4
are made or obtained, conflict with, or result in any violation of, any law,
ordinance, statute, rule or regulation of any Governmental Authority or of any
order, writ, injunction, judgment or decree of any court, arbitrator or
Governmental Authority applicable to the Company or any of its Subsidiaries or
their respective properties or assets or (iv) result in the creation of, or
impose on the Company or any of its Subsidiaries the obligation to create, any
Lien upon the properties or assets of the Company or any of its Subsidiaries
(other than Permitted Encumbrances).
SECTION 3.4. Governmental Consents and Filings. There is no requirement
applicable to the Company to obtain any Consent of, or to make or effect any
declaration, filing or registration with, any Governmental Authority for the
valid execution and delivery by the Company of this Agreement, the due
performance by it of its obligations hereunder or the lawful consummation by it
of the Merger and the other transactions contemplated hereby, except for (i) the
filing by the Principal Shareholders (as the ultimate parent entities of the
Company) of a premerger notification with the FTC and the Antitrust Division
under the HSR Act, (ii) the filing by the Company of the Proxy Statement and the
filing by the Company, the Holding Company and the Principal Shareholders of the
Schedule 13E-3 under the Exchange Act, (iii) the filing of the Articles of
Merger and this Agreement (or a plan of merger summarizing certain of the
principal terms hereof) under the Arizona Act and (iv) the filings and Consents
set forth in Schedule 3.4. Except as set forth in Schedule 3.4, no state
takeover, business combination or control share acquisition statute or other
similar statute or regulation prohibits, restrains or restricts the Merger or
the Subject Share Purchase.
SECTION 3.5. Proxy Statement; Schedule 13E-3. The Proxy Statement and the
Schedule 13E-3 will comply in all material respects at all relevant times with
the applicable requirements of the Exchange Act and any other provisions of
applicable law. The Proxy Statement and the Schedule 13E-3 will not (i) at the
time the Proxy Statement (or any supplements thereto) or the Schedule 13E-3 (or
any amendments thereto) is filed with the Commission, (ii) at the time the Proxy
Statement (or any supplements thereto) is mailed to the holders of Company
Shares, (iii) on the date of the Special Meeting or (iv) on the Closing Date,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
SECTION 3.6. Fairness Opinion; Board Findings and Recommendation. The
Board of Directors of the Company has received an opinion (the "Fairness
Opinion") of Goldman, Sachs & Co. (the "Fairness Advisor") to the effect that
the consideration to be paid to the Independent Shareholders in the Merger is
fair to such shareholders. The Board of Directors of the Company has (i)
determined that the consideration to be paid to the Independent Shareholders in
the Merger in exchange for each Company Share is fair to, and in the best
interests of, the Independent Shareholders, (ii) approved this Agreement and the
Merger and the other transactions contemplated hereby and (iii) resolved to
recommend the adoption and approval of this Agreement to the shareholders of the
Company.
SECTION 3.7. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 8,000,000 shares of Company Common Stock, of
which 3,387,968 shares are issued and outstanding and no shares are held in the
treasury of the Company. All of the issued and outstanding shares of capital
stock of the Company have been duly authorized and are validly issued, fully
paid and nonassessable. None of the issued and outstanding shares of capital
stock of the Company have been issued in violation of, or subject to, any
preemptive rights or rights of subscription. All offers, issuances and sales by
the Company of any shares of its capital stock or other equity securities have
been made in compliance in all material respects with the registration and
qualification requirements of all applicable federal and state securities laws.
Except as set forth above, there are no outstanding shares of capital stock or
other equity securities of the Company. Except as set forth in Schedule 3.7,
there are no outstanding options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character pursuant to which
the Company is or may be
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obligated to issue or sell any issued or unissued shares of its capital stock or
other equity securities or to purchase or redeem any shares of its capital stock
or other equity securities or make any other payments in respect thereof, and
there are no shares of its capital stock or other equity securities reserved for
issuance for any purpose. Schedule 3.7 contains a true and correct copy of all
agreements, instruments or other documents evidencing or otherwise relating to
the outstanding options, warrants, calls, rights, convertible securities or
other agreements or commitments referred to in such schedule, including, but not
limited to, (i) the Convertible Note and (ii) all outstanding Company Stock
Options.
SECTION 3.8. Subsidiaries.
(a) Schedule 3.8(a) sets forth (i) the name of each Subsidiary of the
Company, (ii) the jurisdiction of incorporation or formation of each Subsidiary
of the Company, (iii) the authorized, issued and outstanding capital stock or
equity securities of, or other ownership interests in, each Subsidiary of the
Company and (iv) the names of the shareholders, equity holders or other owners
of each Subsidiary of the Company. Except as set forth in Schedule 3.8(a), the
Company does not own, directly or indirectly, or have any voting rights with
respect to, any capital stock or equity securities of, or other ownership
interests in, any corporation, partnership or other Person or have any direct or
indirect interest in any business.
(b) Each Subsidiary of the Company that is a corporation is duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as presently conducted. Each Subsidiary of the Company that is a limited
liability company is duly formed, validly existing and (if applicable) in good
standing under the laws of the jurisdiction of its formation and has all
requisite power and authority as a limited liability company to own, lease and
operate its properties and to carry on its business as presently conducted. Each
Subsidiary of the Company is duly qualified to transact business as a foreign
corporation or foreign limited liability company and (if applicable) is in good
standing in each jurisdiction in which the nature of its activities or the
character of the properties that it owns, leases or operates makes such
qualification necessary, except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect. Schedule 3.8(b) contains a
correct and complete copy of Charter and Bylaws or other constitutive
instruments of each of the Subsidiaries of the Company.
(c) Except as set forth in Schedule 3.8(c), all of the issued and
outstanding shares of capital stock or equity interests of, or other ownership
interests in, each Subsidiary of the Company (i) have been duly authorized, (ii)
are validly issued, (iii) are (in the case of shares of capital stock) fully
paid and nonassessable or (in the case of limited liability company interests
and other ownership interests) not subject to any current or future capital
calls or similar obligations and (iv) are owned by the Company, directly or
indirectly, free and clear of all Encumbrances. None of the issued and
outstanding shares of capital stock or equity securities of, or other ownership
interests in, any Subsidiary of the Company has been issued in violation of, or
subject to, any preemptive rights or rights of subscription. All offers,
issuances and sales by the Company or any of its Subsidiary of any shares of the
capital stock or equity securities of, or ownership interests in, any Subsidiary
of the Company have been made in compliance in all material respects with the
registration and qualification requirements of all applicable federal and state
securities laws. Except as set forth on Schedule 3.8(c), there are no
outstanding options, warrants, calls, rights, convertible securities or other
agreements or commitments of any character pursuant to which the Company or any
of its Subsidiaries is or may be obligated to issue or sell any issued or
unissued shares of capital stock or equity securities of, or other ownership
interests in, any Subsidiary of the Company or to purchase or redeem any shares
of capital stock or equity securities of, or other ownership interests in, any
Subsidiary of the Company or make any other payments in respect thereof, and
there are no shares of capital stock or equity securities of, or other ownership
interests in, any Subsidiary of the Company reserved for issuance for any
purpose.
SECTION 3.9. Commission Reports. The Company has filed all reports,
statements, forms and other documents required to be filed with the Commission
since September 30, 1993 (collectively, the "Commission Reports"), all of which
complied as of the filing date (or, in the case of any Commission Report that
has been amended, as of the date of amendment) in all material respects with the
applicable requirements of the Securities Act or the Exchange Act, as the case
may be, and of all applicable rules and regulations thereunder.
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None of the Commission Reports contained as of the filing date (or, in the case
of any Commission Report that has been amended, as of the date of amendment) any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
SECTION 3.10. Financial Statements. Each of (i) the consolidated financial
statements (including the notes thereto) contained in the Commission Reports and
(ii) the consolidated financial statements as of and for the year ended
September 30, 1996 furnished by the Company to CREC, which consist of a balance
sheet as of such date (the "Latest Balance Sheet") and a statement of operations
and a statement of cash flows for the year then ended (collectively, the
"Company Financial Statements"), was prepared in accordance with GAAP (subject
to, in the case of the financial statements as of and for the year ended
September 30, 1996, the absence of notes thereto) applied on a consistent basis
throughout the periods covered thereby (except as may be indicated in any notes
thereto), is in accordance with and accurately based upon the books and records
of the Company and its Subsidiaries in all material respects and fairly presents
in all material respects the consolidated financial position of the Company and
its Subsidiaries as of the respective dates thereof and the consolidated results
of operations and changes in cash flows of the Company and its Subsidiaries for
the periods indicated. The Company Financial Statements provide fully for all
fixed and non-contingent liabilities of the Company and its Subsidiaries and
disclose or provide for all contingent liabilities of the Company and its
Subsidiaries of a type required to be disclosed or provided for in financial
statements prepared in accordance with GAAP.
SECTION 3.11. Absence of Undisclosed Liabilities. As of September 30,
1996, there were no debts, liabilities or obligations (whether absolute,
contingent, accrued, unliquidated or otherwise) of the Company or any of its
Subsidiaries, except as set forth on the Latest Balance Sheet (including the
notes thereto) or as described in Schedule 3.11. Since the date of the Latest
Balance Sheet, the Company has not incurred any debts, liabilities or
obligations (whether absolute, contingent, accrued, unliquidated or otherwise),
except as described in Schedule 3.11 and except for (i) debts, liabilities and
obligations incurred in the ordinary course of business after the date of the
Latest Balance Sheet and (ii) other debts, liabilities and obligations which in
the aggregate do not and will not exceed $250,000.
SECTION 3.12. Absence of Certain Changes or Events. Since September 30,
1996, except as set forth in Schedule 3.12 or in any Commission Reports filed
during the period after that date and prior to the date hereof, the Company and
its Subsidiaries have conducted their respective businesses only in the ordinary
course and in a manner that is consistent in all material respects with past
practice, and there has not been any Material Adverse Change or any event,
occurrence of development that will result in or is reasonably likely to result
in a Material Adverse Change. In addition, since September 30, 1996, except as
set forth in Schedule 3.12 or in any Commission Reports filed during the period
after that date and prior to the date hereof (and except for actions to be taken
by the Company after the date hereof in accordance with the express terms of
this Agreement), there has not occurred any of the following events, occurrences
or developments:
(a) any damage, destruction or loss with respect to any properties or
assets which are material to the Company or any of its Subsidiaries, taken
as a whole (except for any such damage, destruction or loss which is fully
covered by insurance and which, after the application of the proceeds of
such insurance, has not had and will not have a Material Adverse Effect);
(b) the creation or imposition of any Lien or other Encumbrance (other
than any Permitted Encumbrance) with respect to any properties or assets
which are material to the Company and its Subsidiaries, taken as a whole;
(c) the revocation or termination, or any notice of revocation or
termination, of any Consents held by or benefitting the Company or any of
its Subsidiaries which are material to the Company and its Subsidiaries,
taken as a whole;
(d) any adverse change in the relationships between the Company or any
of its Subsidiaries on the one hand and any dealers, retailers, suppliers,
insurers or other Persons with whom they have business relationships that
are material to the Company and its Subsidiaries, taken as a whole, on the
other hand;
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(e) the declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to the
capital stock of the Company or any redemption, purchase or other
acquisition of any of the capital stock or other securities of the Company;
(f) the sale, lease, transfer or other disposition of any properties
or assets which are material to the Company and its Subsidiaries, taken as
a whole, other than in ordinary course of business;
(g) except as contemplated by this Agreement, the entry into any
material Contract or transaction by the Company or any of its Subsidiaries
(including, but not limited to, any borrowing, issuance of notes or other
securities, capital expenditure or sale of assets), other than in the
ordinary course of business;
(h) the entry into any Contract between the Company or any of its
Subsidiaries on the one hand and any of their respective directors,
officers or employees on the other hand providing for the employment of any
director, officer or employee or any increase in the compensation,
severance or termination benefits payable or to become payable by the
Company or any of its Subsidiaries to any such director, officer or
employee (except for (i) the entry into "at will" employment Contracts,
(ii) increases in compensation payable to employees who are not directors
or officers and (iii) the payment of severance benefits to former
employees, in each case in the ordinary course of business and consistent
with past practice) or the making of any loan to or entry into any other
material transaction or arrangement with any such director, officer or
employee;
(i) any increase in the benefits payable by the Company or any of its
Subsidiaries under any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase or other
employee benefit plan, program or arrangement made to, for or with any of
the directors, officers or employees of the Company or any of its
Subsidiaries, other than any scheduled increase pursuant to the existing
terms thereof;
(j) any material labor dispute involving any employees of the Company
or any of its Subsidiaries;
(k) any significant change by the Company in its accounting
principles, methods or practices;
(l) any waiver of any material rights or write off of any material
notes or accounts receivable not fully reserved for in the Company
Financial Statements;
(m) any action or omission on the part of the Company or any of its
Subsidiaries that, if taken or omitted to be taken after the date hereof
(without the prior written consent of CREC), would cause a breach or
violation of the covenants set forth in Section 6.1; or
(n) any agreement or commitment to do any of the foregoing.
SECTION 3.13. Property.
(a) The Company and its Subsidiaries have good, valid and marketable title
to all Real Property and Personal Property owned by them and valid leasehold
interests in all Real Property and Personal Property leased by them, in each
case free of all Encumbrances other than Permitted Encumbrances. The Company and
its Subsidiaries enjoy peaceful possession of all Real Property or Personal
Property owned or leased by them.
(b) Schedule 3.13(a) hereto identifies each lot, parcel and tract of Real
Property owned or leased by the Company or its Subsidiaries, together with
(except in the case of any Real Property leased by the Company or its
Subsidiaries that is not material to the Company and its Subsidiaries, taken as
a whole) a legal description thereof which is accurate in all material respects.
(c) The operation of the Real Property owned or leased by the Company and
its Subsidiaries in the manner in which they are currently being utilized does
not violate any applicable zoning ordinances or other applicable code or
regulations, with such exceptions as are not reasonably likely to have a
Material Adverse Effect. No covenants, easements, restrictions, servitudes,
rights of way or regulations applicable to the Real Property owned or leased by
the Company or its Subsidiaries are reasonably likely to have a Material Adverse
Effect or to materially detract from the use, value or marketability of any such
Real Property.
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(d) All buildings, improvements and other facilities located on any Real
Property owned or leased by the Company or its Subsidiaries are structurally
sound and in good operating condition and repair, normal wear and tear excepted,
in each case with such exceptions as would not materially detract from the
continued use of any such Real Property in the conduct of the normal business of
the Company and its Subsidiaries during the remaining useful lives of such
buildings, improvements and other facilities.
(e) The existing water, sewer, gas and electricity lines, storm sewers and
other utility systems on or in the Real Property owned or leased by the Company
or its Subsidiaries are adequate in all material respects to serve the utility
needs of such Real Property. All of such utilities are installed and operating
and all installation and connection charges have been paid in full.
(f) Since January 1, 1996, the Company has not received any written
appraisals, reports or other similar data relating to the value or condition of
the Real Property or Personal Property owned or leased by the Company or its
Subsidiaries which have not been specifically disclosed and delivered to CREC
(except appraisals received in connection with the sales of homes to customers).
SECTION 3.14. Contracts.
(a) Schedule 3.14(a) contains a correct and complete list of each of the
following Contracts to which the Company or any of its Subsidiaries is a party
or by which the Company or any of its Subsidiaries or any of their respective
properties or assets are bound:
(i) all employment, agency, consultation or representation Contracts
or other Contracts of any type with any present officer, director, employee
or other Representative of the Company or any of its Subsidiaries (or any
former officer, director, employee or other Representative of the Company
or any of its Subsidiaries, if there exists any present or future liability
with respect to such Contract, whether now existing or contingent), other
than (A) "at will" employment Contracts and (B) Contracts with consultants
and similar Representatives which provide for aggregate payments by the
Company and its Subsidiaries of less than $50,000 per annum and are
terminable by the Company or any of its Subsidiaries without penalty on not
more than 90 days' notice;
(ii) all Contracts containing any provision or covenant limiting the
ability of the Company or any of its Subsidiaries to engage in any line of
business or to compete with or to obtain products or services from any
Person;
(iii) all partnership, joint venture or similar Contracts;
(iv) all credit agreements, indentures or other Contracts relating to
the borrowing of money by the Company or any of its Subsidiaries or
providing for any direct or indirect guarantee by the Company or any of its
Subsidiaries of any indebtedness of any other Person;
(v) all Contracts which by their terms provide for the creation,
existence or maintenance of a material Lien or other Encumbrance on any
properties or assets of the Company or any of its Subsidiaries (except for
Permitted Encumbrances);
(vi) all leases or subleases of Real Property and all other leases,
subleases or rental Contracts under which the Company or any of its
Subsidiaries is lessee or is permitted to hold or operate any Real Property
which either provide for aggregate payments by the Company and its
Subsidiaries of more than $50,000 in any year or are otherwise material to
the Company and its Subsidiaries, taken as a whole, other than any of such
leases, subleases or other such Contracts that are terminable by the
Company without penalty on not more than 60 days' notice;
(vii) all leases or subleases of Real Property and all other leases,
subleases or rental or use Contracts under which the Company or any of its
Subsidiaries is lessor or permits any other Person to hold or operate any
Real Property which either provide for aggregate payments to the Company
and its Subsidiaries of more than $50,000 in any year or are otherwise
material to the Company and its Subsidiaries, taken as a whole;
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(viii) all Contracts that involve the disposition or acquisition by
the Company or any of its Subsidiaries after the date hereof of any
material properties or assets not in the ordinary course of business and in
a manner consistent with past practice;
(ix) all Contracts (including, but not limited to, those relating to
allocations of expenses, personnel, services or facilities) between or
among the Company or any of its Subsidiaries on the one hand and any of
their respective Affiliates (other than direct or indirect wholly owned
Subsidiaries of the Company) on the other hand;
(x) all material proxies, powers of attorney or similar delegations of
authority of the Company or any of its Subsidiaries;
(xi) all material Contracts containing any "change of control"
provision or agreement;
(xii) all sales, distribution or franchise Contracts not entered into
in the ordinary course of business;
(xiii) all warranty Contracts with respect to services rendered or
products sold by the Company not entered into in the ordinary course of
business;
(xiv) all Contracts that involve the payment or potential payment by
or to the Company or any of its Subsidiaries of amounts exceeding $50,000
in any year, other than Contracts between or among the Company or any of
its wholly owned Subsidiaries and Contracts which are terminable by the
Company or such Subsidiary without penalty on not more than 60 days'
notice; and
(xv) all other Contracts that are material to the Company and its
Subsidiaries, taken as a whole, or that could prevent, impede or otherwise
adversely affect the consummation of the Merger or the other transactions
contemplated by this Agreement.
(b) The Company has heretofore provided to CREC correct and complete copies
of each of the following documents:
(i) all of the Contracts identified or required to be identified in
Schedule 3.14(a) (the "Identified Contracts") or (in the case of any
Identified Contracts which are not in writing) written descriptions of all
of the material terms thereof;
(ii) the standard forms of all Contracts (including, but not limited
to, warranty Contracts) entered into by the Company or any of its
Subsidiaries with any manufactured housing dealers or retailers to which
the Company or any of its Subsidiaries sells manufactured housing units;
and
(iii) the standard forms of all agreements entered into by the Company
or any of its Subsidiaries, with any banks or financing sources under which
the Company or any of its Subsidiaries is obligated to repurchase or
otherwise acquire any manufactured housing units the sale of which is
financed by such bank or other financing source.
(c) All of the Identified Contracts are valid and legally binding
obligations of the Company or its Subsidiaries, as the case may be, and, to the
knowledge of the Company, each the other parties thereto, enforceable in
accordance with the terms thereof, in each case with such exceptions as are not
reasonably likely to have a Material Adverse Effect. The Company and its
Subsidiaries have performed in all material respects all obligations required to
be performed by them under each of the Identified Contracts and are not in
breach in any material respect of, or in default in any material respect under,
any term or provision of any Identified Contract or in receipt of any claim of
such default or breach. No event has occurred which (with the passage of time or
the giving of notice or both) would result in any default, breach or event of
noncompliance by the Company or any of its Subsidiaries under any Identified
Contract, with such exceptions as are not reasonably likely to have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries has any present
expectation or intention of not fully performing all its obligations under any
Identified Contract. Except as set forth in Schedule 3.14(c), neither the
Company nor any of its Subsidiaries has knowledge of any breach or anticipated
breach by the other parties to any Identified Contract or has received any
notice or other communication to the effect that any such other parties intends
to terminate an Identified Contract prior to the expiration of the maximum
stated term thereof. Except as set forth in
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Schedule 3.14(c), no Identified Contract contains any provision which prohibits
or restricts, or provides that the other party thereto may terminate such
Contract in the event or by reason of, the Merger or the other transactions
contemplated by this Agreement, or contains any other provision that would be
altered or otherwise become applicable by reason of such transactions.
SECTION 3.15. Litigation. Schedule 3.15 sets forth a list of all actions,
suits, inquiries, investigations or other proceedings which are pending against
the Company or any of its Subsidiaries, or to which any of their respective
properties or assets is subject, in any court or before any arbitrator or any
foreign or United States federal, state or local Governmental Authority. To the
knowledge of the Company, except as set forth on Schedule 3.15, there are no
actions, suits, inquiries, investigations or other proceedings threatened
against the Company or any of its Subsidiaries or their respective properties or
assets which are reasonably likely to have a Material Adverse Effect. None of
the actions, suits, inquiries, investigations or other proceedings pending or,
to the knowledge of the Company, threatened against the Company or any of its
Subsidiaries, or to which any of their respective assets are subject, could
prevent, impede or otherwise adversely affect the Merger or the other
transactions contemplated by this Agreement.
SECTION 3.16. Compliance with Laws and Other Requirements. Except as set
forth on Schedule 3.16, neither the Company nor any of its Subsidiaries is in
breach or violation of, or default under, any provision of its Charter or
Bylaws, any term or provision of any note, bond, mortgage, indenture, lease,
franchise, permit, license, Contract or other instrument or document to which it
is a party or by which its properties or assets are or may be bound or, any term
of any law, ordinance, statute, rule or regulation of any Governmental Authority
or of any order, writ, injunction, judgment or decree of any court, arbitrator
or Governmental Authority applicable to it or its properties or assets, except
for any breach, violation or default which (i) is not reasonably likely to have
a Material Adverse Effect and (ii) could not prevent, impede or otherwise
adversely affect the Merger or the other transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, neither the Company
nor any of its Subsidiaries has violated any federal, state, local or foreign
statute, law, regulation or rule relating to the design, construction or
installation of manufactured housing, including the national construction
standards of the United States Department of Housing and Urban Development,
except for any violation which is not reasonably likely to have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries has failed to
file with or submit to the applicable Governmental Authorities any statement,
report, information or form required by any applicable statute, law, regulation
or rule, except where the failure to file or submit such report is not
reasonably likely to have a Material Adverse Effect. All such filings or
submissions made by the Company or any of the Subsidiaries with Governmental
Authorities were in compliance in all material respects with all applicable laws
when filed, and no material deficiencies have been asserted by any Governmental
Authority with respect to such filings or submissions. The Company does not know
of any proposed law, ordinance, statute, rule or regulation of any Governmental
Authority relating to the design, construction or installation of manufactured
housing which, if enacted or promulgated, would have a Material Adverse Effect.
SECTION 3.17. Environmental Matters.
(a) Except as set forth in Schedule 3.17(a), the facilities and property
presently owned or leased by the Company and its Subsidiaries have been (to the
knowledge of the Company) prior to the date hereof, and continue to be, owned
and operated by the Company and its Subsidiaries in compliance in all material
respects with all applicable Environmental Laws.
(b) Except as set forth in Schedule 3.17(b), neither the Company nor any of
its Subsidiaries has received notice from any Person of any Environmental Claim
that is currently pending or threatened against the Company or any of its
Subsidiaries.
(c) Except as set forth in Schedule 3.17(c), there are no past or present
actions, activities, circumstances, conditions, events or incidents (including,
but not limited to, the release, emission, discharge, presence, or disposal of
any Hazardous Material) that are reasonably likely to form the basis of any
Environmental Claim against the Company or any of its Subsidiaries or, to the
knowledge of the Company,
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any Person whose liability for such an Environmental Claim the Company or any of
its Subsidiaries has or may have retained or assumed either contractually or by
operation of law.
(d) Schedule 3.17(d) identifies all material permits, licenses,
certifications, consents, exemptions, approval and other authorizations
currently held by the Company or any of its Subsidiaries pursuant to applicable
Environmental Laws and the Company and its Subsidiaries are in compliance in all
material respects with the terms thereof.
(e) Except as set forth in Schedule 3.17(e), neither the Company nor any of
its Subsidiaries has received notice or otherwise has knowledge that property
presently owned or leased, or previously owned or leased, by the Company or any
of its Subsidiaries is listed or proposed for listing on the National Priorities
List created pursuant to CERCLA, or on the CERCLIS or any similar state, local
or other list of sites potentially requiring investigation or cleanup.
(f) Except as set forth in Schedule 3.17(f), neither the Company nor any of
its Subsidiaries has transported or arranged for the transportation of any
Hazardous Materials to any location which is listed on the National Priorities
List, the CERCLIS or any similar state list, nor has any of them received notice
or otherwise has knowledge of pending or threatened claims as a result of
transporting, disposing or arranging to transport or dispose Hazardous Materials
to any location.
(g) Schedule 3.17(g) identifies all underground and aboveground storage
tanks, and the capacity and contents of such tanks, located on property that is
owned or, to the knowledge of the Company, on property that is leased by the
Company or any of its Subsidiaries.
(h) Except as set forth in Schedule 3.17(h), there is no asbestos
containing material located in any building, building component, structure or
office space that is owned or, to the knowledge of the Company, that is leased
by the Company or any of its Subsidiaries, nor is there any asbestos containing
material stored, disposed of or otherwise present at any property that is owned
or, to the knowledge of the Company, that is leased by the Company or any of its
Subsidiaries, in each case with such exceptions as are not reasonably likely to
give rise to any liability under an Environmental Law that is material to the
Company and its Subsidiaries, taken as a whole.
(i) Except as set forth in Schedule 3.17(i), no polychlorinated biphenyls
(PCBs) are used, disposed of, stored or otherwise present at any property that
is owned or, to the knowledge of the Company, that is leased by the Company or
any of its Subsidiaries and no formaldehyde containing material is contained in
any of the products manufactured by the Company or any of its Subsidiaries, in
each case with such exceptions as are not reasonably likely to give rise to any
liability under an Environmental Law that is material to the Company and its
Subsidiaries, taken as a whole.
(j) All written reports and studies (including, but not limited to, any
site assessments or environmental, health or safety audit report) obtained by or
in the possession of the Company or any of its Subsidiaries with respect to any
of the matters referred to in paragraphs (a) through (i) above are identified in
Schedule 3.17(j). The Company has heretofore provided to CREC correct and
complete copies of all such reports and studies in the possession of or
otherwise available to the Company.
(k) The Company has not owned, operated, or used any underground storage
tanks at the Litchfield facility and has not engaged in or permitted any
activities or incidents at the Litchfield facility, the Durango facility, or the
Durango storage yard that have caused or contributed to the release of any
Hazardous Material into the groundwater underlying those properties.
SECTION 3.18. Taxes.
(a) All Tax Returns required to be filed on or before the Closing Date by
or on behalf of, or in which is required to be reported the income or other
items of, the Company or any of its Subsidiaries have been or will be filed
within the time prescribed by law (including extensions of time approved by the
appropriate taxing authority). Such Tax Returns accurately and completely set
forth, or will set forth, in all material respects all
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liabilities for Taxes (if any) and any other items (including, but not limited
to, items of income, gain, loss, deduction or credit) required (under applicable
tax law) to be reflected or included in such Tax Returns.
