SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-k/a
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 17, 1999
EQUIVEST FINANCE, INC.
(Exact name of registrant as specified in its charter)
Delaware 333-29015 59-2346270
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
100 NORTHFIELD STREET
GREENWICH, CONNECTICUT 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (315) 422-9088
INFORMATION TO BE INCLUDED IN REPORT
Item 1. Changes in Control of Registrant
Not Applicable.
Item 2. Acquisition or Disposition of Assets
Agreement and Plan of Reorganization by and among Equivest Finance,
Inc., Peppertree Acquisition Corp., Peppertree Acquisition II Corp.,
Peppertree Resorts, Ltd., Pioneer Hotel Corporation, C. Wayne
Kinser, and The Stockholders Named Herein, dated as of November 17,
1999.
Registration Rights Agreement by and among Equivest Finance, Inc.
and C. Wayne Kinser, the Sharon Kay Williamson Charitable Remainder
Unitrust, the David Wayne Kinser Charitable Remainder Unitrust,
Donald Clayton, John McFarland and Herbert J. Patrick, Jr., dated as
of November 16, 1999.
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Item 3. Bankruptcy or Receivership
Not Applicable.
Item 4. Changes in Registrant's Certifying Accountant
Not Applicable.
Item 5. Other Events
Press Release
EQUIVEST ANNOUNCES
COMPLETION OF PEPPERTREE ACQUISITION
Greenwich, Connecticut, November 17, 1999, Equivest Finance, Inc.
(NASD:EQUI) announced today that it has completed the previously announced
agreement in principle to acquire by merger Peppertree Resorts, Ltd. of
Asheville, North Carolina. Peppertree's 15 vacation ownership resorts are
located in Virginia, North Carolina, South Carolina, Tennessee, Missouri and
Wisconsin. These resorts, together with Peppertree's approximately 50,000 owner
families, have now joined the Equivest Family of Resorts. With completion of
this transaction, Equivest now has a resort within 2-3 hours driving distance of
most major cities on the East Coast of the U.S.
The combined company will have approximately 2,200 employees, and total
assets of more than $400 million. Taken together, the two companies have had
more than $118 million in combined revenues for the nine months ended September
30, 1999.
As a result of the transaction, Peppertree has become a 100% subsidiary of
Equivest. Peppertree will maintain its offices in Asheville. Mr. Wayne Kinser,
Peppertree's former President and controlling stockholder, will join Equivest's
board of directors, as well as continuing to assist the company with transition
matters and strategic issues as a senior consultant.
Peppertree had approximately $113 million in assets and approximately $15
million in net worth as of September 30, 1999, compared with Equivest's assets
of $286 million and net worth of $63 million at that date. For the nine months
ended September 30, 1999, Peppertree reported revenues of approximately $53
million, total VOI sales of approximately $38 million, and unaudited net income
(after certain one-time adjustments) of approximately $2.6 million. For the same
period, Equivest had revenues of $66 million, total VOI sales of $28 million and
net income of $7.3 million. Equivest recently reported a 120% increase in
earnings per share for the quarter ended September 30, 1999 compared with the
comparable period in 1998, and a 136% increase in net income over the prior year
period on a revenue increase of 243%.
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Equivest will pay a total consideration of $17.6 million in cash, less
certain escrows and holdbacks for contingencies, and $16.9 million in stock. Of
these amounts, $.6 million in cash and $2.9 million in stock will be paid on
June 30, 2000. At the closing the sellers were issued approximately 2.4 million
shares of common stock at a price of $5.83 per share, representing the volume
weighted average price for the 20 trading days preceding the fifth business day
prior to the closing. The additional $2.9 million in stock to be issued on June
30, 2000 will be priced at the volume weighted average price for the 20 trading
days prior to that date.
In addition to Peppertree's 15 resorts, Equivest acquired approximately
$77 million in performing consumer receivables relating to the purchase of VOI's
in Peppertree resorts or points in the Peppertree Vacation Club, and more than
$19 million in VOI inventory at book value. In addition, as part of the
transaction Equivest will be acquiring the 275 room Holiday Inn SunSpree resort
and more than 90 acres of land adjacent to downtown Asheville subject to
obtaining certain approvals and consents. Peppertree has been operating a
point-based vacation club since 1997, and Equivest plans to phase its resorts
into a point-based system utilizing the Peppertree experience as a base.
The acquisition of Peppertree marks the third major acquisition for
Equivest since August of 1998, when it acquired Eastern Resorts Corporation of
Rhode Island. The Equivest Family of Resorts now includes 29 properties located
on the East and Gulf coasts of the U.S. The Peppertree properties include
exciting new destinations such as the Outer Banks and Blue Ridge Mountains of
North Carolina, Williamsburg, VA, Myrtle Beach, SC, Branson, MO, Gatlinburg, TN,
and Wisconsin Dells, WI, as well as land for future developments in the Outer
Banks, Myrtle Beach and Hilton Head, SC. The existing Equivest destinations
include Newport, RI, Jiminy Peak, MA., Ocean City, MD, St. Augustine, FL, New
Orleans, LA, and St. Thomas, USVI., as well as a resort site in Washington DC
where construction will begin in 2000.
Richard C. Breeden, Chairman, President and Chief Executive Officer of
Equivest said: "We are delighted to complete the Peppertree merger on schedule,
and we look forward with great enthusiasm to the prospects that result from
joining our two companies. We welcome a tremendous group of employees from
Peppertree who are joining the Equivest team, and we believe that the new
company's nearly 100,000 owners and finance customers will find us an even
better source of high quality, fun, family-oriented vacations than they have in
the past. With nearly a half billion dollars in assets, we will also have the
ability to expand our efforts to redefine the traditional marketing of
vacation-ownership product and to take advantage of the new e-commerce
technologies that can increasingly let us put the world at the fingertips of our
owners. We strongly believe that the Peppertree team will help us build an even
better company for the future."
Bank of America Securities served as exclusive financial advisor to
Equivest, and financing for the transaction was provided to Equivest by the Bank
of America, N.A.
Certain statements in this press release are forward-looking. These may be
identified by the use of forward-looking words or
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phrases such as "believe," "expect," "anticipate," "should," "planned,"
"estimated," and "potential." These forward-looking statements are based on the
Company's current expectations. The Private Securities Litigation Reform Act of
1995 provides a "safe harbor" for such forward-looking statements. In order to
comply with the terms of the safe harbor, the Company notes that a variety of
factors could cause actual results and experience to differ materially from the
anticipated results or other expectations expressed in such forward-looking
statements. The risks and uncertainties that may affect the operations,
performance, development, and results of the Company's businesses include a
downturn in the real estate cycle, lack of available qualified prospects to tour
the Company's resorts, competition from other developers, lack of appropriate
sites for future developments, failure to complete construction in a timely and
cost-efficient manner, or other factors which result in lower sales of vacation
ownership interests, possible financial difficulties of one or more of the
developers with whom the Company does business, including the risk of carrying
non-performing assets or losses if defaulted loans prove to have insufficient
collateral backing, fluctuations in interest rates, prepayments by consumers of
indebtedness, inability of developers to honor replacement obligations for
defaulted consumer notes, and competition from organizations with greater
financial resources.
For Information Contact:
Gerald L. Klaben, Jr., Equivest Chief Financial Officer (203) 618-0065
Stephanie Smith, Peppertree Communications Director (828) 254-8991
Item 6. Resignation of Registrant's Directors
Not Applicable.
Item 7. Financial Statements and Exhibits
To be filed within 60 days of this filing
Item 8. Change in Fiscal Year
Not Applicable.
Item 9. Sales of Equity Securities Pursuant to Regulation S
Not Applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EQUIVEST FINANCE, INC.
Date: November 30, 1999 By: /s/
------------------------------------
Richard G. Winkler
General Counsel and Secretary
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INDEX TO EXHIBITS
Exhibit No.: Exhibit
- ------------ -------
10.1 Agreement and Plan of Reorganization by and among Equivest
Finance, Inc., Peppertree Acquisition Corp., Peppertree
Acquisition II Corp., Peppertree Resorts, Ltd., Pioneer Hotel
Corporation, C. Wayne Kinser, and The Stockholders Named Herein,
dated as of November 17, 1999.
10.2 Registration Rights Agreement by and among Equivest Finance, Inc.
and C. Wayne Kinser, the Sharon Kay Williamson Charitable
Remainder Unitrust, the David Wayne Kinser Charitable Remainder
Unitrust, Donald Clayton, John McFarland and Herbert J. Patrick,
Jr., dated as of November 16, 1999.
Execution Copy
AGREEMENT AND PLAN OF REORGANIZATION
by and among
EQUIVEST FINANCE, INC.,
PEPPERTREE ACQUISITION CORP.,
PEPPERTREE ACQUISITION II CORP.,
PEPPERTREE RESORTS, LTD.,
PIONEER HOTEL CORPORATION,
C. WAYNE KINSER,
and
THE STOCKHOLDERS NAMED HEREIN
Dated as of November 17, 1999
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TABLE OF CONTENTS
RECITALS.......................................................................1
ARTICLE I DEFINITIONS..........................................................3
1.01 "Actual Installment Taxes"......................................3
1.02 "Acquired Assets"...............................................3
1.03 "Acquired Business".............................................3
1.04 "Acquired Companies"............................................3
1.05 "Acquired Company Benefit Arrangement"..........................3
1.06 "Acquired Company Benefit Plan".................................3
1.07 "Acquired Company Material Adverse Effect"......................3
1.08 "Acquired Ownership Interests...................................4
1.09 "Affiliate,"....................................................4
1.10 "Agreement".....................................................4
1.11 "Aggregate Purchase Price"......................................4
1.12 "Aircraft Interest".............................................4
1.13 "Annual Financial Statements"...................................4
1.14 "Association"...................................................4
1.15 "Cash Consideration"............................................4
1.16 "Closing".......................................................4
1.17 "Closing Date"..................................................4
1.18 "Code"..........................................................4
1.19 "Company".......................................................4
1.20 "Company Notes".................................................4
1.21 "Company Stock".................................................4
1.22 "Company Subsidiaries"..........................................4
1.23 "Confidential Memorandum".......................................4
1.24 "Consumer Interval Sales".......................................4
1.25 "Contract"......................................................4
1.26 "Deferred Tax Liability Accrual"................................4
1.27 "Disclosure Schedule"...........................................5
1.28 [Intentionally Omitted.]........................................5
1.29 "Downward Adjustment"...........................................5
1.30 [Intentionally Omitted..........................................5
1.31 "EFI Note"......................................................5
1.32 "Effective Time"................................................5
1.33 "Encumbrance"...................................................5
1.34 "Endorsements"..................................................5
1.35 "Environmental Law".............................................5
1.36 "Exchange Act"..................................................5
1.37 "Executive Officer".............................................5
1.38 "Execution Date"................................................5
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1.39 "Financial Statements"..........................................5
1.40 "Fontana Note"..................................................5
1.41 "GAAP"..........................................................5
1.42 "GP Interest"...................................................5
1.43 "GSHA"..........................................................6
1.44 "GSHA Note".....................................................6
1.45 "Guaranty Agreement"............................................6
1.46 "Hazardous Materials"...........................................6
1.47 "Holiday Inn Consent"...........................................6
1.48 "Indemnifiable Losses"..........................................6
1.49 "Indemnitee"....................................................6
1.50 "Indemnitor"....................................................6
1.51 "Intellectual Property".........................................6
1.52 "Interim Financial Statements"..................................6
1.53 "IRS"...........................................................6
1.54 "Kinser Note"...................................................6
1.55 "Land"..........................................................7
1.56 "LP Interest"...................................................7
1.57 "Managed Association"...........................................7
1.58 "Merger"........................................................7
1.59 "Merger Consideration"..........................................7
1.60 "Mortgage"......................................................7
1.61 "Ordinary Course of Business"...................................7
1.62 "Party"or "Parties".............................................7
1.63 "Peppertree Note"...............................................7
1.64 "Peppertree Vacation Club"......................................7
1.65 "Permits".......................................................7
1.66 "Permitted Deduction"...........................................7
1.67 "Permitted Encumbrance".........................................7
1.68 "Person"........................................................8
1.69 "PHC"...........................................................8
1.70 "Purchase and Option Agreements"................................8
1.71 "Purchasers"....................................................8
1.72 "Purchaser Material Adverse Effect".............................8
1.73 "PRVI"..........................................................8
1.74 "PRVI Stock"....................................................8
1.75 "Real Property".................................................8
1.76 "Realty"........................................................8
1.77 "Realty Stock"..................................................8
1.78 "Records".......................................................8
1.79 "Registration Rights Agreement".................................8
1.80 "Related Agreements"............................................8
1.81 "Release Agreement".............................................8
1.82 "Representatives"...............................................8
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1.83 "Retained Earnings Note"........................................8
1.84 "Second Closing"................................................9
1.85 "Securities Act"................................................9
1.86 "Sellers".......................................................9
1.87 "Sellers'Knowledge".............................................9
1.88 "Software"......................................................9
1.89 "State".........................................................9
1.90 "State Governing Statutes"......................................9
1.91 "State Regulatory Authorities"..................................9
1.92 "Stockholder"...................................................9
1.93 "TNW Certificate"...............................................9
1.94 "Tangible Net Worth"............................................9
1.95 "Tangible Net Worth Adjustment".................................9
1.96 "Threshold Amount"..............................................9
1.97 "Title Policies"................................................9
1.98 "Upward Adjustment".............................................9
1.99 "VOI Business"..................................................9
1.100 "VOI Inventory".................................................9
1.101 "VOI Receivables"..............................................10
1.102 "VWAP".........................................................10
1.103 "Vacation Ownership Intervals"or "VOIs"........................10
1.104 "Vacation Ownership Units".....................................10
ARTICLE II PLAN OF MERGER; PURCHASE AND SALE..................................10
2.01 The Merger.....................................................12
2.02 Purchase and Sale..............................................12
2.03 Aggregate Purchase Price Adjustments...........................14
2.04 Deferred Payout................................................15
2.05 Fontana Note...................................................15
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS.........................15
3.01 Organization...................................................15
3.02 Articles of Incorporation, Bylaws and Agreements...............16
3.03 Authorization..................................................16
3.04 Financial Statements and Absence of Changes....................16
3.05 Title to and Condition of Real Property........................17
3.06 Intellectual Property..........................................19
3.07 Insurance......................................................20
3.08 Environmental Matters..........................................20
3.09 Minute and Stock Books; Records................................22
3.10 Absence of Undisclosed Material Liabilities....................22
3.11 Contracts......................................................22
3.12 Litigation and Compliance......................................22
3.13 Non-Contravention; Required Consents...........................22
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3.14 Capital Stock; Partnership Interests...........................23
3.15 Options, Warrants, Etc.........................................24
3.16 Subsidiaries Stock.............................................24
3.17 Permits........................................................24
3.18 Labor and Employment...........................................24
3.19 Employee Benefit Plans.........................................26
3.20 Taxes and Tax Returns..........................................28
3.21 Receivables....................................................31
3.22 Other Property.................................................31
3.23 Absence of Material Changes, Events and Conditions.............31
3.24 Certain Interests..............................................32
3.25 Brokers........................................................33
3.26 Private Placement..............................................33
3.27 Year 2000......................................................33
3.28 Homeowners'Associations; Regulatory Reserves; Management Fees..33
3.29 VOI Mortgages..................................................34
3.30 Peppertree Vacation Club.......................................35
3.31 Company Notes..................................................37
3.32 Disclosure.....................................................37
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF EFI..............................37
4.01 Organization...................................................38
4.02 Authorization..................................................38
4.03 No Required Vote of EFI Stockholders...........................38
4.04 Capitalization.................................................38
4.05 Obligations with Respect to Capital Stock......................39
4.06 Non-Contravention; Required Consents...........................39
4.07 Litigation and Compliance......................................39
4.08 SEC Filings; EFI's Financial Statements........................40
4.09 Absence of Material Changes, Events and Conditions.............40
4.10 Contracts......................................................40
4.11 Brokers........................................................40
4.12 Disclosure.....................................................40
4.13 [Intentionally Omitted.].......................................41
4.14 Absence of Undisclosed Liabilities.............................41
4.15 Subsidiaries...................................................41
4.16 Miscellaneous..................................................41
ARTICLE V COVENANTS OF KINSER.................................................42
5.01 [Intentionally Omitted.].......................................42
5.02 [Intentionally Omitted.].......................................42
5.03 Access.........................................................42
5.04 Confidentiality................................................42
5.05 Transition of Plans............................................42
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5.06 Acquisition Proposals..........................................43
5.07 Non-Competition and Non-Solicitation...........................43
5.08 Transfer of Assets.............................................43
ARTICLE VI COVENANTS OF EFI...................................................44
6.01 Conduct of Business of EFI and the Newcos......................44
6.02 Access.........................................................44
6.03 Payment of Purchase Price......................................44
6.04 Board of Directors of EFI......................................44
6.05 Stock Options..................................................44
6.06 Location of Company Offices....................................44
6.07 D&O Insurance. ...............................................44
ARTICLE VII ADDITIONAL COVENANTS BY THE PARTIES...............................45
7.01 Expenses; Transfer Taxes; Apportionment........................45
7.02 Publicity......................................................45
7.03 Agreement to Take Necessary Action.............................45
7.04 Full Disclosure................................................45
7.05 [Intentionally Omitted.........................................46
7.06 Employees......................................................46
7.07 Tax Matters....................................................46
7.08 Transfer Restrictions..........................................48
7.09 Title Commitments..............................................48
7.10 Satisfaction of Company Notes..................................49
7.11 Sale of Aircraft Interest......................................49
7.12 Tax-free Acquisition of Company................................49
7.13 Payment of Extraordinary Compensation..........................49
7.14 Oral Leases....................................................49
7.15 GSHA...........................................................49
ARTICLE VIII [INTENTIONALLY OMITTED]..........................................49
ARTICLE IX THE CLOSINGS.......................................................50
9.01 Time and Place of Closing......................................50
9.01A Time and Place of Second Closing...............................50
9.02 Conditions to Purchasers'Closing Obligations...................50
9.03 Conditions to Sellers'Closing Obligations......................51
9.03A Mutual Conditions to the Parties' Closing Obligations..........52
9.03B Conditions to Second Closing Obligations.......................52
9.04 Deliveries by Sellers at Closing...............................53
9.05 Availability of Records........................................54
9.06 Deliveries by Purchasers at Closing............................54
9.07 Deliveries at Second Closing...................................55
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ARTICLE X INDEMNIFICATION.....................................................56
10.01 Indemnification of Sellers.....................................56
10.02 Indemnification of Purchasers..................................56
10.03 Cap and Basket.................................................57
10.04 Indemnifiable Losses Net of Insurance Proceeds.................57
10.05 Procedure for Seeking Indemnification..........................57
10.06 Indemnification Remedy After Closing...........................59
10.07 Survival of Representations, Warranties, Covenants, and
Agreements.....................................................59
10.08 Setoff and Recoupment..........................................59
10.09 Estoppel.......................................................59
10.10 Purchase Price Adjustments.....................................59
ARTICLE XI GENERAL PROVISIONS.................................................59
11.01 Entire Agreement...............................................59
11.02 Severability...................................................60
11.03 Amendment and Modification.....................................60
11.04 Arm's Length Agreement.........................................60
11.05 Exhibits, etc..................................................60
11.06 Headings.......................................................60
11.07 Assignment.....................................................60
11.08 No Third Party Beneficiaries...................................60
11.09 Waiver of Compliance; Consents.................................60
11.10 Sellers'Representative.........................................61
11.11 Notices........................................................62
11.12 Governing Law..................................................62
11.13 Jurisdiction, Venue, and Service of Process....................62
11.14 Jury Trial Waiver..............................................62
11.15 Reliance by Each Party.........................................62
11.16 Attorneys'Fees.................................................62
11.17 Specific Performance...........................................62
11.18 Counterparts...................................................62
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Annexes
A. Plan of Merger
B. Form of EFI Note
C. Form of Fontana Note
D. Form of GSHA Note
E. Form of Guaranty Agreement
F. Form of Kinser Note
G. Form of Registration Rights Agreement
H. Form of Phase-Out Agreement
I. Form of Release Agreement
J. Form of Affiliate Agreement
K. Form of Consulting Agreement
Exhibits
Exhibit 7.07(d)-1
Allocation of GSHA Consideration ............................................E-4
Exhibit 7.07(d)-2............................................................S-1
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement"), dated as of
November 17, 1999 (the "Execution Date"), is entered into by and among Equivest
Finance, Inc. ("EFI"), a Delaware corporation, Peppertree Acquisition Corp.
("Newco I") and Peppertree Acquisition II Corp. ("Newco II" and together with
Newco I, the "Newcos"), each a Delaware corporation and a newly-formed,
wholly-owned subsidiary of EFI, and Peppertree Resorts, Ltd. (the "Company"), a
North Carolina corporation, C. Wayne Kinser ("Kinser"), Pioneer Hotel
Corporation ("PHC"), a North Carolina corporation, the Sharon Kay Williamson
Charitable Remainder Unitrust ("SKW CRUT") and the David Wayne Kinser Charitable
Remainder Unitrust ("DWK CRUT"; each of the SKW CRUT and DWK CRUT are referred
to herein as a "Stockholder" and together, the "Stockholders").
RECITALS
A. Kinser owns of record and beneficially approximately ninety-one and
three quarters percent (91.75%) of the issued and outstanding capital stock of
the Company and all of the issued and outstanding capital stock of Peppertree
Realty, Inc. ("Realty"), a Wisconsin corporation. The Stockholders together own
of record and beneficially approximately eight and one quarter percent (8.25%)
of the issued and outstanding capital stock of the Company, which stock Kinser
transferred to the Stockholders in connection with the transactions contemplated
hereby. Together, Kinser and the Stockholders own of record and beneficially all
of the issued and outstanding capital stock of the Company.
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B. Kinser is the sole limited partner of Great Smokies Hotel Associates
("GSHA"), a North Carolina limited partnership, and PHC is the sole general
partner of GSHA. Together, Kinser and PHC own all of the equity interest in
GSHA.
C. In connection with the transactions contemplated hereby, Kinser, David
Kinser and Kay Kinser transferred approximately seven percent (7%) of the issued
and outstanding capital stock of Peppertree Resorts Villas, Inc. ("PRVI"), a
North Carolina corporation, to the Stockholders. The Company owns of record and
beneficially approximately ninety-three percent (93%) of the issued and
outstanding capital stock of PRVI. Together, the Company and the Stockholders
own of record and beneficially all of the issued and outstanding capital stock
of PRVI.
D. Newco I will be merged with and into the Company, with the Company
surviving the merger and continuing its corporate existence under the laws of
the State of North Carolina. The Boards of Directors of Newco I and the Company
have determined that this merger is in furtherance of, and consistent with,
their respective long-term business strategies and is in the best interests of
their respective stockholders. The Boards of Directors of Newco I and the
Company have approved and adopted this Agreement, and the plan of merger
attached hereto as Annex A, as a plan of reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended.