(b) The Company and each of its Subsidiaries has paid or will pay, on a
timely basis, all Taxes of the Company and each such Subsidiary that are due on
or before the Closing Date (including, but not limited to, Taxes shown to be due
on the Tax Returns described in the preceding paragraph), except those Taxes
that are being disputed in good faith and for which adequate provision has been
made in the Company Financial Statements.
(c) Adequate provision has been made by the Company and each of its
Subsidiaries on the Latest Balance Sheet for the payment of Taxes due after the
Closing Date, including but not limited to, Taxes attributable to the taxable
period (if any) ending on, or within which occurs, the Closing Date.
(d) There are no material Liens for Taxes upon any of the properties or
assets of the Company or any of its Subsidiaries (except for Permitted
Encumbrances).
(e) Except as set forth in Schedule 3.18(e), there are no pending audits,
actions, proceedings, investigations, disputes or claims with respect to any
Taxes payable by or asserted against the Company or any of its Subsidiaries and,
to the knowledge of the Company, there is no basis on which any claim for
material Taxes can be asserted with respect to the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries has received
notice from any taxing authority of its intent to examine or audit any Tax
Returns of the Company or any of its Subsidiaries.
(f) The taxable year or periods for the assessment of federal income Tax of
the Company and its Subsidiaries are closed either by agreement with the
Internal Revenue Service or by operation of the applicable statute of
limitations for all taxable periods through the taxable period ended September
30, 1992. The taxable years or periods for the assessment of state and local
income or franchise Tax of the Company and its Subsidiaries are closed either by
agreement with the appropriate taxing authority or by application of the
applicable statute of limitations for all periods specified in Schedule 3.18(f).
Neither the Company nor any of its Subsidiaries (i) has given or been requested
to give waivers of any statute of limitations relating to the payment of Taxes
for taxable periods for which the applicable statutes of limitations have not
expired or (ii) has made any election which would result or has resulted in an
adjustment under Section 481 of the Internal Revenue Code.
(g) The Company and its Subsidiaries are not and have not been subject to
tax in any jurisdiction outside the United States.
(h) No agreements relating to allocation or sharing of, or liability or
indemnification for, Taxes exist (i) among the Company and any of the
Subsidiaries or (ii) among the Company and any of its present or former
shareholders or Affiliates.
(i) All material Taxes required to be withheld, collected or deposited by
the Company or any of its Subsidiaries (including, but not limited to, amounts
paid or owing to any employee, creditor, independent contractor or other Person)
have been timely withheld, collected or deposited and, to the extent required,
have been timely paid to the relevant taxing authority.
(j) Neither the Company nor any of its Subsidiaries has filed a consent
pursuant to Section 341(f) of the Internal Revenue Code or agreed to have
Section 341(f)(2) of the Internal Revenue Code apply to any disposition of a
Section 341(f) asset (as such term is defined in Section 341(f)(4) of the
Internal Revenue Code).
(k) Neither the Company nor any of its Subsidiaries has made any payments,
is obligated to make any payments, or is a party to any agreement that could
obligate it to make any payments that will not be deductible under Section 280G
of the Internal Revenue Code.
(l) Neither the Company nor any of its Subsidiaries has ever been a member
of an affiliated group of corporations (as defined in Section 1504(a) of the
Internal Revenue Code), other than the group of which the Company is the Common
Parent.
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SECTION 3.19. Employee Benefit Plans.
(a) Schedule 3.19(a) sets forth a true, complete and correct list of all
"employee benefit plans" (as defined in Section 3(3) of ERISA) and any other
employee benefit arrangements or payroll practices (including, but not limited
to, severance pay, vacation pay, company awards, salary continuation for
disability, sick leave, deferred compensation, bonus or other incentive
compensation and stock purchase arrangements or policies) maintained by the
Company or any ERISA Affiliate or to which the Company or any ERISA Affiliate
contributes or is obligated to contribute (collectively, the "Employee Benefit
Plans"). Schedule 3.19(a) also sets forth the name, current annual compensation
rate (including bonus and commissions), title and current base salary rate of
the ten most highly compensated present employees of the Company or any ERISA
Affiliate. No Employee Benefit Plans cover persons employed outside of the
United States. No Employee Benefit Plan is subject to Section 4063 or 4064 of
ERISA. No Employee Benefit Plans are "multiemployer plans" as defined in Section
3(37) of ERISA. No Employee Benefit Plans that are welfare plans as defined in
Section 3(1) of ERISA provide benefits after termination of employment (other
than as required by Section 4980B of the Internal Revenue Code and at the former
employee's own expense). Neither the Company nor any ERISA Affiliate maintains
or contributes to, or ever maintained or contributed to, a "defined benefit
plan" as defined in Section 3(35) of ERISA.
(b) Each of the Employee Benefit Plans intended to qualify under Section
401 of the Internal Revenue Code (collectively, the "Qualified Plans") so
qualifies, and nothing has occurred with respect to the operation of any such
plan which could cause the loss of such qualification or the imposition of any
material liability, penalty or tax under ERISA or the Internal Revenue Code. The
Company has delivered to CREC a copy of the most recent favorable determination
letter received from the Internal Revenue Service with respect to each Qualified
Plan. Any entity maintained or contributed to by the Company or any of its
Subsidiaries and which is intended to be an association described in Section
501(c)(9) of the Internal Revenue Code is exempt from federal income Tax under
Section 501(a) of the Internal Revenue Code and a copy of the determination
letter received from the Internal Revenue Service with respect to the exemption
of such association has been furnished to CREC.
(c) All contributions and premiums required by law or by the terms of each
Employee Benefit Plan or any agreement relating thereto have been timely made
(without regard to any waivers granted with respect thereto).
(d) There has been no violation of ERISA that could result in a material
liability with respect to the filing of applicable returns, reports, documents
or notices regarding any of the Employee Benefit Plans with the Secretary of
Labor or the Secretary of the Treasury or the furnishing of such notices or
documents to the participants or beneficiaries of the Employee Benefit Plans.
(e) Correct and complete copies of the following documents with respect to
each of the Employee Benefit Plans (as applicable) have been delivered by the
Company to CREC: (i) any plans and related trust documents, and all amendments
thereto, (ii) the most recent Forms 5500 and schedules thereto, (iii) the most
recent summary plan description, and (iv) written descriptions of all
non-written agreements relating to the Employee Benefit Plans.
(f) Except as set forth in Schedule 3.19(f), there are no pending actions,
suits or proceedings which have been asserted, instituted or threatened against
any Employee Benefit Plan, the assets of any such plan or the Company, or the
plan administrator or fiduciary of any Employee Benefit Plan with respect to the
operation of any such plan (other than routine, uncontested benefit claims), and
there are no facts or circumstances which are reasonably likely to form the
basis for any such action, suit or proceeding. Neither the Company nor any of
its Subsidiaries nor any fiduciary of any Employee Benefit Plan has engaged in a
nonexempt prohibited transaction described in Section 406 of ERISA or 4975 of
the Internal Revenue Code.
(g) Each of the Employee Benefit Plans has been maintained and administered
in all material respects in accordance with its terms and all provisions of
applicable laws, statutes, rules or regulations of any Governmental Authorities.
All amendments and actions required to bring each of the Employee Benefit Plans
into conformity with all of the applicable provisions of ERISA and other
applicable laws, statutes rules or
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regulations of any Governmental Authorities have been made or taken except to
the extent that such amendments or actions are not required by law to be made or
taken until a date after the Closing Date or are disclosed on Schedule 3.19(h).
(h) As to each Employee Benefit Plan, the Company and its Subsidiaries
comply in all material respects with all applicable requirements of (i) the Age
Discrimination in Employment Act of 1967, as amended, and the regulations
thereunder; (ii) Title VII of the Civil Rights Act of 1964, as amended, and the
regulations thereunder; (iii) the health care continuation provisions of ERISA
and the Internal Revenue Code; and (iv) the Medicare Secondary Payor Provisions
of Section 1862(b) of the Social Security Act.
(i) Except as set forth in Schedule 3.19(j) , the Company will not have, by
reason of the Merger or the other transactions contemplated by this Agreement,
any obligation to make any payment to any employee pursuant to any Employee
Benefit Plan, contract or employment agreement.
SECTION 3.20. Labor Matters. Except as set forth on Schedule 3.20, (i)
neither the Company nor any of its Subsidiaries is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by them and the Company does not know of any activities or proceedings
of any labor union to organize any such employees and (ii) there are no unfair
labor practice complaints pending against the Company or any of its Subsidiaries
before the National Labor Relations Board.
SECTION 3.21. Intellectual Property Rights.
(a) Schedule 3.21(a) contains a true, correct and complete list of all (i)
registered Intellectual Property Rights owned or used by the Company or any of
its Subsidiaries, (ii) applications for registrations of Intellectual Property
Rights filed by the Company or any of its Subsidiaries, (iii) unregistered trade
names and corporate names owned or used by the Company or any of its
Subsidiaries and (iv) unregistered trademarks and service marks owned or used by
the Company or any of its Subsidiaries. Schedule 3.21(a) also contains a true,
correct and complete list of all licenses granted by the Company or any of its
Subsidiaries to any third party with respect to any Intellectual Property Rights
and all licenses granted by any third party to the Company or any of its
Subsidiaries with respect to any Intellectual Property Rights (other than
standard form licenses with respect to commercial software that is generally
available from third parties), in each case, identifying the Intellectual
Property Rights covered thereby. Except as set forth on Schedule 3.21(a), the
Company or one of its Subsidiaries owns all right, title and interest to, or has
the right to use pursuant to a valid license, all Intellectual Property Rights
identified on such schedule. The Company and its Subsidiaries have taken all
actions which are reasonably necessary to maintain and protect their
Intellectual Property Rights, except to the extent the failure to take such
actions would not have a Material Adverse Effect.
(b) Except as set forth on Schedule 3.21(b), (i) there have been no claims
made against the Company or any of its Subsidiaries asserting the invalidity,
misuse or unenforceability of any Intellectual Property Rights listed on
Schedule 3.21(a), (ii) neither the Company nor any of its Subsidiaries has
received any notices of any infringement or misappropriation by, or conflict
with, any third party with respect to such Intellectual Property Rights
(including, but not limited to, any demand or request that the Company or any of
its Subsidiaries license any rights from a third party), (iii) to the knowledge
of the Company, the conduct of the businesses conducted by the Company and its
Subsidiaries does not infringe or misappropriate in any material respect, and is
not in conflict in any material respect with, any Intellectual Property Rights
of other Persons, and (iv) to the knowledge of the Company, the Intellectual
Property Rights owned by or licensed to the Company or any of its Subsidiaries
are not being infringed or misappropriated in any material respect by any other
Persons. Except as set forth in Schedule 3.21(b), the Merger and the other
transactions contemplated by this Agreement will not adversely affect in any
material respect the Intellectual Property Rights of the Company or any of its
Subsidiaries.
SECTION 3.22. Permits. Except as set forth in Schedule 3.22, the Company
and its Subsidiaries own or validly hold all licenses, franchises, permits,
approvals, authorizations, exemptions, classifications, certificates,
registrations and similar documents or instruments (collectively, "Permits")
that are required in connection with the conduct of their respective businesses,
except where the failure to do so would not have a Material Adverse Effect. All
such Permits owned or held by the Company or any of its Subsidiaries are valid
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and in full force and effect. No proceeding is pending or, to the knowledge of
the Company, threatened which could result in the revocation or termination of
any such Permits, and the Company knows of no basis on which any such proceeding
could be commenced. Except as set forth in Schedule 3.22, the consummation of
the Merger and the other transactions contemplated by this Agreement will not
affect the continued validity or effectiveness or alter the terms and conditions
of any such Permits owned or held by the Company.
SECTION 3.23. Insurance. Schedule 3.23 sets forth true and correct
summaries of all liability and other insurance policies maintained by the
Company and its Subsidiaries, and accurately states the coverages, deductible
amounts and carriers of each such insurance policy. All such insurance policies
are in full force and effect and no notice of cancellation or termination has
been received with respect to any such policy. There are no circumstances known
to the Company that would enable any insurance company or association to avoid
liability under any of the insurance policies maintained by the Company or any
of its Subsidiaries. Except as set forth in Schedule 3.23, the coverage provided
by such insurance policies with respect to events occurring prior to the Closing
Date will not be affected in any manner by, and will not terminate or lapse by
reason of, any of the Merger or the other transactions contemplated by this
Agreement. At no time since September 30, 1995 has any insurance company or
association canceled or reduced any coverage maintained by the Company or any of
its Subsidiaries, or given any notice or other indication of its intention to
cancel or reduce any such coverage. The loss, damage or destruction of any
properties and assets of the Company or its Subsidiaries which are not fully
covered by insurance would not have a Material Adverse Effect.
SECTION 3.24. Transactions with Affiliates. Except as set forth in
Schedule 3.24, since September 30, 1996, neither the Company nor any of its
Subsidiaries has purchased, acquired or leased any property or services from, or
sold, transferred or leased any property or services to, or loaned or advanced
any money to, or borrowed any money from, or guaranteed or otherwise become
liable for any indebtedness or other obligations of, or acquired any capital
stock, obligations or securities of, or made any management, consulting or
similar fee arrangement with, or entered into or consummated any other material
transaction, agreement or arrangement with or for the benefit of, any officer,
director or Key Employee of the Company or any of its Affiliates, other than (i)
compensation and benefits provided to any such officer, director or Key Employee
in the ordinary course of business and consistent with past practice and (ii)
any such transactions between or among the Company and its direct or indirect
wholly owned Subsidiaries.
SECTION 3.25. Absence of Certain Business Practices. Neither the Company
nor any of its Subsidiaries, Affiliates, directors, officers, employees or
agents has, directly or indirectly, given or agreed to give any gift or similar
benefit to any supplier, property developer, competitor or governmental employee
or official (domestic or foreign) which is reasonably likely to subject the
Company or any of its Subsidiaries to any damage or penalty in any civil,
criminal or governmental litigation or proceeding.
SECTION 3.26. Disclosure. The representations and warranties by the
Company contained in this Agreement, and the statements contained in any
Schedule required hereby or any other document, certificate or other writing
delivered or to be delivered or made available by or on behalf of the Company
pursuant to the provisions of this Agreement or in connection with the Merger or
the other transactions contemplated hereby, taken as an entirety, do not and
will not contain any untrue statement of a material fact, and do not and will
not omit to state any material fact required in order to make the statements
therein, in the light of the circumstances under which they were or will be
made, not misleading.
SECTION 3.27. Brokers' or Finders' Fees. Except as set forth in Schedule
3.27, no broker, finder or investment banker is entitled to any brokerage or
finder's fee or other fees or commissions in connection with this Agreement or
the Merger or the other transactions contemplated hereby based upon arrangements
made by or on behalf of the Company.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDER PARTIES
The Shareholder Parties jointly and severally represent and warrant to CREC
as follows:
SECTION 4.1. Organization. Each of the Holding Company and the Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of its incorporation and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as presently conducted.
SECTION 4.2. Authority; Binding Effect.
(a) Each of the Holding Company and the Merger Subsidiary has all requisite
corporate power and authority to enter into and perform its obligations under
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery by the Holding Company and the Merger Subsidiary of this
Agreement, the performance by them of their obligations hereunder and the
consummation by them of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of the Holding
Company and the Merger Subsidiary and all necessary action, if any, on the part
of their shareholders. This Agreement has been duly executed and delivered by
each of the Holding Company and the Merger Subsidiary and constitutes a legal,
valid and binding agreement of each of them, enforceable against each of them in
accordance with the terms hereof.
(b) Each Shareholder Party has all necessary power and authority to enter
into and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. In the case of any Shareholder Party that is a
partnership, the execution and delivery of this Agreement by such Shareholder
Party have been duly and validly authorized by all necessary partnership action
on the part of such Shareholder Party and all necessary action on the part of
its partners, and no other proceedings or actions on the part of or with respect
to such Shareholder Party or its partners are necessary to authorize this
Agreement, the performance by such Shareholder Party of its obligations
hereunder or the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by each of the Shareholder
Parties and constitutes a legal, valid and binding obligation of each of them,
enforceable against each of the Shareholder Parties in accordance with the terms
hereof.
SECTION 4.3. Absence of Conflicts.
(a) The execution and delivery by the Holding Company and the Merger
Subsidiary of this Agreement, the performance by them of their obligations
hereunder and the consummation by them of the transactions contemplated hereby
will not (i) conflict with, or result in any violation or breach of, any
provision of the Charter or Bylaws of the Holding Company or the Merger
Subsidiary, (ii) conflict with, result in any violation or breach of, or
constitute a default under, any term or provision of any material note, bond,
mortgage, indenture, lease, franchise, permit, license, Contract or other
instrument or document to which the Holding Company or the Merger Subsidiary is
a party or by which their respective properties or assets are bound or (iii)
assuming that the filings and Consents referred to in Section 3.4 are made or
obtained, conflict with, or result in any violation of, any law, ordinance,
statute, rule or regulation of any Governmental Authority or of any order, writ,
injunction, judgment or decree of any court, arbitrator or Governmental
Authority applicable to the Holding Company or the Merger Subsidiary or their
respective properties or assets.
(b) The execution and delivery by the Shareholder Parties of this
Agreement, the performance by them of their obligations hereunder and the
consummation by them of the transactions contemplated hereby will not (i) in the
case of any Shareholder Party that is a partnership, result in any violation or
breach of any provision of the partnership agreement of such Shareholder Party
or the Charter, Bylaws or other constitutive instruments of any of its partners,
(ii) conflict with, result in any violation or breach of, constitute a default
under, give rise to any right of termination or acceleration (with or without
notice or the lapse of time or both) pursuant to, or result in being declared
void, voidable or without further effect, any material term or provision of any
note, bond, mortgage, indenture, lease, franchise, permit, license, Contract or
other instrument or
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document to which the any of the Shareholder Parties is a party or by which its
properties or assets are bound or (iii) assuming that any waiting period under
the HSR Act applicable to the transactions to be consummated by the Shareholder
Parties pursuant to this Agreement shall have expired or been terminated,
conflict with, or result in any violation of, any law, ordinance, statute, rule
or regulation of any Governmental Authority or of any order, writ, injunction,
judgment or decree of any court, arbitrator or Governmental Authority applicable
to the Shareholder Parties or their respective properties or assets.
SECTION 4.4. Governmental Consents and Filings.
(a) There is no requirement applicable to the Holding Company or the Merger
Subsidiary to obtain any Consent of, or to make or effect any declaration,
filing or registration with, any Governmental Authority for the valid execution
and delivery by the Holding Company or the Merger Subsidiary of this Agreement,
the due performance by them of their obligations hereunder or the lawful
consummation by them of the transactions contemplated hereby, except for the
filings and Consents on the part of the Holding Company and the Merger
Subsidiary referred to in Section 3.4.
(b) There is no requirement applicable to any of the Shareholder Parties to
obtain any Consent of, or to make or effect any declaration, filing or
registration with, any Governmental Authority for the valid execution and
delivery by the Shareholder Parties of this Agreement, the due performance by
them of their obligations hereunder or the lawful consummation by them of the
Merger or the other transactions contemplated hereby, except for (i) the filings
and consents on the part of the Shareholder Parties referred to in Section 3.4
and (ii) any filings required to be made by the Shareholder Parties in
connection with such transactions pursuant to Section 13(d) of the Exchange Act
and the rules and regulations promulgated by the Commission thereunder.
SECTION 4.5. Proxy Statement; Schedule 13E-3. None of the information
supplied in writing by the Shareholder Parties or the Holding Company for
inclusion in the Proxy Statement or the Schedule 13E-3 will contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
SECTION 4.6. Title to Company Shares. As of the date hereof, each
Shareholder Party is the record and beneficial owner of the number of Company
Shares set forth opposite the name of such Shareholder Party (under the caption
"Company Shares") on Exhibit C. The Company Shares set forth opposite the name
of each Shareholder Party (under the caption "Company Shares") on Exhibit C are
the only Company Shares owned by such Shareholder Party. Such Company Shares are
owned by the Shareholder Parties free and clear of all Encumbrances, except for
those provided for under the express terms of this Agreement, the Voting
Agreement and the Stock Purchase Agreement.
SECTION 4.7. Capitalization; Issuance of Shares.
(a) Immediately prior to giving effect to the CREC Stock Purchase and the
Shareholder Party Contribution, the authorized capital stock of the Holding
Company will consist of 100,000 shares of Holding Company Common Stock, of which
10 shares will be issued and outstanding and owned by Janal Partnership and no
shares will be held in the treasury of the Holding Company. The CREC Holding
Company Shares will, upon the issuance thereof in accordance with the terms of
this Agreement, be validly issued, fully paid and nonassessable, and none of
such shares will have been issued in violation of, or subject to, any preemptive
rights or rights of subscription. Except as expressly provided in this
Agreement, there are no outstanding options, warrants, calls, rights,
convertible securities or other agreements or commitments of any character
pursuant to which the Holding Company is or may be obligated to issue or sell
any issued or unissued shares of its capital stock or other equity securities or
to purchase or redeem any shares of its capital stock or other equity securities
or make any other payments in respect thereof, and there are no shares of its
capital stock or other equity securities reserved for issuance for any purpose.
(b) Immediately prior to the Effective Time, the authorized capital stock
of the Merger Subsidiary will consist of 1,000 shares of Merger Subsidiary
Common Stock, all of which will be issued and outstanding and owned by the
Holding Company. There are no outstanding options, warrants, calls, rights,
convertible
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securities or other agreements or commitments of any character pursuant to which
the Merger Subsidiary is or may be obligated to issue or sell any issued or
unissued shares of its capital stock or other equity securities or to purchase
or redeem any shares of its capital stock or other equity securities or make any
other payments in respect thereof, and there are no shares of its capital stock
or other equity securities reserved for issuance for any purpose
SECTION 4.8. No Material Operations. Prior to the Effective Time, neither
the Holding Company nor the Merger Subsidiary will have any material assets or
liabilities or will be engaged in any material business or operations, other
than as expressly contemplated by this Agreement.
SECTION 4.9. Brokers' or Finders' Fees. Except as set forth on Schedule
3.27, none of the Shareholder Parties, the Holding Company or the Merger
Subsidiary has authorized any broker, finder or investment banker to act on
their behalf or on behalf of the Company in connection with this Agreement or
the Merger or the other transactions contemplated hereby in such a manner as to
give rise to a valid claim against CREC, the Holding Company, the Merger
Subsidiary or the Company for any brokerage or finder's fee or other fees or
commissions.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF CREC
CREC hereby represents and warrants to the Company and the Shareholder
Parties as follows:
SECTION 5.1. Organization. CREC is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Nevada and
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as presently conducted.
SECTION 5.2. Authority; Binding Effect. CREC has all requisite corporate
power and authority to enter into and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery by CREC of this Agreement, the performance by it of its obligations
hereunder and the consummation by it of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action on the
part of CREC. This Agreement has been duly executed and delivered by CREC and
constitutes a legal, valid and binding agreement of CREC, enforceable against
CREC in accordance with the terms hereof.
SECTION 5.3. Absence of Conflicts. The execution and delivery by CREC of
this Agreement, the performance by it of its obligations hereunder and the
consummation by it of the transactions contemplated hereby will not (i) conflict
with, or result in any violation or breach of, any provision of the Charter or
Bylaws of CREC, (ii) conflict with, result in any violation or breach of, or
constitute a default under, any term or provision of any material note, bond,
mortgage, indenture, lease, franchise, permit, license, Contract or other
instrument or document to which CREC is a party or by which its properties or
assets are bound or (iii) assuming that any waiting period under the HSR Act
applicable to the transactions to be consummated by CREC pursuant to this
Agreement shall have expired or been terminated, conflict with, or result in any
violation of, any law, ordinance, statute, rule or regulation of any
Governmental Authority or of any order, writ, injunction, judgment or decree of
any court, arbitrator or Governmental Authority applicable to CREC or its
properties or assets.
SECTION 5.4. Governmental Consents and Filings. There is no requirement
applicable to CREC to obtain any Consent of, or to make or effect any
declaration, filing or registration with, any Governmental Authority for the
valid execution and delivery by CREC of this Agreement, the due performance by
it of its obligations hereunder or the lawful consummation by it of the
transactions contemplated hereby, except for any filing required to be made by
CREC under the HSR Act in connection with the transactions to be consummated by
CREC pursuant to this Agreement.
SECTION 5.5. Financing. CREC has, or will have at the Closing Date, the
funds necessary to pay the CREC Purchase Price.
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SECTION 5.6. Brokers' or Finders' Fees. CREC has not authorized any
broker, finder or investment banker to act on its behalf in connection with this
Agreement or the transactions contemplated hereby in such a manner as to give
rise to a valid claim against the Company or any of the Shareholder Parties for
any brokerage or finder's fee or other fees or commissions.
ARTICLE VI.