E. Subject to certain contingencies set forth herein, EFI intends to
acquire from Kinser, and Kinser will sell to EFI, a one percent (1%) limited
partnership interest in GSHA, and Newco II will acquire from Kinser, and Kinser
will sell to Newco II, a fourteen percent (14%) limited partnership interest in
GSHA, pursuant to this Agreement. Newco II will acquire from PHC, and PHC will
sell to Newco II, an eighty-five percent (85%) general partnership interest in
GSHA pursuant to this Agreement.
F. EFI will acquire from the Stockholders, and the Stockholders will sell
to EFI, all of the issued and outstanding capital stock of PRVI owned by them,
pursuant to this Agreement, which capital stock EFI intends to contribute to the
Company after the merger of Newco I with and into the Company. As a result, the
Company will own of record and beneficially all of the issued and outstanding
capital stock of PRVI.
G. Newco II will acquire from Kinser, and Kinser will sell to Newco II,
all of the issued and outstanding capital stock of Realty pursuant to this
Agreement.
H. Newco II will acquire from Kinser or any of his relatives or Affiliates
(other than the Company, Realty, GSHA, PRVI or any of their subsidiaries), and
Kinser will cause to be sold to Newco II, any and all other assets that are used
in the business and operations of the Company, PHC, Realty, GSHA, or PRVI that
are owned by Kinser or any of his relatives or Affiliates (other than the
Company, Realty, GSHA, PRVI or any of their subsidiaries) on the date hereof.
2
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I. As a result of the transactions contemplated by this Agreement, (i) the
Company will be a wholly-owned subsidiary of EFI, (ii) EFI and Newco II together
will own all of the partnership interests in GSHA, and (iii) Newco II will own
directly all of the issued and outstanding capital stock of Realty and any other
assets that are used in the business and operations of the Company, PHC, Realty,
GSHA, or PRVI that are owned by Kinser or any of his relatives or Affiliates
(other than the Company, Realty, GSHA, PRVI or any of their subsidiaries) on the
date hereof.
NOW, THEREFORE, in consideration of the foregoing recitals and the
representations, warranties, covenants and agreements contained herein, the
Parties, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, and except as otherwise expressly
provided in this Agreement or unless the context otherwise requires, capitalized
terms shall have the meanings ascribed to them in this Article I.
1.01 "Actual Installment Taxes" shall mean (a) the aggregate amount
included in taxable income after the Closing Date by EFI or its Affiliates with
respect to installment sale receivables of the Acquired Companies as of the
Closing Date multiplied by (b) the Tax rate used to determine the Deferred Tax
Liability Accrual.
1.02 "Acquired Assets" shall mean all of the assets that are used in the
Acquired Business (other than the Aircraft Interest) that are owned separately
by any Seller, or any of the Sellers' Affiliates (other than an Acquired
Company), on the date hereof, which such assets are set forth in Section 3.22(a)
of the Disclosure Schedule.
1.03 "Acquired Business" shall mean the Acquired Companies and the
businesses and operations of the Acquired Companies (including the Acquired
Assets).
1.04 "Acquired Companies" shall mean the Company, Realty, GSHA and the
Company Subsidiaries; provided, however, that GSHA shall not be an Acquired
Company unless the Second Closing occurs.
1.05 "Acquired Company Benefit Arrangement" shall have the meaning set
forth in Section 3.19(a)(i).
1.06 "Acquired Company Benefit Plan" shall have the meaning set forth in
Section 3.19(a)(iii).
1.07 "Acquired Company Material Adverse Effect" shall mean any change,
event or effect that, individually or when taken together with all other
changes, events or effects that have occurred prior to the date of
determination, is or is reasonably likely to be materially adverse to the
business, operations, prospects, assets (including intangible assets),
liabilities (including contingent liabilities, condition (financial or
otherwise) properties or results of operations of the Acquired Business taken as
a whole, or the ability of the Sellers and the Acquired Companies to consummate
the transactions contemplated by this Agreement.
1.08 "Acquired Ownership Interests" shall mean the Company Stock, the LP
Interest, the GP Interest, the Realty Stock and the PRVI Stock; provided,
however, that the LP Interest and the GP Interest shall not be Acquired
Ownership Interests unless the Second Closing occurs
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1.09 "Affiliate," with respect to any Person, shall mean any Person that
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Person specified. The term
"control" (including the correlative terms "controlled by" and "under common
control with") as used with respect to any Person means the possession, directly
or indirectly, of the power to direct or to cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract, or otherwise; provided, however, GSHA shall not be
deemed an Affiliate of Kinser or any Acquired Company or Company Subsidiary
unless the Second Closing occurs.
1.10 "Agreement" shall mean this Agreement and Plan of Reorganization,
including all Annexes and Exhibits hereto, and the Disclosure Schedule.
1.11 "Aggregate Purchase Price" shall mean the sum of the Merger
Consideration, the Cash Consideration and the face amount of the EFI Note and
the Deferred Payout, all as adjusted pursuant to Article II, plus the capital
contribution to Newco I specified in Section 9.03(f).
1.12 "Aircraft Interest" shall mean fifty percent (50%) or more of either
(x) the assets or (y) the issued and outstanding capital stock of Poly-Aero,
Inc., a North Carolina corporation.
1.13 "Annual Financial Statements" shall have the meaning set forth in
Section 3.04(a).
1.14 "Association" shall mean any condominium, timeshare or homeowners'
association for any of the properties or resorts owned or developed by the
Acquired Companies (each, an "Association" and, collectively, the
"Associations").
1.15 "Cash Consideration" shall have the meaning set forth in Section
2.02(b)(i).
1.16 "Closing" shall have the meaning set forth in Section 9.01.
1.17 "Closing Date" shall have the meaning set forth in Section 9.01.
1.18 "Code" means the Internal Revenue Code of 1986, as amended, and
regulations issued by the Internal Revenue Service pursuant thereto.
1.19 "Company" shall have the meaning set forth in the recitals of this
Agreement.
1.20 "Company Notes" shall mean the Peppertree Note together with the
Retained Earnings Note.
1.21 "Company Stock" shall mean all of the issued and outstanding shares
of capital stock of the Company.
1.22 "Company Subsidiaries" shall mean PRVI, Peppertree Resorts Vacation
Club, Inc., a North Carolina corporation and wholly-owned subsidiary of the
Company, and Peppertree Resorts Management, Inc., a North Carolina corporation
and wholly-owned subsidiary of the Company.
1.23 "Confidential Memorandum" shall mean that memorandum prepared by
McDonald Investments, dated as of July 1999 and delivered by the Company to EFI.
1.24 "Consumer Interval Sales" shall mean sales of VOIs to third-party
retail consumers and shall not include any bulk or wholesale sales to any party.
1.25 "Contract" shall have the meaning set forth in Section 3.11.
1.26 "Deferred Tax Liability Accrual" shall have the meaning set forth in
Section 2.03(a)(i).
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1.27 "Disclosure Schedule" shall mean the disclosure schedule accompanying
this Agreement, which will be arranged in sections corresponding to the lettered
and numbered sections referencing such schedule contained in this Agreement.
1.28 [Intentionally Omitted.]
1.29 "Downward Adjustment" shall have the meaning set forth in Section
2.03(a)(i).
1.30 [Intentionally Omitted.]
1.31 "EFI Note" shall mean one or more promissory notes issued by EFI in
favor of Kinser in the aggregate principal amount of four million one hundred
thirty-three thousand and eight dollars ($4,133,008) in the form attached hereto
as Annex B.
1.32 "Effective Time" shall have the meaning set forth in Section
2.01(a)(ii).
1.33 "Encumbrance" shall mean any lien, claim, pledge, option, charge,
adverse interest, security interest, purchase option, mortgage, deed of trust,
or other proscription, restriction, condition, or covenant or similar right of
third parties.
1.34 "Endorsements" shall have the meaning set forth in Section 7.09(b).
1.35 "Environmental Law" shall mean any federal, state, or local law or
regulation and any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent decree or judgment, relating to
pollution or protection of the environment (including without limitation air,
surface water, ground water, land surface and subsurface strata), health, safety
or natural resources, including without limitation, those relating to the use,
handling, transportation, treatment, storage, disposal, release, threatened
release, discharge, investigation and cleanup of Hazardous Materials, or which
imposes requirements relating to Hazardous Materials in connection with a
transfer of stock or assets; provided, however, such term shall not include any
Federal Occupational Safety and Health Administration regulations or analogous
state laws or regulations.
1.36 "Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, as in effect from
time to time.
1.37 "Executive Officer" shall mean any Person listed on Section 1.37 of
the Disclosure Schedule.
1.38 "Execution Date" shall have the meaning set forth in the introduction
of this Agreement.
1.39 "Financial Statements" shall have the meaning set forth in Section
3.04(a).
1.40 "Fontana Note" shall mean that promissory note issued by Peppertree
Fontana Village, Inc. in favor of the Company and personally guaranteed by
Kinser in the principal amount of two million nine hundred ninety thousand six
hundred fifty dollars ($2,990,650), maturing on March 31, 2001, as amended and
restated as of the Closing Date pursuant to the terms of Section 2.05, the form
of which is attached hereto as Annex C.
1.41 "GAAP" shall mean generally accepted accounting principles in the
United States of America, including those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
have been approved by a majority of the accounting profession, which have been
adopted and practiced.
1.42 "GP Interest" shall mean all of the general partnership interest of
GSHA.
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1.43 "GSHA" shall have the meaning set forth in the recitals of this
Agreement.
1.44 "GSHA Note" shall mean a promissory note issued by GSHA in favor of
the Company, and personally guaranteed by Kinser, in the principal amount of
three million six hundred thousand dollars ($3,600,000), as of the Closing Date,
in the form attached hereto as Annex D.
1.45 "Guaranty Agreement" shall mean the Guaranty Agreement dated as of
the Closing Date by Kinser as guarantor of the Fontana Note and the GSHA Note,
substantially in the Form attached hereto as Annex E.
1.46 "Hazardous Materials" shall mean (a) petroleum and petroleum
products, by-products or breakdown products, radioactive materials,
asbestos-containing materials and polychlorinated biphenyls and (b) any other
chemicals, materials or substances regulated as toxic or hazardous or as a
pollutant, contaminant or waste under any Environmental Law.
1.47 "Holiday Inn Consent" shall mean the consent required of Holiday Inn
Franchising, Inc. pursuant to that certain Holiday Inn Sunspree Resort
Conversion License Agreement, dated March 14, 1994, to the substitution of EFI
as owner of GSHA, the licensee thereunder, in lieu of Kinser, together with the
agreement of Holiday Inn Franchising, Inc. and EFI to a mutually acceptable
property improvement plan.
1.48 "Indemnifiable Losses" shall mean any and all direct or indirect
demands, claims, payments, obligations, actions, or causes of action,
assessments, losses, liabilities, costs, expenses paid or incurred, or
diminutions in value of any kind or character (whether or not known or asserted
before the date of this Agreement, fixed or unfixed, conditional or
unconditional, choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, contingent, or otherwise). Indemnifiable Losses
shall include penalties, interest, or any amount payable to a third party as a
result of such Indemnifiable Losses. Subject to the provisions of Article X,
Indemnifiable Losses shall include legal or other expenses reasonably incurred
in connection with investigating or defending any claims or actions involving
third parties, whether or not resulting in any liability, and all amounts paid
in settlement of claims or actions in accordance with Article X.
1.49 "Indemnitee" shall mean any Person that may be entitled to seek
indemnification pursuant to the provisions of Article X.
1.50 "Indemnitor" shall mean any Person that may be obligated to provide
indemnification pursuant to the provisions of Article X.
1.51 "Intellectual Property" shall mean all right, title and interest of
Sellers (in connection with the Acquired Business) and the Acquired Companies in
and to (a) patents, trademarks, trade names, copyrights and service marks; (b)
registrations and applications for patents, trademarks, trade names, copyrights
and service marks; (c) trade secrets and know-how; and (d) Software or licenses
thereto, computerized data or licenses thereto, and any related documentation,
including without limitation the design and content of all documents utilized in
the creation of the Acquired Companies' timeshare resorts and all manufacturing
and other technical information, in each case solely to the extent any of the
foregoing is related to the Acquired Business, including but not limited to the
items identified on the Disclosure Schedule.
1.52 "Interim Financial Statements" shall have the meaning set forth in
Section 3.04(a).
1.53 "IRS" shall mean the Internal Revenue Service.
1.54 "Kinser Note" shall mean an interest-free promissory note issued by
Kinser in favor of EFI in the principal amount of seven hundred thousand dollars
($700,000) in the form attached hereto as Annex F.
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1.55 "Land" shall have the meaning set forth in Section 3.05(a).
1.56 "LP Interest" shall mean a limited partnership interest in GSHA.
1.57 "Managed Association" shall mean any Association that is managed by
any Seller or any Acquired Company in connection with the Acquired Business.
1.58 "Merger" shall have the meaning set forth in Section 2.01(a).
1.59 "Merger Consideration" shall have the meaning set forth in Section
2.01(d)(x)
1.60 "Mortgage" means a mortgage, deed of trust or similar security
instrument (including, without limitation, any security agreement entered into
in connection with or a part of any purchase agreement or any installment sales
contract relating to the sale of a VOI), creating a first and prior lien on a
VOI or a purchaser's beneficial interest therein, as applicable, and securing a
purchase money loan to acquire a VOI, which loan is evidenced by a promissory
note or installment note.
1.61 "Ordinary Course of Business" shall mean in the ordinary course of
the relevant Acquired Company, consistent with its past practices.
1.62 "Party" or "Parties" shall mean those Persons who are party to this
Agreement.
1.63 "Peppertree Note" shall mean that promissory note issued by
Peppertree in favor of Kinser in the principal amount of four million one
hundred thirty-three thousand eight dollars ($4,133,008), accruing interest at
an annual rate of seven percent (7%), and maturing on January 2, 2003.
1.64 "Peppertree Vacation Club" means Peppertree Vacation Club, Inc., a
North Carolina non-profit corporation.
1.65 "Permits" shall mean all governmental licenses, permits,
certificates, orders, development orders, franchises, waivers, approvals and
authorizations necessary for the current conduct of the Acquired Companies,
including, without limitation, building permits, timeshare registrations, liquor
licenses, zoning approvals, and permits issued or required under Environmental
Laws.
1.66 "Permitted Deduction" shall have the meaning set forth in Section
2.04(a)(i).
1.67 "Permitted Encumbrance" shall mean (i) liens imposed by law for
Taxes, assessments or charges of any governmental authority that are not yet due
and payable or are being contested in good faith by proper proceedings (and in
each case as to which adequate reserves or other appropriate provisions are
being maintained in accordance with GAAP); (ii) liens incurred in the Ordinary
Course of Business in connection with workers' compensation, unemployment
insurance and other types of social security benefits or to secure the
performance of tenders, bids, leases, contracts, statutory obligations and other
similar obligations; (iii) easements (including, without limitation, reciprocal
easement agreements and utility agreements), rights-of-way, covenants, consents,
reservations, encroachments, variations and zoning and other restrictions,
charges, or encumbrances (whether or not recorded) which in the aggregate are
not material in amount, and which do not interfere materially with the ordinary
conduct of the business of the Acquired Companies and which do not detract
materially from the property to which they attach or impair materially the use
thereof by the Acquired Companies; (iv) the Encumbrances described in Section
1.67 of the Disclosure Schedule or set forth on the Title Policies or Title
Commitments (other than general exceptions relating to surveys) attached to the
Disclosure Schedule or any other Encumbrances disclosed in the Disclosure
Schedules; and (v) extensions, renewals or replacements of any lien referred to
in clauses (i) through (iv) above.
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1.68 "Person" shall mean any individual, corporation (including non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Taxing Authority.
1.69 "PHC" shall have the meaning set forth in the introductory paragraph
of this Agreement.
1.70 "Purchase and Option Agreements" shall have the meaning set forth in
Section 3.05(b).
1.71 "Purchasers" shall mean, collectively, EFI and the Newcos.
1.72 "Purchaser Material Adverse Effect" shall mean any change, event or
effect that, individually or when taken together with all other changes, events
or effects that have occurred prior to the date of determination, is or is
reasonably likely to be materially adverse to the business, operations,
prospects, properties, assets (including intangible assets), liabilities
(including contingent liabilities), condition (financial or otherwise), or
results of operations of the Purchasers, taken as a whole, or on the ability of
the Purchasers to consummate the transactions contemplated by this Agreement.
1.73 "PRVI" shall have the meaning set forth in the recitals of this
Agreement.
1.74 "PRVI Stock" shall mean all of the issued and outstanding shares of
capital stock of PRVI.
1.75 "Real Property" shall have the meaning set forth in Section 3.05(a).
1.76 "Realty" shall have the meaning set forth in the recitals to this
Agreement.
1.77 "Realty Stock" shall mean all of the issued and outstanding shares of
capital stock of Realty.
1.78 "Records" shall mean all records related to the Acquired Companies,
including without limitation customer and vendor lists, and all files and
documents (including credit and sales records and information) relating to
customers, employees, suppliers, and vendors of the Acquired Companies,
Association members, and all other business and financial records, files, books,
and documents of the Acquired Companies and the Managed Associations, including
without limitation manuals and data, sales, marketing and advertising materials,
sales distribution and purchase correspondence (in whatever form, whether
documentary, computer storage or otherwise).
1.79 "Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of the Closing Date by and among EFI, Kinser, John McFarland,
Herbert Patrick, Jr., Don Clayton and the Stockholders, substantially in the
form attached hereto as Annex G.
1.80 "Related Agreements" shall mean the Guaranty Agreement, Registration
Rights Agreement, Release Agreements, EFI Note, Consulting Agreement, Fontana
Consulting Agreement, GSHA Note, Fontana Note, Peppertree Note, Retained
Earnings Note, Kinser Note and Phase-Out Agreement (substantially in the form
attached hereto as Annex H).
1.81 "Release Agreement" means an agreement, substantially in the form
attached hereto as Annex I, from each of John McFarland, Herbert Patrick, Jr.
and Don Clayton.
1.82 "Representatives" shall mean, as to any natural person, such person's
financial advisors, attorneys, accountants, agents, and affiliates, and, as to
any entity, such entity's officers, directors, managers, partners, employees,
financial advisors, attorneys, accountants, agents, and affiliates.
1.83 "Retained Earnings Note" shall mean that promissory note issued by
PRVI in favor of Kinser in the principal amount of two million eight hundred ten
thousand eight hundred fifty-four dollars ($2,810,854) representing the retained
earnings of certain Company Subsidiaries.
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1.84 "Second Closing" shall have the meaning given it in Section 9.01A.
1.85 "Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder, as in effect from time to
time.
1.86 "Sellers" shall mean Kinser, PHC and the Stockholders.
1.87 "Sellers' Knowledge" shall mean (a) the actual knowledge of Kinser,
the Executive Officers and other Persons listed on the Disclosure Schedule, and
(b) the knowledge that any of the Persons described in clause (a) should have
obtained in the reasonably prudent exercise of his or her duties as an officer
or director of PHC or one or more of the Acquired Companies.
1.88 "Software" means any computer program, operating system, applications
system, firmware or software of any nature, whether operational, under
development or inactive, including, but not limited to, all object code, source
code, technical manuals, user manuals and other documentation therefor, whether
in machine-readable form, programming language or any other language or symbols,
and whether stored, encoded, recorded or written on disk, tape, film, memory
device, paper or other media of any nature.
1.89 "State" shall mean any state or territory of the United States,
including the District of Columbia and the U.S. Virgin Islands.
1.90 "State Governing Statutes" shall mean the statutes and regulations of
each of North Carolina, South Carolina, Tennessee, Missouri, Wisconsin and
Virginia that govern the sale and operation of VOIs.
1.91 "State Regulatory Authorities" shall mean the government agencies
governing sales of VOIs in each of North Carolina, South Carolina, Tennessee,
Missouri, Wisconsin and Virginia.
1.92 "Stockholder" shall have the meaning set forth in the introductory
paragraph of this Agreement.
1.93 "TNW Certificate" shall have the meaning set forth in Section
2.03(c)(i).
1.94 "Tangible Net Worth" shall mean the total net worth of the Acquired
Companies as reflected on the books and records of the Acquired Companies as of
the Closing Date and as determined according to GAAP applied on a consistent
basis, except that goodwill shall be excluded in determining such total net
worth.
1.95 "Tangible Net Worth Adjustment" shall have the meaning set forth in
Section 2.03(c)(i).
1.96 "Threshold Amount" shall have the meaning set forth in Section
10.03(a).
1.97 "Title Policies" shall have the meaning set forth in Section 7.09(b).
1.98 "Upward Adjustment" shall have the meaning set forth in Section
2.03(a).
1.99 "VOI Business" shall mean the business of developing, marketing, and
managing resort properties that offer VOIs.
1.100 "VOI Inventory" shall mean (i) the VOIs owned by any of the Acquired
Companies, and consisting of those VOIs set forth on the Disclosure Schedule,
(ii) all VOIs owned by any of the Acquired Companies recovered through
foreclosure, deed in lieu of foreclosure, or similar reconveyance on or prior to
the Closing Date, (iii) all Vacation Ownership Units at any of the properties
owned by any of the Acquired Companies completed before the Closing Date, less
and except those VOIs deeded by any of the Acquired Companies in the Ordinary
Course of Business
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prior to the Closing Date, and (iv) all other VOIs titled in the Acquired
Companies (including those which may be subject to a contract or option to
purchase) as of the Closing Date.
1.101 "VOI Receivables" shall mean promissory notes, contracts for deed,
mortgages, deeds of trust, and any and all related documentation evidencing the
sale of VOIs by any of the Acquired Companies to purchasers.
1.102 "VWAP" shall mean the volume-weighted average trading price of the
EFI Common Stock during the twenty (20) business days preceding a particular
measuring date.
1.103 "Vacation Ownership Intervals" or "VOIs" shall mean timeshare
ownership intervals or Peppertree Vacation Club memberships.
1.104 "Vacation Ownership Units" shall mean, collectively, residential
accommodations comprising a portion of the Real Property which are either
subject to VOIs or available to be dedicated to time share regimes.
ARTICLE II
PLAN OF MERGER; PURCHASE AND SALE
2.01 The Merger.
(a) The Merger.
(i) Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Delaware General Corporation Law and
the North Carolina Business Corporation Act (together, the "State Corporation
Laws"), at the Effective Time, Newco I shall be merged with and into the Company
(the "Merger"). The Company and Newco I, as they exist before the Effective
Time, are sometimes referred to as the "Constituent Corporations." The Company,
as it exists from and after the Effective Time, is sometimes referred to as the
"Surviving Corporation."
(ii) The Merger shall become effective at the time of filing
of properly executed articles of merger in the form required by, and executed in
accordance with, the State Corporation Laws. The Parties shall cause such
filings to be made as soon as practicable after the Closing. As used herein, the
term "Effective Time" shall mean the date and time at which the Merger shall
become effective.
(b) Effects of the Merger. The Merger shall have the effects
provided therefor by the State Corporation Laws. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time (i) all the rights,
privileges, immunities, powers and franchises, of a public as well as of a
private nature, and all property, real, personal and mixed, and all debts due on
whatever account, including without limitation subscriptions to shares, and all
other choses in action, and all and every other interest of or belonging to or
due to the Company or Newco I shall be taken and deemed to be transferred to,
and vested in, the Surviving Corporation without further act or deed; and all
property, rights and privileges, immunities, powers and franchises and all and
every other interest shall be thereafter the property of the Surviving
Corporation, as they were of the Company and Newco I, and (ii) all debts,
liabilities, duties and obligations of the Company and Newco I, subject to the
terms hereof, shall become the debts, liabilities and duties of the Surviving
Corporation and the Surviving Corporation shall thenceforth be responsible and
liable for all the debts, liabilities, duties and obligations of the Company and
Newco I and neither the rights of creditors nor any liens upon the property of
the Company or Newco I shall be impaired by the Merger, and may be enforced
against the Surviving Corporation.
(c) Articles of Incorporation; Bylaws; Directors and Officers. The
Articles of Incorporation of the Surviving Corporation from and after the
Effective Time shall be the Articles of Incorporation of the Company until
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thereafter amended in accordance with the provisions therein and as provided by
the applicable provisions of the State Corporation Laws. The Bylaws of the
Surviving Corporation from and after the Effective Time shall be the Bylaws of
the Company in effect immediately prior to the Effective Time, continuing until
thereafter amended in accordance with their terms and the Articles of
Incorporation of the Surviving Corporation and as provided by the State
Corporation Laws. The initial directors of the Surviving Corporation shall be:
Richard C. Breeden, Richard G. Winkler and John McFarland, and the initial
officers of the Surviving Corporation shall be the officers of the Company
immediately prior to the Effective Time, with the addition of Richard C. Breeden
as Chief Executive Officer and Richard G. Winkler as Assistant Secretary and
General Counsel of the Surviving Corporation, each to hold office in accordance
with the Articles of Incorporation and Bylaws of the Surviving Corporation.
(d) Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of EFI, Newco I, the Company,
Kinser or either Stockholder, the shares of capital stock of each of the
Constituent Corporations shall be converted as follows:
(i) Capital Stock of Newco I. Each issued and outstanding
share of capital stock of Newco I shall continue to be issued and outstanding
and shall be converted into one share of validly issued, fully paid and
non-assessable common stock of the Surviving Corporation. Each stock certificate
of Newco I evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.
(ii) Cancellation of Certain Shares of Capital Stock of the
Company. All shares of capital stock of the Company that are owned directly or
indirectly by the Company shall be canceled and no stock of EFI or other
consideration shall be delivered in exchange therefor.
(iii) Conversion of Capital Stock of the Company. Subject to
the adjustment as provided herein, each share of Company Stock (other than
shares to be canceled pursuant to Section 2.01(d)(ii)) that is issued and
outstanding immediately prior to the Effective Time shall automatically be
canceled and extinguished and converted, without any action on the part of the
holder thereof, into the right to receive that number of shares of EFI common
stock, $.01 par value ("EFI Common Stock"), cash and an EFI Note that is equal
in value to the Merger Consideration (as defined in Section 2.01(d)(x)), divided
by the number of shares of Company Stock outstanding immediately prior to the
Effective Time (other than shares to be canceled pursuant to Section
2.01(d)(ii)). All such shares of Company Stock, when 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 representing any such shares
shall cease to have any rights with respect thereto, except the right to receive
cash and the shares of EFI Common Stock to be issued in consideration therefor
upon the surrender of such certificate in accordance with this Section 2.01(d).
The Stockholders hereby notify EFI of their request to receive all of their
share of the Merger Consideration in the form of EFI Common Stock. Kinser hereby
notifies EFI of his request to receive the balance of the Merger Consideration
in EFI Common Stock, cash and EFI Notes after compliance with the Stockholders'
request for stock consideration.
(iv) EFI to Provide Merger Consideration. In exchange for the
outstanding shares of capital stock of the Company, EFI shall cause to be made
available to Kinser and the Stockholders the Merger Consideration. The
certificates evidencing the EFI Common Stock comprising the Merger Consideration
shall bear appropriate legends pursuant to the terms of this Agreement, and EFI
shall be entitled to issue appropriate stop transfer instructions to its
transfer agent consistent with the terms of this Agreement.
(v) Certificate Delivery Requirements. At the Effective Time,
Kinser and the Stockholders shall deliver to EFI the certificates (the
"Certificates") representing the Company Stock, duly endorsed in blank, or
accompanied by blank stock powers duly executed and with all necessary transfer
tax and other revenue stamps, acquired at Kinser's and the Stockholders'
expense, affixed and canceled. Kinser and the Stockholders shall promptly cure
any deficiencies with respect to the endorsement of the Certificates or other
documents of conveyance with respect to the stock powers accompanying such
Certificates. The Certificates so delivered shall forthwith be canceled.
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(vi) No Further Ownership Rights in Capital Stock of the
Company. All EFI Common Stock and cash to be delivered upon the surrender for
exchange of shares of Company Stock in accordance with the terms hereof shall be
deemed to have been delivered in full satisfaction of all rights pertaining to
such shares of Company Stock, and following the Effective Time, the Certificates
shall have no further rights to, or ownership in, shares of capital stock of the
Company. There shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Company Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Section 2.01.
(vii) Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of Company Stock shall have been lost, stolen or
destroyed, EFI shall issue in exchange for such lost, stolen or destroyed
certificates, upon the making of an affidavit of that fact by the holder
thereof, such shares of EFI Common Stock as provided in Section 2.01(d)(iii);
provided, however, that EFI may, in its discretion and as a condition precedent
to the issuance thereof, require the owner of such lost, stolen or destroyed
certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against EFI with respect to the
certificates alleged to have been lost, stolen or destroyed.
(viii) No Liability. Notwithstanding anything to the contrary
in this Section 2.01, none of the Surviving Corporation or any Party shall be
liable to a holder of shares of Company Stock for any amount paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(ix) Tax Treatment. It is intended that the Merger constitute
a reorganization of Newco I and the Company within the meaning of Section 368 of
the Code. The Parties adopt this Agreement as a "Plan of Reorganization" of
Newco I and the Company within the meaning of Sections 1.368-2(g) and 1.368-3(a)
of the U.S. Treasury Regulations.
(x) Merger Consideration. "Merger Consideration" shall mean
2,193,633 shares of EFI Common Stock, two million two hundred forty-seven
thousand six hundred forty dollars ($2,247,640) in cash, an EFI Note in the
principal amount of one hundred thirty-three thousand dollars and eight
($133,008), and the Deferred Payout. The shares of EFI Common Stock comprising
the Merger Consideration paid to Kinser and the Stockholders shall be subject to
such transfer restrictions as set forth in the Registration Rights Agreement.
2.02 Purchase and Sale.
(a) Conveyance. Upon the terms and subject to the conditions of this
Agreement, on the Closing Date:
(i) Kinser shall sell, transfer, convey, assign and deliver
(or cause to be sold, transferred, conveyed, assigned and delivered) to Newco
II, and Newco II shall purchase, acquire and accept from Kinser, all of his
right, title and interest in and to the Realty Stock, free and clear of all
Encumbrances;
(ii) each of the Stockholders shall sell, transfer, convey,
assign and deliver (or cause to be sold, transferred, conveyed, assigned and
delivered) to EFI, and EFI shall purchase, acquire and accept from each such
Stockholder, all of its right, title and interest in and to the PRVI Stock, free
and clear of all Encumbrances; and
(iii) Kinser shall sell, transfer, convey, assign and deliver
(or cause to be sold, transferred, conveyed, assigned and delivered) to Newco
II, and Newco II shall purchase, acquire and accept from Kinser or such other
Person, all of his or her right, title and interest in and to the Acquired
Assets, free and clear of all Encumbrances.
(b) Closing.
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(i) Consideration. The total consideration for the Acquired
Ownership Interests (other than the Company, the LP Interest and the GP
Interest), the Acquired Assets, the Aircraft Interest and the restrictive
covenants set forth in Section 5.07, shall be two million seven hundred
twenty-five thousand dollars ($2,725,000) in cash (the "Cash Consideration"),
payable in immediately available funds at Closing by wire transfer of federal
funds to a bank and for an account to be designated by Kinser.
(ii) Other Transactions. At the Closing, EFI shall also lend to
Kinser seven hundred thousand dollars ($700,000) in cash, which loan shall be
represented by the Kinser Note. At the Closing, the Company shall also repay in
cash one hundred thirty-three thousand eight dollars ($133,008) of the existing
Peppertree Note. At the Closing, the Company shall pay Kinser two million eight
hundred ten thousand eight hundred fifty-four dollars ($2,810,854) in full
satisfaction of the Retained Earnings Note.
(c) Second Closing. If the Holiday Inn Consent is obtained prior to
December 31, 1999, then, at the Second Closing, (i) Kinser shall sell, transfer,
convey, assign and deliver (or cause to be sold, transferred, conveyed, assigned
and delivered) to Newco II, and Newco II shall purchase, acquire and accept from
Kinser, all of his right, title and interest in and to a fourteen percent (14%)
LP Interest, free and clear of all Encumbrances; (ii) Kinser shall sell,
transfer, convey, assign and deliver (or cause to be sold, transferred,
conveyed, assigned and delivered) to EFI, and EFI shall purchase, acquire and
accept from Kinser, all of his right, title and interest in and to a one percent
(1%) LP Interest, free and clear of all Encumbrances; and (iii) PHC shall sell,
transfer, convey, assign and deliver (or cause to be sold, transferred,
conveyed, assigned and delivered) to Newco II, and Newco II shall purchase,
acquire and accept from PHC, all of PHC's right, title and interest in and to
the eighty-five percent (85%) GP Interest, free and clear of all Encumbrances.
The consideration for the purchase of GSHA shall be the issuance to Kinser, PHC
or their designees of the EFI Note in principal amount of four million dollars
($4,000,000). At the Second Closing, EFI shall assign the Kinser Note to the
Company and the Company shall assign the Kinser Note to Kinser in satisfaction
of a portion of the Peppertree Note equal to the outstanding principal and
interest on the Kinser Note. At the Second Closing, EFI shall also repay in cash
the remaining three million three hundred thousand dollars ($3,300,000) of the
Peppertree Note. From and after the Second Closing, Kinser's obligation to
guaranty the GSHA Note shall terminate and be of no further force and effect.
(d) No Second Closing. If the Second Closing has not occurred by December
31, 1999, then, on January 1, 2000,
(i) Kinser shall assign to Fontana Village, Inc., a portion of the
Peppertree Note equal to the outstanding principal and unpaid interest on the
Fontana Note and Fontana Village, Inc., shall assign such portion of the
Peppertree Note to Peppertree in satisfaction of the Fontana Note;
(ii) Kinser shall assign the greater of (A) $300,000 of the
outstanding principal of the Peppertree Note or (B) an amount of principal of
the Peppertree Note by which the outstanding principal and unpaid interest on
the GSHA Note exceeds $3,300,000 to GSHA and GSHA shall assign such portion of
the Peppertree Note to Peppertree to reduce such amount of unpaid interest and
outstanding principal on the GSHA Note;
(iii) Kinser shall assign an amount of the outstanding principal and
unpaid interest, if any, of the Peppertree Note equal to the outstanding
principal on the Kinser Note, or such lesser amount if the outstanding principal
and unpaid interest on the Peppertree Note is less than the outstanding
principal on the Kinser Note, to EFI to reduce the amount of outstanding
principal of the Kinser Note;
(iv) If any outstanding principal shall remain on the Kinser Note,
Kinser shall assign an amount of the outstanding principal of the EFI Note equal
to the outstanding principal and unpaid interest, if any remaining, on the
Kinser Note, to EFI to reduce the outstanding principal and unpaid interest on
the Kinser Note, and Kinser shall pay any remaining outstanding principal on the
Kinser Note to EFI;
(v) Kinser shall cancel any remaining outstanding principal and
interest of the EFI Note as a purchase price reduction for the failure to
consummate all the transactions contemplated by this Agreement;
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and Kinser shall cancel the remainder, if any, of the outstanding principal and
interest of the Peppertree Note held by Kinser.
2.03 Aggregate Purchase Price Adjustments. Notwithstanding anything to
the contrary in this Article II, the Aggregate Purchase Price shall be adjusted
as follows:
(a) DTL Adjustment.
(i) The "Downward Adjustment" shall be equal to the amount as
of the Closing Date by which the aggregate deferred income tax liability with
respect to installment sale receivables (as determined under the rules of
Financial Accounting Standards Board (FASB) Statement No. 109) of the Acquired
Companies as reflected on the books and records of the Acquired Companies as of
such date, the "Deferred Tax Liability Accrual", exceeds fourteen million four
hundred thousand dollars ($14,400,000), the "DTL Target", as jointly determined
by EFI and Kinser. The "Upward Adjustment" shall be equal to twenty percent
(20%) of the amount, if any, as of the Closing Date by which the DTL Target
exceeds the Deferred Tax Liability Accrual, as jointly determined by EFI and
Kinser. The Upward Adjustment shall be paid fifteen percent (15%) in cash and
eighty-five percent (85%) in shares of EFI Common Stock valued at the VWAP as of
the date the Upward Adjustment is paid; provided, however, that EFI shall not be
required to pay more than two hundred fifty thousand dollars ($250,000) of any
such amount in cash at the Closing. EFI and Kinser shall attempt, in good faith,
to determine the Downward Adjustment or the Upward Adjustment, as the case may
be, prior to the Closing Date. None of the transactions, payments, or
obligations reflected in this Agreement shall have any effect for purposes of
determining the Deferred Tax Liability Accrual.
(ii) Pursuant to subparagraph (i) of this Section 2.03(a), EFI
and Kinser jointly agree that the Deferred Tax Liability Accrual as of the
Closing Date is $14,400,000.
(iii) Notwithstanding that EFI and Kinser may jointly agree
upon the Deferred Tax Liability Accrual, in the event that Actual Installment
Taxes are greater than the amount agreed upon by EFI and Kinser in connection
with the determination of the Deferred Tax Liability Accrual, Kinser shall
remain liable to EFI for, and shall pay to EFI, the excess of Actual Installment
Taxes over the Deferred Tax Liability Accrual so determined. Conversely, if
Actual Installment Taxes are less than the amount agreed upon by EFI and Kinser,
EFI shall pay to Kinser an amount equal to twenty percent (20%) of the excess of
the Deferred Tax Liability Accrual so determined over Actual Installment Taxes.
All payments shall only be made if, when and to the extent all components of the
Deferred Tax Liability Accrual have been recognized and such excess is
determined.
(b) Tangible Net Worth Adjustment.
(i) On the latest of (i) ninety (90) days after the Closing
Date, (ii) forty-five (45) days after the Second Closing Date, or (iii) ten (10)
days after delivery to EFI of the 1999 audited financial statements of EFI, EFI
shall deliver to Kinser a certificate (the "TNW Certificate") setting forth the
Tangible Net Worth, as calculated by EFI's independent auditors pursuant to
agreed upon procedures to be performed at the request of EFI. If, within ten
(10) business days of receiving the TNW Certificate, Kinser has a good faith
dispute about the calculation, Kinser shall so notify EFI within the ten
business day period and shall have the right to have a nationally recognized
accounting firm calculate the Tangible Net Worth, at Kinser's expense. Kinser's
accounting firm shall deliver its calculation to EFI within forty-five (45) days
of Kinser's notice to EFI. Unless, within ten (10) business days of receiving
Kinser's accounting firm's calculation, EFI notifies Kinser that it concurs with
such calculation, EFI and Kinser shall select a mutually acceptable nationally
recognized accounting firm to calculate the Tangible Net Worth, whose
calculation shall be made within ninety (90) days of its selection and shall be
final and binding upon EFI and Kinser and whose expenses shall be shared equally
between EFI and Kinser. EFI shall provide Kinser, with access to such financial
records as are reasonably necessary to calculate the Tangible Net Worth. If the
Tangible Net Worth (as finally calculated) is less than the sum of (x) the
Tangible Net Worth of the Acquired Companies as of December 31, 1998, as
reflected on the Annual Financial Statements plus (y) 100% of the Acquired
Companies' after-tax earnings for 1999 as of the date immediately prior to the
Closing Date using GAAP (which after-tax earnings shall be calculated by
expensing the $9,395,000 charge to operations associated with the recording of a
deferred tax liability as of January 1, 1999, to reflect the revocation of
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subchapter S corporation elections by certain of the Acquired Companies), Kinser
shall pay the amount of the deficiency (the "Tangible Net Worth Adjustment")
within ten (10) business days of the determination of the Tangible Net Worth
Adjustment.
2.04 Deferred Payout. EFI shall pay to Kinser and the Stockholders a
deferred payout on June 30, 2000 (the "Deferred Payout"). The amount of the
Deferred Payout shall be three million five hundred thousand dollars
($3,500,000). The Deferred Payout shall be paid by EFI as follows: $560,000 in
cash and $2,940,000 in shares of EFI Common Stock, valued at the VWAP of the EFI
Common Stock as of June 29, 2000; provided, however, the maximum number of
shares of EFI Common Stock that will be issued to Kinser in partial satisfaction
of the Deferred Payout shall not exceed the number of shares of EFI Common Stock
that is included in the Merger Consideration delivered at the Closing.
2.05 Fontana Note. Peppertree Fontana Village, Inc. shall not be relieved
of its obligation to the Company under the Fontana Note to pay the principal
amount plus accrued interest thereon through and including the Closing Date
(which amount shall be at least $2,990,650 as of the Closing Date); provided,
however, that the Fontana Note shall be modified to provide for the payment of
interest, on the outstanding principal balance on a quarterly basis, at an
annual rate of seven percent (7%), a maturity date of March 31, 2001,
acceleration upon a change in control of Peppertree Fontana Village, Inc., and
the right to offset payments due under the Fontana Note with amounts that may be
due Kinser on account of the EFI Note. Kinser shall guaranty the obligations of
Peppertree Fontana Village, Inc. under the Fontana Note and of GSHA under the
GSHA Note in accordance with the Guaranty Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
To induce Purchasers to enter into this Agreement and consummate the
transactions contemplated hereby, Kinser represents and warrants to Purchasers,
and each of the Stockholders, severally but not jointly and solely with respect
to the representations and warranties in Section 3.03 (Authorization),
represents and warrants as to itself to Purchasers on and as of the Closing Date
unless otherwise expressly noted herein, as follows:
3.01 Organization.
(a) Each of the Acquired Companies is an entity duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, is qualified or registered to do business and is in good standing
as a foreign corporation in each jurisdiction in which the character of its
properties (owned or leased) or the nature of its activities makes such
qualification or registration necessary (except where the failure to be so
qualified or registered would not have an Acquired Company Material Adverse
Effect), and has the requisite corporate (in the case of an Acquired Company
that is a corporation) or other power and authority to own or lease and operate
its properties and assets as and where the same are owned or leased and operated
and to carry on its business as currently conducted.
(b) Except as set forth on the Disclosure Schedule, there are no
Associations for any of the properties or the resorts owned or managed by the
Acquired Companies. Except where the failure would not have an Acquired Company
Material Adverse Effect, each Association has been duly formed, is validly
existing under the laws of the jurisdiction of its organization, is qualified
and in good standing, with the requisite power and authority to own or lease and
operate its properties and assets as and where the same are owned or leased and
operated and to carry on its business as currently conducted. Except as set
forth on the Disclosure Schedule, no Managed Association is insolvent or has any
material funding deficiency, and each Managed Association has been and is
currently being operated in accordance with applicable governing documents and
applicable law; provided, that, with respect to any Association that is not
controlled by an Acquired Company, Kinser or PHC, the representations in this
Section 3.01(b) are made to Sellers' Knowledge; and provided further, for these
purposes, an Association shall be deemed to be controlled by a
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Person if the Person has the statutory right to elect or appoint a majority of
the members of the Association's board of directors or other governing body.
3.02 Articles of Incorporation, Bylaws and Agreements. The Acquired
Companies have provided (or caused to be provided) to EFI complete and correct
copies of the articles of incorporation, bylaws or other organizational
documents of each Acquired Company and PHC, together with all amendments
thereto. None of the Acquired Companies or PHC is in violation in any material
respect of such organizational documents. There are no agreements by and between
or among Kinser, PHC the Stockholders, the Acquired Companies or any Association
imposing any restrictions upon the transfer of, or otherwise pertaining to, the
Acquired Business or the Acquired Ownership Interests, each as amended to and as
in effect on the date hereof.
3.03 Authorization. Each of the Sellers has the legal right and capacity
and the requisite power and authority to enter into this Agreement and each
Related Agreement (to the extent such Seller is a party thereto) and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by each of the Sellers of this Agreement and the
Related Agreements, and the consummation of the transactions contemplated hereby
and thereby, have been duly and validly authorized by all necessary corporate
and individual action on the part of each of the Sellers. This Agreement and
each of the Related Agreements have been duly executed and delivered by each of
the Sellers (to the extent such Seller is a party thereto), and assuming the due
authorization, execution and delivery by EFI and each Newco, constitute or will
constitute valid and binding obligations of each Seller (to the extent such
Seller is a party thereto) enforceable against such Seller in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to the enforcement of
creditors' rights generally and subject to general principles of equity.
3.04 Financial Statements and Absence of Changes.
(a) The Acquired Companies have provided (or caused to be provided)
to EFI complete and correct copies of the audited balance sheets of each of the
Acquired Companies for their respective three calendar years ended December 31,
1996, 1997, and 1998, and the related statements of income, retained earnings,
and cash flow of such entities, together with all related notes and schedules
thereto, accompanied by the reports thereon (collectively referred to herein as
the "Annual Financial Statements"). The Acquired Companies have provided (or
caused to be provided) to EFI complete and correct copies of the unaudited
balance sheets of each of the Acquired Companies for their respective six months
ended June 30, 1999, and the related statements of income and retained earnings,
and the unaudited balance sheets of each of the Acquired Companies for their
respective ten (10) months ended October 31, 1999, and the related statements of
income and retained earnings (the "October 31, 1999 Financial Statements")
(collectively referred to herein as the "Interim Financial Statements" and,
together with the Annual Financial Statements, the "Financial Statements"). The
Financial Statements: (i) present fairly in all material respects the financial
condition, results of operations, and cash flows of the business of each of the
Acquired Companies as of the dates thereof or for the periods covered thereby;
(ii) were prepared in accordance with GAAP applied on a basis consistent with
the past practices of the Acquired Companies, as applicable, except as set forth
on the Disclosure Schedule; (iii) were prepared in accordance with the books of
account and other financial records of the Acquired Companies, as applicable;
and (iv) include all adjustments (consisting only of normal recurring accruals)
that are necessary for a fair presentation, in all material respects, of the
financial condition of each such business and the results of the operations, and
cash flows thereof as of the dates thereof or for the periods covered thereby.
The Acquired Assets are reflected in the Financial Statements of the Acquired
Companies.