CERTAIN COVENANTS
SECTION 6.1. Conduct of Business. From the date hereof until the Closing
Date, the Company and its Subsidiaries shall conduct their businesses in the
ordinary course of business and in a manner that is consistent in all material
respects with past practice and the Company and its Subsidiaries shall preserve
intact their business organizations, and use their best efforts to keep
available the employees identified in Schedule 6.1 (the "Key Employees") and
maintain their present relationships with material dealers, retailers,
suppliers, insurers, lessors and licensees (except that the Company and its
Subsidiaries may terminate or replace, or modify the terms of their contractual
relationships with, dealers, retailers, suppliers, insurers, lessors and
licensees to the extent that such terminations, replacements and changes are
effected in the ordinary course of business and are not reasonably likely to
have a Material Adverse Effect) and with all Governmental Authorities and other
Persons having material business relationships with the Company or any of its
Subsidiaries. Without limiting the generality of the foregoing, from the date
hereof until the Closing Date, neither the Company nor any of its Subsidiaries
shall do, or propose or commit to do, directly or indirectly, any of the
following without the prior written consent of CREC, except for actions to be
taken in accordance with the express terms of this Agreement and except as set
forth in Schedule 6.1:
(a) amend or make any other change in its Charter or Bylaws;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of
capital stock or other equity securities of, or ownership interests in, the
Company or any of its Subsidiaries (except in connection with the exercise
of any outstanding Company Stock Options), or any options, warrants, calls
or other rights to acquire any shares of capital stock or other equity
securities of, or ownership interests in, the Company or any of its
Subsidiaries;
(c) sell, lease, transfer or otherwise dispose of any material
properties or assets of the Company or any of its Subsidiaries (whether or
not reflected on the books of the Company or any of its Subsidiaries and
whether real, personal or mixed, tangible or intangible), other than in the
ordinary course of business;
(d) consolidate with, or merge with or into, any Person, except as
contemplated by this Agreement;
(e) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property) with respect to the capital stock of
the Company or redeem, purchase or otherwise acquire any capital stock or
other equity interests of, or ownership interests in, the Company or any of
its Subsidiaries, except in connection with the exercise of any outstanding
Company Stock Options;
(f) reclassify, combine, split or subdivide any shares of the capital
stock of the Company or any of its Subsidiaries;
(g) incur or assume any indebtedness for borrowed money or issue any
debentures, notes or other debt securities or assume, guarantee, endorse or
otherwise become liable (whether directly, contingently or otherwise) for
the obligations of any other Person, except in the ordinary course of
business (provided, however, that the aggregate amount of indebtedness to
be incurred or assumed by the Company and its Subsidiaries after the date
hereof as permitted by this paragraph (g) shall not exceed $2,000,000);
(h) make any loans, advances or capital contributions to, or
investments in, any other Person (other than any of direct or indirect
wholly owned Subsidiary), except for (i) investments to be made in
accordance with existing financial and operating plans disclosed by the
Company to CREC prior to the date hereof and (ii) temporary cash
investments made in the ordinary course of business and consistent with
past practice;
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(i) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof;
(j) create or incur any Liens upon any material properties or assets
of the Company or any of its Subsidiaries (except for Permitted
Encumbrances);
(k) enter into any material Contracts or commitments or engage in any
material transactions (other than this Agreement and the Merger and the
other transactions contemplated hereby) not in the ordinary course of
business and consistent with past practice;
(l) engage in any transactions with any Affiliate (other than (i) the
Merger and the other transactions contemplated by this Agreement or (ii)
transactions between the Company and any of its direct or indirect wholly
owned Subsidiaries), except on terms and conditions at least as favorable
to the Company as those that would apply in the case of a similar
arms'-length transaction;
(m) enter into any agreement, arrangement or understanding with any
director, officer or employee of the Company or any of its Subsidiaries
providing for the employment of any such director, officer or employee or
any increase in the compensation, severance or termination benefits payable
or to become payable by the Company or any of its Subsidiaries to any such
director, officer or employee (except that the Company shall not be
prohibited from (i) entering into "at will" employment Contracts, (ii)
increasing compensation payable to employees who are not directors or
officers or (iii) paying severance benefits to former employees, in each
case in the ordinary course of business and consistent with past practice)
or make any loan to or enter into any other material transaction or
arrangement with any such director, officer or employee;
(n) increase the benefits payable by the Company or any of its
Subsidiaries under any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase or other
employee benefit plan, program or arrangement made to, for or with any of
the directors, officers or employees of the Company or any of its
Subsidiaries, other than any scheduled increase pursuant to the existing
terms thereof;
(o) fail to keep all of the material properties and assets of
insurable character of the Company or any of its Subsidiaries insured at
least to the extent described in or pursuant to the provisions of this
Agreement, or take any action that would enable any insurance company or
association to avoid liability under any insurance policy for claims
arising out of occurrences prior to the Closing Date;
(p) cancel or compromise any material claim, waive or release any
material rights or change in any material respect or terminate any material
Contract (except that the Company and its Subsidiaries may terminate or
replace, or modify the terms of their contractual relationships with,
dealers, retailers, suppliers, insurers, lessors and licensees to the
extent that such terminations, replacements and changes are effected in the
ordinary course of business and are not reasonably likely to have a
Material Adverse Effect) of the Company or any of its Subsidiaries;
(q) fail to maintain in full force and effect all material Permits
that are required in connection with the conduct of the businesses of the
Company or any of its Subsidiaries or sell, transfer, license or otherwise
dispose of any material rights or interests under any such Permits;
(r) change any significant accounting principles, methods or practices
of the Company or any of its Subsidiaries, except as required as a result
of any mandatory change in accounting standards;
(s) fail to maintain the books and records of the Company or any of
its Subsidiaries in all material respects in the usual, regular and
ordinary manner on a basis consistently applied;
(t) make any tax elections or settle or compromise any income tax
liability, except in the ordinary course of business and consistent with
past practice; and
(u) take any action which would cause any representation or warranty
of the Company contained in this Agreement (as qualified by the Schedules
delivered to CREC hereunder, as the same have been
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supplemented from time to time pursuant to Section 6.15 with the consent of
CREC) to be untrue or incorrect in any material respect as of the date when
made or as of a future date.
SECTION 6.2. Other Proposals.
(a) From the date hereof until the Closing Date, the Company and its
Subsidiaries shall not, and shall not permit any of their respective
Representatives to, initiate any contact with, solicit, encourage or enter into
or continue any discussions, negotiations, understandings or agreements with any
Third Party with respect to, or furnish or disclose any non-public information
regarding the Company or any of its Subsidiaries or their respective businesses
to any Third Party in connection with, any Acquisition Proposal. Notwithstanding
the foregoing, to the extent that the Board of Directors of the Company or the
Special Committee reasonably determines based on the advice of its counsel that
it is required to do so by virtue of its fiduciary obligations under applicable
law, the Company may (i) in response to an unsolicited request therefor, furnish
non-public information with respect to the Company or its Subsidiaries or their
respective businesses to any Qualified Third Party pursuant to a customary
confidentiality agreement and discuss such information (but not any non-public
information relating to the structure of the Merger or the other transactions
contemplated hereby, other than any such information which the Company
demonstrates was independently developed solely by the Company and its
Representatives) with such Qualified Third Party, (ii) upon receipt of a
Qualified Acquisition Proposal from a Qualified Third Party, participate in
discussions and negotiations with such Qualified Third Party regarding such
Qualified Acquisition Proposal (but not enter into any agreements with respect
thereto except as permitted pursuant to the express terms of clause (iii) below)
if each of the Overbid Negotiation Conditions is satisfied and (iii) enter into
an agreement with a Qualified Third Party with respect to an Overbid Transaction
if each of the Overbid Transaction Conditions is satisfied. Unless each of the
Overbid Transaction Conditions is satisfied, neither the Board of Directors of
the Company nor any committee thereof shall (i) withdraw or modify, or propose
to withdraw or modify, in a manner adverse to CREC, the approval or
recommendation by such Board of Directors of this Agreement or the Merger, (ii)
approve or recommend, or propose to approve or recommend, any Acquisition
Proposal or (iii) cause the Company to authorize or commit to enter into any
agreement with respect to an Acquisition Proposal.
(b) In the event that either the Company or any of the Shareholder Parties
shall directly or indirectly receive any offer, proposal or inquiry relating to
an Acquisition Proposal, such party shall notify CREC within one Business Day
after the receipt of such offer, proposal or inquiry and shall, in any such
notice to CREC, indicate the identity of the offeror and set forth all of the
material terms of such offer, proposal or inquiry. The Company and the
Shareholder Parties shall keep CREC fully informed of the status and details of
any such offer, proposal or inquiry.
(c) Without the prior written consent of CREC, the Company shall not modify
or release any Third Party from any confidentiality or standstill agreement to
which the Company is a party if such action would have the purpose or effect of
permitting or facilitating the submission of an Acquisition Proposal by such
Third Party.
SECTION 6.3. Access to Information. From the date hereof until the Closing
Date, the Company shall permit CREC and its Representatives (including, but not
limited to, any attorney or environmental consulting firm) to make a full
investigation of the business, prospects, properties, financial condition and
results of operations of the Company and its Subsidiaries including, but not
limited to, an environmental investigation of the Real Property owned or leased
by them, and shall afford CREC and its Representatives full access to the
offices, buildings, properties, records, files, books of account, tax returns,
agreements and commitments, record books and stock books of the Company and its
Subsidiaries and to their directors, officers, independent accountants and other
Representatives, at such reasonable times during regular business hours and as
often as CREC may reasonably request. Upon request by CREC, the Company shall
request their present and former independent accountants to afford to CREC and
its Representatives access to all accountants' working papers for all audits and
reviews of the financial statements of the Company and its Subsidiaries. The
Company shall furnish CREC and its Representatives with all such other
information relating to the business, prospects, properties, financial condition
and results of operations as CREC or its Representatives may reasonably request.
No investigation pursuant to this Section 6.3 shall affect any
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representations or warranties made by the Company in this Agreement or the
conditions to the obligations of any party hereto to consummate the Merger and
the other transactions contemplated hereby. The provisions of the
Confidentiality Agreement shall apply to any information provided to CREC or its
Representatives pursuant to this Section 6.3; provided, however, that as of the
Closing Date, the Confidentiality Agreement shall terminate and be of no further
force and effect.
SECTION 6.4. Best Efforts. Subject to the terms and conditions hereof,
each of the parties hereto shall use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things which
are necessary, proper or advisable under applicable laws and regulations or
otherwise in order to consummate and make effective the Merger or the other
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, each of the parties hereto shall execute and deliver, or cause to
be executed and delivered, all reasonable agreements, certificates and other
instruments and shall use its reasonable best efforts promptly to obtain all
waivers, permits, consents, approvals and other authorizations from, and to
effect all registrations, filings and notices with or to, any Governmental
Authorities or other Persons which are necessary or appropriate in connection
with said transactions or in order to fulfill all conditions to obligations of
the parties under this Agreement.
SECTION 6.5. Certain Actions by the Shareholder Parties. Each of the
Shareholder Parties shall use its reasonable best efforts to cause each of the
Company, the Holding Company and the Merger Subsidiary to perform all of its
agreements, covenants and obligations set forth in this Agreement and to
consummate the Merger and the other transactions contemplated hereby, upon the
terms and subject to the conditions set forth herein.
SECTION 6.6. HSR Act. Each of CREC and the Principal Shareholders (as the
ultimate parent entities of the Company) will promptly file or cause to be filed
with the Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") notification and report forms
pursuant to the HSR Act relating to the Merger and the other transactions
contemplated by this Agreement. CREC and the Principal Shareholders shall
promptly respond to any request for additional information or documentary
material by the FTC or the Antitrust Division and shall cooperate with each
other in order to ensure that all waiting periods (and any extension thereof)
applicable to the consummation of the Merger and the other transactions
contemplated by this Agreement under the HSR Act expire or are terminated as
promptly as practicable.
SECTION 6.7. Special Meeting. As promptly as practicable following the
date hereof, the Company, acting through its Board of Directors, shall, in
accordance with the provisions of the Arizona Act, the Exchange Act and any
other provisions of applicable law, call, give notice of, convene and hold a
special meeting (the "Special Meeting") of the shareholders of the Company and
submit this Agreement to a vote of such shareholders. The Company, acting
through its Board of Directors, shall recommend to its shareholders approval of
this Agreement and the Merger and shall use its best efforts to obtain the
necessary approval of this Agreement by its shareholders. Unless the Company
enters into an agreement with respect to an Overbid Transaction as permitted
pursuant to Section 6.2, the Company and the Shareholder Parties shall use their
best efforts to obtain the vote of the shareholders of the Company required
under the Arizona Act to approve this Agreement.
SECTION 6.8. Proxy Statement; Schedule 13E-3.
(a) As promptly as practicable following the date hereof, the Company shall
prepare and file with the Commission the Proxy Statement pursuant to the
Exchange Act and the Company and the Principal Shareholders shall prepare and
file with the Commission the Schedule 13E-3 pursuant to the Exchange Act. The
Company shall include in the Proxy Statement the recommendation of the Board of
Directors with respect to the approval of the Merger Agreement referred to in
the recitals to this Agreement and the written opinion of the Financial Advisor
that the Merger is fair to the shareholders of the Company from a financial
point of view. The Proxy Statement and Schedule 13E-3 shall comply as to form
with the applicable requirements of the Exchange Act and any other provisions of
applicable law.
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(b) In preparing the Proxy Statement and the Schedule 13E-3, the Company
shall use its best efforts (i) to obtain and furnish all material information
required to be included therein pursuant to the Exchange Act and any other
provisions of applicable law, (ii) file with the Commission pursuant to the
Exchange Act preliminary copies of the Proxy Statement and the Schedule 13E-3
for review and comment, (iii) respond promptly to any comments made by the
Commission with respect to the preliminary copies of the Proxy Statement and the
Schedule 13E-3 and (iv) to have the Proxy Statement cleared by the Commission
and mailed to the shareholders of the Company at the earliest practicable date.
CREC and its counsel shall be given a reasonable opportunity to review and
comment upon the Proxy Statement (and any supplements thereto) and the Schedule
13E-3 (and any amendments thereto) prior to the time they are filed with the
Commission. The Company and the Principal Shareholders shall provide CREC and
its counsel with a copy of any written comments or telephonic notification of
any verbal comments that are received by the Company, the Principal Shareholders
or their counsel from the Commission or its staff with respect to the Proxy
Statement or the Schedule 13E-3 and shall further provide CREC and its counsel
with a copy of any written responses and telephonic notification of any verbal
responses by the Company, the Principal Shareholders or their counsel.
(c) If at any time prior to the Closing Date any fact, event or development
is discovered by the Company or the Principal Shareholders which is required
under applicable law to be set forth in a supplement to the Proxy Statement or
an amendment to the Schedule 13E-3, the Company shall prepare and file with the
Commission any such supplements and amendments and shall disseminate the same to
the Shareholders of the Company in the manner required by applicable law.
SECTION 6.9. Company Stock Options. The Company shall take all action
necessary to terminate the Company Stock Plan and any other employee stock
option or similar plans prior to the Effective Time and will use its reasonable
best efforts to obtain the written consent of each holder of a Company Stock
Option to the transactions contemplated by Section 2.3.
SECTION 6.10. Indemnification of Directors and Officers.
(a) The Company shall indemnify and hold harmless each person that is a
director or officer of the Company (each, an "Individual Indemnified Party") to
the fullest extent permitted under applicable law, the provisions of its Charter
and Bylaws as in effect on the date hereof and any indemnification agreement to
which the Company and any Individual Indemnified Party are parties from and
against all claims, demands, actions, causes of action, suits, proceedings and
investigations that are asserted against such Individual Indemnified Party and
all losses, claims, damages, liabilities, costs, expenses (including fees and
disbursements of counsel), judgments, assessments, fines, penalties and amounts
paid in settlement with the consent of the Company that are incurred by or
imposed on such Individual Indemnified Party in connection therewith which arise
out of or are based upon any actual or alleged acts or omissions on the part of
such Individual Indemnified Party prior to the Effective Time, including, but
not limited to, acts or omissions arising from or relating to the Merger or any
other transactions contemplated by this Agreement. In connection with any such
claim, demand, action, cause of action, suit, proceeding or investigation, the
Company shall advance the reasonable expenses incurred by each Individual
Indemnified Party promptly upon request and delivery of any undertaking required
by law.
(b) In the event that the Company shall fail to comply with any of its
obligations set forth in paragraph (a) above for any reason, including as a
result of any determination or claim that compliance with such obligations by
the Company would be illegal, contrary to public policy or beyond the power of,
or otherwise unenforceable against, the Company, CREC shall be responsible
therefor and, to the fullest extent permitted by law, shall perform such
obligations unconditionally without regard to any defense or other basis for
nonperformance which the Company may be entitled to assert (it being understood
that CREC hereby expressly waives any such determination or claim as a basis for
nonperformance of such obligations to the extent that it may lawfully do so).
(c) The provisions of this Section 6.10 are intended to be for the benefit
of, and shall be enforceable by, each Individual Indemnified Party (each of whom
shall be an express third-party beneficiary of this Section 6.10). The
obligations of the Company and CREC under this Section 6.10 shall not be
terminated or
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modified in such a manner as to adversely affect any of the Individual
Indemnified Parties without the prior written consent of each Individual
Indemnified Party affected thereby.
SECTION 6.11. Notification of Certain Other Matters. The Company and the
Shareholder Parties shall promptly notify CREC of:
(a) any action, suit, inquiry, investigation or proceeding commenced
or threatened against or affecting the Company or any of its Subsidiaries
which, if pending on the date hereof, would have been required to have been
set forth or described in any Schedule required hereby or which relate to
the Merger or the other transactions contemplated by this Agreement;
(b) any notice or other communication from any Person alleging that
the Consent of such Person is or may be required in connection with the
Merger or the other transactions contemplated by this Agreement;
(c) any notice or other communication from any Governmental Authority
in connection with the Merger or the other transactions contemplated by
this Agreement; and
(d) any fact, development or occurrence that constitutes a Material
Adverse Change or, so far as reasonably can be foreseen at the time of its
occurrence, is likely to have a Material Adverse Effect.
SECTION 6.12. Convertible Note. Prior to the Effective Time, the Company
shall (i) prepay in cash one-half of the outstanding principal amount of the
Convertible Note and (ii) cause the remainder of the outstanding principal
amount of the Convertible Note to be converted into Company Shares in accordance
with the terms thereof (which Company Shares will, in accordance with and
subject to the provisions of Article II, be converted into the Merger
Consideration and canceled as of the Effective Time). The Company represents and
warrants that, as of the date hereof, the outstanding principal amount of the
Convertible Note is $4,100,000 and that the number of Company Shares issuable
upon the conversion of one-half of the principal amount thereof is 128,125 and
agrees that it shall not take any action which would require the Company to
issue a greater number of Company Shares upon the conversion of the Convertible
Note.
SECTION 6.13. Arizona Takeover Statute Matters.
(a) The Company has taken and shall take all action required in order to
ensure that the provisions of the Arizona Business Combination Statute do not
prohibit or restrict the Merger or any of the other transactions contemplated
hereby.
(b) The Company hereby represents and warrants to CREC that a committee of
disinterested directors of the Company has approved the Subject Share Purchase,
which approval satisfies the applicable requirements of Section 2741A.2 of the
Arizona Business Combination Statute.
(c) To the fullest extent permitted by law, the Company hereby irrevocably
waives any right that it may have under the Arizona Control Share Acquisition
Statute to redeem or repurchase any of the Aggregate Subject Shares at any time
after the consummation of the Subject Share Purchase. Unless prohibited by law,
the Shareholder Parties shall take all reasonable action within their control
necessary to ensure that the Company does not exercise or attempt to exercise
any such right.
(d) If the Subject Share Purchase is consummated, the Company and the
Shareholder Parties shall take all reasonable action within their control
(including any action required or contemplated by the Arizona Control Share
Acquisition Statute) to ensure that the Aggregate Subject Shares will at all
times have the same voting rights as any other outstanding Company Shares,
unless prohibited by law. Without limiting the generality of the foregoing, if
CREC so requests and provides any undertaking required by law (it being
expressly understood and agreed that, to the fullest extent permitted by law,
the Company hereby irrevocably waives the requirement that any such undertaking
be provided by CREC), the Company and the Shareholder Parties shall take all
reasonable action within their control necessary (including the preparation,
filing and mailing of a proxy statement) in accordance with the applicable
provisions of the Arizona Act, the Arizona Control Share Acquisition Statute,
the Exchange Act and any other provision of applicable law to convene a meeting
of the shareholders of Company as promptly as practicable to consider and vote
upon the approval of
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a resolution providing that the Aggregate Subject Shares will at all times have
the same voting rights as any other outstanding Company Shares. Any solicitation
by the Company in connection with the approval of the foregoing resolution shall
be made in accordance with Regulation 14A under the Exchange Act. The Board of
Directors of the Company shall, subject to its fiduciary duties under applicable
law, recommend approval of such resolution and the Company and, unless
prohibited by law, the Shareholder Parties shall use their reasonable best
efforts to obtain such approval.
SECTION 6.14. Post-Termination Proposal. In consideration of the waivers,
representations, warranties, covenants and agreements on the part of the Company
and the Shareholder Parties set forth in Section 6.13(b), (c) and (d), CREC
hereby agrees that, if this Agreement is terminated and the Subject Share
Purchase is consummated in accordance with the Stock Purchase Agreement, within
30 days after the consummation of the Subject Share Purchase (or, if at the time
of the consummation of the Subject Share Purchase, the Company is a party to an
agreement with a Third Party with respect to an Overbid Transaction, within 30
days after the termination of such agreement within the time period specified in
the last sentence of this Section 6.14), CREC shall make a written proposal (a
"Post-Termination Proposal") to the Board of Directors of the Company with
respect to a transaction or transactions (a "Post-Termination Transaction")
pursuant to which CREC or one or more of its Affiliates would acquire all of the
outstanding Company Shares which are held by the Independent Shareholders at a
price of $26.75 per share. It is understood and agreed that the form and
structure of any Post-Termination Transaction to be proposed by CREC pursuant to
this Section 6.14 shall be determined by CREC in its reasonable judgment based
upon such regulatory, tax and other considerations as it considers to be
relevant; provided, however, that the proposed terms of such transaction, when
taken in their entirety, shall be, in the reasonable judgement of the Board of
Directors of CREC, no less favorable to the Independent Shareholders than the
terms and conditions set forth in this Agreement. Until such time as the
Company, the Shareholder Parties and CREC enter into a definitive written
agreement with respect to a Post-Termination Transaction, a Post-Termination
Proposal shall not give rise to a binding obligation on the part of any of the
parties hereto; provided, however, that if the Company notifies CREC within ten
days after receipt of such a proposal that it is willing to enter into a Post-
Termination Transaction on substantially the terms described in the
Post-Termination Proposal, the Company, Shareholder Parties and CREC shall
negotiate in good faith with a view toward entering into a definitive written
agreement with respect thereto as soon as reasonably practicable.
Notwithstanding the foregoing, CREC shall not be obligated to submit a
Post-Termination Proposal to the Board of Directors of the Company if, at the
time such proposal would otherwise be required to be submitted hereunder, (i)
the Company is a party to an agreement with a Third Party with respect to an
Overbid Transaction (and such agreement is not terminated within a period of 60
days), (ii) the Company or the Shareholder Parties are in breach in any material
respect of their obligations under Section 6.13(b), (c) or (d) or (iii) there
shall be issued and in effect any order, writ, injunction, judgment or decree of
any federal or state court or other Governmental Authority which has the effect
of making illegal, impeding, restraining or prohibiting CREC from making a
Post-Termination Proposal, entering into an agreement with respect to such a
proposal or consummating a Post-Termination Transaction.
SECTION 6.15. Supplemental Disclosure. After the date hereof, the Company
shall have the continuing obligation promptly to supplement or amend the
Schedules required hereby or any writing previously delivered to CREC with
respect to any matter hereafter arising or discovered which, if existing or
known at the date hereof, would have been required to be set forth or described
in a Schedule required hereby or in any writing delivered to CREC; provided,
however, that for the purpose of the rights and obligations of the parties
hereunder, any such supplemental or amended disclosure shall not be deemed to
have been disclosed as of the date hereof unless otherwise agreed to in writing
by CREC.
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ARTICLE VII.
CONDITIONS TO CLOSING
SECTION 7.1. Conditions to the Obligations of Each of the Parties. The
respective obligations of each party to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment, prior to or concurrently
with the Closing, of the following conditions:
(a) This Agreement shall have been approved and adopted by the
affirmative vote of the holders of at least a majority of the outstanding
Company Shares;
(b) Any waiting period applicable to such transactions under the HSR
Act shall have expired or been terminated; and
(c) No statute, rule, regulation, order, writ, injunction, judgment or
decree shall have been enacted, promulgated, entered or enforced by any
federal or state court or other Governmental Authority which has the effect
of making illegal, impeding or otherwise restraining or prohibiting such
transactions.
SECTION 7.2. Conditions to the Obligations of CREC. The obligations of
CREC to consummate the CREC Stock Purchase and the other transactions
contemplated by this Agreement shall be subject to the fulfillment, prior to or
concurrently with the Closing, of the following conditions (any one or more of
which may be waived, in whole or in part, by CREC):
(a) Each of the representations and warranties of the Company
contained in this Agreement (as qualified by the Schedules delivered to
CREC hereunder, as the same are supplemented from time to time pursuant to
Section 6.15 with the consent of CREC), shall be true and correct as of the
Closing Date as if made on such date and each of the representations and
warranties of the Shareholder Parties contained in this Agreement shall be
true and correct in all material respects as of the Closing Date as if made
on such date; provided, however, that the failure of any such
representations or warranties of the Company to be true and correct shall
not be a condition to the obligations of CREC unless the Claims Reserve is
less than or equal to zero;
(b) The Company, the Holding Company and the Shareholder Parties shall
have performed and complied in all material respects with all provisions,
covenants and conditions contained in this Agreement which are required to
be performed or complied with by them prior to or on the Closing Date;
(c) There shall be no Company Stock Options outstanding immediately
prior to the Effective Date;
(d) The Company and the Shareholder Parties shall have delivered to
CREC certificates, dated as of the Closing Date, which in the case of the
certificate delivered by the Company, shall be executed by the chief
executive officer and chief financial officer of the Company, certifying
that, to the best of their knowledge, the conditions specified in
paragraphs (a) and (b) above have been fulfilled; and
(e) CREC shall have received an opinion, dated as of the Closing Date,
of Osborn Maledon, counsel for the Company, in the form attached as Exhibit
E hereto.
SECTION 7.3. Conditions to the Obligations of the Company and the
Shareholder Parties. The obligations of the Company and the Shareholder Parties
to consummate the Merger, the Shareholder Party Contribution and the other
transactions contemplated by this Agreement shall be subject to the fulfillment,
prior to or concurrently with the Closing, of the following conditions (any one
or more of which may be waived, in whole or in part, by the Company and the
Shareholder Parties jointly):
(a) Each of the representations and warranties of CREC contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date as if made on such date;
(b) CREC shall have performed and complied in all material respects
with all provisions, covenants and conditions contained in this Agreement
which are required to be performed or complied with by it prior to or on
the Closing Date;
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(c) CREC shall have delivered to the Company and the Shareholder
Parties a certificate, dated as of the Closing Date, which shall be
executed by the chief executive officer and chief financial officer of
CREC, certifying that, to the best of their knowledge, the conditions
specified in paragraphs (a) and (b) above have been fulfilled;
(d) The Company shall have received an opinion, dated as of the
Closing Date, of Raymond G. Smerge, Vice President and Chief Legal Officer
of CREC, in the form attached as Exhibit F.
ARTICLE VIII.
INDEMNIFICATION
SECTION 8.1. Indemnification by the Shareholder Parties. In accordance
with the terms and subject to the conditions of this Article VIII, the
Shareholder Parties shall jointly and severally indemnify and hold harmless CREC
and its Representatives for, from and against any and all demands, claims,
actions, causes of action, proceedings, assessments, losses, damages,
liabilities, settlements, judgments, fines, penalties, interest, costs and
expenses (including fees and disbursements of counsel) which are asserted
against, imposed upon or incurred by any such Person as a result of or in
connection with the breach or alleged breach by the Shareholder Parties of any
of their representations, warranties, covenants or agreements contained in this
Agreement (the "CREC Claims"); provided, however, that the Shareholder Parties
shall only be obligated to indemnify CREC and its Representatives pursuant to
this Section 8.1 if and to the extent that the aggregate of all CREC Claims for
which any Persons have sought or are seeking indemnification hereunder exceeds
$50,000.
SECTION 8.2. Indemnification by CREC. In accordance with the terms and
subject to the conditions of this Article VIII, CREC shall indemnify and hold
harmless the Shareholder Parties and their Representatives for, from and against
any and all demands, claims, actions, causes of action, proceedings,
assessments, losses, damages, liabilities, settlements, judgments, fines,
penalties, interest, costs and expenses (including fees and disbursements of
counsel) which are asserted against, imposed upon or incurred by any such Person
as a result of or in connection with the breach or alleged breach by CREC of any
of its representations, warranties, covenants or agreements contained in this
Agreement (the "Shareholder Party Claims"); provided, however, that CREC shall
only be obligated to indemnify the Shareholder Parties and their Representatives
pursuant to this Section 8.2 if and to the extent that the aggregate of all
Shareholder Party Claims for which any Persons have sought or are seeking
indemnification hereunder exceeds $50,000.
SECTION 8.3. Third-Party Claims; Procedures. The obligations of the
parties provided for under Sections 8.1 and 8.2 hereof in respect of any CREC
Claims or Shareholder Party Claims, as the case may be ("Claims"), made or
asserted by a third party ("Third-Party Claims") shall be performed in
accordance with the following procedures:
(a) Each Person entitled to indemnification under Section 8.1 or 8.2
hereof (each, an "Indemnified Party") shall give the party or parties from
whom it is seeking indemnification hereunder (collectively, the
"Indemnifying Party") written notice as promptly as reasonably practicable
after the written assertion of any Third-Party Claim or commencement of any
action, suit or proceeding in respect thereof; provided, however, that, if
an Indemnified Party fails to give Indemnifying Party written notice as
provided herein, Indemnifying Party shall only be relieved of its
obligations under this Article VIII in respect of such Third-Party Claim if
and to the extent that the Indemnifying Party is materially prejudiced
thereby (whether as a result of the forfeiture of substantive defenses or
otherwise).