(b) The books of account and other financial records of each
Acquired Company: (i) reflect all items of income and expense and all assets and
liabilities required to be reflected therein in accordance with GAAP applied on
a basis consistent with the past practices of the Acquired Companies, as
applicable; (ii) are in all material respects complete and correct, and do not
contain or reflect any material inaccuracies or discrepancies; and (iii) have
been maintained in accordance with good business and accounting practices.
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(c) Except as set forth on the Disclosure Schedule, since December
31, 1998, there has not been any change in, or effect on, any Acquired Company
that is reasonably likely to be an Acquired Company Material Adverse Effect.
3.05 Title to and Condition of Real Property.
(a) The Disclosure Schedule sets forth: (i) a description of all
real property that is owned by the Acquired Companies or that constitutes an
Acquired Asset (collectively, the "Real Property"), which description includes:
(A) the land comprising the Real Property and all buildings, improvements,
structures, and fixtures located thereon (the "Improvements") (including the
owner thereof, whether an Acquired Company, Kinser, PHC, an Affiliate thereof or
other entity), and all easements, rights-of-way, benefits, hereditaments, and
appurtenances thereto and covenants and restrictions thereon (the "Land"); (B)
all Vacation Ownership Units that have been constructed on the Land (including
all undivided interests with respect thereto), as well as a list of
substantially all VOI Inventory that have not been sold and that are owned by
any of the Acquired Companies as of November 10, 1999; and (C) all material
construction in progress of the Acquired Companies on the Real Property as of
the Execution Date; and (ii) a list of all material real property leases
(including, without limitation, ground leases and subleases), material
easements, material licenses or similar material possessory agreements
("Leases"), pursuant to which Kinser or PHC, or any of their Affiliates (in
connection with the Acquired Business) and/or the Acquired Companies is a party
or uses or occupies real property, correct and complete (in all material
respects) copies of which have been delivered to EFI by the Acquired Companies.
Except as set forth on the Disclosure Schedule, the Acquired Companies have good
and marketable (including, without limitation, ground leases and subleases) fee
simple or leasehold title to all Real Property, including VOI Inventory, and
good title to all other assets reflected in the Financial Statements or
currently owned, and such Real Property and other assets are free and clear of
all Encumbrances (except for Permitted Encumbrances). The Real Property as well
as the property that is subject to the Leases constitutes all of the real
property used, intended to be used or held for use in connection with, necessary
for the conduct of, or otherwise material to the Acquired Business as conducted
on the date hereof.
(b) As of the Execution Date, except as set forth on the Disclosure
Schedule hereto: none of the Acquired Companies, Kinser or PHC (in connection
with the Acquired Business) (i) owns any interest in any real property or any
leasehold interest therein or (ii) has entered into any agreements to acquire
any additional real property ("Purchase and Option Agreements"); and there are
no payments due on any Purchase and Option Agreement during the ninety (90) days
following the Closing. Except as set forth on the Disclosure Schedule, with
respect to the Leases and the Purchase and Option Agreements, there is no
existing material breach or event of default on the part of the Acquired
Companies, Kinser or PHC, and, to Sellers' Knowledge, no event has occurred
that, with notice or the passage of time, would constitute a material breach and
an event of default on the part of the Acquired Companies, Kinser or PHC, or
permit termination, cancellation, modification or acceleration that, in either
case, would have an Acquired Company Material Adverse Effect. To Sellers'
Knowledge, the Leases and the Purchase and Option Agreements are in full force
an effect and are valid and binding instruments, enforceable in accordance with
their respective terms (subject to bankruptcy, insolvency and other similar laws
or equitable principles relating to, affecting or qualifying the rights of
creditors generally) and all rental and other payments currently due under each
of the Leases and all option and other payments currently due under each of the
Purchase and Option Agreements have been duly paid or are outstanding for fewer
than thirty (30) days.
(c) Except as set forth in the Disclosure Schedule, there is no
pending or, to Sellers' Knowledge, threatened (i) condemnation, eminent domain
or similar proceeding with respect to any Real Property or (ii) applications or
proceedings to alter or restrict any zoning or other use restrictions applicable
to the Real Property that would have an Acquired Company Material Adverse
Effect. Except as set forth in the Disclosure Schedule, there are no pending or,
to Sellers' Knowledge, threatened liens, special assessments, condemnations,
impositions or increases in assessed valuations with respect to or against any
of the Real Property by any governmental authority. Except as set forth in the
Disclosure Schedule, neither the Real Property nor the record owners thereof are
in violation or non-compliance with any easements, restrictive covenants or
other matters of record affecting the Real Property or any part thereof, except
to the extent any such violation would not have an Acquired Company Material
Adverse Effect. The current zoning classifications of the Real Property are as
set forth in the Disclosure Schedule, and except as set forth in
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the Disclosure Schedule, and except as set forth in the Disclosure Schedule, the
current use of each Real Property is a conforming, permitted use under its
respective zoning classification, and does not otherwise violate any private
covenant or restriction, ordinance or other similar regulation affecting the
Real Property, except to the extent any such violation would not have an
Acquired Company Material Adverse Effect. PRVI does not own any Real Property
which has not been properly and legally subdivided under applicable subdivision
laws to the extent required for the conduct of the Acquired Business.
(d) Except as set forth in the Disclosure Schedule, none of Kinser,
PHC or the Acquired Companies has (i) granted any outstanding options or rights
of first refusal to purchase or lease any of the Real Property, or any portion
thereof or interest therein, (ii) entered into any agreement to sell or
otherwise convey any of the Real Property or any portion thereof or interest
therein, except in the Ordinary Course of Business, or (iii) entered into any
lease of any of the Real Property, or any portion thereof or interest therein.
(e) Except as set forth on the Disclosure Schedule, no portion of
the Real Property or any interest of Kinser, PHC or the Acquired Companies
therein has been alienated, encumbered, conveyed or otherwise transferred except
for Consumer Interval Sales and the financing thereof in the Ordinary Course of
Business. Except as set forth on the Disclosure Schedule, there are no
agreements (whether oral or written) to sell, convey or transfer any VOIs,
except sales and financing of VOIs in the Ordinary Course of Business.
(f) Kinser and the Acquired Companies have made or caused to be made
available to EFI complete and correct copies of each deed for each parcel of
Real Property vesting fee simple ownership of such Real Property in the
applicable Acquired Company and all the title insurance policies, title reports,
surveys, certificates of occupancy, environmental and geotechnical reports and
audits, appraisals, permits, other title documents and other documents relating
to or otherwise affecting the Real Property, the operations of the Acquired
Companies thereon or any other uses thereof, in each case, in the actual
possession of Kinser and the Acquired Companies or any of their counsel. Except
as set forth on the Disclosure Schedule, to Sellers' Knowledge, each Acquired
Company, as the case may be, is in peaceful and undisturbed possession of each
parcel of Real Property and there are no contractual or legal restrictions that
preclude or restrict the ability to use the Real Property for the purposes for
which they are currently being used, except for such restrictions that would not
have an Acquired Company Material Adverse Effect.
(g) With respect to each of the Leases constituting part of the Real
Property, except as otherwise set forth on the Disclosure Schedule with respect
to each such Lease, none of Kinser, PHC or any Acquired Company has: (i)
received any notice of cancellation, termination, modification or acceleration
under such Lease and no lessor/sublessor or lessee/sublessee has any right of
termination, cancellation, modification or acceleration under such Lease except
as set forth therein, or (ii) assigned, sublet or otherwise encumbered all or
any portion of its interest under such Leases, except in connection with a
collateral assignment thereof.
(h) Except as set forth on the Disclosure Schedule, or where the
failure to obtain such certificates or permits would not have an Acquired
Company Material Adverse Effect, all the improved Real Property is occupied
under current certificates of occupancy, fire underwriting certificates or
similar permits, and the transactions contemplated by this Agreement will not
require the issuance of any new or amended certificates of occupancy, fire
underwriting certificates or similar permits.
(i) Except as set forth on the Disclosure Schedule, (i) all water,
sewer, gas, electric, telephone, and drainage facilities, and other utilities
required by law for the normal and proper operation of the Real Property are
installed to the property lines and are connected with valid Permits, and are
adequate to serve the Real Property for its current use and to permit material
compliance with all requirements of law, and (ii) all utilities serving the Real
Property enter the Real Property through currently effective public or private
easements, and to Sellers' Knowledge, no fact or condition exists which would
result in the termination or diminution of such utility services to the Real
Property.
(j) Except as set forth on the Disclosure Schedule and, except as
would not have an Acquired Company Material Adverse Effect, (i) the Real
Property are independent units which do not now rely on any facilities (other
than facilities of municipalities or public utilities) located on any property
that is not part of the Real Property to fulfill any zoning, building code or
other municipal or other governmental regulation, or for the furnishing of any
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essential building systems or utilities (including drainage facilities, catch
basins and retention ponds), and (ii) no other building or other property which
is not part of the Real Property relies upon any part thereof to fulfill any
municipal or other governmental requirement, or for the furnishing of any
essential building systems or utilities.
(k) Except as set forth on the Disclosure Schedule, (i) the
Improvements do not encroach in any manner into adjacent real property or upon
any building restriction line or set-back area established by any zoning
ordinance or agreement that would have an Acquired Company Material Adverse
Effect, (ii) there are no encroachments (pursuant to recorded documents or
otherwise) into the Real Property or into the areas of any easements existing
for the benefit of and appurtenant to the Real Property by improvements located
on property adjacent to the Real Property, that would have an Acquired Company
Material Adverse Effect, (iii) neither the Real Property, nor any portion
thereof lies within flood hazard areas designated in accordance with the
Department of Housing and Urban Development, Federal Insurance Administration,
Special Flood Hazard Area Maps, (iv) each parcel of Real Property has access to,
and is contiguous with, a publicly dedicated right-of-way, and (v) all of the
Land comprising each such parcel of Real Property is contiguous.
(l) PRVI as successor in interest to Outerbanks Beach Club, Inc. is
the owner and operator of a certain sewage treatment plant located at Sunset
Bay, Kill Devil Hills, North Carolina, and Peppertree Resorts Management, Inc.,
as agent for certain Associations, operates sewage treatment plant located at
Atlantic Beach, North Carolina. PRVI and Peppertree Resorts Management, Inc.
have to the extent applicable obtained all necessary permits and approvals to
operate such sewage treatment plants, are in material compliance therewith, and
all such permits and approvals, and all agreements entered into in connection
with the sewage treatment plants, are in full force and effect and set forth on
the Disclosure Schedule. PRVI has performed or complied with all of the terms,
conditions and obligations to be performed or complied with by PRVI under that
certain Settlement Agreement with the Town of Kill Devil Hills, dated April 2,
1999, and has obtained the conditional use permit described therein.
(m) Except as set forth on the Disclosure Schedule or except as
would not have an Acquired Company Material Adverse Effect, the Acquired
Companies are not in violation of any Encumbrance or any other covenant or
restriction of record, and no building, improvement or structure interferes
with, encroaches upon, or restricts the use of, any easement burdening the Real
Property.
(n) Except as set forth on the Disclosure Schedule or except as
would not have an Acquired Company Material Adverse Effect, the Real Property
and the real property subject to the Leases, and all of the Improvements with
respect thereto are (i) in good operating condition and repair (and no material
maintenance or repair of the Improvements are required), (ii) free and clear of
any defects, except such defects as do not materially interfere with the use
thereof in the Ordinary Course of Business, and (iii) able to serve the
functions for which they are currently used in all material respects.
3.06 Intellectual Property.
(a) The Intellectual Property that is owned by the Acquired
Companies (the "Owned In tellectual Property") constitutes all of the
Intellectual Property used, intended to be used or held for use in con nection
with, necessary for the conduct of, or otherwise material to the Acquired
Business as conducted on the date hereof, except for Intellectual Property
subject to written or oral licenses, agreements or arrangements pursuant to
which the use of Intellectual Property by any Acquired Company is permitted by
any Person (the "Intellectual Property Licenses" and, together with the Owned
Intellectual Property, the "Company Intellectual Property"). The Owned
Intellectual Property is owned free from any Encumbrances (other than Permitted
Encumbrances). Except as set forth in the Disclosure Schedule, all material
Intellectual Property Licenses are in full force and effect in ac cordance with
their terms, and are free and clear of any Encumbrances (other than Permitted
Encumbrances). Except as set forth in the Disclosure Schedule, immediately after
the Closing, the Acquired Companies will own or have the right to use all the
Company Intellectual Property, in each case free from Encumbrances (except for
Permitted Encumbrances) and on the same terms and conditions as in effect prior
to the Closing, except as would not have an Acquired Company Material Adverse
Effect.
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(b) Except as set forth in the Disclosure Schedule, the conduct of
the Acquired Business does not infringe or conflict with the rights of any third
party in respect of any Company Intellectual Property, except as would not have
an Acquired Company Material Adverse Effect. Except as set forth in the
Disclosure Schedule, to Sellers' Knowledge, none of the Company Intellectual
Property is being infringed by any third party. Except as set forth in the
Disclosure Schedule, there is no claim or demand of any Person pertaining to, or
any proceeding which is pending or, to Sellers' Knowledge, threatened, that
challenges the rights of any of the Acquired Companies in respect of any Company
Intellectual Property, or that claims that any default exists under any
Intellectual Property License, except as would not have an Acquired Company
Material Adverse Effect. Except as set forth in the Disclosure Schedule, none of
the Company Intellectual Property is the subject of any outstanding order,
ruling, decree, judgment or stipulation by or with any court, tribunal,
arbitrator, or other gov ernment entity adverse to the Acquired Companies.
(c) Except as set forth in the Disclosure Schedule, the Owned
Intellectual Property has been duly registered with, filed in or issued by, as
the case may be, the appropriate filing offices, domestic or foreign, to the
extent necessary or desirable to ensure usual and customary protection for
intellectual property in the relevant jurisdiction under any applicable law, and
the same remain in full force and effect. The Acquired Companies have taken
reasonable steps to safeguard and maintain the secrecy and confidentiality of,
and their proprietary rights in, all Company Intellectual Property, except where
the failure to do so would not have an Acquired Company Material Adverse Effect.
3.07 Insurance. Except as set forth in the Disclosure Schedule: (i) all
insurance policies to which any of the Acquired Companies is a party or that
provide coverage to any director or officer of the Acquired Companies or to any
Acquired Asset (A) are valid, outstanding, and enforceable, (B) are issued by an
insurer that, to Sellers' Knowledge, is financially sound and reputable, (C)
taken together provide adequate insurance for the properties, assets and
business of the Acquired Business for all risks normally insured against by a
Person carrying on the same or similar business or businesses as the Acquired
Business, (D) comply with the insurance requirements of all laws and contracts
to which any of the Acquired Companies is a party or by which it is bound,
except where such failures to so comply would not have an Acquired Company
Material Adverse Effect, and (E) do not provide for any retrospective premium
adjustment or other experience-based liability on the part of any of the
Acquired Companies; (ii) no Acquired Company has received any refusal of
coverage or any notice that a defense will be afforded with reservation of
rights, or any notice of cancellation or any other indication that any insurance
policy is no longer in full force or effect or will not be renewed or that the
issuer of any policy is not willing or able to perform its obligations
thereunder, except where such refusals, failures to renew or cancellations would
not have an Acquired Company Material Adverse Effect; (iii) each of the Acquired
Companies has paid all premiums due with respect to all periods up to and
including the date hereof and has otherwise performed all of its obligations
under each policy to which such Acquired Company is a party or that provides
coverage to such Acquired Company or any officers or directors thereof, except
where the failure to do so would not have an Acquired Company Material Adverse
Effect; and (iv) each Acquired Company has given notice to the insurer of all
material claims that may be insured thereby.
3.08 Environmental Matters. Except as set forth on the Disclosure
Schedule: (i) in all material respects each Acquired Company has conducted and
is conducting the Acquired Business in compliance with all applicable
Environmental Laws and has all permits necessary under applicable Environmental
Laws for the operation of its respective business as presently conducted, except
where the failure would not have an Acquired Company Material Adverse Effect,
(ii) except as would not have an Acquired Company Material Adverse Effect, none
of Kinser, PHC or any of the Acquired Companies nor, to the Sellers' Knowledge,
any other Person has released Hazardous Materials, at, on, or from any of the
Real Property, (iii) none of the Acquired Companies has received any written
notice that it is the subject of any pending or threatened investigation or
inquiry by any governmental authority, or alleging that they are subject to any
investigatory or remedial obligations under any Environmental Laws with respect
to any of the Real Property, (iv) except as would not have an Acquired Company
Material Adverse Effect, neither the Acquired Companies nor any of their
respective officers, employees, representatives or agents nor, to Sellers'
Knowledge, any other Person, has disposed of, released or transported in
violation of, or as would result in liability under, any applicable
Environmental Law to or from any of the Real Property and (v) neither Kinser nor
PHC (in connection with the Acquired Business) nor any Acquired Company nor any
of the Real Property is subject to any material liabilities relating to any
suit, settlement, court order, administrative consent or order, judgment or
claim asserted or arising under any Environmental Laws.
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3.09 Minute and Stock Books; Records. The minute books of the Acquired
Companies and PHC have been made available to EFI and contain accurate records
of all meetings held and reflect all other material corporate or similar actions
of the respective shareholders, directors, partners and members and committees
thereof. The respective stock or other interests transfer records maintained by
each of the Acquired Companies have been made available to EFI, are complete,
and accurately disclose all issuances and transfers of stock or other ownership
interests of each of such Acquired Companies.
3.10 Absence of Undisclosed Material Liabilities. Except: (i) for the
items listed in Sections 3.10 or 3.11 of the Disclosure Schedule; (ii) as and to
the extent disclosed or reserved against on the Annual Financial Statement for
the year ended December 31, 1998 or in the footnotes thereto; or (iii) as
incurred after December 31, 1998 in the Ordinary Course of Business and that are
not reasonably likely to have an Acquired Company Material Adverse Effect, the
Acquired Business does not have any liabilities or obligations of any nature,
whether known or unknown, absolute, accrued, contingent or otherwise and whether
due or to become due, that, individually or in the aggregate, are or would be
material to the Acquired Companies. For purposes of this Section 3.10 "material"
means in excess of $25,000 individually or $100,000 in the aggregate; the total
amount of any liabilities to salespeople in respect of their reserve accounts is
set forth on the Disclosure Schedule and shall not exceed $245,000.
3.11 Contracts. Except as set forth on the Disclosure Schedule or as
disclosed pursuant to Section 3.10, 3.11 or 3.18, as of the Execution Date,
neither Kinser nor PHC (each in connection with the Acquired Business) nor any
Acquired Company is a party to or bound by, any of the following (each a
"Contract" and collectively the "Contracts"), and the Acquired Companies have
provided (or caused to be provided or made available) to EFI correct and
complete copies of any such Contracts:
(a) any contract for the purchase or sale of services, equipment,
inventory, materials, supplies, or any capital item or items (the cost or
expense of which is more than $100,000 in any single instance or which cannot be
terminated without penalty on ninety (90) days or less notice);
(b) any loan agreements, indentures, mortgages or deeds of trust
(other than mortgages or deeds of trust securing VOI Receivables), notes (other
than VOI Receivables), capital leases or other instruments relating to the
borrowing of money, or any material obligations or liabilities of any Person
other than the Acquired Companies that are guaranteed by or subject to a
contingent obligation of any of the Acquired Companies;
(c) any licenses, leases or other agreements to provide or acquire
services or goods related to the timeshare industry, the cost or expense of
which, on annual basis, is or could reasonably be expected to be more than
$100,000;
(d) any contracts relating to the sale, hypothecation or factoring
of accounts receivable, notes receivable (including VOI Receivables) or
servicing of such receivables;
(e) any instruments or agreements relating to indebtedness by way of
lease-purchase agreements, conditional sale, guarantee or other undertakings on
which others rely in extending credit, any joint venture agreements or any
chattel mortgages or other security agreements not otherwise disclosed;
(f) any agreements (oral or written) or contracts involving any
Acquired Company, any Acquired Asset or either Kinser or PHC, on the one hand,
and (i) any Affiliate of an Acquired Company, (ii) any Acquired Company's or its
Affiliate's respective directors, officers, employees or shareholders (or any
relative, beneficiary, spouse or Affiliate of such person), or (iii) any
relative, beneficiary, spouse or Affiliate of Kinser, on the other, including
any intercompany debt;
(g) any joint venture, "partnering" and similar agreements or
understandings the cost or expense of which, on annual basis, is or could
reasonably be expected to be more than $100,000;
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(h) any agreements relating to the management of, or provision of
management services to, the Acquired Business;
(i) any broker, distributor, dealer, franchise, agency, sales
promotion, market research, marketing consulting and advertising agreements to
which Kinser, PHC, the Acquired Companies or any of their Affiliates is a party,
the cost or expense of which, on annual basis, is or could reasonably be
expected to be more than $100,000;
(j) any management contracts and contracts with independent
contractors or consultants (or similar arrangements) to which any Kinser, PHC,
the Acquired Companies, or any of their Affiliates is a party and which are not
cancelable without penalty or further payment and without more than thirty (30)
days' notice, the cost or expense of which, on annual basis, is or could
reasonably be expected to be more than $50,000;
(k) any contracts and agreements with the federal government or any
state or local government or any agency thereof to which Kinser, PHC, the
Acquired Companies, or any Affiliate is a party;
(l) any contracts and agreements that limit or purport to limit the
ability of the Acquired Companies to compete in any line of business or with any
Person or in any geographic area or during any period of time;
(m) [intentionally omitted];
(n) any obligations of Kinser, PHC or the Acquired Companies to
provide any developer guaranty, promised improvement or goods or services in
connection with the Acquired Business or to provide any subsidy to an
Association;
(o) any material obligations of Kinser, PHC or the Acquired
Companies in respect of unexpired express, implied, and statutory warranties, or
warranties contained in the rules of any State Regulatory Authority, in each
case arising out of Vacation Ownership Unit construction completed or commenced
by any of the Acquired Companies prior to the Execution Date; or
(p) any other contracts and agreements whether or not made in the
Ordinary Course of Business, which are material to the Acquired Business or the
absence of which would have an Acquired Company Material Adverse Effect;
provided, however, that for purposes of this Section 3.11(p), "material" means
in excess of $25,000 individually or $100,000 in the aggregate.
Except as set forth on the Disclosure Schedule, none of Kinser, PHC or any
Acquired Company is in material breach of any provisions of, or is in material
violation or default under the terms of, any Contract.
3.12 Litigation and Compliance. Except as set forth on the Disclosure
Schedule, there is no litigation, suit, claim, action, arbitration,
administrative proceeding or investigation of Kinser or PHC (in connection with
the Acquired Business) or the Acquired Companies or the operation of the
Acquired Business pending before any court, arbitrator, administrative agency or
other governmental authority or, to Sellers' Knowledge, threatened against
Kinser or PHC (in connection with the Acquired Business) or the Acquired
Companies, by or before any court, arbitrator, administrative agency or other
governmental authority. Except as set forth on the Disclosure Schedule or except
where such non-compliance would not have an Acquired Company Material Adverse
Effect, Kinser, PHC and the Acquired Companies are in compliance with all
applicable laws including, without limitation, all laws regarding the
advertising, marketing, telemarketing, offering for sale or sale of VOIs in each
state and local jurisdiction in which the Acquired Companies are doing business,
and there is no order, writ, injunction or decree of any court, arbitrator,
administrative agency or other governmental authority materially affecting the
operations or the business of the Acquired Companies or the consummation of the
transactions contemplated hereby.
3.13 Non-Contravention; Required Consents.
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(a) Except as described on the Disclosure Schedule, the execution
and delivery of this Agreement and the Related Agreements, the consummation of
the transactions contemplated hereby and thereby, and the compliance with the
provisions of this Agreement and the Related Agreements by each of Kinser and
PHC (to the extent he or it is a party thereto) will not: (i) conflict with or
violate the organizational documents of the Acquired Companies; (ii) result in
any breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or impair any of the Acquired
Companies' rights or the obligations of any third party under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or result
in the creation of an Encumbrance on any of the properties or assets of the
Acquired Companies pursuant to any loan, credit agreement, note, bond, mortgage,
deed of trust, indenture, reciprocal easement agreement, lease or other
agreement to which any of the Acquired Companies or its or any of their
respective properties are bound or affected; or (iii) conflict with or violate
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Acquired Companies or their respective properties, assets or
stock, other than, in the case of clause (ii) or (iii), any such conflicts,
violations, defaults, rights or Encumbrances that would not (x) constitute an
Acquired Company Material Adverse Effect or (y) prevent the consummation of the
transactions contemplated hereby.
(b) The execution and delivery of this Agreement by Kinser and PHC
do not, and the performance of this Agreement by Kinser and PHC will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the Securities Act, the
Exchange Act, "blue sky" laws and the National Association of Securities
Dealers, Inc., and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the transactions contemplated hereby or
otherwise prevent Kinser or PHC from performing its respective obligations under
this Agreement, and would not have an Acquired Company Material Adverse Effect.
(c) Kinser and PHC have taken all actions necessary to comply with
the provisions of the applicable commercial code, tax laws and any other laws
concerning bulk sales or bulk transfers or any similar law, such that none of
their liabilities or obligations with respect to such laws arising from the sale
of the Acquired Assets shall be transferred to the Purchasers, except where the
failure to do so would not have an Acquired Company Material Adverse Effect.
3.14 Capital Stock; Partnership Interests.
(a) The authorized capital stock of the Company consists of 1,000
shares of common stock, $100.00 par value, of which 701 shares are issued and
outstanding, and no shares of preferred stock. The authorized capital stock of
PRVI consists of 100,000 shares of common stock, $10.00 par value, of which 731
shares are issued and outstanding, and no shares of preferred stock. The
authorized capital stock of Realty consists of 56,000 shares of common stock,
$1.00 par value, of which 56,000 shares are issued and outstanding. All of the
issued and outstanding shares of the capital stock of the Company and Realty
have been duly authorized and validly issued in accordance with applicable laws,
are fully paid and nonassessable. All of the issued and outstanding shares of
capital stock of PRVI have been duly authorized and validly issued in accordance
with applicable laws, are fully paid and nonassessable and are owned of record
and beneficially by the Company and the Stockholders, free and clear of all
Encumbrances. All of the issued and outstanding shares of the capital stock of
the Acquired Companies (other than GSHA) were offered, issued, sold, and
delivered in compliance with all applicable local, state, and federal laws
concerning the issuance of securities, except where the failure to comply would
not have an Acquired Company Material Adverse Effect. None of the outstanding
shares of capital stock of any of the Acquired Companies (as applicable) was
issued in violation of any preemptive rights. Except as set forth on the
Disclosure Schedule, there are no voting agreements, voting trusts, or any other
arrangement with respect to any of the outstanding shares of the capital stock
of any Acquired Company.
(b) PHC owns an eighty-five percent (85%) interest as the sole
general partner in GSHA, and Kinser owns a fifteen percent (15%) interest as the
sole limited partner in GSHA, together which constitute all of the ownership
interests in GSHA, in each case free and clear of all Encumbrances. All of the
issued and outstanding partnership interests of GSHA have been duly authorized
and validly issued, and were sold and delivered in compliance with all
applicable local, state and federal laws, except where such failures to comply
would not have an Acquired
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Company Material Adverse Effect. There are no voting agreements, voting trusts,
or any other arrangement with respect to any of the partnership interests in
GSHA.
(c) Set forth on the Disclosure Schedule is a complete and correct
list of the holders of record and the number of shares of capital stock and
partnership interests (limited and general) of each of the Acquired Companies
and the Company Subsidiaries owned by each such holder of record, all of which
are held beneficially by such holders thereof, free and clear of all
Encumbrances.
(d) Except as set forth on the Disclosure Schedule, the Acquired
Companies are all the entities in which Kinser or PHC has an interest that are
in the VOI Business.
3.15 Options, Warrants, Etc. Except as set forth on the Disclosure
Schedule, there are no options, warrants, calls, subscription rights, conversion
rights, or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock or other ownership
interests in any of the Acquired Companies or obligating any of the Acquired
Companies to issue or sell any shares of capital stock or other ownership
interests in any of the Acquired Companies, including any securities or other
interests directly or indirectly convertible into or exercisable or exchangeable
for any capital stock or other ownership interests of any of the Acquired
Companies. There are no outstanding obligations of any of the Acquired Companies
to repurchase, redeem or otherwise acquire any shares of its capital stock or
other ownership interests, to pay any dividend or make any distribution in
respect thereof, or to make any investment (in the form of a loan, capital
contribution or otherwise) in any other Person. Except as set forth in the
Disclosure Schedule, no shares of capital stock of any of the Acquired Companies
have been reserved for any purpose.
3.16 Subsidiaries Stock.
(a) Except as set forth on the Disclosure Schedule, no Acquired
Company has any direct or indirect subsidiaries. The Disclosure Schedule sets
forth a complete and correct list of the owners of record of each direct and
indirect subsidiary, if any, of the Acquired Companies.
(b) Except as set forth on the Disclosure Schedule, no Acquired
Company presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any Person other than another Acquired Company, nor is
any Acquired Company, directly or indirectly, a participant in any joint
venture, partnership or other noncorporate entity.
3.17 Permits. Except as set forth on the Disclosure Schedule, the
Acquired Companies have all Permits necessary to conduct the Acquired Business
as currently conducted, except where the failure to have such license or permit
would not have an Acquired Company Material Adverse Effect (collectively,
"Licenses and Permits"). A list of the material Licenses and Permits is set
forth on the Disclosure Schedule. The Acquired Companies have provided (or
caused to be provided) to EFI correct and complete copies of all material
Licenses and Permits. Except as would not have an Acquired Company Material
Adverse Effect, each License and Permit is in full force and effect, and no
proceeding is pending or, to Sellers' Knowledge, threatened, to modify, suspend,
revoke or otherwise limit any of such License and Permit and no administrative
or governmental actions have been taken or, to Sellers' Knowledge, threatened,
in connection with the expiration or renewal of any of such License and Permit.
Except as set forth in the Disclosure Schedule, none of the Acquired Companies
will be required, as a result of the consummation of the transactions
contemplated hereby, to obtain or renew any Licenses and Permits, other than
where the failure to obtain or renew any such Licenses or Permits would not have
an Acquired Company Material Adverse Effect.
3.18 Labor and Employment.
(a) The Disclosure Schedule sets forth a complete and correct list
of each person whom, as of the Execution Date, Kinser, PHC or the Acquired
Companies employ in connection with the Acquired Business, including each active
employee and each employee classified as inactive as a result of disability,
leave of absence, layoff, or other absence, and who either (i) earned more than
$75,000 in 1998 or who is expected to earn more than $75,000 in
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1999 or (ii) serves in a management or supervisory capacity. With respect to
such persons, the Disclosure Schedule includes the positions and
responsibilities, 1998 and 1999 compensation (and the portions attributable to
salary, bonus, and other compensation, respectively), the current rate of
compensation (with the same portions specified), the wages for the most recent
payroll period and any employment, consulting or similar agreements to which
such person is a party. The Disclosure Schedule also lists the accrued vacation
liability of the Acquired Companies with respect to the Acquired Business as of
June 30, 1999. The employee census information provided to EFI by the Acquired
Companies in connection with the transactions contemplated hereby, and attached
to the Disclosure Schedule, is correct and complete.
(b) With respect to employees of and service providers to the
Acquired Companies:
(i) except as set forth on the Disclosure Schedule or where
the failure to comply would not have an Acquired Company Material Adverse
Effect, the Acquired Companies are complying and have complied in all respects
with all applicable laws and regulations respecting the terms and conditions of
employment of employees or other labor related matters, including, without
limitation, laws, rules, regulations, orders, rulings, conciliation agreements,
decrees, judgments and awards relating to wages, hours, the payment of social
security and similar taxes, equal employment opportunity, employment
discrimination, family and medical leave, the Immigration Reform and Control
Act, fair labor standards and occupational health and safety, wrongful discharge
or violation of the personal rights of employees, and no claims or
investigations are pending or, to Sellers' Knowledge, threatened, with respect
to such laws, either by private individuals or by governmental agencies which
could have an Acquired Company Material Adverse Effect;
(ii) the Acquired Companies have not and are not engaged in
any unfair labor practice, and there is not now, nor within the past three years
has there been, any unfair labor practice complaint against any of the Acquired
Companies pending or, to Sellers' Knowledge, threatened, before the National
Labor Relations Board or any other comparable authority which could have an
Acquired Company Material Adverse Effect;
(iii) no labor union represents, purports to represent, has
ever represented, or purported to represent any of the Acquired Companies'
employees, no collective bargaining agreement is or has been binding and in
force against the Acquired Companies, the Acquired Companies are not negotiating
such an agreement, and no labor representation organization effort exists nor
has there been any such activity within the past five years;
(iv) no labor strike, lock-out, slowdown or work stoppage is
or has ever been pending or threatened against or directly affecting the
Acquired Companies, and no grievance or arbitration proceeding arising out of or
under collective bargaining agreements or employment relationships is pending,
and no claims therefor exist or have, to Sellers' Knowledge, been threatened;
and
(v) all employees of the Acquired Companies in the Acquired
Business are employed on an at-will basis, and the Acquired Companies may
terminate them without cause and without penalty or liability, except as set
forth on the Disclosure Schedule. All individuals who are or were performing
services and are or were classified by the Acquired Companies as "independent
contractors" for tax purposes qualify or qualified for such classification, and
the Acquired Companies have fully and accurately reported their compensation on
IRS Forms 1099 when required to do so.
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3.19 Employee Benefit Plans.
(a) Definitions.
(i) "Acquired Business Benefit Arrangement" means any Benefit
Arrangement the Acquired Companies sponsor or maintain with respect to which the
Acquired Companies have any current or may have any future liability (whether
actual or contingent, with respect to any of their assets or otherwise).
"Acquired Business Benefit Arrangement" means any Acquired Company Benefit
Arrangement with respect to any present or former directors, employees, or
agents of the Acquired Companies. References to "Acquired Business Benefit
Arrangement" do not connote that EFI or any Newco is acquiring or assuming such
plans.
(ii) "Acquired Business Benefit Plan" means any Acquired
Company Benefit Plan with respect to any present or former employees of the
Acquired Companies with respect to the Acquired Business. Acquired Business
Benefit Plan also includes any such Plan terminated since January 1, 1989.
References to "Acquired Business Benefit Plan" do not connote that EFI or any
Newco is acquiring or assuming such plans.
(iii) "Acquired Company Benefit Plan" means any Plan for which
the Acquired Companies are or have been the "plan sponsor" (as defined in
Section 3(16)(B) of ERISA) or any Plan the Acquired Companies have maintained or
to which the Acquired Companies are obligated to make payments or have or may
have any liability.
(iv) "Benefit Arrangement" means any benefit arrangement,
obligation, custom, or practice, whether or not legally enforceable, to provide
benefits (other than simply as salary and other than under any Plan), as
compensation for services rendered, to present or former directors, employees,
agents, or independent contractors, including, without limitation, employment
agreements, severance agreements, executive compensation arrangements,
non-competition and retainer agreements, incentive programs or arrangements,
sick leave, vacation pay, severance pay policies, plant closing benefits, salary
continuation for disability, consulting, or other compensation arrangements,
workers' compensation, retirement, deferred compensation, bonus, stock option or
purchase, hospitalization, medical insurance, life insurance, tuition
reimbursement or scholarship programs, employee discount programs, meals,
travel, or vehicle allowances, any plans subject to Section 125 of the Code, and
any plans providing benefits or payments in the event of a change of control,
change in ownership or effective control, or sale of a substantial portion
(including all or substantially all) of the assets of any business or portion
thereof.
(v) "ERISA Affiliate" means a Person that, together with any
of the Acquired Companies, is or was at any time under common control within the
meaning of Section 414 of the Code, or a single employer under Title IV of
ERISA, or as to which any Acquired Company is or was a general partner.
References to an ERISA Affiliate only refer to a Person during such time as it
is related to an Acquired Company or such other time as may cause an Acquired
Company to have liability with respect to such Person.
(vi) "Multiemployer Plan" means any plan described in Section
3(37) of ERISA.
(vii) "Plan" means an employee benefit plan as defined in
Section 3(3) of ERISA, whether or not otherwise exempt from the application of
that section by another provision of ERISA.
(viii) "Qualified Plan" means any Acquired Business Benefit
Plan that meets, purports to meet, or is intended to meet the requirements of
Section 401(a) of the Code, including any previously terminated Plan.
(b) The Disclosure Schedule contains a complete and accurate list of
all Acquired Business Benefit Plans and Acquired Business Benefit Arrangements.
The Disclosure Schedule identifies all Acquired Business Benefit Plans that (i)
are Qualified Plans or (ii) provide for continuing benefits or coverage for any
participant or any beneficiary of a participant after such participant's
retirement or termination of employment, other than coverage or benefits that
meet only the requirements of Part 6 of Title I of ERISA or Section 4980B(f) of
the Code ("COBRA").
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(c) With respect to Plans and Benefit Arrangements:
(i) the Disclosure Schedule contains the name of the only
Qualified Plan (the "Acquired Company 401(k) Plan") and the Acquired Companies
have not ever maintained or contributed to any other Qualified Plan. The
Acquired Company 401(k) Plan qualifies and has always qualified under Section
401(a) of the Code, and any trusts maintained for such Plan are exempt from
federal income taxation under Section 501 of the Code, and nothing has occurred
that would adversely affect the qualified status of the Acquired Company 401(k)
Plan or the exempt status of such trusts or cause the imposition of any
liability, lien, penalty, or tax under ERISA or the Code;
(ii) no Acquired Company nor any ERISA Affiliate thereof has
maintained, adopted or established, contributed to or been required to
contribute to, or otherwise participated, or had any liability (whether actual
or contingent, with respect to any of its assets or otherwise) with respect to
any Plan subject to Section 302 of ERISA or Section 412 of the Code or to Title
IV of ERISA or any Multiemployer Plan;
(iii) Kinser has delivered true, correct and complete copies
all of the following documents with respect to all Acquired Business Benefit
Plans and Acquired Business Benefit Arrangements to EFI: (A) all Plan or
arrangement documents, including but not limited to trust agreements, insurance
policies, service agreements and formal and informal amendments to each; (B) the
most recent Forms 5500 or 5500C/R and any attached financial statements, and
those for the prior three years; (C) the last IRS determination letter and the
last IRS determination letter that covered the qualification of the entire Plan
(if different); (D) summary plan descriptions, summaries of material
modifications, and any prospectuses that describe the Acquired Business Benefit
Arrangements or Acquired Business Benefit Plans; (E) written descriptions of all
non-written agreements relating to any such plan or arrangement; (F) all reports
submitted within the three years preceding the Execution Date by third-party
administrators, actuaries, investment managers, consultants or other independent
contractors; (G) all material notices that the IRS, Department of Labor or any
other governmental agency or entity issued to the Acquired Companies within the
four years preceding the Execution Date; and (H) employee manuals or handbooks
containing personnel or employee relations policies;
(iv) each Acquired Business Benefit Plan and Acquired Business
Benefit Arrangement has been maintained in all material respects in accordance
with its constituent documents and with all applicable provisions of the Code,
ERISA, and other laws, including federal and state securities laws; and plan
fiduciaries have fully and completely satisfied all reporting and disclosure
requirements of ERISA and the Code with respect to each Acquired Business
Benefit Plan and Acquired Business Benefit Arrangement;
(v) with respect to each Acquired Business Benefit Plan, there
has occurred no "prohibited transaction" (within the meaning of Section 4975 of
the Code) or transaction prohibited by Section 406 of ERISA, excluding any
transactions effected pursuant to a statutory or administration exemption, nor
has there occurred any breach of any fiduciary duty described in Section 404 of
ERISA;
(vi) no Acquired Company has made any statement, either
written or oral, to any person with regard to any Acquired Business Benefit Plan
or Acquired Business Benefit Arrangement that was not in accordance with the
Acquired Business Benefit Plan or Acquired Business Benefit Arrangement and that
could have an Acquired Company Material Adverse Effect. No Acquired Business
Benefit Plan contains any security issued by the Acquired Companies;
(vii) no Acquired Company nor any ERISA Affiliate has incurred
any material liability with respect to any Plan under ERISA (including, without
limitation, Title I or Title IV thereof, other than liability for premiums due
to the Pension Benefit Guaranty Corporation), the Code or other applicable law,
which has not been satisfied in full or been accrued on the balance sheet
included in the Interim Financial Statements, pending full satisfaction, and no
event has occurred, and there exists no condition or set of circumstances, which
could result in the imposition of any material liability under ERISA, the Code
or other applicable law with respect to any Plan;
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(viii) there are no pending claims (other than routine benefit
claims) or lawsuits that have been asserted or instituted by, against, or
relating to, any Acquired Business Benefit Plans or Acquired Business Benefit
Arrangements, against the assets of any trust or other funding arrangement under
any such plan or arrangement, by or against the Acquired Companies with respect
to any such plan or arrangement or by or against the plan administrator or any
fiduciary of any such plan or arrangement, nor, to Seller's Knowledge, is there
any basis for any such claim or lawsuit. No Acquired Business Benefit Plans or
Acquired Business Benefit Arrangements are, to Sellers' Knowledge, presently
under audit or examination (nor has notice been received of a potential audit or
examination) by the IRS, the Department of Labor, or any other governmental
agency or entity, and no matters are pending with respect to any Acquired
Business Benefit Plan under the IRS's Employee Plans Compliance Resolutions
System or any successor or predecessor program;
(ix) no Acquired Business Benefit Plan contains any provision
or is subject to any law that would prohibit the transactions contemplated by
this Agreement or that would give rise to any acceleration of the time of
payment or vesting of benefits, severance, termination or other payments or
liabilities as a result of the transactions contemplated by this Agreement; the
Acquired Companies have not declared or paid any bonus or incentive compensation
in contemplation of the transactions contemplated by this Agreement;
(x) the Acquired Companies have no liability (whether actual,
contingent, with respect to any of its assets or otherwise) with respect to any
Plan or Benefit Arrangement that is not an Acquired Business Benefit Plan or
Acquired Business Benefit Arrangement or with respect to any Plan sponsored or
maintained (or that has been or should have been sponsored or maintained) by any
ERISA Affiliate that is not one of the Acquired Companies;
(xi) no employee or former employee of the Acquired Companies,
or beneficiary of any such employee or former employee is, by reason of such
employee's or former employee's employment, entitled to receive any benefits,
including, without limitation, death or medical benefits (whether or not
insured) beyond retirement or other termination of employment as described in
Statement of Financial Accounting Standards No. 106, other than continuation
coverage mandated under Section 4980B of the Code or other applicable law; all
group health plans of the Acquired Companies and their respective ERISA
Affiliates have been operated in material compliance with the requirements of
COBRA and Section 5000 of the Code and the Health Insurance Portability and
Accountability Act, and the Acquired Companies have provided, or will have
provided before the Closing Date, to individuals entitled thereto all required
COBRA notices and coverage with respect to any "qualifying event" (as defined in
COBRA) occurring before or on the Execution Date; and
(xii) the Acquired Companies have made, within the time
required under the Acquired Business Benefit Plans and applicable law, all
required contributions to the Acquired Business Benefit Plans, and all monies
withheld from employee paychecks with respect to Acquired Business Benefit Plans
have been transferred to the appropriate Plan within the requirements of
applicable law.
(d) To Sellers' Knowledge, there are no pending, threatened or
reasonably anticipated claims or actions against the Acquired Companies under
any workers' compensation or long-term disability policy. The Disclosure
Schedule contains the most recent listing of workers' compensation claims and a
schedule of the Acquired Companies' workers' compensation claims of $10,000 or
more for the last three fiscal years.
3.20 Taxes and Tax Returns.
(a) Except as set forth on the Disclosure Schedule, all Tax Returns
required to be filed by or with respect to the Acquired Companies (including Tax
Returns of any affiliated, combined, consolidated, unitary or similar group that
include the Acquired Companies or any subsidiary (each an "Affiliated Group"))
have been filed. Except for income Tax Returns for Peppertree Resorts Vacation
Club, Inc., for the calendar years 1997 and 1998, and Peppertree Ocean Club,
Inc., for the calendar years 1992 through 1998, and for Atlantic Beach
Enterprises, Inc., Crystal Coasts Resorts, Inc., and Smokies Resorts Villas,
Inc., for the calendar years 1997 and 1998, all such Tax Returns are true,
correct and complete in all material respects.
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(b) Except for Taxes identified in Section 7.07(g), all Taxes owed
by or with respect to each Acquired Company or Affiliated Group have been paid
(whether or not shown on any Tax Return) in full on a timely basis.
(c) Except for Taxes identified in Section 7.07(g), the amount of
any Acquired Company's liability for unpaid Taxes as of June 30, 1999 did not
exceed the amount of the current liability accruals for Taxes (excluding
reserves for deferred Taxes) shown on the balance sheet included in the Interim
Financial Statements, and the amount of any Acquired Company's liability for
unpaid Taxes for all periods or portions thereof ending on or before the Closing
Date will not exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals are reflected on the
books and records of such Acquired Company on the Closing Date.
(d) There are no Tax Proceedings presently pending or, to Sellers'
Knowledge, threatened with regard to any Tax Return or Taxes of any of the
Acquired Companies or any Affiliated Group. Neither any Acquired Company nor any
member of any Affiliated Group has received any written ruling of a Taxing
Authority relating to Taxes or has entered into any closing agreement pursuant
to Section 7121 of the Code or similar written binding agreement with a Taxing
Authority relating to Taxes.
(e) There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Return with respect to any
of the Acquired Companies or the Affiliated Group, and no extensions of time
within which to file any Tax Return have been requested for any Tax Return which
has not yet been filed. The Acquired Companies have made available to EFI
complete and correct copies of all Tax Returns of the Acquired Companies or any
Affiliated Group for Taxable Periods ending after December 31, 1993.