(b) Promptly after receipt of written notice of a Third-Party Claim as
contemplated by Section 8.3(a), the Indemnifying Party shall (or, in the
case of the Shareholder Parties, may in their sole discretion elect to)
assume the defense of such Third-Party Claim with counsel reasonably
satisfactory to the Indemnified Party; provided, however, that (i) if the
Indemnifying Party fails, within a reasonable time after receipt of written
notice of such Third-Party Claim, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party, the Indemnified
Party shall have the right to undertake the defense, compromise and
settlement of such Third-Party Claim on behalf of and for the account and
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risk of the Indemnifying Party, subject to the right of the Indemnifying
Party (upon notifying the Indemnified Party of its election to do so) to
assume the defense of such Third-Party Claim with counsel reasonably
satisfactory to the Indemnified Party at any time prior to the settlement,
compromise, judgment or other final determination thereof, (ii) if in the
reasonable judgment of the Indemnified Party a direct or indirect conflict
of interest exists between the Indemnified Party and the Indemnifying Party
in respect of the Third-Party Claim or any other fact, condition or
circumstance exists such that the assumption of the defense of such Third
Party Claim by the Indemnifying Party would materially and adversely affect
the Indemnified Party, the Indemnified Party shall (upon written notice to
the Indemnifying Party of its election to do so) have the right to
undertake the defense, compromise and settlement of such Third-Party Claim
on behalf of and for the account and risk of the Indemnifying Party (it
being understood and agreed that the Indemnifying Party shall not be
entitled to assume the defense of such Third-Party Claim), (iii) if the
Indemnified Party in its sole discretion so elects, it shall be entitled to
employ separate counsel and to participate in the defense of such
Third-Party Claim (and the Indemnifying Party shall cooperate with the
Indemnified Party so as to allow it to participate in the defense thereof),
but the fees and expenses of counsel so employed shall (except as otherwise
contemplated by clauses (i) and (ii) above) be borne solely by the
Indemnified Party and (iv) the Indemnifying Party shall not (A) settle or
compromise any Third-Party Claim, or consent to the entry of any judgment
relating thereto, that does not include as an unconditional term thereof
the grant by the claimant or plaintiff to each Indemnified Party of a
release from any and all liability in respect thereof or (B) settle or
compromise any Third-Party Claim, or consent to the entry of any judgment
relating thereto, that would materially and adversely affect the
Indemnified Party other than as a result of money damages or other money
payments to be fully paid by the Indemnifying Party, without the prior
written consent of the Indemnified Party.
ARTICLE IX.
TERMINATION
SECTION 9.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether prior to or after the approval of this
Agreement by the shareholders of the Company, as follows:
(a) by mutual written consent of CREC and the Company;
(b) by either CREC or the Company if:
(i) any federal or state court or other Governmental Authority
shall have issued an order, writ, injunction, judgment or decree which
shall have the effect of making illegal, impeding or otherwise
restraining or prohibiting the transactions contemplated hereby and such
order, writ, injunction, judgment or decree shall have become final and
nonappealable; or
(ii) the condition to the obligations of the parties set forth in
Section 7.1(a) shall not have been satisfied by reason of the failure to
obtain the required vote of the shareholders of the Company at the
Special Meeting or any adjournment thereof;
(c) by CREC if:
(i) the Overbid Transaction Conditions shall have been satisfied;
(ii) there shall have been any violation or breach in any material
respect on the part of the Company or any of the Shareholder Parties of
any covenant or agreement contained in Sections 6.2 through 6.8,
inclusive, and Section 6.12;
(iii) there shall have been any violation or breach in any material
respect on the part of the Company or any of the Shareholder Parties of
any covenant or agreement (other than the covenants and agreements
referred to in clause (ii) above) contained in this Agreement which
shall not have been cured within 30 days after receipt of notice of such
violation or breach from CREC;
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(iv) there shall have been any violation or breach on the part of
the Company or any violation or breach in any material respect on the
part of the Shareholder Parties of any representation or warranty
contained in this Agreement (except that CREC may not terminate this
Agreement pursuant to this clause (iv) as a result of any violation or
breach on the part of the Company of any such representation or warranty
unless the Claims Reserve is less than or equal to zero); or
(v) the Merger shall not have been consummated prior to or on
December 31, 1997;
provided, however, that, in the case of any termination pursuant to clause
(iii), (iv), or (v) above, CREC has diligently and in good faith performed
or complied in all material respects with the agreements and covenants
required to be performed by it hereunder; or
(d) by the Company and the Shareholder Parties jointly if:
(i) the Board of Directors of the Company shall have modified or
withdrawn, in a manner adverse to CREC, the approval or recommendation
by such Board of Directors of this Agreement or the Merger and shall
have authorized the Company to enter into an agreement with a Third
Party with respect to an Acquisition Proposal as permitted pursuant to
Section 6.2;
(ii) there shall have been any violation or breach in any material
respect on the part of CREC of any covenant or agreement contained in
this Agreement which shall not have been cured within 30 days after
receipt of notice of such violation or breach from the Company;
(iii) there shall have been any violation or breach in any material
respect on the part of CREC of any representation or warranty contained
in this Agreement; or
(iv) the Merger shall not have been consummated prior to or on
December 31, 1997;
provided, however, that, in the case of any termination pursuant to clause
(ii), (iii) or (iv) above, the Company and the Shareholder Parties have
diligently and in good faith performed or complied in all material respects
with the agreements and covenants required to be performed by them
hereunder.
SECTION 9.2. Effect of Termination. In the event of the termination of
this Agreement in accordance with Section 9.1 hereof, this Agreement shall
forthwith become void and of no further force or effect, and there shall be no
liability hereunder on the part of any party or its Affiliates, directors,
officers, shareholders, agents or other representatives; provided, however, that
(i) this Section 9.2 and Sections 6.13, 6.14, 9.3, 11.2, 11.4, 11.8, 11.9 and
11.10 shall survive any termination of this Agreement and (ii) nothing contained
herein shall relieve any party from liability for any breach of this Agreement.
SECTION 9.3. Termination Payments.
(a) If this Agreement is terminated for any reason (other than pursuant to
the provisions of Section 9.1(a), (b)(i) (solely by reason of an order, writ,
injunction, judgment or decree issued in an action brought by a plaintiff that
is a Governmental Authority), (c)(v), (d)(ii) or (d)(iii)), the Company shall
pay to CREC the Termination Payments, which payments shall be made in
immediately available funds no later than one Business Day after the date of
termination hereof.
(b) If this Agreement is terminated pursuant to the provisions of Section
9(c)(v), (d)(ii) or (d)(iii), CREC shall pay to the Company the Termination
Payments, which payments shall be made in immediately available funds no later
than one Business Day after the date of termination hereof.
(c) Any amounts payable pursuant to this Section 9.3 shall be paid without
set-off or deduction.
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ARTICLE X.
DEFINITIONS
SECTION 10.1. Definitions.
(a) As used in this Agreement, the terms set forth below shall have the
following meanings:
"Acquisition Proposal" means a proposal by a Third Party relating to
an acquisition (whether by merger, consolidation, purchase of assets,
purchase of stock or otherwise) of the Company or any of its capital stock
(other than an acquisition of capital stock in connection with the
prepayment or conversion of the outstanding principal amount of the
Convertible Note in accordance with Section 6.12 or the exercise of any
outstanding Company Stock Options) or any substantial part of its assets or
any other business combination or transaction of a similar nature that is
inconsistent with the Merger or the other transactions contemplated by this
Agreement; provided, however, that the term "Acquisition Proposal" shall
not include any proposal relating to a Permitted Sale Transaction.
"Affiliate" means, with respect to any Person, any other Person who,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. As used in this definition, the term
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person,
whether by contract or otherwise.
"Arizona Act" means the Arizona Business Corporation Act as set forth
in Sections 120 et seq. of Title 10 of the Arizona Revised Statutes, as
amended (including any successor statute).
"Arizona Business Combination Statute" means the provisions of the
Arizona Corporate Takeovers Statute with respect to certain business
combinations set forth in Sections 2741 et seq. of Title 10 of the Arizona
Revised Statutes, as amended (including any successor statute).
"Arizona Commission" means the Arizona Corporation Commission.
"Arizona Corporate Takeovers Act" means the act relating to Corporate
Takeovers set forth in Sections 2701 et seq. of Title 10 of the Arizona
Revised Statutes, as amended (including any successor statute).
"Arizona Control Share Acquisition Statute" means the provisions of
the Arizona Corporate Takeovers Statute with respect to certain control
share acquisitions set forth in Section 2721 et seq. of Title 10 of the
Arizona Revised Statutes, as amended (including any successor statute).
"Business Day" means any day except a Saturday, Sunday or federal
holiday.
"Bylaws" means, with respect to any corporation, the bylaws of such
corporation, as in effect from time to time.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response, Compensation
and Liability Information System.
"Charter" means, with respect to any corporation, the certificate or
articles of incorporation (or similar governing document) of such
corporation, as in effect from time to time.
"Claims Adjusted Consolidated Net Worth" means as of any date the
excess of (i) the Consolidated Net Worth of the Company as of the end of
the most recently completed calendar month over (ii) the aggregate amount
of all assessments, losses, damages, liabilities, settlements, judgments,
fines, penalties, interest, costs and expenses (including fees and
disbursements of counsel) which have been or are reasonably likely to be
imposed upon or incurred by either the Company or CREC as a result of or in
connection with the violation or breach by the Company of any of its
representations and warranties contained in this Agreement (it being
understood and agreed that, for purposes for this definition, all such
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representations and warranties shall be construed as if they were not
qualified in any manner as to materiality).
"Claims Reserve" means as of any date the excess, if any, of (i) the
Claims Adjusted Consolidated Net Worth of the Company over (ii) $26,170,656
(which represents the Consolidated Net Worth of the Company as of September
30, 1996, less $2,500,000).
"Closing Date" means the date upon which the Closing occurs in
accordance with Section 1.8.
"Commission" means the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act or the
Exchange Act.
"Company Stock Options" means options to purchase Company Common Stock
under the Company Stock Plan.
"Company Stock Plan" means the 1985 Stock Option Plan of the Company.
"Confidentiality Agreement" means the letter agreement, dated as of
September 20, 1996, between the Company and CREC.
"Consent" means any consent, approval, permit, notice, action or other
authorization of any Person not a party to this Agreement.
"Consolidated Net Worth" means, with respect to the Company, the
consolidated shareholders' equity of the Company and its Subsidiaries, as
determined in accordance with GAAP, applied on a basis consistent with the
Company Financial Statements.
"Contributed Company Shares" means the Company Shares owned as of the
date hereof by the Shareholder Parties which are set forth on Exhibit C
under the caption "Contributed Company Shares."
"Contract" means any contract, subcontract, letter contract,
agreement, purchase order, delivery order, arrangement, understanding or
other instrument, obligation or commitment of any kind or character
(whether oral or written).
"Convertible Note" means the promissory note, dated as of April 28,
1994, in the aggregate principal amount of $4,100,000 issued by the Company
to Carl H. Osterman, as trustee of the CAVCO Convertible Note Trust, in
accordance with the Loan Agreement, dated as of April 28, 1994, by and
among the Company and such trustee.
"CREC Holding Company Shares" means a number of Holding Company Shares
which bears the same ratio to the number of Holding Company Shares to be
held by the Shareholder Parties after giving effect to the Shareholder
Party Contribution as the number of Company Shares that are converted into
the Merger Consideration pursuant to Section 2.1(a) (plus any Dissenting
Company Shares) bears to the total number of Contributed Company Shares.
"CREC Purchase Price" means an amount equal to the product of (i) the
number of Company Shares that are outstanding immediately prior to the
Effective Time (other than the Contributed Company Shares) and (ii) $26.75.
"Encumbrance" means (i) with respect to any capital stock or other
equity securities of any corporation, partnership or other Person, any
Lien, charge, claim, encumbrance, limitation or restriction applicable to
or affecting such capital stock, equity securities or ownership interest
(including any restriction on the right to vote, sell or otherwise dispose
of such capital stock, equity securities or other ownership interest) and
(ii) with respect to any Real Property or Personal Property (other than any
capital stock or other equity securities of any corporation, partnership or
other Person), any Lien, defect in title, easement, covenant, restriction,
claim, charge, levy or assessment against or relating to any portion of
such Real Property or Personal Property.
"Environmental Claim" means any claim (including, but not limited to,
any claim under CERCLA), action, cause of action, investigation or notice
by any Person alleging potential liability
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(including, but not limited to, potential liability for investigatory
costs, assessment costs, cleanup costs, response costs, natural resources
damages, property damages, personal injuries, or penalties) arising out of,
based on or resulting from (a) the release by the Company into the
environment of any Hazardous Materials at any location, whether or not
owned by the Company, (b) the presence of any Hazardous Materials at any
location owned or leased by the Company or (c) circumstances forming the
basis of any liability under or any violation of any Environmental Law.
"Environmental Laws" means all federal, state, local and foreign laws
(including common law), statutes, codes, ordinances, rules and regulations
relating to pollution or protection of human health or the environment
(including, but not limited to, ambient air, surface water, groundwater,
land surface or subsurface strata), including, without limitation, laws,
statutes, codes, ordinances, rules and regulations relating to emissions,
discharges, releases or threatened releases of Hazardous Materials, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended (including any successor statute).
"ERISA Affiliate" means, with respect to the Company, any corporation
or other trade or business under common control with the Company (within
the meaning of Section 414 of the Internal Revenue Code or Section
4001(a)(14) or 4001(b) of ERISA).
"Exchange Act" means the Securities Exchange Act of 1934, as amended
(including any successor statute).
"GAAP" means United States generally accepted accounting principles as
in effect at the time of the application thereof as described in or
contemplated by this Agreement.
"Governmental Authority" means any nation or government, any state or
political subdivision thereof, any federal or state court and any other
agency or authority exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government.
"Hazardous Materials" means (i) any substance, material or waste
defined or characterized as hazardous, extremely hazardous, toxic or
dangerous within the meaning of any Environmental Law, (ii) any substance,
material or waste classified as a contaminant or pollutant under any
Environmental Law or (iii) any other substance (including, but not limited
to, petroleum), material or waste, the manufacture, processing,
distribution, use, treatment, storage, placement, disposal, removal or
transportation of which is subject to regulation under any Environmental
Law.
"Holding Company Common Stock" means the common stock, par value $.01
per share, of the Holding Company.
"Holding Company Shares" means shares of Holding Company Common Stock.
"HSR Act" means Section 7A of the Clayton Act (Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976), as amended
(including any successor statute).
"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service
marks, trade dress, trade names, logos and corporate names and
registrations and applications for registration thereof, (iii) copyrights
(registered or unregistered) and copyrightable works and registrations and
applications for registration thereof, (iv) computer software, data, data
bases and documentation thereof, (v) trade secrets and other confidential
information (including, but not limited to, ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced
to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial
and marketing plans and customer and supplier lists and information), (vi)
other intellectual property rights and (vii) all goodwill associated with
any of the foregoing intellectual property rights.
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"Internal Revenue Code" means the Internal Revenue Code of 1986, as
the same may be amended from time to time (including any successor
statute).
"Leasing Business" means the business conducted by the Company and its
Subsidiaries which relates to the sale and leasing of temporary security
storage containers and trailer vans, as described in the Company's most
recent Annual Report on Form 10-K filed with the Commission.
"Lien" means (i) any mortgage, pledge, hypothecation, assignment,
security interest, option, lien or any preference, priority or other right
or interest granted pursuant to a security agreement or preferential
arrangement of any kind or character whatsoever (including, but not limited
to, any conditional sale or other title retention agreement, any financing
lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
under the Uniform Commercial Code or comparable law of any jurisdiction)
and (ii) any other lien, charge, levy or encumbrance, whether arising by
operation of law or otherwise.
"Material Adverse Change" means a material adverse change in the
business, prospects, properties, financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole.
"Material Adverse Effect" means a material adverse effect on the
business, prospects, properties, financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole.
"Merger Subsidiary Common Stock" means the common stock, without par
value, of the Merger Subsidiary.
"Merger Subsidiary Shares" means shares of Merger Subsidiary Common
Stock.
"Overbid Negotiation Conditions" means, in the case of any Qualified
Acquisition Proposal, each of the following conditions:
(i) the Company has complied fully and in a timely manner with its
obligations to notify CREC of the receipt of such Qualified Acquisition
Proposal (and the identity of the offeror and the material terms of such
proposal) in accordance with Section 6.2(b);
(ii) the Company has delivered an Overbid Notice to CREC with
respect to such Qualified Acquisition Proposal; and
(iii) CREC has not delivered to the Company a Topping Offer with
respect to such Qualified Acquisition Proposal.
"Overbid Notice" means a written notice from the Company to CREC
stating that the Board of Directors of the Company or the Special Committee
has determined that an Acquisition Proposal received by the Company from a
Qualified Third Party constitutes a Qualified Acquisition Proposal (which
notice shall be accompanied by copies of the documentation received by the
Company from such Qualified Third Party setting forth the material terms of
such Qualified Acquisition Proposal).
"Overbid Transaction" means a transaction contemplated by an
Acquisition Proposal received from a Qualified Third Party (i) which would
provide for consideration attributable to the Company Shares held by the
Independent Shareholders having a fair market value, as reasonably
determined by the Board of Directors of the Company after consultation with
its financial advisors, that is at least $1,000,000 greater than the
product of (A) $26.75 and (b) the total number of Company Shares held by
the Independent Shareholders, (ii) the terms and conditions of which, when
taken in their entirety, are no less favorable to the Independent
Shareholders than the terms and conditions set forth in this Agreement and
(iii) which is not subject to any conditions or other limitations as a
result of which such transaction is not reasonably likely to be consummated
on the terms proposed by the Qualified Third Party.
"Overbid Transaction Conditions" means, in the case of a Qualified
Acquisition Proposal, each of the following conditions:
(i) each of the Overbid Negotiation Conditions shall have been
satisfied with respect to such Qualified Acquisition Proposal;
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(ii) at least ten days shall have expired from the date upon which
the Company delivered to CREC an Overbid Notice with respect to such
Qualified Acquisition Proposal and CREC shall not have delivered a
Topping Offer to the Company;
(iii) the terms of the Qualified Acquisition Proposal shall not
have been modified in any manner materially adverse to the Company or
the Independent Shareholders since the date of the Overbid Notice (it
being understood and agreed that, if the terms of the Qualified
Acquisition Proposal shall have been so materially modified, the Company
shall be required to deliver a new Overbid Notice to CREC in order for
the conditions set forth in this definition to be satisfied); and
(iv) the Company shall have paid to CREC the full amount of the
Termination Payments.
"Permitted Encumbrances" means:
(i) tax liens with respect to taxes not yet due and payable or
which are being diligently contested in good faith by appropriate
proceedings and for which appropriate reserves have been established in
accordance with GAAP, consistently applied;
(ii) interests or title of a lessor as lessor under any lease
disclosed in writing to CREC;
(iii) mechanics' or materialmen's liens or encumbrances arising in
the ordinary course of business, if the underlying obligations are not
overdue for a period of more than 90 days;
(iv) deposits made in the ordinary course of business to secure
contractual or other obligations of the Company or any of its
Subsidiaries, if the underlying obligations are not overdue for a period
of more than 90 days;
(v) easements, rights-of-way, restrictions and other similar
charges and encumbrances on Real Property not materially interfering
with the conduct of the business of the Company and its Subsidiaries or
materially detracting from the use, value or marketability of such Real
Property; and
(vi) other Liens in existence on the date hereof which are
described in the Schedules to this Agreement.
"Permitted Sale Transaction" means any sale or disposition by the
Company or its Subsidiaries (whether through a stock sale, asset sale,
joint venture or otherwise) of the Leasing Business or the Real Estate
Development Business, in whole or in part, if such sale or disposition does
not have the purpose or effect of hindering, preventing or delaying the
consummation of the Merger or the other transactions contemplated by this
Agreement.
"Person" means any individual, corporation, partnership, association,
trust or any other entity or organization of any kind or character,
including a Governmental Authority.
"Personal Property" means all furniture, fixtures, machinery,
equipment, supplies and other tangible personal property.
"Proxy Statement" means a letter to shareholders, notice of meeting,
proxy statement and form of proxy to the shareholders of the Company to be
distributed by the Company to its shareholders in connection with the
approval and adoption of this Agreement.
"Qualified Centex Subsidiary" means a Subsidiary of Centex Corporation
of which at least 80% of the outstanding capital stock and other equity
securities are owned, directly or indirectly, by Centex Corporation.
"Qualified Acquisition Proposal" means a bona fide, unsolicited
Acquisition Proposal received by the Company from a Qualified Third Party
which the Board of Directors of the Company or the Special Committee has
reasonably determined would, if consummated, constitute an Overbid
Transaction.
"Qualified Third Party" means a Third Party who the Board of Directors
of the Company or the Special Committee has reasonably determined is
financially able to consummate an Overbid Transaction.
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"Real Property" means all real property or real estate, all buildings
and improvements thereon and all rights under any contracts, options,
easements, declarations or other agreements and instruments affecting or
relating to any of the foregoing.
"Real Estate Development Business" means the business conducted by the
Company and its Subsidiaries which relates to the development of housing
subdivisions and the sale of manufactured, modular and conventional housing
units or lots located therein, as described in the Company's most recent
Annual Report on Form 10-K filed with the Commission.
"Representatives" means, with respect to any of the parties hereto,
the Affiliates, directors, officers, agents or other representatives of
such party, including, but not limited to, any investment banker, financial
advisor, attorney or accountant.
"Securities Act" means the Securities Act of 1933, as amended
(including any successor statute).
"Schedule 13E-3" means a transaction statement on Schedule 13E-3 to be
filed by the Company and the Principal Shareholders with the Commission
pursuant to Section 13(e)(3) of the Exchange Act and Rule 13e-3 thereunder
in connection with the Merger or the other transactions contemplated by
this Agreement.
"Special Committee" means the special committee of the Board of
Directors of Company established in connection with the negotiation and
consideration of the Merger and the other transactions contemplated hereby
from the perspective of the Independent Shareholders.
"Subsidiary" means, with respect to any Person, (i) any corporation or
other entity of which securities or other ownership interests having
ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are owned directly or indirectly
by such Person or (ii) any partnership, limited liability company or other
unincorporated entity of which such Person or any of its Subsidiaries is a
general partner or manager or of which such Person directly or indirectly
owns partnership interests or limited liability company interests which
entitle it to receive more than 50% of the distributions made by such
partnership or limited liability company.
"Tax Returns" means any returns, declarations, reports, claims for
refund and informational returns or statements relating to Taxes, including
any schedules or attachments thereto.
"Taxes" means all taxes, charges, fees, levies or other assessments
(including, but not limited to, income, gross receipts, excise, property,
sales, occupation, use, service, service use, license, payroll, franchise,
transfer and recording taxes, fees and charges) imposed by any Governmental
Authority, whether computed on a separate, consolidated, unitary or
combined basis or in any other manner, and includes any interest, penalties
and additions to any Tax.
"Termination Payments" means the following amounts:
(i) a fee of $2,500,000 in cash;
(ii) reimbursement of all Transaction Expenses incurred by the
party entitled to receive the Termination Payments (the "Recipient")
in an amount of up to $300,000 in the aggregate; and
(iii) in the event that the Company or CREC, as the case may be,
shall fail to pay the Recipient any of the foregoing payments when
due, the costs and expenses actually incurred or accrued by the
Recipient (including, but not limited to, reasonable fees and expenses
of counsel) in connection with the collection under and enforcement of
Section 9.3, together with interest on such unpaid Termination
Payments, commencing on the date that such payments became due, at a
rate of 10% per annum.
"Third Party" means any Person other than CREC and its respective
Affiliates.
"Topping Offer" means, with respect to any Qualified Acquisition
Proposal, a written offer by CREC to amend this Agreement in order to
provide for consideration attributable to the Company Shares held by the
Independent Shareholders having a value at least $1,000,000 greater than
the value of the
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consideration provided to the Independent Shareholders under such Qualified
Acquisition Proposal, which offer shall state that it may not be withdrawn
or revoked by CREC unless the parties hereto do not enter into an amendment
to this Agreement to reflect the acceptance of the Topping Offer by the
Company and the Shareholder Parties within ten calendar days after receipt
thereof by the Company.
"Transaction Expenses" means, with respect to any party, all expenses
and fees (including, but not limited to, fees and expenses payable to all
investment banking firms and all fees of counsel, accountants, experts and
consultants) actually incurred or accrued by such party or on its behalf in
connection with the Merger or the other transactions contemplated by this
Agreement, including, but not limited to, all expenses and fees in
connection with the negotiation, preparation, execution and performance of
this Agreement and the structuring, consummation or implementation of the
Merger or the other transactions contemplated thereby.
(b) Each of the terms set forth below has the meaning specified in the
provision set forth opposite such term in the following table:
<TABLE>
<CAPTION>
TERM PROVISION
------------------------------------------------------ -----------------------
<S> <C>
Aggregate Subject Shares.............................. Recitals
Antitrust Division.................................... Section 6.6
Articles of Merger.................................... Section 1.2
Certificates.......................................... Section 2.5(b)
Claims................................................ Section 8.3
Closing............................................... Section 1.8(a)
Commission Reports.................................... Section 3.9
Company............................................... Introductory paragraph
Company Common Stock.................................. Recitals
Company Financial Statements.......................... Section 3.10
Company Share......................................... Recitals
Commission Reports.................................... Section 3.9
CREC.................................................. Introductory paragraph
CREC Claims........................................... Section 8.1
CREC Stock Purchase................................... Section 1.7
Dissenting Company Shares............................. Section 2.4(a)
Effective Time........................................ Section 1.2
Employee Benefit Plans................................ Section 3.19(a)
Fairness Advisor...................................... Section 3.6
Fairness Opinion...................................... Section 3.6
FTC................................................... Section 6.6
Holding Company....................................... Introductory paragraph
Indemnified Party..................................... Section 8.3(a)
Indemnifying Party.................................... Section 8.3(a)
Individual Indemnified Party.......................... Section 6.10(a)
Identified Contracts.................................. Section 3.14(b)(i)
Independent Shareholders.............................. Recitals
Key Employees......................................... Section 6.1
Latest Balance Sheet.................................. Section 3.10
Merger................................................ Recitals
Merger Consideration.................................. Section 2.1(a)
Merger Subsidiary..................................... Introductory paragraph
Paying Agent.......................................... Section 2.5(a)
Permits............................................... Section 3.22
</TABLE>
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<PAGE> 118
<TABLE>
<CAPTION>
TERM PROVISION
------------------------------------------------------ -----------------------
<S> <C>
Principal Shareholders................................ Introductory paragraph
Qualified Plans....................................... Section 3.19(b)
Shareholder Parties................................... Introductory paragraph
Shareholder Party Claims.............................. Section 8.2
Shareholder Party Contribution........................ Section 1.7
Shareholders' Agreement............................... Section 1.7
Special Meeting....................................... Section 6.7
Stock Purchase Agreement.............................. Recitals
Subject Share Purchase................................ Recitals
Surviving Corporation................................. Section 1.1
Third-Party Claims.................................... Section 8.3
Voting Agreement...................................... Recitals
</TABLE>
ARTICLE XI.
MISCELLANEOUS
SECTION 11.1. Survival of Representation and Warranties. The
representations and warranties made by the Company in this Agreement shall not
survive the Merger. The representations and warranties made by CREC and the
Shareholder Parties in this Agreement shall survive the Merger and the other
transactions contemplated hereby and shall continue in effect after the Closing
Date.
SECTION 11.2. Fees and Expenses. Except as expressly provided herein, all
fees and expenses incurred by any of the parties hereto in connection with this
Agreement or the Merger or the other transactions contemplated hereby shall be
borne and paid solely by the party incurring such fees and expenses.