(f) There are (and immediately following the Closing there will be)
no Encumbrances on the assets of any Acquired Company or any Affiliated Group
relating or attributable to Taxes, except for Permitted Encumbrances.
(g) [Intentionally omitted.]
(h) No deficiencies for any Taxes have been asserted in writing or
assessed against the Acquired Companies which, if unpaid, might result in a
Encumbrance on any of the assets of the Acquired Companies.
(i) No claim has ever been made in writing or, if not in writing, to
Sellers' Knowledge no claim has ever been made, by a governmental authority in
any jurisdiction where the Acquired Companies do not file Tax Returns that any
of the Acquired Companies are or may be subject to Tax in that jurisdiction.
(j) The Acquired Companies have each withheld or otherwise
collected and paid over to the proper Taxing Authority all Taxes required to
have been withheld or otherwise collected or paid over, and complied with all
information reporting and backup withholding requirements, including maintenance
of required records with respect thereto, in connection with amounts paid to any
employee, independent contractor, creditor or third party.
(k) None of the assets of the Acquired Companies are "tax exempt
use property" within the meaning of Section 168(h) of the Code. None of the
Acquired Companies is a party to any "safe harbor lease" that is subject to the
provisions of Section 168(f)(8) of the Code as in effect prior to the Tax Reform
Act of 1986, or to any "long term contract" within the meaning of Section 460 of
the Code.
(l) None of the Acquired Companies has, with respect to any assets
or property held, acquired or to be acquired by any such Acquired Company, filed
or caused to be filed a consent to the application of Section 341 of the Code
(or any comparable provision of any state statute), or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by any Acquired
Company.
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(m) Each of the Acquired Companies has and had a taxable year
ending on December 31, in each year commencing 1993 and thereafter.
(n) None of the Acquired Companies has made any change in
accounting methods, received a ruling from any Taxing Authority, signed an
agreement with any Taxing Authority, or will be required to include any
adjustment increasing taxable income for any Taxable Period or portion thereof
that ends after the Closing Date under Section 481(a) of the Code (or any
similar provision of state, local or foreign law) as a result of a change in
method of accounting for a Taxable Period ending prior to the Closing Date or
pursuant to the Tax liability of any of the Acquired Companies for any Tax
period ending prior to the Closing Date. No Taxing Authority has proposed any
such change in any accounting method. The Company and each Company Subsidiary
presently use the accrual method of accounting for income Tax purposes.
(o) There are no contracts, agreements, plans or arrangements
covering any employee or former employee of any Acquired Company that,
individually or collectively, could give rise to the payment of any amount (or
portion thereof) that would not be deductible pursuant to Sections 280G, 404 or
162 of the Code.
(p) The Acquired Companies are not, nor have they ever been members
of an affiliated group filing a consolidated federal income Tax Return other
than any consolidated or combined group the common parent of which is the
Company. The Acquired Companies do not and will not have up to and including the
Closing Date any interest in any other corporation, other than a Company
Subsidiary, with respect to which the Acquired Companies jointly or separately
own a majority of the common stock or have the power to vote or direct the
voting of sufficient securities to elect a majority of the directors.
(q) No Acquired Company (i) is a party to any Tax allocation, Tax
indemnity, Tax sharing agreement, or any similar arrangement pursuant to which
it has agreed to be liable for Taxes of any other Person or (ii) has any
liability for Taxes of any other Person (A) as a transferee or successor or (B)
under Section 1.1502-6 of the Treasury regulations (or any similar provision of
state, local or foreign law).
(r) GSHA has been a partnership for U.S. federal income tax
purposes at all times since its formation up to and including the Closing Date.
No person has ever elected that GSHA be treated as an association for federal
income tax purposes under Treasury Regulations Section 301.7701-3. Other than
with respect to GSHA, no Acquired Company is a party to any joint venture,
partnership or other arrangement that is treated as a partnership for federal
income tax purposes.
(s) The Disclosure Schedule contains accurate and complete
descriptions of (i) each Acquired Company's basis in its material assets; (ii)
the amount of any net operating loss, net capital loss, unused investment or
other credit, unused foreign tax, or excess charitable contribution allocable to
such Acquired Company; (iii) the amount of any deferred gain or loss allocable
to such Acquired Company arising out of any deferred intercompany transaction;
and (iv) tax elections affecting such Acquired Company, including an election
under Section 754 of the Code. No Acquired Company has net operating losses or
other tax attributes presently subject to limitation under Code Sections 382,
383, or 384, or the federal consolidated return regulations.
(t) Any of the Acquired Companies or Company Subsidiaries (and any
of their predecessors) for which S corporation status was claimed were validly
electing S corporations within the meaning of Code ss.ss. 1361 and 1362 at all
times since their formation up to and including December 31, 1998. The S
corporation status for each such entity was validly revoked pursuant to Code ss.
1362 for all periods beginning after January 1, 1999.
(u) None of the Acquired Companies is liable for any Tax under
Section 355(e) of the Code as a result of the consummation of the transactions
contemplated by this Agreement.
(v) For purposes of this Agreement:
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(i) "Pre-Closing Period" means any Taxable Period or portion
thereof ending on or before the Closing Date.
(ii) "Tax" (including with correlative meaning the terms
"Taxes" and "Taxable") means (a) all foreign, federal, state, local and other
income, gross receipts, sales, use, ad valorem, value-added, intangible,
unitary, withholding, transfer, franchise, license, payroll, employment,
estimated, excise, environmental, stamp, occupation, premium, property,
prohibited transactions, windfall or excess profits, customs, duties or other
taxes, levies, fees, assessments or charges of any kind whatsoever, together
with any interest and any penalties, additions to tax or additional amounts with
respect thereto, (b) any liability for payment of amounts described in clause
(a) as a result of transferee liability, of being a member of an affiliated,
consolidated, combined or unitary group for any period, or otherwise through
operation of law, and (c) any liability for payment of amounts described in
clause (a) or (b) as a result of any tax sharing, tax indemnity or tax
allocation agreement or any other express or implied agreement to indemnify any
other person for Taxes.
(iii) "Taxable Period" means any taxable year or other period
that is treated as a taxable year with respect to which any Tax may be imposed
under any applicable statute, rule or regulation.
(iv) "Tax Proceeding" means any action, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) relating to Taxes or Tax Returns.
(v) "Tax Return" means any return (including any information
return), report, statement, schedule, audit adjustment, notice, form, estimate
or declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any Tax.
(vi) "Taxing Authority" means any governmental agency, board,
bureau, body, department or authority of any United States federal, state or
local jurisdiction or any foreign jurisdiction, having jurisdiction with respect
to any Tax.
3.21 Receivables. The Disclosure Schedule sets forth an aged list of the
purchase money receivables (the "Receivables") of the Acquired Companies as of
November 10, 1999, showing separately those receivables that as of such date had
been outstanding: (i) 30 days or less; (ii) 31 to 60 days; (iii) 61 to 90 days;
and (iv) more than 90 days. All Receivables reflected on the Financial
Statements arose from, and the Receivables existing at the Closing Date will
have arisen from, the sale of VOIs to Persons not affiliated with Kinser or PHC
and in the Ordinary Course of Business.
3.22 Other Property.
(a) Except for the Acquired Assets set forth on the Disclosure
Schedule, the Acquired Companies own or lease all material assets (other than
Real Property and Company Intellectual Property) used in the Acquired Business
as it is presently conducted. All of the Acquired Assets are set forth on the
Disclosure Schedule.
(b) Except as set forth in the Disclosure Schedule, the Acquired
Companies own and have good and valid title to, or a valid and enforceable
leasehold or license interest in, or otherwise have sufficient and legally
enforceable rights to use, all of the properties and assets (other than Real
Property or Intellectual Property), tangible or intangible, used by the Acquired
Companies or held for use by the Acquired Companies in connection with the
conduct of, or otherwise material to, the conduct of the Acquired Business,
including assets reflected on the balance sheets included in the Financial
Statements or acquired since the date thereof, except for assets disposed of in
the Ordinary Course of Business and in accordance with this Agreement and except
for (i) Permitted Encumbrances and (ii) such defects in title which would not
have an Acquired Company Material Adverse Effect.
3.23 Absence of Material Changes, Events and Conditions. Since December
31, 1998, except as disclosed in the Disclosure Schedule, the Acquired Business
has been conducted in the Ordinary Course of Business and there has not been:
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(a) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of any of the
Acquired Companies or any of the Company Subsidiaries, or any repurchase,
redemption or other acquisition by any of the Acquired Companies or any of the
Company Subsidiaries of any outstanding shares of capital stock or other
ownership interests in any of the foregoing;
(b) any incurrence, assumption or guarantee by any of the Acquired
Companies or any of the Company Subsidiaries of any outstanding amount of
indebtedness for borrowed money other than in the Ordinary Course of Business;
(c) any transaction or commitment made, or any contract or agreement
entered into, by any of the Acquired Companies or any of the Company
Subsidiaries relating to their respective assets or businesses (including the
acquisition or disposition of any assets) or any loss or relinquishment by any
of the Acquired Companies or any of the Company Subsidiaries of any material
contract or other material right, other than transactions and commitments in the
Ordinary Course of Business;
(d) any material change in any method of accounting or accounting
practice or policy or application thereof by any of the Acquired Companies or
any of the Company Subsidiaries;
(e) any sale, assignment or transfer of any Intellectual Property;
(f) any waiver of any rights of material value, whether or not in
the Ordinary Course of Business;
(g) other than the bonus to be paid to Messrs. McFarland, Patrick
and Clayton by the Company in anticipation of the transactions contemplated by
the Merger Agreement, any increase in (or commitment, oral or written, to
increase, the rate or terms (including, without limitation, any acceleration of
the right to receive payment) of compensation payable to or to become payable by
any of the Acquired Companies to their directors, officers, employees or
consultants, except increases occurring in the Ordinary Course of Business; or
(h) any increase in (or commitment, oral or written, to increase)
the rate or terms (including, without limitation, any acceleration of the right
to receive payment) of any bonus, insurance, pension or other employee benefit
plan or contract, payment or arrangement made to, for or with any director,
officer, employee or consultant of the Acquired Companies or any of the Company
Subsidiaries, except increases occurring in the Ordinary Course of Business.
3.24 Certain Interests. Except as disclosed in the Disclosure Schedule,
no Executive Officer or director of any Acquired Company or Affiliate and no
relative or spouse (or relative of such spouse) who resides with, or is a
dependent of, any such Executive Officer or director:
(a) has any direct or indirect financial interest in any competitor,
supplier or customer of the Acquired Business; provided, however, that the
ownership of securities representing no more than five percent (5%) of the
outstanding voting power of any competitor, supplier or customer, and which are
listed on any national securities exchange or traded actively in the national
over-the-counter market, shall not be deemed to be a "financial interest" so
long as the person owning such securities has no other connection or
relationship with such competitor, supplier or customer;
(b) owns, directly or indirectly, in whole or in part, or has any
other interest in any real, tangible or intangible property that the Acquired
Companies use or have used in the conduct of the Acquired Business; or
(c) owns, directly or indirectly, any VOIs at any of the properties
owned by the Acquired Companies.
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3.25 Brokers. McDonald Investments is the only broker, finder or
investment banker that is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Sellers. Any fees payable to
McDonald Investments are payable by and will be paid by Kinser. Kinser shall
indemnify and hold harmless Purchasers from and against any claims for brokerage
commissions or finder's fees insofar as such claims shall be alleged to be based
upon arrangements or agreements made by Kinser or on their behalf. Such
indemnity shall include the cost of reasonable counsel fees in connection with
the defense of any such claims.
3.26 Private Placement.
(a) Kinser understands that (i) the shares of EFI Common Stock to be
issued pursuant to Article II will not be registered under the Securities Act on
the basis that the offering and sale of the shares comprising the Merger
Consideration are exempt from registration pursuant to Section 4(2) of the
Securities Act, (ii) the resale or other disposition of the shares comprising
the Merger Consideration is restricted pursuant to the securities laws, and
(iii) there can be no assurance that Kinser will be able to sell or dispose of
such shares.
(b) The shares comprising the Aggregate Purchase Price to be issued
to Kinser pursuant to Article II are being acquired for investment only and not
with a view to any sale or distribution of such shares or any part thereof in
violation of the Securities Act. Kinser agrees at all times to sell or otherwise
dispose of all or any part of the shares comprising the Merger Consideration
only pursuant to a registration, or exemption therefrom, under the Securities
Act and in compliance with applicable state securities laws. Kinser, in
disposing of the shares comprising the Merger Consideration, shall take any
steps necessary to ensure that any purchaser thereof shall agree not to sell or
otherwise dispose of the shares comprising the Merger Consideration except in
compliance with the requirements contained in the preceding sentence.
(c) Kinser is an "accredited investor" within the meaning of Rule
501 promulgated under the Securities Act and has such knowledge and experience,
or has consulted with persons having knowledge and experience, in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the shares comprising the Merger Consideration. Kinser has
received all the information that he deems material to his evaluation of the
business, assets, liabilities, financial condition and results of operations of
EFI and all the information that Kinser has requested from EFI and considers
necessary or appropriate for deciding whether to acquire the shares comprising
the Merger Consideration. Kinser has the ability to bear the economic risks of
such prospective investment and is able, without materially impairing such
financial condition, to hold the shares comprising the Merger Consideration for
an indefinite period of time and to suffer complete loss on such investment, in
the event such a loss should occur.
3.27 Year 2000. To the extent that any Software or computer systems used
in the Acquired Business are not Year 2000 Compliant, such Software and/or
computer systems can be modified at a cost not to exceed $25,000, in the
aggregate, so that they are Year 2000 Compliant on or before December 31, 1999.
Except where the failure would not have an Acquired Company Material Adverse
Effect, the Acquired Companies and Company Subsidiaries are Year 2000 Compliant.
For purposes of this Agreement, "Year 2000 Compliant" means that the Software or
computer systems can receive, record, store, process, route, transfer or present
calendar dates and any related information falling on or after January 1, 2000
with similar functionality, in all material respects, as such Software or
computer systems perform such functions for calendar dates and related
information falling prior to January 1, 2000.
3.28 Homeowners' Associations; Regulatory Reserves; Management Fees.
(a) The Acquired Companies have provided (or caused to be provided)
to EFI the minute books of the Associations. Such minute books contain accurate
records of all meetings held and reflect all other material corporate or similar
actions of the respective shareholders, directors, partners and members and
committees thereof. The copies of the corporate charter, bylaws or other
organization documents that are contained in or kept with said minute books are
complete and correct in all material respects, and contain all material
amendments thereto duly adopted and in force.
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(b) The Associations are duly organized, legally existing and in
good standing under the laws of the state in which their principal offices are
situated, except where such failures would not have an Acquired Company Material
Adverse Effect. The books and records of the Associations are correct and
complete in all material respects and all Association funds collected from
Vacation Ownership Unit owners and VOI owners have been properly accounted for
and expended solely for such purposes as are authorized under the bylaws of each
Association, except where such failures would not have an Acquired Company
Material Adverse Effect. The Board of Directors of each of the Associations has
been properly appointed and/or elected in accordance with applicable Association
bylaws and all Association tax returns have been timely filed, except where such
failures would not have an Acquired Company Material Adverse Effect.
(c) The Acquired Companies and their respective Affiliates have made
(or caused to be made) and maintained (or caused to be maintained) all deposits
and reserves required of developers or sellers of VOIs pursuant to applicable
law or regulation.
(d) Correct and complete copies of the balance sheet and other
financial data of each of the Associations (the "Association Financials") have
been provided to EFI. As of the date of the closing, all homeowner funds
received by the Acquired Companies, for the benefit of the Vacation Ownership
Unit owners and VOI owners having use and accompanying rights subsequent to the
date hereof, have been duly accounted for and reflected in the Association
Financials. The Association Financials adequately reflect the financial
condition of the Associations as of the dates indicated.
(e) The Management Agreements between each Association and
Peppertree Resorts Management, Inc. are valid and in full force and effect.
Peppertree Resorts Management, Inc. has not received notification of termination
of any Management Agreement. The Management Agreement between PHC, GSHA and the
Company is valid and in full force and effect and the Company has not received
notification of termination of the Management Agreement.
(f) With respect to any Association that is not controlled by an
Acquired Company, Kinser or PHC, each representation and warranty contained in
this Section 3.28: (i) is made to Sellers' Knowledge; and (ii) speaks solely to
documents in the possession of Kinser, PHC, an Acquired Company or their counsel
to the extent it references documents. For these purposes, an Association is
controlled by a Person if the Person has the statutory right to elect or appoint
a majority of the members of the Association's board of directors or other
governing body.
3.29 VOI Mortgages.
(a) Kinser has delivered to EFI complete and accurate copies of the
forms of (i) Timeshare Interest/Interval Ownership Installment Purchase
Agreement (Contract for Deed) or any other form of purchase agreement relating
to the conveyance of a VOI, (ii) Credit Application, (iii) Timeshare Instrument,
(iv) Owner's Acknowledgment, (v) Good Faith Estimate of Closing Costs, (vi) Loan
Servicing Disclosure Statement, (vii) HUD- 1 Settlement Statement, (viii) Deed,
(ix) Conveyance, Exchange and Transfer Agreement with respect to upgrade sales,
(x) Existing Owner's Up-Grade/Add-On Acknowledgment, (xi) Authorization
Agreement for Pre-Approved Payments (ACH Debits), (xii) Upgrade Addendum, (xiii)
Termination of Timeshare Interest, (xiv) Mortgage or Deed of Trust, (xv)
Promissory Note, and (xvi) Security Agreement used in each jurisdiction in
connection with the sale of VOIs (collectively, the "VOI Consumer Documents").
Kinser represents and warrants to EFI, that (i) the VOI Consumer Documents, in
substantially the forms delivered to EFI, are the only documents currently used
by the Acquired Companies or permitted by the Acquired Companies to be used by
others in connection with the sale of VOIs, except for those documents
referenced in Section 3.30, and (ii) the VOI Consumer Documents are each in a
form which meets all requirements of all applicable laws of the United States of
America and of each state in which the Acquired Companies sells or offers for
sale VOIs, except where the failure to satisfy such requirements would not
result in an Acquired Company Material Adverse Effect.
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(b) The Mortgages constitute a first and prior lien upon the related
VOI or a purchaser's beneficial interest therein, as applicable, subject only to
Permitted Encumbrances. The Permitted Encumbrances do not materially interfere
with the security interest intended to be provided by the related Mortgages. The
promissory notes, installment notes and Mortgages together with applicable state
law, contain customary and enforceable provisions such as to render the rights
and remedies of the holders thereof adequate for the practical realization
against the related mortgaged property of the principal benefits of the security
interest intended to be provided thereby, except where the failure to contain
such provision would not result in an Acquired Company Material Adverse Effect.
Other than applicable homestead provisions which may delay the realization
against the related VOI, or exemptions that may arise in the event a petition
under provisions of the bankruptcy code is filed with respect to the
mortgagor/grantor, there is no homestead or other exemption available to the
mortgagor/grantor that would interfere with the right to sell the mortgaged VOI
or the mortgagor's/grantor's beneficial interest therein at a purchaser's sale
of the right to foreclose the related Mortgage. In the case Mortgages that are
deeds of trust, a trustee, duly qualified under applicable law to serve as such,
is properly designated and serving under each deed of trust.
(c) To Sellers' Knowledge, the Mortgages and any purchase agreements
or installment sales contracts with respect to VOIs are not subject to any right
of rescission, set-off, counterclaim or defense, including the defense of usury,
nor will the operation of any of the terms of the related promissory notes,
installment notes or Mortgages or the exercise of any rights thereunder, render
either the promissory notes, installment notes or Mortgages unenforceable, in
whole or in part, or subject to any right of rescission, set-off, counterclaim
or defense which has been asserted with respect thereto.
(d) To Sellers' Knowledge, with respect to (i) each sale of a VOI,
including by means of any installment sales contract and (ii) each Mortgage,
promissory note and installment note, the Acquired Companies have originated (or
serviced, if applicable) loans evidenced by the Mortgage, promissory note and
installment note, in accordance with all applicable federal and state laws and
regulations, including, without limitation, to the extent applicable: (a)
Regulation B, Equal Credit Opportunity Act; (b) Regulation C, Home Mortgage
Disclosure Act; (c) Regulation H, Flood Insurance Reform Act; (d) Regulation X,
Real Estate Settlement Procedures Act; (e) Regulation Z, Truth-in-Lending Act;
(f) Fair Credit Reporting Act; and (g) all other applicable federal and state
laws and regulations relating to usury, truth-in-lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity or disclosure
laws applicable to the mortgage loans, except where the failure to comply with
such laws and regulations would not result in an Acquired Company Material
Adverse Effect.
(e) Except as would not have an Acquired Company Material Adverse
Effect, the installment sales contracts, purchase agreements, promissory notes,
installment notes and related Mortgages and all other documents and instruments
evidencing, guaranteeing, insuring or otherwise securing such Mortgages, and
including the VOI Consumer Documents have been duly and properly executed by the
parties thereto, and each is the legal, valid and binding obligation of the
maker thereof (subject to applicable state anti-deficiency legislation),
enforceable in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, receivership, moratorium or
other laws relating to or affecting the rights or creditors generally and by
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(f) Except where the failure to do so would not have an Acquired
Company Material Adverse Effect, each Mortgage was properly recorded or is in
the process of being recorded in the appropriate jurisdiction and in compliance
with all laws of the jurisdiction in which the related VOI is located, and all
costs, fees, and expenses, including where applicable, recording fees,
documentary stamps and intangible taxes, due in connection with the Mortgage
have been paid.
3.30 Peppertree Vacation Club.
(a) Capitalized terms used in this Section 3.30 and not otherwise
defined shall have the meanings ascribed to them in that certain Amended and
Restated Trust Agreement for Peppertree Vacation Club (the "Trust Agreement"),
dated as of December 4, 1997, by and among Peppertree Vacation Club, Painter,
Patrick &
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Russell, P.A. ("Painter & Russell") and Peppertree Resorts Vacation Club, Inc.
establishing the trust created by the Trust Agreement (the "Trust").
(b) (i) Peppertree Vacation Club is a non-profit corporation duly
organized, validly existing and in good standing under the laws of the state of
North Carolina, is duly qualified to do business and in good standing as a
foreign corporation in the jurisdictions where its assets or the conduct of its
business requires such qualification (except where the failure to so qualify
would not have an Acquired Company Material Adverse Effect), and has the full
power and authority to own, operate and lease its properties and assets and to
carry on lawfully its business as currently conducted.
(ii) A complete and correct copy of the articles of
incorporation and bylaws of Peppertree Vacation Club, together with all
amendments thereto, has been delivered to EFI. Peppertree Vacation Club is not
in violation of, and the transaction contemplated by this Agreement will not
violate, in any material respect, its articles of incorporation or bylaws.
Complete and correct copies of the corporate records of Peppertree Vacation Club
have been delivered to EFI.
(iii) The directors and officers of Peppertree Vacation Club
are set forth on the Disclosure Schedule.