SECTION 11.3. Notices. All notices and other communications hereunder
shall be in writing and shall be given by delivery in person, by registered or
certified mail (return receipt requested and with postage prepaid thereon) or by
cable, telex or facsimile transmission to the parties at the following addresses
(or at such other address as any party shall have furnished to the others in
accordance with the terms of this Section 11.3):
if to CREC:
Centex Real Estate Corporation
2728 North Harwood
Dallas, Texas 75201-1516
Facs: (214) 981-6859
Attention: David W. Quinn
with copies to (which shall not constitute notice to CREC):
Centex Corporation
2728 North Harwood
Dallas, Texas 75201-1516
Facs: (214) 981-6859
Attention: Laurence E. Hirsch and Raymond G. Smerge
and
Baker & Botts, L.L.P.
2001 Ross Avenue
Dallas, Texas 75201
Facs: (214) 953-6503
Attention: Geoffrey L. Newton
A-39
<PAGE> 119
if to the Company:
Cavco Industries, Inc.
1001 North Central Avenue
Eighth Floor
Phoenix, Arizona 85004
Facs: (602) 256-6189
Attention: Al R. Ghelfi
with copies to (which shall not constitute notice to the Company):
Osborn Maledon
2929 North Central Avenue
Phoenix, Arizona 85012
Facs: (602) 235-9444
Attention: William M. Hardin
if to any of the Shareholder Parties:
Al R. and Janet M. Ghelfi
c/o Cavco Industries, Inc.
1001 North Central Avenue
Eighth Floor
Phoenix, Arizona 85004
Facs: (602) 256-6189
with copies to (which shall not constitute notice to the Shareholder
Parties):
Osborn Maledon
2929 North Central Avenue
Phoenix, Arizona 85012
Facs: (602) 235-9444
Attention: William M. Hardin
All notices and other communications hereunder that are addressed as provided in
or pursuant to this Section 11.3 shall be deemed duly and validly given (a) if
delivered in person, upon delivery, (b) if delivered by registered or certified
mail (return receipt requested and with postage paid thereon), 72 hours after
being placed in a depository of the United States mails and (c) if delivered by
cable, telex or facsimile transmission, upon transmission thereof and receipt of
the appropriate answerback.
SECTION 11.4. Public Announcements. The timing and content of any public
announcement by any party with respect to this Agreement will be mutually agreed
upon by the Company and CREC, except as otherwise required by applicable law,
stock exchange requirements or Nasdaq designation requirements. If either the
Company or CREC determines that a public announcement is required by applicable
law, stock exchange requirements or Nasdaq designation requirements, prior to
making such announcement, it will consult with the other party regarding the
substance thereof.
SECTION 11.5. Amendment; Waivers. The terms and provisions of this
Agreement may be modified or amended only by a written instrument executed by
each of the parties hereto, and compliance with any term or provision hereof may
be waived only by a written instrument executed by each party entitled to the
benefits of the same. Except as expressly provided herein to the contrary, no
failure to exercise any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege granted hereunder.
SECTION 11.6. Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto and the certificates, opinions and documents delivered in
accordance with the provisions hereof) constitutes the entire agreement among
the parties with respect to the subject matter hereof and supersedes all prior
written or oral agreements and understandings and all contemporaneous oral
agreements and understandings among
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<PAGE> 120
the parties or any of them with respect to the subject matter hereof. All
Exhibits and Schedules hereto and certificates, opinions and other documents
delivered in accordance with the provisions hereof are expressly made a part of
this Agreement.
SECTION 11.7. No Additional Representations and Warranties. Each of the
parties hereto expressly disclaims any and all representations and warranties in
connection with this Agreement, the Merger and the other transactions
contemplated hereby, other than the representations and warranties expressly
made by such party in this Agreement (including the Exhibits hereto and other
documents referred to herein.) Without limiting the generality of the foregoing,
none of the Shareholder Parties shall have any liability to CREC, whether in
their capacities as controlling shareholders or otherwise, as a result of any
failure of the representations and warranties made by the Company pursuant to
this Agreement to be true and correct.
SECTION 11.8. Parties in Interest; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns (it being understood and agreed that, except as expressly
provided herein, nothing contained in this Agreement is intended to confer any
rights, benefits or remedies of any kind or character on the holders of Company
Shares or any other Person under or by reason of this Agreement). No party may
assign this Agreement without the prior written consent of each of the other
parties hereto; provided, however, that (i) any Shareholder Party may assign its
rights and delegate its duties under this Agreement to any other Shareholder
Party and (ii) CREC may assign its rights and delegate its duties under this
Agreement to any Qualified Centex Subsidiary, in each case without the consent
of any other party; provided, however, that no such assignment or delegation by
a Shareholder Party or CREC shall relieve such party of any of its obligations
hereunder to the extent that such obligations are not performed by the assignee.
It is expressly understood and agreed that any attempted or purported assignment
by any party of this Agreement in violation of this Section 11.8 shall be null
and void.
SECTION 11.9. Governing Law. This Agreement shall be governed by and
construed and interpreted in accordance with the laws of the State of Arizona,
without regard to any principles of conflicts of law that would result in the
application of the laws of any other jurisdiction.
SECTION 11.10. Severability. In the event any provision contained herein
shall be held to be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of any such provision in every other
respect and the validity, legality and enforceability of the remaining
provisions contained in this Agreement shall not be in any way impaired thereby.
SECTION 11.11. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with the terms hereof. Accordingly,
the parties agree that each of them shall be entitled to injunctive relief to
prevent breaches of the terms of this Agreement and to specific performance of
the terms hereof, in addition to any other remedy now or hereafter available at
law or in equity, or otherwise.
SECTION 11.12. Interpretation.
(a) The headings herein are for convenience of reference only, do not
constitute a part of this Agreement and shall not be deemed to limit, extend or
otherwise affect the meaning of any of the provisions hereof.
(b) It is expressly understood and agreed that, in interpreting the
provisions of this Agreement, time is of the essence in the performance of the
obligations of the parties.
(c) As used herein, the phrase "to the knowledge" of a party or any phrases
of like import shall be deemed to refer to the knowledge, after reasonable
inquiry, of the officers of such party.
SECTION 11.13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 121
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed as of the date first above written.
CENTEX REAL ESTATE CORPORATION
By: /s/ LAURENCE E. HIRSCH
------------------------------------
Name: Laurence E. Hirsch
Title: Chairman of the Board
MFH HOLDING COMPANY
By: /s/ AL GHELFI
------------------------------------
Name: Al Ghelfi
Title: Chairman
MFH ACQUISITION COMPANY
By: /s/ AL GHELFI
------------------------------------
Name: Al Ghelfi
Title: President
CAVCO INDUSTRIES, INC.
By: /s/ AL R. GHELFI
------------------------------------
Name: Al R. Ghelfi
Title: Chairman of the Board
/s/ AL R. GHELFI
--------------------------------------
Al R. Ghelfi
/s/ JANET M. GHELFI
--------------------------------------
Janet M. Ghelfi
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<PAGE> 122
JANAL LIMITED PARTNERSHIP
By: THE 1994 ALSONS TRUST, created
February 9, 1994, general partner
By: /s/ JANET M. GHELFI
------------------------------------
Janet M. Ghelfi,
Independent Trustee
By: /s/ AL R. GHELFI
------------------------------------
Al R. Ghelfi,
Family Trustee
By: ALFRED AND JANET GHELFI TRUST,
created August 24, 1989, general
partner
By: /s/ AL R. GHELFI
------------------------------------
Al R. Ghelfi,
Trustee
By: /s/ JANET M. GHELFI
------------------------------------
Janet M. Ghelfi,
Trustee
A-43
<PAGE> 123
EXHIBIT A
(TO AGREEMENT AND
PLAN OF MERGER)
INITIAL DIRECTORS OF THE
SURVIVING CORPORATION
Al R. Ghelfi
Brent M. Ghelfi
Laurence E. Hirsch
David W. Quinn
William J. Gillilan III
<PAGE> 124
EXHIBIT B
(TO AGREEMENT AND
PLAN OF MERGER)
INITIAL OFFICERS OF THE
SURVIVING CORPORATION
<TABLE>
<CAPTION>
NAME OFFICE
--------------------------------------------- -------------------------------------------
<S> <C>
Al R. Ghelfi................................. Chairman of the Board of Directors
Brent M. Ghelfi.............................. President and Chief Executive Officer
Robert Ward.................................. Vice President and Chief Financial Officer
David Blank.................................. Vice President of Operations
Wendall Hargis............................... Executive Vice President of Plant
Development
Sam Parlette................................. Vice President -- Sales and Marketing
Raymond G. Smerge............................ Vice President and Secretary
Richard C. Harvey............................ Assistant Vice President
Betty L. Newman.............................. Assistant Secretary
</TABLE>
<PAGE> 125
EXHIBIT C
(TO AGREEMENT AND
PLAN OF MERGER)
OWNERSHIP OF SHARES
BY SHAREHOLDER PARTIES
<TABLE>
<CAPTION>
ADDITIONAL
COMPANY CONTRIBUTED HOLDING COMPANY
SHAREHOLDER PARTIES SHARES COMPANY SHARES SHARES
- -------------------------------------------------- --------- -------------- ---------------
<S> <C> <C> <C>
Al R. Ghelfi and Janet M. Ghelfi.................. 180,729 77,340 773.40
Janal Limited Partnership......................... 1,650,000 706,101 7,051.01
--------- ------- --------
Total................................... 1,830,729 783,441 7,824.41
========= ======= ========
</TABLE>
<PAGE> 126
EXHIBIT D
(TO AGREEMENT AND
PLAN OF MERGER)
SHAREHOLDERS' AGREEMENT
AMONG
MFH HOLDING COMPANY
AND
THE SHAREHOLDERS IDENTIFIED HEREIN
DATED AS OF , 1997
<PAGE> 127
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I -- CORPORATE GOVERNANCE.................................................... 1
SECTION 1.1. Board of Directors................................................. 1
SECTION 1.2. Dividends.......................................................... 2
SECTION 1.3. Intercompany Indebtedness.......................................... 2
SECTION 1.4. Actions Requiring Supermajority Board Vote......................... 2
SECTION 1.5. Sale of Leasing Business........................................... 4
SECTION 1.6. Fiscal Year........................................................ 4
SECTION 1.7. Certain Restrictions............................................... 4
ARTICLE II -- TRANSFER OF SHARES; RIGHTS OF PURCHASE AND SALE........................ 5
SECTION 2.1. General Restrictions on Transfer................................... 5
SECTION 2.2. Pledge of Shares................................................... 5
SECTION 2.3. Voluntary Transfer; Right of Participation......................... 6
SECTION 2.4. Involuntary Transfer............................................... 7
SECTION 2.5. Put Option......................................................... 7
SECTION 2.6. Call Option........................................................ 7
SECTION 2.7. Appraisal of Additional Businesses................................. 7
SECTION 2.8. Purchase Price..................................................... 8
SECTION 2.9. Closing............................................................ 8
SECTION 2.10. HSR Act............................................................ 8
SECTION 2.11. Effect of Prohibited Transfer...................................... 8
ARTICLE III -- CERTAIN CAPITAL PROJECTS.............................................. 9
SECTION 3.1. Election as to Capital Projects.................................... 9
SECTION 3.2. Excluded Projects.................................................. 9
SECTION 3.3. Excluded Project Payments.......................................... 9
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES......................................... 10
SECTION 4.1. Representations and Warranties of the Company...................... 10
SECTION 4.2. Representations and Warranties of the Shareholders................. 10
ARTICLE V -- DEFINITIONS; ACCOUNTING MATTERS......................................... 11
SECTION 5.1. Certain Definitions................................................ 11
SECTION 5.2. Certain Accounting Matters......................................... 16
ARTICLE VI -- MISCELLANEOUS.......................................................... 17
SECTION 6.1. Legend............................................................. 17
SECTION 6.2. Termination........................................................ 17
SECTION 6.3. Further Assurances; Frustration of Purposes........................ 17
SECTION 6.4. Fees and Expenses.................................................. 17
SECTION 6.5. Certain Reports.................................................... 17
SECTION 6.6. Determination of Certain Amounts; Dispute Resolution............... 18
SECTION 6.7. Notices............................................................ 18
SECTION 6.8. Amendment; Waivers................................................. 19
SECTION 6.9. Entire Agreement................................................... 20
SECTION 6.10. Parties in Interest; Assignment.................................... 20
SECTION 6.11. Governing Law...................................................... 20
SECTION 6.12. Severability....................................................... 20
SECTION 6.13. Specific Performance............................................... 20
SECTION 6.14. Default Interest................................................... 20
SECTION 6.15. Counterparts....................................................... 20
</TABLE>
i
<PAGE> 128
SHAREHOLDERS' AGREEMENT
This SHAREHOLDERS' AGREEMENT, entered into as of , 1997 (the
"Agreement"), by and among MFH HOLDING COMPANY, a Nevada corporation (the
"Company"), CENTEX REAL ESTATE CORPORATION, a Nevada corporation ("CREC"), AL R.
GHELFI, JANET M. GHELFI and JANAL LIMITED PARTNERSHIP, an Arizona limited
partnership ("Janal Partnership"),
W I T N E S S E T H:
WHEREAS, as of December 4, 1996, CREC, the Company, MFH Acquisition
Company, an Arizona corporation ("MFH Acquisition"), Cavco Industries, Inc., an
Arizona corporation ("Cavco"), Al R. Ghelfi, Janet M. Ghelfi and Janal Limited
Partnership entered into an Agreement and Plan of Merger (the "Merger
Agreement");
WHEREAS, concurrently with the execution and delivery of this Agreement,
the parties to the Merger Agreement are consummating the transactions
contemplated thereby, including, but not limited to, the merger (the "Merger")
of MFH Acquisition with and into Cavco;
WHEREAS, upon consummation of the Merger, the Company will own all of the
issued and outstanding shares of common stock, par value $.05 per share, of
Cavco;
WHEREAS, the parties hereto other than the Company (the "Shareholders") own
all of the issued and outstanding shares of common stock, par value $.01 per
share, of the Company;
WHEREAS, the Merger Agreement provides that the parties hereto will execute
and deliver this Agreement concurrently with the consummation of the Merger and
the other transactions contemplated by the Merger Agreement;
WHEREAS, the Company and the Shareholders deem it to be in their best
interests to provide for consistent and uniform management of the Company;
WHEREAS, the Company and the Shareholders desire to restrict the Transfer
(as hereinafter defined) of shares of Common Stock, whether issued and
outstanding on the date hereof or issued from time to time hereafter, by the
Shareholders and to provide for certain rights and obligations of the
Shareholders in respect of the purchase and sale of such shares;
WHEREAS, the Company and the Shareholders desire to evidence their
agreement with respect to certain other matters in relation to the Company and
the issued and outstanding shares of Common Stock; and
WHEREAS, capitalized terms used in any provision of this Agreement but not
defined in such provision have the respective meanings set forth in Section 5.1;
NOW, THEREFORE, in consideration of the premises, the terms and provisions
set forth herein, the mutual benefits to be gained by the performance thereof
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
CORPORATE GOVERNANCE
SECTION 1.1. Board of Directors. Each Shareholder shall use its best
efforts and take all actions within its power (including, but not limited to,
the voting of shares of Common Stock owned by such Shareholder at any annual or
special meeting of the shareholders of the Company, or in any action by written
consent in lieu of a meeting) to effectuate and carry out the following
provisions:
(a) The Company shall at all times be managed by or under the
direction of a Board of Directors consisting of five persons.
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<PAGE> 129
(b) The members of the Board of Directors of the Company shall at all
times be designated and elected as follows: (i) so long as the Ghelfi
Shareholders own the Option Shares, two members of the Board of Directors
shall be designated by the Ghelfi Shareholder Representative; and (ii) all
of the remaining members of the Board of Directors shall be designated by
CREC. The directors initially designated by the Ghelfi Shareholder
Representative are Al R. Ghelfi and Brent M. Ghelfi. The directors
initially designated by CREC are Laurence E. Hirsch, David W. Quinn and
William J. Gillilan III.
(c) In the event that any vacancy is created on the Board of Directors
of the Company by reason of the death, resignation or removal of any
director, such vacancy shall be filled by a substitute director designated
by the party or parties entitled to designate the director whose death,
resignation or removal created such vacancy.
(d) A director shall be removed if, and only if, the party or parties
entitled to designate such director deliver a written notice to the Company
stating that such director shall be removed and replaced with a substitute
director designated in such notice.
(e) The Board of Directors of the Company shall meet no less
frequently than once each calendar quarter.
SECTION 1.2. Dividends. The Company shall (and each Shareholder shall use
its best efforts and take all actions within its power to cause the Company to)
declare and pay to the holders of its Common Stock (i) cash dividends in an
amount equal to 20% of the Adjusted Consolidated Net Income of the Company for
each Dividend Period, which dividends shall be paid within 120 days after the
end of such Dividend Period to the holders of record of shares of Common Stock
as of the opening of business on the last day thereof, and (ii) dividends in an
amount equal to (and in the same form as) the net proceeds received by the
Company or any of its Subsidiaries from the sale or other disposition of the
Leasing Business, which dividends shall be paid within 30 days after the receipt
of such proceeds to the holders of record of shares of Common Stock as of the
date of consummation of the sale or other disposition of the Leasing Business.
SECTION 1.3. Intercompany Indebtedness. Each Shareholder shall use its
best efforts and take all actions within its power to cause all Intercompany
Indebtedness to bear interest at the Intercompany Rate; provided, however, that
if the directors designated by the Ghelfi Shareholder Representative shall have
proposed an Eligible Capital Project for consideration by the Board of Directors
of the Company but, notwithstanding the affirmative vote in favor of such
Eligible Capital Project by the directors so designated, the Board of Directors
shall have rejected such project or deferred consideration thereof (it being
understood and agreed that each Shareholder shall use its best efforts and take
all actions within its power to cause the directors designated by it to consider
in good faith any Eligible Capital Project proposed by the directors designated
by the Ghelfi Shareholder Representative), then the Eligible Capital Project
Deficit Amount shall bear interest at a rate of 12.5% per annum.
SECTION 1.4. Actions Requiring Supermajority Board Vote. The Company shall
not (and each Shareholder shall use its best efforts and take all actions within
its power to cause the Company not to) take any of the following actions unless
approved by a Supermajority Board Vote:
(a) an amendment to the Charter or Bylaws of the Company that
abolishes or alters in any material respect the rights, privileges or
preferences of the holders of Common Stock or the rights, privileges or
immunities of directors or officers of the Company;
(b) a consolidation of the Company with, or merger of the Company or
Cavco with or into, any Person;
(c) a sale, lease, pledge, transfer or other disposition to any Person
(other than a wholly owned Subsidiary of the Company) of (i) all or
substantially all of the properties and assets of the Company or Cavco or
(ii) any properties or assets of the Company or any of its Subsidiaries
(other than (A) properties or assets used in connection with the Additional
Businesses or (B) manufactured housing units or other products sold,
leased, transferred or otherwise disposed of in the ordinary course of
business) with a fair market value in excess of $2,000,000;
2
<PAGE> 130
(d) a sale, transfer, pledge or other disposition to any Person (other
than a wholly owned Subsidiary of the Company) of any Capital Stock of
Cavco;
(e) a change in the general nature of the Principal Businesses as
conducted by the Company and its Subsidiaries as of the date hereof;
(f) the issuance or transfer to any Person (other than a wholly owned
Subsidiary of the Company) of any shares of Common Stock or other Capital
Stock of the Company or any of its Subsidiaries;
(g) the acquisition of any shares of Common Stock or other Capital
Stock of the Company or any of its Subsidiaries;
(h) the approval of the Annual Budget for any fiscal year of the
Company;
(i) an acquisition of a business (whether in the form of a stock
purchase, asset purchase, merger or otherwise) or operating properties or
assets from any Person (A) not related to or for use in the Principal
Businesses or (B) for a purchase price in excess of $5,000,000, other than
as contemplated by the Annual Budget for the fiscal year of the Company in
which such acquisition is consummated;
(j) a determination not to have the consolidated financial statements
for any fiscal year of the Company and its consolidated subsidiaries
audited by a firm of independent public accountants or to have such
consolidated financial statements audited by any firm other than Arthur
Andersen, LLP;
(k) a change in the fiscal year of the Company, other than as
contemplated by Section 1.6;
(l) the payment of any dividend in respect of the Common Stock or
other Capital Stock of the Company not required to be declared and paid
pursuant to Section 1.2;
(m) any payment or reimbursement by the Company or any of its
Subsidiaries to CREC or any of its Affiliates of any Prohibited
Intercompany Charges;
(n) any sale or lease of goods by CREC or any of its Affiliates (other
than the Company or any of its Subsidiaries) to the Company or any of its
Subsidiaries, or by the Company or any of its Subsidiaries to CREC or any
of its Affiliates (other than the Company or any of its Subsidiaries),
except on terms that are at least as favorable to the Company and its
Subsidiaries as could be obtained in an arm's-length transaction with an
unaffiliated third party;
(o) any amendment to, or change in the terms of, the Tax Agreement
that is material and adverse to the Company;
(p) the appointment or dismissal of the chief executive officer or the
chief financial officer of the Company or Cavco;
(q) the filing of any petition seeking to reorganize the Company or
Cavco pursuant to, or to obtain relief under, any federal or state
bankruptcy or insolvency law; and
(r) the dissolution, liquidation or winding-up of the affairs of the
Company or Cavco.
Each party hereto acknowledges and agrees that, to the fullest extent
permitted by law, with respect to the approval of the matters specified in this
Section 1.4 only, (i) the members of the Board of Directors designated by the
Ghelfi Shareholders shall have the right to act and vote as directors of the
Company in a manner determined by them as necessary or advisable to preserve and
protect the rights and interests of the Ghelfi Shareholders, and except as
expressly provided herein, shall have no duty or obligation to give any
consideration to any interest of CREC and (ii) the members of the Board of
Directors designated by CREC shall have the right to act and vote as directors
of the Company in a manner determined by them as necessary or advisable to
preserve and protect the rights and interests of CREC, and except as expressly
provided herein, shall have no duty or obligation to give any consideration to
any interest of the Ghelfi Shareholders.
3
<PAGE> 131
SECTION 1.5. Sale of Leasing Business.
(a) If the Board of Directors of the Company determines that it is
advisable and in the best interests of the Company to effect a sale or other
disposition of the Leasing Business (whether in the form of a stock sale, asset
sale, merger or otherwise), the Company shall notify the Ghelfi Shareholder
Representative promptly after making such a determination. Within 30 days after
such notification, the Ghelfi Shareholder Representative shall submit to the
Company a written notice (the "Leasing Business Acquisition Notice") stating
whether it has an interest in negotiating and consummating a transaction (a
"Leasing Business Acquisition") pursuant to which one or more Ghelfi
Shareholders and any other Persons designated by the Ghelfi Shareholder
Representative (collectively, the "Ghelfi Purchasers") would acquire the Leasing
Business (including all or substantially all of the properties and assets of the
Company and its Subsidiaries used in connection therewith and all or
substantially all of the debts, liabilities and obligations arising therefrom).
If the Ghelfi Shareholder Representative submits a Leasing Business Acquisition
Notice to the Company, the Company and the Ghelfi Shareholder Representative
shall negotiate in good faith for a period of up to 90 days with respect to the
terms of a Leasing Business Acquisition. If the Company and the Ghelfi
Purchasers do not enter into a definitive agreement with respect to a Leasing
Business Acquisition within such 90-day period (or if any definitive agreement
entered into by them is terminated), the Company shall, subject to the
provisions of paragraph (b) below, be entitled to negotiate and consummate a
sale or other disposition of the Leasing Business to a Person other than the
Ghelfi Purchasers.
(b) Notwithstanding the last sentence of paragraph (a) above (and
regardless of whether the Ghelfi Shareholder Representative submits a Leasing
Business Acquisition Notice to the Company stating that it has an interest in
negotiating and consummating a Leasing Business Acquisition), the Company shall,
prior to consummating a sale or other disposition of the Leasing Business to any
Person other than a Ghelfi Purchaser, make a written offer to the Ghelfi
Shareholder Representative to sell or otherwise dispose of the Leasing Business
to any Ghelfi Purchasers designated by the Ghelfi Shareholder Representative on
the same terms and conditions as proposed by such other Person. The Ghelfi
Shareholder Representative shall then have a period of 30 days within which to
accept such offer on behalf of the Ghelfi Purchasers by notifying the Company
that the Ghelfi Purchasers irrevocably agree to consummate a Leasing Business
Acquisition on the proposed terms and conditions. If the Ghelfi Shareholder
Representative elects to accept such offer on behalf of the Ghelfi Purchasers,
the Company and the Ghelfi Purchasers shall cooperate and use their reasonable
best efforts to enter into a definitive agreement setting forth, and to
consummate the Leasing Business Acquisition in accordance with, the proposed
terms and conditions.
SECTION 1.6. Fiscal Year. The Company shall (and each Shareholder shall
use its best efforts and take all actions within its power to cause the Company
to) cause the fiscal year of each of the Company and Cavco to be the 12-month
period commencing on the first day of April in each year and ending on the last
day of March in the next succeeding year, with the first such fiscal year to
commence on April 1, 1997 and end on March 31, 1998.
SECTION 1.7. Certain Restrictions. No Shareholder shall grant any proxy,
other than to an officer of the Company designated by the Board of Directors
(or, in the case of a Ghelfi Shareholder, the Ghelfi Shareholder
Representative), or enter into or agree to be bound by any voting trust
agreement or arrangement of any kind with respect to any shares of Common Stock,
nor shall any Shareholder enter into any shareholder agreement or arrangement of
any kind with respect to any shares of Common Stock inconsistent with the
provisions of this Agreement, including, but not limited to, any agreement or
arrangement with respect to the voting of shares of Common Stock, or act as a
member of a group or in concert with any other Person in connection with the
acquisition of shares of Common Stock in any manner inconsistent with the
provisions of this Article I.
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ARTICLE II
TRANSFER OF SHARES; RIGHTS OF PURCHASE AND SALE
SECTION 2.1. General Restrictions on Transfer.
(a) No Shareholder shall effect a Transfer of any shares of Common Stock
owned or held by such Shareholder unless (i) the certificate or certificates
representing such shares bear a legend as provided in Section 6.1 hereof to the
effect that such shares have not been registered under the Securities Act and
that the Transfer thereof is subject to the terms of this Agreement, (ii) the
Transferee shall have executed, as a condition to obtaining ownership of the
shares of Common Stock, an appropriate document (a "Supplemental Agreement") in
which the Transferee agrees that its ownership of such shares shall be subject
to, and that the Transferee shall comply with, all of the terms and conditions
of this Agreement (including, but not limited to, the restrictions on Transfer
set forth in this Section 2.1) and that the Transferee shall not effect any
Transfer of such shares except in compliance with the provisions hereof and in
which the Transferee confirms that the representations and warranties contained
in Section 4.2 are true and correct with respect to such Transferee as of the
date of the Supplemental Agreement and (iii) the Supplemental Agreement shall
have been promptly delivered to the Company and approved (as to its conformity
with the requirements of this Section 2.1) by it in its reasonable discretion
prior to the acquisition by such Transferee of the shares of Common Stock. The
Company shall not unreasonably withhold or delay its approval of any
Supplemental Agreement. A Transferee that is not already a party to this
Agreement, by executing a Supplemental Agreement approved by the Company as
hereinabove provided, shall become a Shareholder for all purposes of this
Agreement and shall have the same rights and shall be subject to the same
restrictions as the Shareholder effecting the Transfer.
(b) No Shareholder shall effect a Transfer of any shares of Common Stock
owned or held by such Shareholder if such action would constitute a violation of
any applicable registration or qualification requirements of the Securities Act
or any state securities or blue sky laws. In the event of any disagreement
between a Shareholder and the Company as to whether or not a proposed Transfer
would result in a violation of the applicable registration or qualification
requirements of the Securities Act or any state securities or blue sky laws,
such Shareholder shall deliver to the Company an opinion of counsel reasonably
acceptable to the Company to the effect that such proposed Transfer would not
result in such a violation, which opinion shall state the basis of the legal
conclusions expressed therein. The delivery of such opinion shall be deemed to
constitute compliance with the provisions of this Section 2.1(b) unless, within
ten days after receipt thereof, the Company notifies the Shareholder in writing
that, in the judgment of the Company based upon the advice of its counsel, the
proposed Transfer would result in such a violation.
(c) During the period commencing on the date hereof and ending on the fifth
anniversary of the date hereof, except as expressly contemplated by this Article
II, no Shareholder shall effect a Transfer of any shares of Common Stock owned
or held by such Shareholder to any Person other than a Permitted Transferee
unless (i) in the case of any Transfer by a Ghelfi Shareholder, such Transfer
shall have been approved in writing by CREC or (ii) in the case of any Transfer
by CREC, such Transfer shall have been approved in writing by the Ghelfi
Shareholder Representative. CREC or the Ghelfi Shareholder Representative, as
the case may be, shall have the right to grant or withhold any approval required
under this paragraph (c) in its or his sole discretion and, in doing so, shall
be entitled to consider only such interests and factors as it or he deems
appropriate and shall have no duty or obligation to give any consideration to
any other interest of, or factor affecting, any other party to this Agreement.
SECTION 2.2. Pledge of Shares. A Shareholder shall have the right to
pledge any shares of Common Stock owned or held by such Shareholder to a
commercial bank, savings and loan association or other lending or financial
institution or to a Permitted Transferee as security for any bona fide
Indebtedness of such Shareholder; provided, however, that no such pledge shall
be made unless (i) the Person to which such pledge is made shall have executed
an appropriate document (a "Pledgee Agreement") in which such Person agrees
that, in the event of foreclosure or other realization upon such shares, such
shares shall continue to be subject to the terms and conditions of this
Agreement (including, but not limited to, the restrictions on Transfer set forth
in Section 2.1) and that such Person shall not effect any Transfer of such
shares except in compliance with the provisions hereof and (ii) the Pledgee
Agreement shall have been promptly delivered to the
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Company and approved (as to its conformity with the requirements of this Section
2.2) by it in its reasonable discretion prior to the pledge of such shares. The
Company shall not unreasonably withhold or delay its approval of any Pledgee
Agreement.
SECTION 2.3. Voluntary Transfer; Right of Participation.
(a) If either a Ghelfi Shareholder or CREC (an "Offeror") desires to make a
voluntary Transfer of any shares of Common Stock owned or held by such Offeror
(other than a pledge permitted pursuant to Section 2.2) at any time after the
fifth anniversary of the date of this Agreement to any Person other than a
Permitted Transferee, such Offeror shall first submit to (i) in the case of a
proposed Transfer by a Ghelfi Shareholder, CREC or (ii) in the case of a
proposed Transfer by CREC, the Ghelfi Shareholder Representative (the "Offeree")
a written notice (an "Offering Notice") pursuant to which such Offeror shall
irrevocably offer to sell such shares of Common Stock (the "Offered Stock") to
the Offeree. The Offering Notice shall specify (i) the number of shares of
Offered Stock involved in the proposed Transfer, (ii) the proposed Offering
Price (or, if the transaction involves the payment of consideration other than
cash, a good faith estimate thereof), in the case of a sale or other Transfer
for value, or a description of the proposed Transfer, in the case of a
transaction other than a sale or other Transfer for value, (iii) the name and
address of the prospective Transferee, (iv) the other terms of the proposed
Transfer, if any, and (v) if applicable, the Participation Offer required to be
included therein pursuant to paragraph (b) below. Within 30 days (or, if the
Offeree is the Ghelfi Shareholder Representative, 180 days) after the receipt of
an Offering Notice from the Offeror, the Offeree shall give written notice (a
"First Refusal Response Notice") to the Offeror stating whether it elects to
purchase the Offered Stock. If the Offered Stock is not purchased by the
Offeree, the Offeror may make a Transfer of the Offered Stock to the Transferee
named in the Offering Notice, but only in strict compliance with the terms
therein stated and subject to the provisions of Section 2.1. If the Offeror
shall fail to complete such a Transfer of the Offered Stock within 30 days after
the delivery of the First Refusal Response Notice, the Offeror shall be required
to submit another Offering Notice in order to make a Transfer of the Offered
Stock in accordance with this Section 2.3(a).
(b) If CREC delivers an Offering Notice to the Ghelfi Shareholder
Representative pursuant to paragraph (a) above with respect to a voluntary sale
or other Transfer of shares of Common Stock for value (a "CREC Sale
Transaction"), CREC shall include in such notice an offer (a "Participation
Offer") to include in such CREC Sale Transaction a number of shares owned by the
Ghelfi Shareholders (which may be allocated among the Ghelfi Shareholders in
such manner as is determined by the Ghelfi Shareholder Representative) equal to
the product of (i) the aggregate number of shares of Common Stock proposed to be
sold or otherwise transferred for value by CREC and (ii) a fraction the
numerator of which is equal to the number of shares of Common Stock held by the
Ghelfi Shareholders and denominator of which is equal to the number of shares of
Common Stock held by all of the parties hereto. The Ghelfi Shareholder
Representative shall deliver a written notice (a "Participation Offer Response
Notice") to CREC within 30 days after the delivery of such Offering Notice
stating whether the Ghelfi Shareholders elect to accept the Participation Offer
and the number of shares to be sold by each Ghelfi Shareholder in connection
therewith. Any Participation Offer made by CREC shall be conditioned upon the
consummation of the sale by CREC of the shares of Common Stock specified in the
Offering Notice pursuant to the CREC Sale Transaction. If the Ghelfi Shareholder
Representative has accepted the Participation Offer on behalf of the Ghelfi
Shareholders, CREC shall reduce the number of shares of Common Stock that it
would otherwise have sold in the CREC Sale Transaction to the extent necessary
to permit the Ghelfi Shareholders to sell the number of shares specified
pursuant to this paragraph (b), and each of the Ghelfi Shareholders shall be
obligated to sell the number of shares specified in the Participation Offer
Response Notice to the proposed Transferee in accordance with the terms of such
sale set forth in the Offering Notice.
(c) Notwithstanding anything to the contrary contained herein, it is
understood and agreed that any Transfer of shares of Common Stock contemplated
by this Section 2.3 shall be subject to, and shall be effected in compliance
with, the provisions of Section 2.1(a) and (b), including, but not limited to,
the requirement that the Transferee execute a Supplemental Agreement in
accordance with Section 2.1(a).
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SECTION 2.4. Involuntary Transfer. A Transfer of shares of Common Stock in
connection with any bankruptcy, insolvency or similar proceedings involving a
Shareholder or pursuant to any judicial order, legal process, execution or
attachment with respect to a Shareholder or any other involuntary Transfer
(other than a Transfer by will, trust or pursuant to the laws of intestate
succession) shall be subject to the restrictions set forth in this Agreement,
and in any such case, the Person seeking to effect such Transfer (the
"Involuntary Transferor") shall be required to effect the same in compliance
with the provisions set forth in Section 2.3 in all respects as if such
Involuntary Transferor were an Offeror desiring to make a voluntary Transfer of
such shares; provided, however, that, in the case of any such involuntary
Transfer, if the Involuntary Transferor is not a Shareholder, in addition to the
other information required to be set forth in the Offering Notice pursuant to
Section 2.3, the Offering Notice shall specify the address of the Involuntary
Transferor that is to be its location for notices and other communications
hereunder.
SECTION 2.5. Put Option. At any time during a Put Option Window Period,
the Ghelfi Shareholders shall have the option (the "Put Option") to sell all,
but not less than all, of the shares of Common Stock specified in Exhibit A
hereto (the "Option Shares") to CREC at the applicable Purchase Price. The
Ghelfi Shareholders shall be entitled to exercise the Put Option by delivering a
written notice to CREC, executed by the Ghelfi Shareholder Representative on
behalf of each of the Ghelfi Shareholders, at any time during a Put Option
Window Period stating that the Ghelfi Shareholders irrevocably elect to exercise
the Put Option. If the Ghelfi Shareholders exercise the Put Option, the Ghelfi
Shareholders shall be obligated to sell to CREC, and CREC shall be obligated to
purchase from the Ghelfi Shareholders, the Option Shares, upon the terms and
subject to the conditions set forth herein.
SECTION 2.6. Call Option. At any time during a Call Option Window Period,
if the Put Option has not been exercised by the Ghelfi Shareholders, CREC shall
have the option (the "Call Option") to purchase all, but not less than all, of
the Option Shares from the Ghelfi Shareholders at the applicable Purchase Price.
CREC shall be entitled to exercise the Call Option by delivering a written
notice to the Ghelfi Shareholder Representative, executed by CREC, at any time
during a Call Option Window Period stating that CREC irrevocably elects to
exercise the Call Option. If CREC exercises the Call Option, the Ghelfi
Shareholders shall be obligated to sell to CREC, and CREC shall be obligated to
purchase from the Ghelfi Shareholders, the Option Shares, upon the terms and
subject to the conditions set forth herein.
SECTION 2.7. Appraisal of Additional Businesses. Within 30 days after the
exercise of the Put Option or the Call Option, if the Company has not sold or
otherwise disposed of or discontinued the Additional Businesses in their
entirety, CREC and the Ghelfi Shareholder Representative shall jointly engage an
Independent Appraiser for the purpose of determining the fair market value of
all remaining portions of the Additional Businesses. The Independent Appraiser
shall determine the fair market value of all remaining portions of the
Additional Businesses based on such factors as it considers to be relevant,
including, but not limited to, (i) the financial condition and results of
operations of such businesses, (ii) the prospects for future growth of such
businesses, (iii) if applicable, amounts paid in recent transactions involving
companies engaged in businesses considered to be comparable to such businesses
and (iv) if applicable, trading prices and values of comparable publicly traded
companies. Upon reaching its determination, the Independent Appraiser shall
prepare and deliver to CREC and the Ghelfi Shareholder Representative a report
(the "Appraisal Report") stating its determination of the fair market value of
all remaining portions of the Additional Businesses and setting forth in
reasonable detail the method by which the same was determined. The determination
of the fair market value of all remaining portions of the Additional Businesses
set forth in the Appraisal Report shall be final, conclusive and binding on the
parties. CREC and the Ghelfi Shareholders shall cooperate with each other and
with the Independent Appraiser and shall provide the Independent Appraiser with
such information as it may reasonably require. The fees and expenses of the
Independent Appraiser shall be borne equally by CREC and the Ghelfi
Shareholders.
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SECTION 2.8. Purchase Price. The purchase price (the "Purchase Price") to
be paid for the purchase of shares of Common Stock by the parties hereto
pursuant to this Article II shall be as follows:
(a) in the case of a purchase of the Offered Stock by any party
pursuant to Section 2.3 or 2.4, the applicable Purchase Price shall be (i)
in the case of a voluntary sale or other Transfer for value, the Offering
Price or (ii) in the case of any other Transfer, the Base Price;
(b) in the case of a purchase by CREC of the Option Shares upon the
exercise of the Put Option pursuant to Section 2.5, the applicable Purchase
Price shall be the product of (i) the Formula Price and (ii) the Retained
Interest Fraction; or
(c) in the case of a purchase by CREC of the Option Shares upon the
exercise of the Call Option pursuant to Section 2.6, the applicable
Purchase Price shall be the product of (i) the Formula Price and (ii) the
Retained Interest Fraction (provided, however, that the Purchase Price
determined pursuant to this paragraph (c) shall in no event be less than
the Base Price).
SECTION 2.9. Closing. The closing (the "Closing") of any purchase and sale
of shares of Common Stock by a party hereto pursuant to this Article II (a
"Share Purchase") shall take place at the principal office of the Company or at
such other location as may be mutually agreed upon by the party purchasing such
shares (the "Purchaser") and the party selling such shares (the "Seller") on
such date and at such time as shall be specified by the Purchaser in a written
notice (the "Closing Notice") delivered to the Seller as promptly as practicable
after the Purchaser becomes entitled to purchase such shares in accordance with
the provisions of this Agreement (or, if applicable, the date upon which the
applicable Purchase Price for such shares is determined in accordance with the
terms of this Agreement), which date shall be not less than ten nor more than 30
days after the date of such notice; provided, however, that if the condition to
the obligations of the Purchaser and the Seller to consummate such Share
Purchase set forth in Section 2.10 shall not have been satisfied as of the date
specified in the Closing Notice, the date and time of the Closing shall be
postponed until the first Business Day on which such condition shall have been
satisfied. At the Closing, (i) the Seller shall deliver to Purchaser a
certificate or certificates evidencing the shares of Common Stock to be sold by
the Seller, duly endorsed in blank or accompanied by stock powers duly executed
in blank or otherwise in a form acceptable for transfer on the books of the
Company, and (ii) the Purchaser shall deliver to the Seller a certified or
official bank check payable to the order of the Seller in an amount equal to the
applicable Purchase Price, whereupon all right, title and interest in and to
such shares of Common Stock will pass to the Purchaser. If the Seller fails to
tender for transfer certificates evidencing the shares of Common Stock to be
sold at the Closing, the Company will treat the Share Purchase as having been
completed if the Purchaser delivers to the Company the aforementioned certified
or official bank check (which the Company will hold in trust for the Seller),
and the Seller thereafter will have no rights as a holder of such shares of
Common Stock (including, but not limited to, any rights to vote such shares or
receive dividends with respect thereto).
SECTION 2.10. HSR Act. The respective obligations of the Purchaser and the
Seller to consummate any Share Purchase pursuant to this Article II shall be
subject to the condition that any waiting period applicable to such Share
Purchase under the HSR Act shall have expired or been terminated. Each of the
Purchaser and the Company (or, if applicable, their ultimate parent entities)
shall promptly file or cause to be filed with the Federal Trade Commission (the
"FTC") and the Antitrust Division of the Department of Justice (the "Antitrust
Division") notification and report forms pursuant to the HSR Act relating to a
Share Purchase whenever required thereunder. The Purchaser and the Company (or,
if applicable, their ultimate parent entities) shall promptly respond to any
request for additional information or documentary material by the FTC or the
Antitrust Division and shall cooperate with each other in order to ensure that
all waiting periods (and any extension thereof) applicable to the consummation
of the Share Purchase under the HSR Act expire or are terminated as promptly as
practicable.
SECTION 2.11. Effect of Prohibited Transfer. Any attempted or purported
Transfer of shares of Common Stock in violation of the provisions of this
Article II shall not be effective to Transfer ownership of such shares to the
purported Transferee, who shall not be entitled to any rights as a holder of
Common Stock with respect to the shares of Common Stock attempted or purported
to be Transferred. All rights with respect to any shares of Common Stock
attempted or purported to be Transferred in violation of the aforementioned
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provisions shall remain the property of the Person who initially attempted or
purported to transfer such shares in violation thereof. Upon a determination by
the Board of Directors of the Company that there has been or is threatened an
attempted or purported Transfer of shares of Common Stock in violation of the
aforementioned provisions, the Board of Directors of the Company may take such
action as it deems necessary or appropriate, including, but not limited to,
refusing to give effect on the books of the Company to such attempted or
purported Transfer or instituting legal proceedings to enjoin or rescind the
same, to effectuate the purposes of this Article II.
ARTICLE III
CERTAIN CAPITAL PROJECTS
SECTION 3.1. Election as to Capital Projects. In the event that the Board
of Directors approves any project (a "Capital Project") which would require the
Company or any of its Subsidiaries to make any investment or capital expenditure
in an aggregate amount exceeding $2,000,000, the Company shall deliver a written
notice (a "Capital Project Notice") to the Ghelfi Shareholder Representative
identifying such Capital Project and (to the extent that the Ghelfi Shareholder
Representative has not been afforded access to such information in its capacity
as a director of the Company) providing a brief description of such Capital
Project and a statement of the projected investments and capital expenditures to
be made in connection therewith and the projected revenue and operating income
to be derived therefrom and shall provide to the Ghelfi Shareholder
Representative such other information regarding such Capital Project as it shall
reasonably request. No later than 30 days after receipt of a Capital Project
Notice, the Ghelfi Shareholders may (but shall not be obligated to) deliver a
written notice (the "Excluded Project Notice"), executed by the Ghelfi
Shareholder Representative on behalf of each of the Ghelfi Shareholders, to the
Company and CREC stating that they irrevocably elect not to participate in the
Capital Project described therein. If the Ghelfi Shareholder Representative does
not deliver an Excluded Project Notice to the Company and CREC with the
aforementioned 30-day period, the Ghelfi Shareholders (and any directors
designated by them) shall be conclusively deemed to have approved the Capital
Project described therein.
SECTION 3.2. Excluded Projects. If the Ghelfi Shareholder Representative
delivers an Excluded Project Notice to CREC and the Company with respect to a
Capital Project (an "Excluded Project") within the time period provided for in
Section 3.1, the Company shall establish on its books and records separate
accounts relating to such Excluded Project, and the activities and operations
conducted by the Company and its Subsidiaries in connection with such Excluded
Project (the "Excluded Project Operations") shall in all respects be treated as
a separate division of the Company. The separate accounts relating to an
Excluded Project shall be maintained on a cash basis and shall identify (i) all
assets of the Company and its Subsidiaries, if any, used in connection with the
Excluded Project Operations, (ii) all liabilities incurred by the Company and
its Subsidiaries in connection with the Excluded Project Operations, (iii) all
items of income and other receipts and all gains realized by the Company and or
its Subsidiaries ("Excluded Project Income") which are attributable to the
Excluded Project Operations (including, but not limited to, any revenues from
the sale of products and provision of services in connection with the Excluded
Project and the sale or exchange of assets used in connection with the Excluded
Project Operations) and (iv) all items of expense and other payments and all
losses incurred by the Company or its Subsidiaries ("Excluded Project Expense")
which are attributable to the Excluded Project Operations (including, but not
limited to, any operating costs associated with such Excluded Project and any
payment of liabilities incurred in connection therewith such as a payment of
principal, interest or other costs associated with indebtedness incurred in
order to fund the Excluded Project).
SECTION 3.3. Excluded Project Payments. Within 90 days after the end of
each fiscal quarter of the Company, (i) if the aggregate amount of Excluded
Project Income for such fiscal quarter derived from all Excluded Projects
exceeds the aggregate amount of Excluded Project Expense for such fiscal quarter
incurred in connection therewith, the Company shall make a payment in cash to
CREC in an amount equal to such excess and (ii) if the aggregate amount of
Excluded Project Expense for such fiscal quarter incurred in connection with all
Excluded Projects exceeds the aggregate amount of Excluded Project Income for
such
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fiscal quarter derived therefrom, CREC shall make a payment in cash to the
Company in an amount equal to such excess. All receipts and payments pursuant to
this Section 3.3 will be included as income or expense, as the case may be, for
an Excluded Project for purposes of clause (ii) of the definition of "Adjusted
Consolidated Net Income" contained in Section 5.1.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Shareholders as follows:
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Arizona and has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as presently conducted.
(b) The Company has all requisite corporate power and authority to
enter into and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
by the Company of this Agreement have been duly and validly authorized by
all necessary corporate action on the part of the Company, and no other
corporate proceedings or shareholder actions on the part of or with respect
to the Company are necessary to authorize this Agreement, the performance
by the Company of its obligations hereunder or the consummation by the
Company of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company and constitutes a legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with the terms hereof.
(c) The execution and delivery by the Company of this Agreement, the
performance by it of its obligations hereunder and the consummation by it
of the transactions contemplated hereby will not (i) conflict with, or
result in any violation or breach of, any provision of the Charter or
Bylaws of the Company or any of its Subsidiaries, (ii) conflict with,
result in any violation or breach of, constitute a default under, give rise
to any right of termination or acceleration (with or without notice or the
lapse of time or both) pursuant to, or result in being declared void,
voidable or without further effect, any term or provision of any material
note, bond, mortgage, indenture, lease, franchise, permit, license,
contract or other instrument or document to which the Company or any of its
Subsidiaries is a party or by which their respective properties or assets
are bound or (iii) conflict with, or result in any violation of, any law,
ordinance, statute, rule or regulation of any Governmental Authority or of
any order, writ, injunction, judgment or decree of any court, arbitrator or
Governmental Authority applicable to the Company or any of its Subsidiaries
or their respective properties or assets.
(d) There is no requirement applicable to the Company to obtain any
consent, authorization or approval of, or to make or effect any
declaration, filing or registration with, any Governmental Authority for
the valid execution and delivery by the Company of this Agreement, the due
performance by it of its obligations hereunder or the lawful consummation
by it of the transactions contemplated hereby, except for any filings under
the HSR Act contemplated by Section 2.10.
SECTION 4.2. Representations and Warranties of the Shareholders. Each
Shareholder hereby represents and warrants to the Company and the other
Shareholders as follows:
(a) If such Shareholder is a corporation, such Shareholder is a
corporation duly incorporated, validly existing and in good standing under
the laws of the state of its incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and to carry
on its business as presently conducted. If such Shareholder is a
partnership, such Shareholder is a partnership duly formed, validly
existing and in good standing under the laws of the state of its formation
and has all requisite partnership power and authority to own, lease and
operate its properties and to carry on its business as presently conducted.
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(b) Such Shareholder has all necessary power and authority to enter
into and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. If such Shareholder is a corporation, the
execution and delivery of this Agreement by such Shareholder have been duly
and validly authorized by all necessary corporate action on the part of
such Shareholder, and no other corporate proceedings or shareholder actions
on the part of or with respect to such Shareholder are necessary to
authorize this Agreement, the performance by such Shareholder of its
obligations hereunder or the consummation by such Shareholder of the
transactions contemplated hereby. If such Shareholder that is a
partnership, the execution and delivery of this Agreement by such
Shareholder have been duly and validly authorized by all necessary
partnership action on the part of such Shareholder and all necessary action
on the part of its partners, and no other proceedings or actions on the
part of or with respect to such Shareholder or its partners are necessary
to authorize this Agreement, the performance by such Shareholder of its
obligations hereunder or the consummation by such Shareholder of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by such Shareholder and constitutes a legal, valid and binding
obligation of such Shareholder, enforceable against such Shareholder in
accordance with the terms hereof.
(c) The execution and delivery by such Shareholder of this Agreement,
the performance by it of its obligations hereunder and the consummation by
it of the transactions contemplated hereby will not (i) conflict with, or
result in any violation or breach of, if such Shareholder is a corporation,
any provision of the Charter or Bylaws of such Shareholder or, if such
Shareholder is a partnership, any provision of the partnership agreement of
such Shareholder or the Charter, Bylaws or other constitutive instruments
of any of its partners, (ii) conflict with, result in any violation or
breach of, constitute a default under, give rise to any right of
termination or acceleration (with or without notice or the lapse of time or
both) pursuant to, or result in being declared void, voidable or without
further effect, any term or provision of any material note, bond, mortgage,
indenture, lease, franchise, permit, license, contract or other instrument
or document to which such Shareholder Party is a party or by which its
properties or assets are bound or (iii) assuming that any waiting period
applicable to any Share Purchase by or involving such Shareholder under the
HSR Act shall have expired or been terminated, conflict with, or result in
any violation of, any law, ordinance, statute, rule or regulation of any
Governmental Authority or of any order, writ, injunction, judgment or
decree of any court, arbitrator or Governmental Authority applicable to
such Shareholder or its properties or assets.
(d) There is no requirement applicable to such Shareholder to obtain
any consent, approval or authorization of, or to make or effect any
declaration, filing or registration with, any Governmental Authority for
the valid execution and delivery by such Shareholder of this Agreement, the
due performance by it of its obligations hereunder or the lawful
consummation by it of the transactions contemplated hereby, except for any
filings under the HSR Act contemplated by Section 2.10.
(e) If such Shareholder is Ghelfi Shareholder, such Shareholder has
duly appointed the Ghelfi Shareholder Representative as its agent and
representative to take all actions and make all decisions required or
permitted to be taken or made by the Ghelfi Shareholder Representative in
accordance with this Agreement and in connection with the transactions
contemplated hereby, and all actions and decisions so taken or made shall
be binding in all respects on such Shareholder.
ARTICLE V
DEFINITIONS; ACCOUNTING MATTERS
SECTION 5.1. Certain Definitions.
(a) As used herein, the terms set forth below shall have the following
respective meanings:
"Additional Businesses" means the Leasing Business and the Real Estate
Development Business.
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"Adjusted Consolidated Net Income" means, with respect to the Company for
any period, the Consolidated Net Income of the Company for such period, adjusted
to exclude (to the extent included in computing Consolidated Net Income) each of
the following:
(i) all income, expenses, gains or losses arising from the Additional
Businesses;
(ii) all income, expenses, gains or losses arising from the Excluded
Projects;
(iii) all gains or losses which are extraordinary (as determined in
accordance with GAAP);
(iv) all income, expenses, gains or losses arising from the sale or
other disposition of assets outside the ordinary course of business;
(v) all interest, if any, expensed by the Company or its consolidated
subsidiaries during such fiscal year in respect of any Excluded Debt;
(vi) all gains or losses arising from investments in marketable
securities; and
(vii) all charges or credits relating to the amortization of
acquisition costs, intangible assets, deferred taxes (and all write downs
of any such items) and similar charges or credits for depreciation or
amortization arising from any purchase accounting adjustments and write
downs or reserves attributable to purchase accounting write ups as a result
of the Merger and the other transactions contemplated by the Merger
Agreement or any future reorganization or restructuring of the Company or
its Subsidiaries.
"Adjusted EBT" means, with respect to the Company for any period, the
Adjusted Consolidated Net Income of the Company for such period, adjusted to
exclude (to the extent included in computing Adjusted Consolidated Net Income)
consolidated income tax expense for such fiscal year.
"Affiliate" means, with respect to any Person, any other Person who,
directly or indirectly, controls, is controlled by or is under common control
with such Person. As used in this definition, the term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether by contract or
otherwise.
"Annual Budget" means, with respect to the Company for any fiscal year, a
budget prepared by the management of the Company and approved by the Board of
Directors reflecting, among other things, projected expenditures (including
marketing and sales expenditures) and capital outlays by the Company and its
Subsidiaries for such fiscal year.
"Availability Date" means the date upon which audited financial statements
of the Company for any fiscal year are distributed to the Shareholders in
accordance with Section 6.5(b).
"Base Price" means the product of (i) the number of shares of Common Stock
to be sold by a party hereto pursuant to the applicable provision of Article II
and (ii) $2,675.00.
"Business Day" means any day except a Saturday, Sunday or federal holiday.
"Bylaws" means, with respect to any corporation, the bylaws of such
corporation, as in effect from time to time.
"Call Option Window Period" means a period of 60 days after the
Availability Date with respect to the audited financial statements of the
Company for the fiscal year ending March 31, 2002 and each even numbered fiscal
year thereafter.
"Capital Stock" means, with respect to any corporation, all shares,
interests, participations or other equivalents of capital stock of such
corporation, however designated, and any warrants, options or other rights to
purchase or acquire any such capital stock and any securities convertible into
or exchangeable for any such capital stock.
"Centex" means Centex Corporation.
"Charter" means, with respect to any corporation, the certificate or
articles of incorporation (or similar governing document) of such corporation,
as in effect from time to time.
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"Consolidated Net Income" means, with respect to the Company for any
period, the net income (or loss) of the Company and its consolidated
subsidiaries for such period, determined in accordance with GAAP, applied on a
basis consistent with the Company's past practices as reflected in the most
recent audited financial statements of the Company delivered to CREC prior to
the date hereof.
"Dividend Period" means (i) the period commencing on the date of this
Agreement and ending on March 31, 1998 and (ii) each subsequent period
commencing on the day after the end of the immediately preceding Dividend Period
and ending on the earlier of (A) the last day of the then current fiscal year of
the Company or (B) the Closing Date of any purchase of shares of Common Stock by
a party hereto pursuant to the provisions of Article II.