(iv) Except as set forth on the Disclosure Schedule,
Peppertree Vacation Club is not a party to any Contract. Correct and complete
copies of all Contracts to which Peppertree Vacation Club is a party have been
delivered to EFI.
(v) Except as set forth on the Disclosure Schedule, there is
no litigation, suit, claim, action, arbitration, administrative proceeding or
investigation of Peppertree Vacation Club or the Trustee pending before any
court, arbitrator, administrative agency or other governmental authority or, to
Sellers' Knowledge, threatened against Peppertree Vacation Club or the Trustee,
by or before any court, arbitrator, administrative agency or other governmental
authority that would have an Acquired Company Material Adverse Effect. Except as
otherwise set forth in this Agreement and except where such non-compliance would
not have an Acquired Company Material Adverse Effect, Peppertree Vacation Club
is in compliance in all material respects with all applicable laws.
(c) The Trustee of the Trust is Painter & Russell. The Trustee is
authorized and qualified to conduct the business of the Trust in all states in
which any Affiliated Resorts are located. To Sellers' Knowledge, the Trustee has
acted in good faith and used commercially reasonable efforts, in the performance
of its duties and responsibilities under the Trust Agreement. To Sellers'
Knowledge the Trustee has performed all of its material duties and
responsibilities under the Trust Agreement. The Trustee has not delivered any
notice of resignation and, to Sellers' Knowledge, the Trustee does not intend to
resign as Trustee. The fees paid and payable to the Trustee for services
rendered in 1997, 1998 and 1999 are set forth on the Disclosure Schedule.
(d) (i) Any Vacation Interests and Beneficial Use Rights that have
been conveyed or assigned to the Trustee were so conveyed or assigned in
accordance with the requirements of the Trust Agreement and applicable laws, and
are free and clear of any Blanket Encumbrances, except to the extent that they
are subject to Subordination Agreements or other financial assurances as set
forth in the Disclosure Schedule or where the failure to convey or assign would
not have an Acquired Company Material Adverse Effect. The Acquired Companies
transferred, or caused to be transferred to the Trust -- and, to Sellers'
Knowledge, the Trustee has -- good record title to sufficient Vacation Interests
and Beneficial Use Rights to comply with the terms and provisions of the Trust
Agreement and to maintain the One-to-One Member to Vacation Interest Ratio
Requirement. All of the Accommodations associated with the Membership Interests
are fully furnished and ready for occupancy, and all furnishings are fully paid
for, except where the failure would not have an Acquired Company Material
Adverse Effect.
(ii) Kinser has delivered to EFI, and set forth on the
Disclosure Schedule are, complete and correct copies of (A) the Trust Agreement,
including all exhibits, attachments or amendments thereto, (B) the Exchange
Program Disclosure Guide, (C) the forms of (1) Club Membership Agreement, (2)
Credit Application, (3)
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Assignment of Beneficial Use Rights, (4) Certificate of Beneficial Interest, (5)
Member's Acknowledgment, and (6) Loan Servicing Disclosure Statement used in
connection with the sale of Membership Interests, together with such other
documents executed ancillary thereto and (D) the North Carolina Public Offering
Statement for Peppertree Vacation Club and all such documents meet the
requirements of all applicable federal and state laws except where such failures
would not have an Acquired Company Material Adverse Effect. The Trust Agreement,
or a memorandum that accurately summarizes the primary subject matter thereof,
has been recorded in the appropriate public records of each county in which one
or more Affiliated Resorts are located. Except where the failure to do so would
not have an Acquired Company Material Adverse Effect, all amendments to Exhibit
B to the Trust Agreement have been recorded in all appropriate public records.
(iii) Set forth on the Disclosure Schedule is a list of all
jurisdictions in which Peppertree Vacation Club, the Trustee, the Acquired
Companies and/or any of their employees, representatives or agents market or
sell Membership Interests. There have been no misrepresentations by Peppertree
Vacation Club, the Trustee, any of the Acquired Companies, or any of their
employees and/or selling agents, as to the amenities or services which are or
will be available at any of the Affiliated Resorts, or with respect to the
amount of any Club Assessments, Club Common Expenses or Club Dues, the sale of
Membership Interests, the Club Membership Agreements or any other aspect of the
subject matter thereof, that would have an Acquired Company Material Adverse
Effect. No Membership Interest has been offered or marketed by Peppertree
Vacation Club, any of the Acquired Companies, or any of their employees,
representatives or agents as an investment. The number of Charter Members who
have terminated their Membership Interests is set forth on the Disclosure
Schedule.
(iv) Except as set forth on the Disclosure Schedule, the sale
evidenced by each Club Membership Agreement has been effected in accordance with
all applicable laws and regulations including, but not limited to, as
applicable, the North Carolina Condominium Act (North Carolina General Statutes
Chapters 47A and 47C, as amended), the North Carolina Real Estate Timeshare Act
(North Carolina General Statutes Chapter 93A, Article 4, as amended), the South
Carolina Condominium Act, the South Carolina Timeshare Act, the Tennessee
Condominium Act, the Tennessee Timeshare Act, the Wisconsin Condominium Act, the
Wisconsin Timeshare Act, the Missouri Condominium Act, the Missouri Timeshare
Act, the Securities Act, the Exchange Act, the Truth-in-Lending Act (15 U.S.C.
ss.1601, et seq.) and the Consumer Protection Act and Regulation Z thereunder,
the Equal Credit Opportunity Act (15 U.S.C. ss.1691, et seq.) and Regulation B
thereunder, the Interstate Land Sales Full Disclosure Act (15 U.S.C. ss.1701, et
seq.), the Real Estate Settlement Procedures Act (12 U.S.C. ss.2601, et seq.)
and Regulation X thereunder and the Fair Housing Law, the Mail Fraud Statute (18
U.S.C. ss.1341) and the Federal Trade Commission Act, and all federal, state and
local ordinances, laws or regulations relevant to such sales, including, without
limitation, zoning or other land use laws and regulations, subdivision map acts,
blue sky laws, real estate syndication acts and usury laws, except where a
failure to do so would not have an Acquired Company Material Adverse Effect.
3.31 Company Notes. The total amount owed to Kinser pursuant to the
Retained Earnings Note, including interest thereon, if any, does not exceed on
the date hereof, and will not exceed on the Closing Date, two million eight
hundred ten thousand eight hundred fifty-four dollars ($2,810,854). The total
amount owed to Kinser pursuant to the Peppertree Note, including interest
thereon, if any, does not exceed on the date hereof, and will not exceed on the
Closing Date, four million one hundred thirty-three thousand and eight dollars
($4,133,008).
3.32 Disclosure. None of the representations or warranties by Sellers or
the Acquired Companies in this Agreement, and no statement on the part of
Sellers or the Acquired Companies in the Schedules hereto or any certificate
furnished, or to be furnished, by Sellers or the Acquired Company to Purchasers
pursuant to the provisions of this Agreement, contains or will contain as to the
applicable representation and warranty or statement any untrue statement of
material fact, or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EFI
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To induce Sellers to enter into this Agreement and consummate the
transactions contemplated hereby, EFI represents and warrants to Sellers as
follows:
4.01 Organization.
(a) Each of EFI and the Newcos is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the character of its
properties (owned or leased) or the nature of its activities makes such
qualification necessary (except where the failure to be so qualified would not
have a Purchaser Material Adverse Effect), and has the requisite corporate power
and authority to own or lease and operate its properties and assets as and where
the same are owned or leased and operated and to carry on its business as
currently conducted.
(b) EFI owns beneficially and of record all the issued and
outstanding capital stock of each Newco, free and clear of all Encumbrances.
Each Newco has been formed for the sole purpose of effecting the transactions
contemplated hereby and, except as contemplated by this Agreement, none of the
Newcos has conducted any business activities or has any material liabilities or
obligations.
(c) EFI has delivered to Kinser complete and correct copies of the
certificate of incorporation and bylaws of EFI and each Newco, each as amended
to and as in effect on the date hereof.
4.02 Authorization. Each of the Purchasers has the legal right and
capacity, and the requisite power and authority to enter into this Agreement and
each Related Agreement (to the extent it is a party thereto) and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Related Agreements, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action on the part of the Purchasers, and
no other corporate approvals or proceedings on the part of EFI or any Newco are
necessary to authorize this Agreement, each of the Related Agreements and the
transactions contemplated hereby and thereby. This Agreement and each of the
Related Agreements have been duly executed and delivered by each of the
Purchasers (to the extent it is a party thereto), and assuming the due
authorization, execution, and delivery by the Sellers, constitute valid and
binding obligations of each of the Purchasers (to the extent it is a party
thereto) enforceable against it in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to the enforcement of creditors' rights
generally and subject to general principles of equity.
4.03 No Required Vote of EFI Stockholders. No vote of or other approval
by the stockholders of EFI is required by law, the organization documents of EFI
or otherwise in order for EFI and the Newcos to consummate the transactions
contemplated under the Agreement or any of the Related Agreements.
4.04 Capitalization. The authorized capital stock of EFI consists of (i)
50,000,000 shares of common stock, $.01 par value, of which 25,106,706 shares
are issued and outstanding as of the Execution Date; (ii) 15,000 shares of
Cumulative Redeemable Preferred Stock -- Series 2 Class A, $3.00 par value, of
which 10,000 shares are outstanding as of the Execution Date; and 3,000 shares
of Cumulative Convertible Preferred Stock -- Series 2, of which no shares are
outstanding as of the Execution Date. The authorized capital stock of each Newco
consists of 1,000 shares of common stock, $.01 par value, of which 100 shares
are issued and outstanding as o the Execution Date. All of the issued and
outstanding shares of the capital stock of EFI and the Newcos have been duly
authorized and validly issued, and are fully paid and nonassessable. All of the
issued and outstanding shares of the capital stock of EFI and each Newco were
offered, issued, sold and delivered in compliance with all applicable local,
state and federal laws concerning the issuance of securities. Further, none of
such shares was issued in violation of any preemptive rights created by statute,
the certificate of incorporation or bylaws of EFI or any Newco, as applicable,
or any agreement or document to which EFI or any Newco is a party or by which it
is bound. There are no registration rights, and to Purchasers' Knowledge, no
voting agreements, proxies, voting trusts or other agreements or understandings
with respect to any of the outstanding shares of the capital stock of EFI or any
Newco other than as set forth on the Disclosure
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Schedule. There are no agreements by and between or among EFI, any Newco and any
or all of their respective stockholders imposing any restrictions on the
transfer of, or otherwise pertaining to, the shares of EFI Common Stock to be
issued to Kinser or the ownership thereof, except as contemplated by this
Agreement or as set forth on the Disclosure Schedule. All of the shares of EFI
Common Stock to be issued in exchange for the Acquired Companies at the Closing
in accordance with this Agreement will be, when so issued, duly authorized,
validly issued, fully paid and nonassessable, free of preemptive rights and free
of all Encumbrances other than the restrictions specified herein or imposed by
the Securities Act.
4.05 Obligations with Respect to Capital Stock. Except as described in
Section 4.04, there are no equity securities of any class of EFI, or any
securities exchangeable or convertible into or exercisable for such equity
securities, issued, reserved for issuance or outstanding. Except for securities
EFI owns, directly or indirectly through one or more subsidiaries, there are no
equity securities of any class of any subsidiary of EFI, or any security
exchangeable or convertible into or exercisable for such equity securities,
issued, reserved for issuance or outstanding. Except as described in Section
4.04, there are no options, warrants, equity securities, calls, rights
(including preemptive rights), commitments or agreements of any character to
which EFI or any of its subsidiaries is a party or by which it is bound
obligating EFI or any of its subsidiaries to issue, deliver or sell, or cause to
be issued, delivered or sold, or to repurchase, redeem or otherwise acquire, or
cause the repurchase, redemption or acquisition, of any share of capital stock
of EFI or any of its subsidiaries or obligating EFI or any of its subsidiaries
to grant, extend, accelerate the vesting of or enter into any such option,
warrant, equity security, call, right, commitment or agreement.
4.06 Non-Contravention; Required Consents.
(a) Except as described on the Disclosure Schedule, the execution
and delivery of this Agreement and the Related Agreements, the consummation of
the transactions contemplated hereby and thereby, and the compliance with the
provisions of this Agreement and the Related Agreements by Purchasers (in each
case to the extent they are a party thereto) will not: (i) conflict with or
violate the organizational documents of EFI or any Newco; (ii) result in any
breach of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or impair either of the Purchasers'
rights or the obligations of any third party under, or give to others any rights
of termination, amendment, acceleration or cancellation of, or result in the
creation of an Encumbrance on any of the properties or assets of the Purchasers
pursuant to any loan, credit agreement, note, bond, mortgage, deed of trust,
indenture, reciprocal easement agreement, lease or other agreement to which
either of the Purchasers or its or any of their respective properties are bound
or affected; or (iii) conflict with or violate any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Purchasers or
their respective properties, assets or stock, other than, in the case of clause
(ii) or (iii), any such conflicts, violations, defaults, rights or Encumbrances
that would not (x) constitute a Purchaser Material Adverse Effect or (y) prevent
the consummation of the transactions contemplated hereby.
(b) The execution and delivery of this Agreement by Purchasers does
not, and the performance of this Agreement by Purchasers will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
for applicable requirements, if any, of the Securities Act, the Exchange Act,
"blue sky" laws and the National Association of Securities Dealers, Inc., and
(ii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or delay
consummation of the transactions contemplated hereby or otherwise prevent EFI or
any Newco from performing their respective obligations under this Agreement, and
would not have a Purchaser Material Adverse Effect.
4.07 Litigation and Compliance. Except as set forth on the Disclosure
Schedule and except as set forth in EFI's filings with the Securities and
Exchange Commission ("SEC") prior to the date hereof, there is no litigation,
suit, claim, action, arbitration, administrative proceeding, or investigation of
EFI or any of its subsidiaries before any court, arbitrator, administrative
agency or other governmental authority or, to Purchasers' Knowledge, threatened
against EFI or any of its subsidiaries, by or before any court, arbitrator,
administrative agency or other governmental authority. Except as otherwise set
forth in this Agreement or except where such non-compliance would not have a
Purchaser Material Adverse Effect, EFI and its subsidiaries are in compliance
with all applicable laws including, without limitation, all laws regarding the
advertising, marketing, telemarketing, offering for sale or sale of VOIs and the
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origination and servicing of loans relating thereto in each state and local
jurisdiction in which EFI and its subsidiaries are doing business, and there is
no order, writ, injunction or decree of any court, arbitrator, administrative
agency or other governmental authority materially affecting the operations or
the business of EFI or any of its subsidiaries or the consummation of the
transactions contemplated hereby.
4.08 SEC Filings; EFI's Financial Statements.
(a) Except as set forth on the Disclosure Schedule, EFI has timely
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC under the Securities Act and the Exchange Act since
December 31, 1998, (the "EFI SEC Reports"). As of its filing date, or the date
amended or supplemented, each EFI SEC Report filed, as amended or supplemented,
if applicable, (i) complied in all material respects with the applicable
requirements of the Securities Act and/or the Exchange Act, as applicable, and
the rules and regulations thereunder and (ii) did not, at the time it was filed,
contain any untrue statement of a material fact or omit to state any material
fact required o be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in the EFI SEC Reports (the "EFI
Financials"), including any EFI SEC Reports filed after the date hereof until
the Closing Date, (x) complied (or will comply) as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, (y) was prepared (or will be prepared) in accordance with GAAP applied
on a consistent basis throughout the periods involved (except as specified
therein or as may be indicated in the notes thereto or, in the case of unaudited
interim financial statements, as may be permitted by the SEC on Form 10-QSB
under the Exchange Act), and (z) fairly presented in all material respects the
consolidated financial position of EFI and its subsidiaries as at the respective
dates thereof and the consolidated results of operations and cash flows for the
periods indicated, except that the unaudited interim financial statements were
or are subject to normal and recurring year end adjustments which were not or
are not expected to be material in amount. The balance sheet of EFI contained in
the EFI SEC Reports as of June 30, 1999, is hereinafter referred to as the "EFI
Balance Sheet."
4.09 Absence of Material Changes, Events and Conditions. Since the date
of the EFI Balance Sheet through the date of this Agreement, and except as set
forth in the EFI SEC Reports, there has not been: (i) any Purchaser Material
Adverse Effect, (ii) any material change by EFI in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP or
rules and regulations of the SEC, or (iii) any revaluation by EFI of any of its
assets having a Purchaser Material Adverse Effect, including, without
limitation, writing down the value of capitalized software or inventory or
writing off notes or accounts receivable other than in the Ordinary Course of
Business.
4.10 Contracts. All contracts or agreements, including agreements related
to indebtedness of EFI and its subsidiaries, required to be filed with the SEC
under the Exchange Act, have been filed with the SEC. Except as set forth on the
Disclosure Schedule, neither EFI nor any of its subsidiaries is in material
breach of any provision of, or is in material violation or default under the
terms of, any material contract, except for such defaults that would not have a
Purchaser Material Adverse Effect.
4.11 Brokers. Bank of America Securities LLC is the only broker, finder
or investment banker that is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Purchasers. Any fees payable to
Bank of America Securities LLC are payable by and will be paid by Purchasers.
Purchasers shall indemnify and hold harmless Sellers from and against any claims
for brokerage commissions or finder's fees insofar as such claims shall be
alleged to be based upon arrangements or agreements made by Purchasers or on
their behalf. Such indemnity shall include the cost of reasonable counsel fees
in connection with the defense of any such claims.
4.12 Disclosure. None of the representations or warranties by EFI or any
Newco in this Agreement, and no statement on the part of EFI or any Newco in the
Schedules hereto or any certificate furnished, or to be furnished, by EFI to any
of the Sellers pursuant to the provisions of this Agreement, contains or will
contain as to the applicable representation and warranty or statement any untrue
statement of material fact, or omits or will omit to state any material
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fact necessary, in light of the circumstances under which it was made, in order
to make the statements herein or therein not misleading.
4.13 [Intentionally Omitted.]
4.14 Absence of Undisclosed Liabilities. There are no material
liabilities of EFI or its subsidiaries, except (i) as set forth on the
Disclosure Schedule, (ii) as and to the extent reflected or reserved against in
the financial statements of EFI, (iii) as set forth in the EFI SEC Reports or
(iv) incurred since the date of this Agreement in the Ordinary Course of
Business and which do not and are not reasonably likely to have a Purchaser
Material Adverse Effect. For purposes of this Section 4.14 only, "material"
means in excess of $25,000 individually or $100,000 in the aggregate. Except as
set forth on the Disclosure Schedule, reserves are reflected on the financial
statements of EFI and its subsidiaries against all liabilities of EFI and its
subsidiaries in amounts that have been established on a basis consistent with
past practices of EFI and its subsidiaries and in accordance with GAAP.
4.15 Subsidiaries.
(a) Except as set forth on the Disclosure Schedule, neither EFI nor
any of its subsidiaries owns of record or beneficially, directly or indirectly,
(i) any shares of outstanding capital stock or securities convertible into
capital stock of any other corporation or (ii) any participating interest in any
partnership, joint venture or other non-corporate business enterprise. Each
subsidiary of EFI is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own or lease and operate its
properties and assets and to carry on its business as it is now being conducted,
except where the failure to be in good standing would not have a Purchaser
Material Adverse Effect. Each subsidiary of EFI is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction in
which the character of its properties owned or leased or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified would not have a Purchaser Material Adverse Effect. All of the
outstanding shares of capital stock of EFI's subsidiaries are duly authorized,
validly issued, fully paid and nonassessable and, except as set forth on the
Disclosure Schedule, are owned by EFI or by a wholly-owned subsidiary of EFI,
free and clear of all Encumbrances, and there are no proxies or voting or
transfer agreements or understandings outstanding with respect to any such
shares.
(b) For purposes of this Agreement, the term "subsidiary" when used
with respect to EFI shall mean any corporation or other business entity a
majority of whose outstanding equity securities is at the time owned, directly
or indirectly, by EFI and/or one or more other subsidiaries of EFI.
4.16 Miscellaneous.
(a) EFI has no current plan or intention to reacquire any of its
stock that is issued pursuant to this Agreement.
(b) EFI has no current plan or intention, after the Merger: (i) to
liquidate the Company; (ii) to merge the Company with or into another
corporation; (iii) to sell or otherwise dispose of the stock of the Company
except for transfers of stock to corporations controlled by EFI; or (iv) to
cause the Company to sell or otherwise dispose of any of its assets or of any
assets acquired from Newco I, except for dispositions made in the Ordinary
Course of Business or transfers of assets to a corporation controlled by the
Company.
(c) Immediately prior to the Merger, Newco I will have no
liabilities assumed by the Company, and will not transfer to the Company any
assets subject to liabilities.
(d) Following the Merger, EFI intends for the Company to continue
its historic business.
(e) EFI does not own, nor has it owned during the five (5) years
prior to the Merger, any shares of the stock of the Company.
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(f) Neither EFI nor Newco I are investment companies as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(g) No compensation received pursuant to the consulting agreement by
Kinser will be separate consideration for, or allocable to, any of his shares of
Company Stock; no shares of EFI Common Stock received by Kinser will be separate
consideration for, or allocable to, the consulting agreement; and any
compensation paid to Kinser will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
ARTICLE V
COVENANTS OF KINSER
Kinser covenants and agrees with Purchasers as follows:
5.01 [Intentionally Omitted.]
5.02 [Intentionally Omitted.].
5.03 Access. Between the Execution Date and the Second Closing Date,
Kinser shall afford, and shall cause GSHA to afford, to EFI and its
Representatives full and complete access during normal business hours to the
properties, books, and records of GSHA, shall disclose to EFI and its
Representatives such additional financial and operating data and other
information as EFI reasonably may request, which is in GSHA's possession and (i)
relates to the business of GSHA or (ii) relates to EFI's obligations under the
Securities Act or the Exchange Act in the preparation of EFI's filings with the
SEC, and shall instruct the GSHA's Representatives to assist and cooperate with
EFI in complying with its filing obligations with the SEC; provided, that, such
access, disclosure, assistance or cooperation would not violate any applicable
law or regulation.
5.04 Confidentiality. From and after the Closing, Kinser shall, and shall
cause Cindy Kinser, Kay Kinser and David Kinser to, keep confidential all
information regarding the Acquired Business. In addition, Kinser, at the
election of EFI, shall either (i) grant to EFI the right to enforce the terms of
confidentiality agreements entered into with other potential purchasers of all
or any part of the Acquired Business; or (ii) take all actions reasonably
necessary to enforce the terms of such confidentiality agreements (at EFI's cost
and expense), in either case as promptly as practicable after written
notification from EFI of such election. EFI shall give Kinser prior notice
before initiating any action to enforce such confidentiality agreements. Kinser
shall not, and shall cause Cindy Kinser, Kay Kinser and David Kinser not to,
without the prior written consent of EFI, disclose any information regarding the
Acquired Business except as required by law; provided, however, that no such
disclosure shall be made prior to their giving EFI reasonable prior written
notification that explains in reasonable detail the basis for such disclosure
and reasonable opportunity to seek relief from such requirement. This Section
5.04 shall not apply to any information that is readily ascertainable from
public or published information that did not become public or published as a
result of a breach of the confidentiality provisions of this Section 5.04 or
otherwise as a result of any improper disclosure.