"Eligible Capital Project" means any investment or capital project which is
reasonably projected to generate an average annual return on investment by the
Company and its Subsidiaries (excluding the effect of any projected income tax
or interest expense) in excess of 20% in accordance with the criteria and
methodology normally used by CREC in evaluating similar investments made by CREC
and its Subsidiaries.
"Eligible Capital Project Deficit Amount" means, with respect to an
Eligible Capital Project, the portion of the Excess Intercompany Indebtedness
outstanding from time to time which, if repaid by CREC, would have been
available for use to fund such Eligible Capital Project if such project had been
approved by the Board of Directors and had been implemented by the Company in
accordance with the financial and operating plans submitted to the Board of
Directors by the directors designated by the Ghelfi Shareholder Representative.
"Excess Intercompany Indebtedness" means the excess, if any, of (i) the net
amount of any Intercompany Indebtedness owing by CREC or any of its Affiliates
(other than the Company and its Subsidiaries) to the Company or any of its
Subsidiaries over (ii) $3,000,000.
"Excluded Debt" means all indebtedness and related finance charges and
expenses incurred to finance the Merger and the other transactions contemplated
by the Merger Agreement.
"Formula Price" means the sum of the following amounts:
(i) the applicable amount set forth below in paragraph (A), (B) or (C)
below:
(A) in the case of a sale of the Option Shares to CREC upon the
exercise of the Put Option after the Availability Date with respect to
the financial statements for the fiscal year ending March 31, 2000
(but prior to the Availability Date for the financial statements for
the next succeeding fiscal year), an amount equal to six times the
Adjusted EBT of the Company for such fiscal year;
(B) in the case of a sale of the Option Shares to CREC upon the
exercise of the Put Option after the Availability Date with respect to
the financial statements for the fiscal year ending March 31, 2001
(but prior to the Availability Date for the financial statements for
the next succeeding fiscal year), an amount equal to seven times the
Adjusted EBT of the Company for such fiscal year; or
(C) in the case of a sale of the Option Shares to CREC upon the
Exercise of the Put Option at any time after the Availability Date
with respect to the financial statements for the fiscal year ending
March 31, 2002 or upon the exercise of the Call Option at any time, an
amount equal to eight times the Adjusted EBT of the Company for such
fiscal year;
(ii) the fair market value of all remaining portions of the Additional
Businesses as set forth in the Appraisal Report; and
(iii) the aggregate amount of the net proceeds received by the Company
and its Subsidiaries from any sale or other disposition of all or any part
of the properties, assets and operations of the Real Estate Development
Business held by the Company as of the date hereof (including the stock of
any Subsidiary of the Company engaged in such business).
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"GAAP" means generally accepted accounting principles as in effect in the
United States on the date of the Merger Agreement.
"Ghelfi Shareholder Representative" means Al R. Ghelfi or such other Person
as is designated from time to time in a written instrument executed by the
holders of at least a majority of the outstanding shares of Common Stock held by
the Ghelfi Shareholders and delivered to the Company at its address specified in
Section 6.7.
"Ghelfi Shareholders" means Al R. Ghelfi, Janet M. Ghelfi and Janal
Partnership and any Person who acquires shares of Common Stock directly or
indirectly from Al R. Ghelfi, Janet M. Ghelfi or Janal Partnership and who has
executed a Supplemental Agreement or a Pledgee Agreement which has been approved
by the Company as contemplated by Section 2.1(a) or 2.2, as the case may be.
"Governmental Authority" means any nation or government, any state or
political subdivision thereof, any federal or state court and any other agency
or authority exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"HSR Act" means Section 7A of the Clayton Act (Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976), as amended (including any
successor statute).
"Independent Appraiser" means an investment banking firm or firm of
independent certified public accountants of national or regional standing and
reputation or other qualified expert or appraiser which has not had any material
business relationship with CREC, the Company or their respective Subsidiaries or
the Ghelfi Shareholders for a period of at least two years.
"Intercompany Indebtedness" means all indebtedness owing by the Company or
any of its Subsidiaries to CREC or any of its Affiliates (other than the Company
and its Subsidiaries) or owing by CREC or any of its Affiliates (other than the
Company and its Subsidiaries) to the Company or any of its Subsidiaries.
"Intercompany Rate" means the weighted average rate of interest charged
from time to time on the outstanding long- and short-term indebtedness of Centex
and its Subsidiaries owing to banks and other outside financing sources or
evidenced by promissory notes, bonds, debentures or other similar instruments,
as calculated by Centex no less frequently than once each calendar week.
"Leasing Business" means the business conducted by the Company and its
Subsidiaries which relates to the sale and leasing of temporary security storage
containers and trailer vans.
"Offering Price" means, in the case of a sale or other Transfer for value
of any Offered Stock, the amount of cash and the fair market value of any other
consideration to be paid for the Offered Stock by the proposed Transferee.
"Ownership Change" means, with respect to any Ghelfi Shareholder that is a
corporation, partnership or other entity, Al R. Ghelfi or Janet M. Ghelfi (or
their Permitted Transferees) ceasing for any reason to (i) have the full and
exclusive right to manage, conduct and control the business and activities of
such Ghelfi Shareholder or (ii) beneficially own all of the outstanding Capital
Stock or equity securities of, or other ownership interests in, such Ghelfi
Shareholder.
"Permitted Transferee" means (i) in the case of a proposed Transfer by
CREC, any Qualified Centex Subsidiary or (ii) in the case of a proposed Transfer
by a Ghelfi Shareholder, any person that is a Ghelfi Shareholder named in this
Agreement and any spouse or lineal ancestor or descendant of any such Ghelfi
Shareholder, any entity the entire equity interest in which is owned by any of
the foregoing persons, any Qualified Ghelfi Trust and any executor or
administrator of the estate of any of the foregoing persons.
"Person" means any individual, corporation, partnership, association, trust
or any other entity or organization of any kind or character, including a
Governmental Authority.
"Principal Businesses" means (i) the business of designing, manufacturing
and selling manufactured housing to be used for residential, recreational or
other purposes and (ii) the Additional Businesses.
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"Prohibited Intercompany Charges" means any secretarial, bookkeeping,
reporting, data processing, office, rent and other office expenses, salaries and
other compensation expenses and other similar internal administrative,
management or other expenses incurred by CREC or its Affiliates in connection
with the operations of the Company and its Subsidiaries; provided, however, that
such term shall not include any properly allocable costs of premiums and other
insurance costs (whether or not they represent out-of-pocket expenses) or
out-of-pocket expenses incurred by CREC or its Affiliates which are directly
attributable to the operations of the Company or its Subsidiaries and the amount
of which is not greater than the amount of the charges that would be incurred by
the Company or its Subsidiaries in an arm's-length transaction with an
unaffiliated third party.
"Put Option Window Period" means a period of 60 days after the Availability
Date with respect to the audited financial statements of the Company for the
fiscal years ending March 31, 2000, 2001 and 2002 and each even numbered fiscal
year thereafter.
"Qualified Centex Subsidiary" means a Subsidiary of Centex of which at
least 80% of the outstanding Capital Stock or other equity securities are owned,
directly or indirectly, by Centex.
"Qualified Ghelfi Trust" means any trust of which the sole trustees are
persons who are named as Ghelfi Shareholders in this Agreement or any spouse or
lineal ancestor or descendant of any such Ghelfi Shareholder and of which the
sole beneficiaries are any of the foregoing persons or any charity designated
from time to time by the grantors or trustees of such trust.
"Real Estate Development Business" means the business conducted by the
Company and its Subsidiaries which relates to the development of housing
subdivisions and the sale of manufactured, modular and conventional housing
units or lots located therein.
"Retained Interest Fraction" means a fraction the numerator of which is the
number of Option Shares and the denominator of which is the total number of
shares of Common Stock that are outstanding as of the date upon which the Put
Option or the Call Option, as the case may be, is exercised.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, (i) any corporation or
other Person of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are owned directly or indirectly by such Person or
(ii) any partnership of which such Person or any of its Subsidiaries is a
general partner or of which such Person directly or indirectly owns partnership
interests which entitle it to receive more than 50% of the distributions made by
such partnership.
"Supermajority Board Vote" means a vote of directors of the Company
representing at least two-thirds of the total number of members of the Board of
Directors of the Company; provided, however, that for purposes of this
definition, if one or more vacancies is created on the Board of Directors of the
Company by reason of the death, resignation or removal of any director, the
total number of members of the Board of Directors shall be deemed to include the
number of vacancies so created (until such time as such vacancies are filled in
the manner provided in Section 1.1(c)).
"Tax Agreement" means the Tax Sharing and Tax Benefit Reimbursement
Agreement, dated as of the date hereof, between the Company and CREC in the form
attached as Exhibit B hereto.
"Transfer" means any sale, transfer, assignment, gift, exchange, pledge,
hypothecation, encumbrance or other disposition of any shares of Common Stock,
or any interest therein, whether voluntary or involuntary and regardless of the
nature or method thereof.
"Transferee" means a Person that acquires any shares of Common Stock, or
any interest therein, as a result of a Transfer.
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(b) Each of the terms set forth below has the meaning specified in the
provision set forth opposite such term in the following table:
<TABLE>
<CAPTION>
TERM PROVISION
---------------------------------- ----------------------------------
<S> <C>
Agreement......................... Introductory paragraph
Antitrust Division................ Section 2.10
Applicable Amounts................ Section 6.6(a)
Appraisal Report.................. Section 2.7
Call Option....................... Section 2.6
Capital Project................... Section 3.1
Capital Project Notice............ Section 3.1
Closing........................... Section 2.9
Closing Notice.................... Section 2.9
Company........................... Introductory paragraph
Common Stock...................... Recitals
CREC.............................. Introductory paragraph
CREC Sale Transaction............. Section 2.3(b)
Dispute Notice.................... Section 6.6(b)
Disputing Shareholder............. Section 6.6(b)
Excluded Project.................. Section 3.2
Excluded Project Expense.......... Section 3.2
Excluded Project Income........... Section 3.2
Excluded Project Notice........... Section 3.1
Excluded Project Operations....... Section 3.2
FTC............................... Section 2.10
First Refusal Response Notice..... Section 2.3(a)
Involuntary Transferor............ Section 2.4
Janal Partnership................. Introductory paragraph
Leasing Business Acquisition...... Section 1.5(a)
Leasing Business Acquisition
Notice.......................... Section 1.5(a)
Merger............................ Recitals
Merger Agreement.................. Recitals
MFH Acquisition................... Recitals
Offered Stock..................... Section 2.3(a)
Offeree........................... Section 2.3(a)
Offeror........................... Section 2.3(a)
Offering Notice................... Section 2.3(a)
Option Shares..................... Section 2.5
Participation Offer............... Section 2.3(b)
Participation Offer Response
Notice.......................... Section 2.3(b)
Pledgee Agreement................. Section 2.2
Purchase Price.................... Section 2.8
Purchaser......................... Section 2.9
Put Option........................ Section 2.5
Seller............................ Section 2.9
Share Purchase.................... Section 2.9
Shareholders...................... Recitals
Supplemental Agreement............ Section 2.1(a)
</TABLE>
SECTION 5.2. Certain Accounting Matters. Unless otherwise specified in
this Agreement, all accounting terms used herein shall be interpreted, all
accounting determinations contemplated hereby shall be made and all financial
statements required to be delivered hereunder shall be prepared in accordance
with GAAP,
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applied on a basis consistent with the Company's past practices as reflected in
the most with the most recent audited financial statements of the Company
delivered to CREC prior to the date hereof.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Legend. A copy of this Agreement shall be filed with the
permanent records of the Company and shall be kept at all times at the principal
place of business of the Company. Each Shareholder agrees, on behalf of itself
and its successors and assigns, that all certificates representing shares of
Common Stock shall have affixed thereto a legend substantially in the following
form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF OR PLEDGED OR HYPOTHECATED UNLESS REGISTERED UNDER THE ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND ANY SUCH LAWS IS AVAILABLE (AND, IN SUCH
CASE, AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY SHALL
HAVE BEEN DELIVERED TO THE COMPANY TO THE EFFECT THAT THE OFFER, SALE,
TRANSFER, DISPOSITION, PLEDGE OR HYPOTHECATION THEREOF IS EXEMPT FROM
REGISTRATION UNDER THE ACT AND ANY SUCH LAWS). THE SHARES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO CERTAIN VOTING AGREEMENTS, RESTRICTIONS
ON TRANSFER AND OTHER TERMS AND CONDITIONS SET FORTH IN A SHAREHOLDERS'
AGREEMENT DATED AS OF , 1997 AMONG THE COMPANY AND ITS
SHAREHOLDERS. A COPY OF SUCH AGREEMENT WILL BE FURNISHED TO THE RECORD
HOLDER OF THE SHARES REPRESENTED BY THIS CERTIFICATE WITHOUT CHARGE UPON
WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE.
SECTION 6.2. Termination. This Agreement may be terminated by mutual
written consent of the Company, CREC and the Ghelfi Shareholder Representative,
and shall terminate automatically upon the Closing of the purchase by CREC or
the Ghelfi Shareholders, as the case may be, of all of the outstanding shares of
Common Stock held by the other Shareholders pursuant to Article II.
SECTION 6.3. Further Assurances; Frustration of Purposes. The Company and
each Shareholder shall do, or cause to be done, such further acts and execute
and deliver, or to cause to be executed and delivered, such further agreements,
instruments, certificates and other documents as may be reasonably necessary to
effectuate and carry out the purposes of this Agreement. No party to this
Agreement shall, directly or indirectly, do any act or thing which is intended
to frustrate the provisions of this Agreement or prevent the effectuation of the
purposes hereof, whether or not such act or thing is expressly prohibited under
the terms hereof. Without limiting the generality of the foregoing, the Ghelfi
Shareholders shall use their best efforts and take all action within their power
to prevent the occurrence of an Ownership Change with respect to any of the
Ghelfi Shareholders.
SECTION 6.4. Fees and Expenses. Except as expressly provided herein, all
fees and expenses incurred by any of the parties hereto in connection with this
Agreement or any of the transactions contemplated hereby shall be borne and paid
solely by the party incurring such fees and expenses.
SECTION 6.5. Certain Reports. The Company shall furnish to each of the
Shareholders:
(a) as soon as available and in any event within 45 days after the end
of each fiscal quarter (including the last) of each fiscal year, (i) the
balance sheet of the Company and its consolidated subsidiaries as of the
end of such fiscal quarter and the related statement of operations of the
Company and its consolidated subsidiaries for such quarter and also for the
period beginning on the first day of such fiscal year and ending on the
date of such balance sheet, all prepared in accordance with GAAP, applied
on a consistent basis throughout the periods covered, subject to the
absence of notes thereto and normal year-end adjustments, (ii) a summary
balance sheet and statement of operations relating to all operations of the
Company and its consolidated subsidiaries other than the Excluded Projects
and (iii) a summary balance sheet and statement of operations relating to
each Excluded Project; and
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(b) as soon as available and in any event within 120 days after the
end of each fiscal year, the balance sheet of the Company and its
consolidated subsidiaries as of the end of such fiscal year and the related
statement of earnings and statement of cash flows of the Company for such
fiscal year, all prepared in accordance with GAAP, applied on a consistent
basis throughout the period covered, which financial statements shall be
audited by Arthur Andersen, LLP (except to the extent otherwise permitted
pursuant to Section 1.4).
SECTION 6.6. Determination of Certain Amounts; Dispute Resolution.
(a) In any case in which the provisions of this Agreement contemplate or
require a determination of (i) the amount of the Purchase Price to be paid in
connection with the purchase of any shares of Common Stock (and, if applicable,
the amounts of the Consolidated Net Income, Adjusted Consolidated Net Income or
Adjusted EBT used in computing such Purchase Price but not the fair market value
of the Additional Businesses used in computing the same, which shall be
determined in accordance with the provisions of Section 2.7), (ii) the amount of
any payments required to be made by the Company or CREC pursuant to Section 3.3
(and the amounts of Excluded Project Income and Excluded Project Expense used in
computing such payments) or (iii) the amount of the Offering Price in the case
of a sale or other Transfer of Offered Stock in a transaction that involves the
payment of consideration other than cash (collectively, the "Applicable
Amounts"), such determination shall initially be made (after consultation with
the Company's independent public accountants) by the Board of Directors of the
Company (or any officer of the Company designated by the Board of Directors)
based on the audited financial statements and other books and records of the
Company or such other information as the Board of Directors or such officer
shall consider to be relevant. As promptly as practicable after any such
determination has been made, the Company shall deliver a written notice (a
"Determination Notice") to each of the Shareholders setting forth its
determination of the Applicable Amount.
(b) A Shareholder (a "Disputing Shareholder") shall be entitled to dispute
the determination of any Applicable Amount in accordance with paragraph (a)
above if, and only if, such Shareholder delivers a written notice (the "Dispute
Notice"), executed by such Shareholder (or, in the case of a Ghelfi Shareholder,
by the Ghelfi Shareholder Representative on behalf of such Ghelfi Shareholder),
to the Company within 30 days after receipt of the Determination Notice, which
Dispute Notice shall describe in reasonable detail the amount and nature of the
dispute. The Company and the Disputing Shareholders shall attempt in good faith
to resolve any dispute as to the determination of an Applicable Amount. In the
event that the Company and the Disputing Shareholders are unable to resolve any
such dispute within 30 days after delivery of the Dispute Notice, the items in
dispute shall be submitted to an independent accounting firm selected by the
parties, whose determination shall be limited to the matters in dispute and
shall be final, conclusive and binding on the parties. The parties will
cooperate with each other and with said accounting firm and will provide said
accounting firm with such information as it may reasonably require. The fees and
expenses of said accounting firm shall be borne equally by the Company and the
Disputing Shareholders; provided, however, that if said accounting firm resolves
all material elements of any dispute pursuant to this Section 6.6 against either
the Company or the Disputing Shareholders, the Company or the Disputing
Shareholders, as the case may be, shall bear all fees and expenses of said
accounting firm.
SECTION 6.7. Notices. All notices and other communications hereunder shall
be in writing and shall be given by delivery in person, by registered or
certified mail (return receipt requested and with postage prepaid thereon) or by
cable, telex or facsimile transmission to the parties at the following addresses
(or at such other address as any party shall have furnished to the others in
accordance with the terms of this Section 6.7):
if to the Company:
MFH Holding Company
1001 North Central Avenue
Eighth Floor
Phoenix, Arizona 85004
Facs: (602) 256-6263
Attention: Al R. Ghelfi
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<PAGE> 146
with copies to (which shall not constitute notice to the Company):
Osborn Maledon
2929 North Central Avenue
Phoenix, Arizona 85012
Facs: (602) 235-9444
Attention: William M. Hardin
if to CREC:
Centex Real Estate Corporation
2728 North Harwood
Dallas, Texas 75201
Facs: (214) 981-6859
Attention: David W. Quinn
with copies to (which shall not constitute notice to CREC):
Centex Corporation
2728 North Harwood
Dallas, Texas 75201
Facs: (214) 981-6859
Attention: Laurence E. Hirsch and Raymond G. Smerge
and
Baker & Botts, L.L.P.
2001 Ross Avenue
Dallas, Texas 75201
Facs: (214) 953-6503
Attention: Geoffrey L. Newton
if to any of the Ghelfi Shareholders:
Al R. and Janet M. Ghelfi
Cavco Industries, Inc.
1001 North Central Avenue
Eighth Floor
Phoenix, Arizona 85004
Facs: (602) 256-6263
with copies to (which shall not constitute notice to the Ghelfi
Shareholders):
Osborn Maledon
2929 North Central Avenue
Phoenix, Arizona 85012
Facs: (602) 235-9444
Attention: William M. Hardin
All notices and other communications hereunder that are addressed as provided in
or pursuant to this Section 6.7 shall be deemed duly and validly given (a) if
delivered in person, upon delivery, (b) if delivered by registered or certified
mail (return receipt requested and with postage paid thereon), 72 hours after
being placed in a depository of the United States mails and (c) if delivered by
cable, telex or facsimile transmission, upon transmission thereof and receipt of
the appropriate answerback.
SECTION 6.8. Amendment; Waivers. The terms and provisions of this
Agreement may be modified or amended only by a written instrument executed by
the Company, CREC and the Ghelfi Shareholder Representative, and compliance with
any term or provision hereof may be waived only by a written instrument executed
by each party entitled to the benefits of the same (or, if the Ghelfi
Shareholders are the parties entitled to the benefits thereof, by the Ghelfi
Shareholder Representative). Except as expressly provided herein to the
contrary, no failure to exercise any right, power or privilege hereunder shall
operate as a waiver
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<PAGE> 147
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
granted hereunder.
SECTION 6.9. Entire Agreement. This Agreement (including the Exhibits
hereto) constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior written or oral agreements and
understandings and all contemporaneous oral agreements and understandings among
the parties or any of them with respect to the subject matter hereof. All
Exhibits hereto are expressly made a part of this Agreement.
SECTION 6.10. Parties in Interest; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns (it being understood and agreed that, except as expressly
provided herein, nothing contained in this Agreement is intended to confer any
rights, benefits or remedies of any kind or character on any other Person under
or by reason of this Agreement). No party may assign this Agreement without the
prior written consent of each of the other parties hereto; provided, however,
that a party may assign this Agreement to a Permitted Transferee without the
consent of any other party, but such assignment shall not relieve a party of any
of its obligations hereunder to the extent that such obligations are not
performed by the assignee. It is expressly understood and agreed that any
attempted or purported assignment by any party of this Agreement in violation of
this Section 6.10 shall be null and void.
SECTION 6.11. Governing Law. This Agreement shall be governed by and
construed and interpreted in accordance with the laws of the State of Nevada,
without regard to any principles of conflicts of law that would result in the
application of the laws of any other jurisdiction.
SECTION 6.12. Severability. In the event any provision contained herein
shall be held to be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of any such provision in every other
respect and the validity, legality and enforceability of the remaining
provisions contained in this Agreement shall not be in any way impaired thereby.
SECTION 6.13. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with the terms hereof. Accordingly,
the parties agree that each of them shall be entitled to injunctive relief to
prevent breaches of the terms of this Agreement and to specific performance of
the terms hereof, in addition to any other remedy now or hereafter available at
law or in equity, or otherwise.
SECTION 6.14. Default Interest. In the event that any amount becomes due
and payable by any party in accordance with the express terms of this Agreement
but is not paid on the date upon which it becomes due, in addition to any other
rights and remedies that may be available as a result of the failure to pay such
amount, the party that is entitled to receive such amount shall have the right
to recover, for each day from and after the due date and until such amount has
been paid, interest thereon at a rate of 10.0% per annum (or such lower rate as
shall be the highest rate of interest permitted under applicable law).
SECTION 6.15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed as of the date first above written.
MFH HOLDING COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
-----------------------------------
CENTEX REAL ESTATE CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
-----------------------------------
--------------------------------------
Al R. Ghelfi
--------------------------------------
Janet M. Ghelfi
JANAL LIMITED PARTNERSHIP
By: THE 1994 ALSONS TRUST, created
February 9, 1994, general partner
By:
------------------------------------
Janet M. Ghelfi,
Independent Trustee
By:
------------------------------------
Al R. Ghelfi,
Family Trustee
By: ALFRED AND JANET GHELFI TRUST,
created August 24, 1989, general
partner
By:
------------------------------------
Al R. Ghelfi,
Trustee
By:
------------------------------------
Janet M. Ghelfi,
Trustee
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EXHIBIT E
(TO AGREEMENT AND
PLAN OF MERGER)
FORM OF OPINION
OF
OSBORN MALEDON
The opinion of Osborn Maledon to be delivered pursuant to Section 7.2(d) of
the Agreement and Plan of Merger, dated as of December 4, 1996 (the "Merger
Agreement"), among CREC, the Holding Company, the Merger Subsidiary, the Company
and the Shareholder Parties shall be substantially to the effect set forth
below. Capitalized terms used herein without definition shall have the
respective meanings set forth in the Merger Agreement.
1. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Arizona and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as presently conducted.
2. To the knowledge of such counsel, the only Subsidiaries of the Company
are the corporations and limited liability companies identified in Schedule
3.8(a) to the Merger Agreement.
3. Each Subsidiary of the Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as presently conducted.
4. To the knowledge of such counsel, the Company is duly qualified to
transact business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of its activities or the character of the
properties that it owns, leases or operates makes such qualification necessary,
except where the failure to be so qualified or in good standing would not have a
Material Adverse Effect.
5. To the knowledge of such counsel, each Subsidiary of the Company is duly
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of its activities or the character of
the properties that it owns, leases or operates makes such qualification
necessary, except where the failure to be so qualified or in good standing would
not have a Material Adverse Effect.
6. The Company has all requisite corporate power and authority to enter
into and perform its obligations under the Merger Agreement and the
Shareholders' Agreement (collectively, the "Agreements") and to consummate the
transactions contemplated thereby. The execution and delivery by the Company of
the Agreements have been duly authorized by all necessary corporate action on
the part of the Company, and no other corporate proceedings or shareholder
actions on the part of or with respect to the Company are necessary to authorize
the Agreements, the performance by the Company of its obligations thereunder or
the consummation by the Company of the transactions contemplated thereby. Each
of the Agreements has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with the terms thereof.
7. Each Shareholder Party has all necessary power and authority to enter
into and perform its obligations under the Agreements and to consummate the
transactions contemplated thereby. In the case of any Shareholder Party that is
a partnership, the execution and delivery of the Agreements by such Shareholder
Party have been duly and validly authorized by all necessary partnership action
on the part of such Shareholder Party and all necessary action on the part of
its partners, and no other proceedings or actions on the part of or with respect
to such Shareholder Party or its partners are necessary to authorize the
Agreements, the performance by such Shareholder Party of its obligations
thereunder or the consummation by it of the transactions contemplated thereby.
Each of the Agreements has been duly executed and delivered by the Shareholder
Parties and constitutes a legal, valid and binding obligation of each of them,
enforceable against each of the Shareholder Parties in accordance with the terms
thereof.
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<PAGE> 150
8. The execution and delivery by the Company of the Agreements, the
performance by it of its obligations thereunder and the consummation by it of
the transactions contemplated thereby will not (i) conflict with, or result in
any violation or breach of, any provision of the Charter or Bylaws of the
Company or any of its Subsidiaries; (ii) conflict with, result in any violation
or breach of, constitute a default under, give rise to any right of termination
or acceleration (with or without notice or the lapse of time or both) pursuant
to, or result in being declared void, voidable or without further effect, any
term or provision of any material note, bond, mortgage, indenture, lease,
franchise, permit, license, Contract or other instrument or document known to
such counsel to which the Company or any of its Subsidiaries is a party or by
which their respective properties or assets are bound; (iii) conflict with, or
result in any violation of, (A) any Arizona State law, statute, rule or
regulation, (B) any federal law, statute, rule or regulation of general
application or (C) any other law, ordinance, statute, rule or regulation of any
Governmental Authority known to such counsel, in each case that is applicable to
the Company or any of its Subsidiaries or their respective properties or assets;
(iv) conflict with, or result in any violation of, any order, writ, injunction,
judgment or decree of any court, arbitrator or Governmental Authority known to
such counsel to which the Company or any of its Subsidiaries or their respective
properties or assets are subject or (v) to the knowledge of such counsel, result
in the creation of, or impose on the Company or any of its Subsidiaries the
obligation to create, any Lien upon the properties or assets of the Company.
9. The execution and delivery by the Shareholder Parties of the Agreements,
the performance by them of their obligations thereunder and the consummation by
them of the transactions contemplated thereby will not (i) in the case of any
Shareholder Party that is a partnership, result in any violation or breach of
any provision of the partnership agreement of such Shareholder Party or the
Charter, Bylaws or other constitutive instruments of any of its partners, (ii)
conflict with, result in any violation or breach of, constitute a default under,
give rise to any right of termination or acceleration (with or without notice or
the lapse of time or both) pursuant to, or result in being declared void,
voidable or without further effect, any term or provision of any material note,
bond, mortgage, indenture, lease, franchise, permit, license, Contract or other
instrument or document known to such counsel to which any of the Shareholder
Parties is a party or by which its properties or assets are bound, (iii)
conflict with, or result in any violation of, any law, ordinance, statute, rule
or regulation of any Governmental Authority that is applicable to any of the
Shareholder Parties or their respective properties or assets; or (iv) conflict
with, or result in any violation of, any order, writ, injunction, judgment or
decree of any court, arbitrator or Governmental Authority known to such counsel
to which any of the Shareholder Parties or their respective properties or assets
are subject.
10. There is no requirement applicable to the Company to obtain any Consent
of, or to make or effect any declaration, filing or registration with, any
Governmental Authority for the valid execution and delivery by the Company of
the Agreements, the due performance by it of its obligations thereunder or the
consummation by it of the transactions contemplated thereby, except for any
Consent or filing that has been made or obtained prior to the date hereof.
11. There is no requirement applicable to any of the Shareholder Parties to
obtain any Consent of, or to make or effect any declaration, filing or
registration with, any Governmental Authority for the valid execution and
delivery by the Shareholder Parties of the Agreements, the due performance by
them of their obligations thereunder or the lawful consummation by them of the
transactions contemplated thereby, except for any Consent or filing that has
been made or obtained prior to the date hereof.
12. Without limiting the generality of the opinions set forth in paragraphs
10 and 11 above, neither the Arizona Control Share Acquisition Statute nor the
Arizona Business Combination Statute prohibits, restrains or restricts any of
the transactions contemplated by the Agreements. Such counsel may set forth an
explanation of its reasoning in arriving at the opinion set forth in this
paragraph 12.
13. As of the date hereof, the authorized capital stock of the Company
consists of 8,000,000 shares of Company Common Stock. To the knowledge of such
counsel, as of the date hereof, the outstanding capital stock of the Company
consists of 3,561,093 shares of Company Common Stock, and there are no shares of
Company Common Stock held in the treasury of the Company. All of the issued and
outstanding shares of capital stock of the Company have been duly authorized and
are validly issued, fully paid and nonassessable.
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None of the issued and outstanding shares of capital stock of the Company have
been issued in violation of, or subject to, any preemptive rights or rights of
subscription arising by law or pursuant to the Charter or Bylaws of the Company
or under any Contract or other instrument known to such counsel to which the
Company is a party or by which it is bound.
14. To the knowledge of such counsel, except as set forth in Schedule 3.7
to the Merger Agreement, there are no outstanding options, warrants, calls,
rights, convertible securities or other agreements or commitments of any
character pursuant to which the Company is obligated to issue or sell any issued
or unissued shares of its capital stock or other equity securities or to
purchase or redeem any shares of its capital stock or other equity securities or
make any other payments in respect thereof, and there are no shares of its
capital stock or other equity securities reserved for issuance for any purpose.
15. All of the issued and outstanding shares of capital stock of each
Subsidiary of the Company have been duly authorized and are validly issued,
fully paid and nonassessable and, to the knowledge of such counsel, are owned by
the Company, directly or indirectly, free and clear of all Encumbrances. None of
the issued and outstanding shares of capital stock of any Subsidiary of the
Company have been issued in violation of, or subject to, any preemptive rights
or rights of subscription arising by law or pursuant to the Charter or Bylaws of
such Subsidiary or under any Contract or other instrument known to such counsel
to which the Company or such Subsidiary is a party or by which either of them is
bound.
16. To the knowledge of such counsel, there are no outstanding options,
warrants, calls, rights, convertible securities or other agreements or
commitments of any character pursuant to which the Company or any of its
Subsidiaries is obligated to issue or sell any issued or unissued shares of
capital stock or other equity securities of any Subsidiary of the Company or to
purchase or redeem any shares of capital stock or other equity securities of any
Subsidiary of the Company or make any other payments in respect thereof, and
there are no shares of capital stock or other equity securities of any
Subsidiary of the Company reserved for issuance for any purpose.
17. Upon filing of the Merger Agreement (or a plan of merger summarizing
certain of the principal terms thereof) and the Articles of Merger with the
Arizona Commission pursuant to Section 1105 of the Arizona Act, the Merger will
become effective under the laws, rules and regulations of the State of Arizona
in accordance with the Merger Agreement, and the effect thereof will be as set
forth in Section 1106 of the Arizona Act. Such counsel may note in its opinion
that, within 60 days after such filing, a copy of the Articles of Merger must be
published, and within 90 days after such filing, an affidavit evidencing such
publication shall be filed with the Arizona Commission, pursuant to Section 1105
of the Arizona Act.
18. To the knowledge of such counsel, except as set forth in Schedule 3.15
to the Merger Agreement, there is no action, suit, inquiry, investigation or
other proceeding pending or threatened against the Company or any of its
Subsidiaries, or to which any of their respective properties or assets is
subject, in any court or before any arbitrator or any foreign or United States
federal, state or local Governmental Authority which (i) could reasonably be
expected to have a Material Adverse Effect or (ii) could prevent, impede or
otherwise affect the transactions contemplated by the Agreements.
19. All descriptions in the Proxy Statement and Schedule 13E-3 of any
statutes, rules or regulations applicable to the Company or any of its
Subsidiaries or any legal or governmental proceedings to which the Company or
any of its Subsidiaries is or is threatened to be made a party are accurate, and
fairly present, in all material respects the information required to be set
forth therein pursuant to the applicable requirements of the Exchange Act.
20. Such counsel have reviewed all Contracts, instruments or documents
referred to in the Proxy Statement and the Schedule 13E-3 to which the Company
or any of its Subsidiaries is a party or by which any of them is bound, and the
statements in the Proxy Statement and Schedule 13E-3 relating to such Contracts,
instruments or documents are accurate and fairly present in all material
respects the information required to be set forth therein pursuant to the
applicable requirements of the Exchange Act. Such counsel shall also state that
they do not know of any Contracts, instruments or documents to which the Company
or any of its Subsidiaries is a party or by which any of them is bound that (i)
are required to be described in the Proxy
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Statement or the Schedule 13E-3 which are not so described or (ii) are required
to be filed as exhibits to the Schedule 13E-3 which have not be so filed.
Such counsel shall also state that they have participated in the
preparation of the Proxy Statement and the Schedule 13E-3, have participated in
conferences with representatives of the Company, CREC, the independent public
accountants for the Company and counsel for CREC, at which conferences the
contents of the Proxy Statement and the Schedule 13E-3 and related matters were
discussed and have advised the Company as to the requirements of the Exchange
Act applicable to (i) the solicitation of proxies from the holders of Company
Common Stock in connection with the approval and adoption of the Merger
Agreement, and (ii) the transactions that are the subject of the Schedule 13E-3.
On the basis of the information that such counsel has gained in the course of
the performance of the aforementioned services, considered in the light of their
understanding of the applicable law (including the requirements of Schedule 14A
and Rule 13e-3) and the experience such counsel has gained through their
practice under the Exchange Act, such counsel shall further state that it is
their opinion that the Proxy Statement and the Schedule 13E-3 (other than the
financial statements, schedules or other financial information included or
incorporated by reference therein, as to which such counsel need not express an
opinion), (i) at the time the Proxy Statement was mailed to the holders of
Company Common Stock (the "Time of Mailing") and (ii) at the date hereof,
complied or complies as to form with the applicable requirements of the Exchange
Act. Furthermore, although such counsel does not assume responsibility for the
accuracy, completeness or fairness of the statements contained in the Proxy
Statement or the Schedule 13E-3, such counsel shall state that nothing came to
their attention in the course of the performance of the aforementioned services
that leads such counsel to believe that the Proxy Statement or the Schedule
13E-3 (other than the financial statements, schedules or other financial
information included or incorporated by reference therein, as to which such
counsel need not comment), at (i) the Time of Mailing or (ii) at the date
hereof, contained or contains an untrue statement of a material fact or omitted
or omits to state a material fact required to be stated therein or necessary to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading.
In rendering the opinions set forth above, such counsel shall be entitled
to state that said opinions are subject to the following assumptions,
qualifications, limitations and exceptions:
A. The opinions set forth above that relate to the enforceability of
the Agreements and the Employment Agreements are subject to the effect of
(i) bankruptcy, insolvency, reorganization, moratorium, receivership,
liquidation, fraudulent conveyance and similar laws relating to or
affecting creditors' rights generally and (ii) general principles of equity
(whether considered in a proceeding at law or in equity) and (iii) the
requirement that the parties to such agreements act in good faith in
connection with the performance of their obligations thereunder.
B. Insofar as the opinions set forth above relate to the
enforceability of the Agreements, such counsel have assumed that (i) CREC
has all requisite power and authority to enter into and perform its
obligations under the Agreements to which it is a party (the "Applicable
Agreements"); (ii) the execution and delivery by CREC of the Applicable
Agreements, the performance by it of its obligations thereunder and the
consummation by it of the transactions contemplated thereby have been duly
and validly authorized by all necessary corporate action on the part of
CREC; (iii) the Applicable Agreements have been duly executed and delivered
by CREC; (iv) the Applicable Agreements constitute legal, valid, and
binding obligations of CREC, enforceable against CREC in accordance with
the terms thereof; and (v) CREC shall not be in breach in any material
respect in the performance of its obligations under the Agreements.
In addition, such counsel shall be permitted to state that such counsel
expresses no opinion as to matters governed by any law other than the laws of
the State of Arizona and the federal laws of the United States of America of
general application. Without limiting the generality of the foregoing, to the
extent that the Agreements expressly provide that they are to be governed by the
laws of the State of Texas, such counsel shall be entitled to assume that the
laws of the State of Texas are in all respects identical to the laws of the
State of Arizona.
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Such counsel shall be permitted to rely on the opinions of Messrs. James S.
Freedman, Esq. and Alfred Olsen, Esq. with respect to the opinions set forth
above to the extent heretofore agreed by the parties. Such counsel shall state
that it believes that such opinions are satisfactory in form and that CREC is
justified in relying on such opinions.
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EXHIBIT F
(TO AGREEMENT AND
PLAN OF MERGER)
FORM OF OPINION
OF
RAYMOND G. SMERGE
The opinion of Raymond G. Smerge, Vice President, General Counsel and
Secretary of CREC, to be delivered pursuant to Section 7.3(d) of the Agreement
and Plan of Merger, dated as of December 4, 1996, (the "Merger Agreement"),
among CREC, the Holding Company, the Merger Subsidiary, the Company and the
Shareholder Parties, shall be substantially to the effect set forth below.
Capitalized terms used herein without definition shall have the respective
meanings set forth in the Merger Agreement.
1. CREC is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Nevada and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as presently conducted.
2. CREC has all requisite corporate power and authority to enter into and
perform its obligations under the Merger Agreement and the Shareholders'
Agreement (collectively, the "Agreements"). The execution and delivery by CREC
of the Agreements, the performance by it of its obligations thereunder and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary corporate action on the part of CREC, and no other
corporate proceedings or shareholder actions on the part of or with respect to
CREC are necessary to authorize the Agreements, the performance by CREC of its
obligations thereunder or the consummation by CREC of the transactions
contemplated thereby. Each of the Agreements has been duly executed and
delivered by CREC and constitutes a legal, valid and binding obligation of CREC,
enforceable against it in accordance with the terms thereof.
3. The execution and delivery by CREC of the Agreements, the performance by
it of its obligations thereunder and the consummation by it of the transactions
contemplated thereby will not (i) conflict with, or result in any violation or
breach of, any provision of the Charter or Bylaws of CREC, (ii) conflict with,
result in any violation or breach of, or constitute a default under, any term or
provision of any material note, bond, mortgage, indenture, lease, franchise,
permit, license, Contract or other instrument or document known to such counsel
to which CREC is a party or by which its properties or assets are bound, (iii)
conflict with, or result in a violation of, any law, ordinance, statute, rule or
regulation of any Governmental Authority which is applicable to CREC or its
properties or assets or (iv) conflict with, or result in any violation of, any
order, writ, injunction, judgment or decree of any court, arbitrator or
Governmental Authority known to such counsel to which CREC or its properties or
assets are subject.
4. There is no requirement applicable to CREC to obtain any Consent of, or
to make or effect any declaration, filing or registration with, any Governmental
Authority for the valid execution and delivery by CREC of the Agreements, the
due performance by it of its obligations thereunder or the consummation by it of
the transactions contemplated thereby, except for any Consent or filing that has
been made or obtained prior to the date hereof.
5. To the knowledge of such counsel, there is no action, suit, inquiry,
investigation or other proceeding pending or threatened against CREC, or to
which its properties or assets is subject, in any court or before any arbitrator
or any foreign or United States federal, state or local Governmental Authority
which seeks to enjoin or prevent the consummation of the transactions
contemplated by the Agreements.
In rendering the opinions set forth above, such counsel shall be entitled
to state that said opinions are subject to the following assumptions,
qualifications, limitations and exceptions:
A. The opinions set forth above that relate to the enforceability of
the Agreements are subject to the effect of (i) bankruptcy, insolvency,
reorganization, moratorium, receivership, liquidation, fraudulent
conveyance and similar laws relating to or affecting creditors' rights
generally, (ii) general principles of
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<PAGE> 155
equity (whether considered in a proceeding at law or in equity) and (iii)
the requirement that the parties thereto act in good faith in connection
with the performance of their obligations thereunder.
B. Insofar as the opinions set forth above relate to the
enforceability of the Agreements, such counsel has assumed that (i) the
Company and the Shareholder Parties have all requisite power and authority
to enter into and perform their respective obligations under the
Agreements; (ii) the execution and delivery by the Company and the
Shareholder Parties of the Agreements, the performance by them of their
respective obligations thereunder and the consummation by them of the
transactions contemplated thereby have been duly and validly authorized by
all necessary action on the part of the Company and the Shareholder
Parties; (iii) the Agreements have been duly executed and delivered by the
Company and the Shareholder Parties; (iv) the Agreements constitute legal,
valid and binding obligations of the Company and the Shareholder Parties,
enforceable against the Company and the Shareholder Parties in accordance
with the terms thereof; and (v) the Company and the Shareholder Parties
shall not be in breach in any material respect in the performance of their
obligations under the Agreements.
In addition, such counsel shall be entitled to state that such counsel
expresses no opinion as to matters governed by any law other than the laws of
the States of Nevada and Texas and the federal laws of the United States of
America of general application. Without limiting the generality of the
foregoing, to the extent that the Agreements expressly provide that they are to
be governed by the laws of the State of Arizona, such counsel shall be entitled
to assume that the laws of the State of Arizona are in all respects identical to
the laws of the State of Texas.
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APPENDIX B -- FAIRNESS OPINION OF GOLDMAN, SACHS & CO.
December 4, 1996
Special Committee of the Board of Directors
Cavco Industries Inc.
1001 N. Central Avenue
Phoenix, AZ 85004
Board of Directors
Cavco Industries Inc.
1001 N. Central Avenue
Phoenix, AZ 85004
Gentlemen:
You have requested our opinion as to the fairness to the Participating
Holders (as hereinafter defined) of the outstanding shares of Common Stock, par
value $0.05 per share (the "Shares"), of Cavco Industries Inc. (the "Company")
of the $26.75 per Share in cash to be received by the Participating Holders
pursuant to the Agreement and Plan of Merger (the "Agreement") dated as of
December 4, 1996 among Centex Real Estate Corporation ("CREC"), MFH Holding
Company, MFH Acquisition Company (a wholly owned subsidiary of MFH Holding
Company), the Company and certain shareholders of the Company, Al R. Ghelfi,
Janet M. Ghelfi and Janal Limited Partnership (collectively, the "Ghelfi
Parties"). Participating Holders are defined as the holders of Shares other than
the Ghelfi Parties. We understand that under the Agreement the Shares held by
the Ghelfi Parties will be exchanged for shares of MFH Holding Company and that
the Shareholders' Agreement referred to below provides the Ghelfi Parties with
certain rights to cause CREC to purchase the Ghelfi Parties' shares of MFH
Holding Company at certain times and at prices which may vary over time, and
provides CREC with certain rights to purchase the shares of MFH Holding Company
at certain times and at prices which may vary over time.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Shareholders' Agreement dated as of December 4, 1996 among CREC,
MFH Holding Company and the Ghelfi Parties; the Voting Agreement and the Stock
Purchase Agreement, each dated December 4, 1996, among CREC and the Ghelfi
Parties; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the five fiscal years ended September 30, 1995; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q; preliminary audited
financial statements of the Company for the fiscal year ended September 30,
1996; certain other communications from the Company to its shareholders; and
certain internal financial analyses and forecasts for the Company prepared by
its management. We also have held discussions with members of the senior
management of the Company regarding its past and current business operations,
financial condition and future prospects. In addition, we have reviewed the
reported price and trading activity for the Shares, compared certain financial
and stock market information for the Company with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent business combinations in the manufactured
housing industry specifically and in other industries generally and performed
such other studies and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your consent,
that the financial analyses and forecasts for the Company have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the management of the Company, and that such forecasts will be
realized at the times contemplated therein. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the Company
or any of its subsidiaries and
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<PAGE> 157
we have not been furnished with any such evaluation or appraisal. Our advisory
services have been provided and the opinion expressed herein has been provided
for the information and assistance of the Special Committee of the Board of
Directors of the Company and the Board of Directors of the Company in connection
with its consideration of the transaction contemplated by the Agreement.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the $26.75
per Share in cash to be received by the Participating Holders pursuant to the
Agreement is fair to the Participating Holders.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
B-2
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APPENDIX C -- ARIZONA DISSENTERS' RIGHTS
(SECTIONS 10-1301 THROUGH 10-1331 OF THE ARIZONA BUSINESS CORPORATION ACT)
ARTICLE 1. DISSENT AND PAYMENT FOR SHARES
SECTION 10-1301. DEFINITIONS
In this article, unless the context otherwise requires:
1. "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
2. "Corporation" means the issuer of the shares held by a dissenter
before the corporate action or the surviving or acquiring corporation by
merger or share exchange of that issuer.
3. "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 10-1302 and who exercises that right when
and in the manner required by article 2 of this chapter.
4. "Fair value" with respect to a dissenter's shares means the value
of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation
in anticipation of the corporate action unless exclusion is inequitable.
5. "Interest" means interest from the effective date of the corporate
action until the date of payment at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under the circumstances.
6. "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
7. "Shareholder" means the record shareholder or the beneficial
shareholder.
SECTION 10-1302. RIGHT TO DISSENT
A. A shareholder is entitled to dissent from and obtain payment of the
fair value of the shareholder's shares in the event of any of the
following corporate actions:
1. Consummation of a plan of merger to which the corporation is a
party if either:
(a) Shareholder approval is required for the merger by section
10-1103 or the articles of incorporation and if the shareholder is
entitled to vote on the merger.
(b) The corporation is a subsidiary that is merged with its parent
under section 10-1104.
2. Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan.
3. Consummation of a sale or exchange of all or substantially all of
the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to a court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale.
4. An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it
either:
(a) Alters or abolishes a preferential right of the shares.
(b) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares.
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(c) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities.
(d) Excludes or limits the right of the shares to vote on any
matter or to cumulate votes other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights.
(e) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under section 10-604.
5. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, the bylaws or a resolution of the
board of directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares
under this chapter may not challenge the corporate action creating the
shareholder's entitlement unless the action is unlawful or fraudulent
with respect to the shareholder or the corporation.
C. This section does not apply to the holders of shares of any class or
series if the shares of the class or series are redeemable securities
issued by a registered investment company as defined pursuant to the
investment company act of 1940 (15 United States Code section 80a-l
through 80a-64).
D. Unless the articles of incorporation of the corporation provide
otherwise, this section does not apply to the holders of shares of a
class or series if the shares of the class or series were registered
on a national securities exchange, were listed on the national market
systems of the national association of securities dealers automated
quotation system or were held of record by at least two thousand
shareholders on the date fixed to determine the shareholders entitled
to vote on the proposed corporate action.
SECTION 10-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS
A. A record shareholder may assert dissenters' rights as to fewer than
all of the shares registered in the record shareholder's name only if
the record shareholder dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf the
record shareholder asserts dissenters' rights. The rights of a partial
dissenter under this subsection are determined as if the shares as to
which the record shareholder dissents and the record shareholder's
other shares were registered in the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if both:
1. The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights.
2. The beneficial shareholder does so with respect to all shares of
which the beneficial shareholder is the beneficial shareholder or over
which the beneficial shareholder has power to direct the vote.
ARTICLE 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
SECTION 10-1320. NOTICE OF DISSENTERS' RIGHTS
A. If proposed corporate action creating dissenters' rights under section
10-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this article and shall be accompanied by a
copy of this article.
B. If corporate action creating dissenters' rights under section 10-1302
is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that
the action was taken and shall send them the dissenters' notice
described in section 10-1322.
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SECTION 10-1321. NOTICE OF INTENT TO DEMAND PAYMENT
A. If proposed corporate action creating dissenters' rights under section
10-1302 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights shall both:
1. Deliver to the corporation before the vote is taken written notice
of the shareholder's intent to demand payment for the shareholder's shares
if the proposed action is effectuated.
2. Not vote the shares in favor of the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A of
this section is not entitled to payment for the shares under this
article.
SECTION 10-1322. DISSENTERS' NOTICE
A. If proposed corporate action creating dissenters' rights under section
10-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who
satisfied the requirements of section 10-1321.
B. The dissenters' notice shall be sent no later than ten days after the
corporate action is taken and shall:
1. State where the payment demand must be sent and where and when
certificates for certificated shares shall be deposited.
2. Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received.
3. Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and that requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date.
4. Set a date by which the corporation must receive the payment
demand, which date shall be at least thirty but not more than sixty days
after the date the notice provided by subsection A of this section is
delivered.
5. Be accompanied by a copy of this article.
SECTION 10-1323. DUTY TO DEMAND PAYMENT
A. A shareholder sent a dissenters' notice described in section 10-1322
shall demand payment, certify whether the shareholder acquired
beneficial ownership of the shares before the date required to be set
forth in the dissenters' notice pursuant to section 10-1322,
subsection B, paragraph 3 and deposit the shareholder's certificates
in accordance with the terms of the notice.
B. A shareholder who demands payment and deposits the shareholder's
certificates under subsection A of this section retains all other
rights of a shareholder until these rights are canceled or modified by
the taking of the proposed corporate action.
C. A shareholder who does not demand payment or does not deposit the
shareholder's certificates if required, each by the date set in the
dissenters' notice, is not entitled to payment for the shareholder's
shares under this article.
SECTION 10-1324. SHARE RESTRICTIONS
A. The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the
proposed corporate action is taken or the restrictions are released
under section 10-1326.
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B. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until
these rights are canceled or modified by the taking of the proposed
corporate action.
SECTION 10-1325. PAYMENT
A. Except as provided in section 10-1327, as soon as the proposed
corporate action is taken, or if such action is taken without a
shareholder vote, on receipt of a payment demand, the corporation
shall pay each dissenter who complied with section 10-1323 the amount
the corporation estimates to be the fair value of the dissenter's
shares plus accrued interest.
B. The payment shall be accompanied by all of the following:
1. The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year and the latest available interim financial statements, if any.
2. A statement of the corporation's estimate of the fair value of the
shares.
3. An explanation of how the interest was calculated.
4. A statement of the dissenter's right to demand payment under
section 10-1328.
5. A copy of this article.
SECTION 10-1326. FAILURE TO TAKE ACTION
A. If the corporation does not take the proposed action within sixty days
after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates
and release the transfer restrictions imposed on uncertificated
shares.
B. If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send
a new dissenters' notice under section 10-1322 and shall repeat the
payment demand procedure.
SECTION 10-1327. AFTER-ACQUIRED SHARES
A. A corporation may elect to withhold payment required by section
10-1325 from a dissenter unless the dissenter was the beneficial owner
of the shares before the date set forth in the dissenters' notice as
the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate
action, it shall estimate the fair value of the shares plus accrued
interest and shall pay this amount to each dissenter who agrees to
accept it in full satisfaction of his demand. The corporation shall
send with its offer a statement of its estimate of the fair value of
the shares, an explanation of how the interest was calculated and a
statement of the dissenters' right to demand payment under section
10-1328.
SECTION 10-1328. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
A. A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of
interest due and either demand payment of the dissenter's estimate,
less any payment under section 10-1325, or reject the corporation's
offer under
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section 10-1327 and demand payment of the fair value of the
dissenter's shares and interest due, if either:
1. The dissenter believes that the amount paid under section 10-1325
or offered under section 10-1327 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated.
2. The corporation fails to make payment under section 10-1325 within
sixty days after the date set for demanding payment.
3. The corporation, having failed to take the proposed action, does
not return the deposited certificates or does not release the transfer
restrictions imposed on uncertificated shares within sixty days after the
date set for demanding payment.
B. A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's
demand in writing under subsection A of this section within thirty
days after the corporation made or offered payment for the dissenter's
shares.
ARTICLE 3. JUDICIAL APPRAISAL OF SHARES
SECTION 10-1330. COURT ACTION
A. If a demand for payment under section 10-1328 remains unsettled, the
corporation shall commence a proceeding within sixty days after
receiving the payment demand and shall petition the court to determine
the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the sixty day period, it shall
pay each dissenter whose demand remains unsettled the amount demanded.
B. The corporation shall commence the proceeding in the court in the
county where a corporation's principal office or, if none in this
state, its known place of business is located. If the corporation is a
foreign corporation without a known place of business in this state,
it shall commence the proceeding in the county in this state where the
known place of business of the domestic corporation was located.
C. The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding
as in an action against their shares, and all parties shall be served
with a copy of the petition. Nonresidents may be served by certified
mail or by publication as provided by law or by the Arizona rules of
civil procedure.
D. The jurisdiction of the court in which the proceeding is commenced
under subsection B of this section is plenary and exclusive. There is
no right to trial by jury in any proceeding brought under this
section. The court may appoint a master to have the powers and
authorities as are conferred on masters by law, by the Arizona rules
of civil procedure or by the order of appointment. The master's report
is to exceptions to be heard before the court, both on the law and the
facts. The dissenters are entitled to the same discovery rights as
parties in other civil proceedings.
E. Each dissenter made a party to the proceeding is entitled to judgment
either:
1. For the amount, if any, by which the court finds the fair value of
his shares plus interest exceeds the amount paid by the corporation.
2. For the fair value plus accrued interest of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under section 10-1327.
SECTION 10-1331. COURT COSTS AND ATTORNEY FEES
A. The court in an appraisal proceeding commenced under section 10-1330
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of any master appointed by the court. The
court shall assess the costs against the corporation, except that the
court shall assess
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costs against all or some of the dissenters to the extent the court
finds that the fair value does not materially exceed the amount
offered by the corporation pursuant to sections 10-1325 and 10-1327 or
that the dissenters acted arbitrarily, vexatiously or not in good
faith in demanding payment under section 10-1328.
B. The court may also assess the fees and expenses of attorneys and
experts for the respective parties in amounts the court finds
equitable either:
1. Against the corporation and in favor of any or all dissenters if
the court finds that the corporation did not substantially comply with the
requirements of article 2 of this chapter.
2. Against the dissenter and in favor of the corporation if the court
finds that the fair value does not materially exceed the amount offered by
the corporation pursuant to sections 10-1325 and 10-1327.
3. Against either the corporation or a dissenter in favor of any other
party if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by this chapter.
C. If the court finds that the services of an attorney for any dissenter
were of substantial benefit to other dissenters similarly situated and
that the fees for those services should not be assessed against the
corporation, the court may award to these attorneys reasonable fees to
be paid out of the amounts awarded the dissenters who were benefited.
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