5.05 Transition of Plans. Kinser shall, and shall cause the Acquired
Companies to, cooperate with and assist EFI in the transition to EFI or any
Newco of any of the Acquired Business Benefit Plans and Acquired Business
Benefit Arrangements that EFI or any Newco elects to assume.
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5.06 Acquisition Proposals. Prior to Closing, Sellers shall not and shall
cause the Acquired Companies and their respective Representatives not to,
directly or indirectly: (i) solicit, encourage, or respond to any inquiries,
discussions, or proposals regarding; (ii) continue, propose, enter into
negotiations or discussions regarding; (iii) provide any information to any
Person (other than to EFI and its Representatives) for the purpose of making,
evaluating, or determining whether to make or pursue inquiries or proposals
regarding; or (iv) enter into any agreement or understanding oral or written
regarding, or (v) otherwise facilitate any effort or attempt to do or seek any
of the actions described in clauses (i) - (iv) regarding, any acquisition,
business combination or purchase of any of the Acquired Companies, any of the
properties or assets of the Acquired Companies, or any of the Acquired Ownership
Interests (other than the sale of VOIs in the Ordinary Course of Business).
Kinser shall immediately cease and cause to be terminated any existing
activities, discussions, or negotiations with any Person conducted heretofore
with respect to any of the foregoing and shall cause the return or destruction
of any confidential information Kinser has given to third parties with whom such
activities have been conducted. Kinser shall notify EFI immediately if any
inquiries, discussions, or proposals are received by, any information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with any Acquired Company.
5.07 Non-Competition and Non-Solicitation.
(a) Kinser covenants and agrees that from and after the Closing he
will not, and he will cause his spouse not to:
(i) for a period of seven (7) years, engage in (or own any
interests in or in any way have any involvement with) any VOI Business within a
three hundred (300) mile radius of Asheville, North Carolina;
(ii) for a period of five (5) years, engage in (or own any
interests in or in any way have any involvement with) any VOI Business anywhere
where EFI (or any of its current or future subsidiaries) conducts business on
the date hereof, or begins to conduct business while Kinser is a member of the
Board of Directors of EFI;
(iii) for a period of seven (7) years, interfere with,
disrupt, or attempt to disrupt any relationship, contractual or otherwise,
between EFI or any of its Affiliates and any customer, supplier, sales
representative, or employee of EFI or any of its Affiliates to the extent such
relationship pertains to the Acquired Business, or directly or indirectly
solicit for employment, attempt to employ or employ, or assist any entity in
employing or soliciting for employment any employee or executive who is, at such
time, employed by EFI or any of its Affiliates in connection with the Acquired
Business or the VOI Business in general.
(b) Notwithstanding the foregoing provisions of subparagraph
5.07(a), Kinser may continue to own Peppertree Fontana Village, Inc. and operate
the Peppertree Fontana Village property; provided, however, that Peppertree
Fontana Village, Inc. may not acquire property other than what it owns as of the
Execution Date and the Peppertree Fontana Village property must continue to be
operated in the same manner as it is being operated as of the Execution Date
without the consent of EFI, which consent will not be unreasonably withheld; and
if and for so long as Kinser owns GSHA, Kinser may continue to operate the time
share business of GSHA but shall not be entitled to increase the number of VOIs
available for sale by GSHA, and GSHA shall not acquire any other property
related to the VOI business other than what it owns as of the Execution Date.
5.08 Transfer of Assets. To the extent that, either before or after
Closing, EFI determines that (i) any asset currently used in the Acquired
Business or (ii) any contractual right or service that is currently used in the
operation of the Acquired Business (other than Peppertree Fontana Village and
any other specifically scheduled exclusions) is not owned by, leased by,
licensed to or otherwise the property of any of the Acquired Companies, and such
asset or contract is directly or indirectly owned by, leased by, licensed to or
otherwise proprietary to PHC, Kinser or any relatives of Kinser, and EFI or any
Newco has not otherwise obtained the rights to such asset or under such
contract, directly or indirectly, pursuant to this Agreement, EFI shall, at its
option, notify Kinser in writing of such assets or contractual rights and Kinser
shall use all reasonable efforts to transfer or cause to be transferred such
assets and contractual rights to EFI or any Affiliate of EFI (as directed by
EFI) at no additional cost to EFI. Within sixty (60) days following the Closing
Date, EFI shall cause the Company to purchase from David Kinser any computer
equipment or Software used in the
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operation of Vacation Rentals, Inc. at a cost equal to the appraised value of
such equipment and Software, as mutually agreed upon by EFI and David Kinser;
provided, that, in no event shall EFI or the Company be obligated to pay David
Kinser more than $50,000 for such equipment and Software.
ARTICLE VI
COVENANTS OF EFI
EFI covenants and agrees with Sellers as follows:
6.01 Conduct of Business of EFI and the Newcos. EFI and the Newcos
covenant and agree with Sellers that, during the period from the Execution Date
to the Closing Date, except as expressly contemplated or permitted by this
Agreement or to the extent that Kinser otherwise consents in writing, EFI will
not amend or repeal its articles of incorporation or bylaws.
6.02 Access. After the Closing, EFI shall afford to Kinser, and his
Representatives, upon not less than three (3) business days' notice, reasonable
access during normal business hours to the former properties, books and records
of the Acquired Companies to the extent reasonably necessary to permit Kinser to
determine any matter relating to them for any period ending on or before the
Closing Date.
6.03 Payment of Purchase Price. EFI covenants and agrees that it will
perform its obligations pursuant to Sections 2.01, 2.02, and 2.03.
6.04 Board of Directors of EFI. Promptly following the Closing Date and
for so long as Kinser owns beneficially or of record at least five percent (5%)
of the issued and outstanding shares of EFI Common Stock, EFI shall cause Kinser
to be elected to the Board of Directors of EFI and shall nominate him (or, if
Kinser is unable for any reason to serve on the Board of Directors of EFI, an
individual designated by Kinser and acceptable to EFI) as part of management's
slate of candidates at each subsequent annual election of directors, to be
elected to the Board of Directors of EFI. In the event the number of shares of
EFI Common Stock owned beneficially or of record by Kinser represents less than
three percent (3%) of the issued and outstanding shares of EFI Common Stock, EFI
shall have no obligation to Kinser with respect to his nomination to be elected
to the Board of Directors of EFI.
6.05 Stock Options. EFI will issue stock options to certain management,
officers and employees of the Company.
6.06 Location of Company Offices. EFI covenants and agrees to continue to
maintain the principal offices of the Company in Asheville, North Carolina until
December 31, 2000.
6.07 D&O Insurance. The Surviving Corporation shall honor any obligation
of the Acquired Companies that exists immediately prior to the Effective Time to
indemnify and hold harmless the present and former officers and directors of the
Acquired Companies and of the Company Subsidiaries (the "Indemnified Persons")
in respect of acts or omissions occurring prior to the Effective Time to the
extent required by the applicable State Corporation Laws and the certificate or
articles of incorporation of the applicable Acquired Company or Company
Subsidiary, in effect on the date hereof, subject to any limitation imposed from
time to time under applicable law; provided, that, neither the Surviving
Corporation nor any of the Acquired Companies or Company Subsidiaries shall be
obligated to indemnify or hold harmless Kinser with respect to any acts or
omissions for which Kinser has agreed to indemnify or hold harmless EFI and its
Affiliates pursuant to Section 10.02; and provided, further, that, any
obligation of the Surviving Corporation or any of the Acquired Companies or
Company Subsidiaries to indemnify and hold harmless an Indemnified Person in
accordance with this Section 6.07 shall not relieve or otherwise diminish
Kinser's obligations to indemnify and hold harmless EFI and its Affiliates
pursuant to Section 10.02. Immediately following the Effective Time, EFI shall
cause to remain in effect, if applicable, the current policies of directors' and
officers' liability insurance maintained by the
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Acquired Companies or any Company Subsidiary (provided that EFI may substitute
therefor policies of at least the same coverage and amounts containing terms and
conditions which are no less advantageous) with respect to claims arising from
facts or events which occurred at or before the Effective Time, and EFI shall
maintain such coverage for a period of three (3) years after the Effective Time;
provided, that, in no event shall EFI be required to expend in any one year in
excess of 125% of the annual premium currently paid by the Acquired Companies
and the Company Subsidiaries for such coverage, which current premium amount is
set forth on the Disclosure Schedule.
ARTICLE VII
ADDITIONAL COVENANTS BY THE PARTIES
7.01 Expenses; Transfer Taxes; Apportionment.
(a) Except as otherwise expressly provided in this Agreement or as
otherwise agreed in writing, Purchasers, on the one hand, and Kinser and the
Stockholders, on the other, shall pay their own expenses incident to the
negotiation, preparation and carrying out of this Agreement and the consummation
of the transactions contemplated hereby, including legal and accounting fees,
commitment fees, and the expenses of any broker, finder or investment advisor
incurred by it or for its benefit in connection with this Agreement, regardless
of whether this Agreement is terminated pursuant to Article VIII.
(b) Kinser and EFI shall share equally the following costs: (i) all
transfer, stamp taxes and fees applicable to the conveyance of the Real Property
contemplated hereby including as a result of an indirect conveyance resulting
from the transfer of stock or interests in the Acquired Companies hereunder;
(ii) the premiums for the Title Policies, including the premiums for the
Endorsements; and (iii) all applicable transfer or sales taxes with respect to
the transfer of personal property contemplated hereby; provided, that, Kinser,
and not EFI, shall pay all of the costs of the type described in clauses (i) and
(iii) with respect to those properties that are included as Acquired Assets.
7.02 Publicity. Prior to the Closing Date and, with respect to GSHA,
December 31, 1999, Kinser shall not, and shall use all reasonable efforts to
cause the present officers, directors and employees of the Acquired Companies
not to, issue any press release or otherwise make any public statement regarding
this Agreement and the transactions contemplated herein without the prior
consent of EFI except as required by law; provided, however, that nothing
contained in this Section 7.02 shall prohibit a Party from disclosing the
material terms hereof for the purpose of seeking any required consent from any
third party or regulatory authority to the consummation of the transactions
contemplated hereby or from otherwise taking any action contemplated by or
required to be performed under this Agreement.
7.03 Agreement to Take Necessary Action.
(a) Each of the Parties hereto agrees to use all its reasonable
efforts (subject to Section 7.03(b)) to take, or cause to be taken, all action
and to do, or cause to be done, all things necessary, proper or reasonably
advisable to (i) fulfill all conditions referred to in Sections 9.02 and 9.03,
and (ii) consummate and make effective the transactions contemplated by this
Agreement as soon as practicable.
(b) No Party shall intentionally perform any act that, if performed,
or omit to perform any act that, if omitted to be performed, would prevent or
excuse the performance of this Agreement by any Party hereto or that would
result in any representation or warranty herein contained of such Party being
untrue.
7.04 Full Disclosure. Each of the Parties shall, on or before the Closing
Date or the Second Closing date, as the case may be, disclose in writing to the
other Parties hereto any material event or condition the occurrence of which
would materially violate or result in a material violation of any of its
representations, warranties or covenants contained in this Agreement, materially
affect its ability to perform fully the transactions contemplated by this
Agreement, or cause any information contained in the Disclosure Schedule to be
materially inaccurate or incomplete at any time after the date
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hereof until the Closing Date; provided, however, that no such delivery shall
modify the representations and warranties of Sellers or Purchasers.
7.05 [Intentionally Omitted.]
7.06 Employees. The parties contemplate that the employees of each of the
Acquired Companies shall continue employment on substantially the same terms as
in effect on the Closing Date; provided, however, that nothing herein contained
is intended to limit the discretion of Purchasers to change or eliminate such
employment for any employees following the Closing, or any terms thereof,
including benefit plans.
7.07 Tax Matters.
(a) General.
(i) EFI shall prepare or cause to be prepared and file or
cause to be filed all Tax Returns that are required to be filed with respect to
the Acquired Companies (x) for Taxable Periods ending on or before the Closing
Date that are due after the Closing Date (other than Returns of any Affiliated
Group of which the Company is not the common parent), and (y) for Taxable
Periods beginning on or before and ending after the Closing Date ("Straddle
Periods").
(ii) Upon the later of (x) five (5) business days following
the receipt of a request therefor or (y) five (5) business days prior to the due
date of any payment to the relevant Taxing Authority, the Kinser shall pay to
EFI all Taxes shown as due on the Tax Returns prepared and filed pursuant to
Section 7.07(a)(i) or any Taxes subsequently determined to be due by any Taxing
Authority that relate to a Pre-Closing Period to the extent that such Taxes,
including without limitation all Taxes relating to the Schedule C Liability and
the AMT Liability, exceed the current liability accruals for such Taxes
(excluding any reserves for deferred Taxes) set forth on the October 31
Financial Statements.
(b) Apportionment. Except as otherwise provided in Section
7.01(a)(ii) and for purposes of apportioning any Taxes to the portion of a
Straddle Period that ends on the Closing Date, the determination shall be made
based on a closing of the books as of the close of business on the Closing Date;
provided, however, that real property, personal property and intangible property
Taxes shall be apportioned ratably on a daily basis between the portions of the
Straddle Period in question.
(c) Tax Cooperation. Kinser, PHC and EFI shall provide to each of
the other parties hereto such cooperation and information as either of them
reasonably may request in filing any Tax Return, amended Tax Return or claim for
refund, determining a liability for Taxes or a right to refund of Taxes or in
conducting any Tax Proceeding. Such cooperation and information shall include
providing copies of all relevant portions of relevant Tax Returns, together with
relevant accompanying schedules and relevant work papers, relevant documents
relating to rulings or other determinations by Taxing Authorities and relevant
records concerning the ownership and Tax basis of property, which such party may
possess. Subject to the preceding sentence, each party required to file Tax
Returns pursuant to this Agreement shall bear all costs of filing such Tax
Returns.
(d) Allocation of Purchase Price. The Parties have agreed that the
purchase price paid under Article II shall be allocated among the stock,
partnership interests, assets and other property transferred pursuant to this
Agreement set forth on Exhibit 7.07(d)-1. Further, the allocation to GSHA
reflected on Exhibit 7.07(d)-1 shall be further allocated among the assets of
GSHA in accordance with Exhibit 7.07(d)-2, which has been prepared pursuant to
the requirements of Treasury Regulation Section 1.1060-1T promulgated under
Section 1060 of the Code. Exhibit 7.07(d)-2 shall be prepared on or before the
date of the Second Closing. EFI and, as required, Kinser and PHC, shall file
with the IRS Form 8594 in a manner consistent with such allocation and shall
reflect such allocation on all applicable Tax Returns and reports. The Parties
agree that all Tax Returns and reports (including IRS Form 8594 Asset
Acquisition Statement), and all financial statements shall be prepared in a
manner consistent with (and the Parties shall not otherwise take a position
inconsistent with) the allocation unless required by any Taxing Authority.
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(e) Tax Contests.
(i) If any Party receives written notice from any Taxing
Authority of a Tax Proceeding with respect to any Tax for which the other Party
is obligated to provide indemnification under this Agreement, such party shall
within sixty (60) days thereof give written notice to the other Party (or within
such shorter time as may be necessary to give the Indemnifying Party a
reasonable opportunity to respond to such notice); provided, however, that the
failure to give such notice shall not affect the indemnification provided
hereunder except to the extent that the failure to give such notice materially
prejudices the Indemnifying Party.
(ii) Upon written notice to EFI within thirty (30) days after
receipt of notification pursuant to Section 7.07(e)(i), Kinser shall have the
right, at their own expense, to control and make all decisions with respect to
any Tax Proceeding relating to Taxes of any Acquired Company for any Taxable
Period ending on or before the Closing Date. EFI shall have the right to approve
the counsel selected by Kinser to conduct any such Tax Proceeding, which
approval shall not be unreasonably withheld, and to participate fully at its own
expense with counsel of its own choosing in all aspects of the prosecution or
defense of such Tax Proceeding. Kinser shall not take any action or position in
any such Tax Proceeding if that action or position could reasonably be expected
to increase the Tax liability of EFI or any of its Affiliates for any Taxable
Period or portion thereof beginning after the Closing Date without the prior
written consent of EFI. Kinser shall not settle or otherwise terminate any such
Tax Proceeding without the prior written consent of EFI.
(iii) Upon written notice to EFI within thirty (30) days after
receipt of notification pursuant to Section 7.07(e)(i), Kinser shall have the
right, at their own expense, to jointly control and participate with EFI in the
conduct of any Tax Proceeding relating to Taxes of any Acquired Company for a
Straddle Period. If Kinser exercises such right, neither party shall settle or
otherwise terminate any such Tax Proceeding without the prior written consent of
the other, which consent shall not be unreasonably withheld.
(iv) If Kinser does not exercise their right to assume control
of or participate in any Tax Proceeding as provided under this Section 7.07(e),
EFI may defend or settle the same in such manner as it may deem appropriate in
its sole and absolute discretion, without in any way limiting its rights of
indemnification hereunder.
(v) Except as otherwise provided in this Section 7.07(e), EFI
shall control all Tax Proceedings relating to Taxes and Tax Returns of the
Acquired Companies.
(vi) In the event that the provisions of this Section 7.07(e)
and the provisions of Article X hereof conflict or otherwise each apply by their
terms, this Section 7.07(e) shall exclusively govern all matters concerning Tax
Proceedings.
(f) [Intentionally Omitted.]
(g) Certain Kinser Tax Obligations. In furtherance (and not in
limitation) of Kinser's obligations under this Agreement to pay Taxes, Kinser
agrees that he is liable to pay the following:
(i) Taxes of any Acquired Company or its subsidiaries (or
their predecessors) for a Taxable Period in which such corporation was subject
to Tax under subchapter C of the Code and during which Taxable Period the
activities of such corporation were not accurately reported on such
corporation's Tax Return but were reported on Schedule C of Kinser's personal
income Tax Returns (the "Schedule C Liability");
(ii) Taxes of Peppertree Resorts Vacation Club, Inc., and
Peppertree Ocean Club, Inc. (or their successors or predecessors) for
Pre-Closing periods with respect to alternative minimum tax liability within the
meaning of Section 55 of the Code (the "AMT Liability").
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EFI agrees that it will not seek indemnification from Kinser for the Schedule C
Liability or the AMT Liability to the extent the aggregate Tax liability for the
Schedule C Liability and the AMT Liability does not exceed $2,524,704. To the
extent the aggregate Tax Liability for the Schedule C Liability and the Amount
Liability is finally determined to be less than $2,524,704, EFI shall pay Kinser
and the Stockholders such difference, in cash and shares of EFI Common Stock,
valued at VWAP, in such proportion as Kinser shall determine does not adversely
affect the tax-free treatment of the Merger. Kinser acknowledges that pursuant
to paragraph (a) of this Section 7.07, EFI will prepare Tax Returns to amend
previously filed Tax Returns in order to accurately reflect the Tax liability as
described under clauses (i) and (ii) of Section 7.07(g). Kinser shall have the
right to participate, at his own cost, with EFI in the preparation of the
amended Tax Returns contemplated under Section 7.07(g). EFI has the sole
discretion to file or cause to be filed such Tax Returns.
7.08 Transfer Restrictions. Subject in all cases to compliance with
applicable federal and state securities laws, and in no case prior to (x) the
first anniversary of the Closing Date or (y) the date that is six (6) months
after the date on which Bennett Funding Group, Inc. has sold, transferred or
otherwise disposed of all of the capital stock of EFI (including, without
limitation, shares of EFI Common Stock and shares of EFI preferred stock) owned
by it, whichever is earlier, unless EFI in its sole discretion shall consent
otherwise, Kinser and the Stockholders shall not (a) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of (i) any
shares of EFI Common Stock received by him or it in connection with the
transactions contemplated hereby or (ii) any interest (including, without
limitation, an option to buy or sell) in any such shares of EFI Common Stock, in
whole or in part, and no such attempted transfer shall be treated as effective
for any purpose; or (b) engage in any transaction, whether or not with respect
to any shares of EFI Common Stock or any interest therein, the intent or effect
of which is to reduce the risk of owning the shares of EFI Common Stock acquired
in connection with the transactions contemplated hereby. The certificates
evidencing the EFI Common Stock to be delivered to Kinser and each Stockholder
and subject to the restrictions described herein shall bear a legend
substantially in the following form and contain such other legends or
information as EFI may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE GOVERNED BY RESTRICTIVE
COVENANTS IN THAT CERTAIN AGREEMENT AND PLAN OF REORGANIZATION DATED
NOVEMBER 17, 1999, AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED,
ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF
EXCEPT IN ACCORDANCE WITH SUCH COVENANTS, AND THE ISSUER SHALL NOT BE
REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION.
7.09 Title Commitments.
(a) Kinser has caused to be prepared and delivered to EFI a current,
effective commitment (collectively, "Title Commitments") issued by a title
insurance company reasonably acceptable to EFI (the "Title Company"), for the
following properties: (i) Peppertree Laurel Point, Gatlinburg, Tennessee; and
(ii) Peppertree Williamsburg, Williamsburg, Virginia. Kinser has caused to be
prepared and delivered to EFI a current, effective preliminary opinion for
title, which can be used to obtain Title Commitments from Title Companies
acceptable to EFI, together with complete, correct and legible copies of all
documents referred to in such opinions for title, for the following properties:
(i) Peppertree Blue Ridge Village (CIA Tract), Banner ELK, North Carolina; (ii)
Peppertree Blue Ridge Village (Schwebcke Parcel), Banner ELK, North Carolina;
Zealandia, Asheville, North Carolina; (iii) Zealandia (Stable Tract), Asheville,
North Carolina; (iv) Zealandia (Kalogerakis Tract), Asheville, North Carolina,
(v) Peppertree Outer Banks Beach Club (Club House Tract), Kill Devil Hills,
North Carolina; (vi) Sunset Bay, Kill Devil Hills, North Carolina; (vii)
Sunspree and Peppertree Vacation Club Villas, Asheville, North Carolina; and
(viii) Peppertree Atlantic Beach, Atlantic Beach, North Carolina.
(b) Within sixty (60) days after Closing, EFI will determine, at its
sole discretion, for which properties it will require an ALTA Form B-1970 (or
other form required by state law) owner's title insurance policies ("Title
Policies") and the insured value of such properties. The Title Policies will be
issued by the Title Company, ALTA
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General Exceptions 1 through 5 deleted (other than General Exceptions relating
to surveys), or corresponding deletions or endorsements if the Real Property is
located in a non-ALTA state, containing such endorsements as reasonably
requested by EFI and approved by the Title Company (collectively, the
"Endorsements"), insuring the owner thereof of good, marketable fee simple or
leasehold title (as applicable) to such Real Property, subject only to Permitted
Encumbrances. Kinser shall execute, or cause to be executed such affidavits on
the Title Company's standard form so that the Title Company can delete or modify
the standard printed exceptions as to parties in possession unrecorded liens,
and similar matters.
7.10 Satisfaction of Company Notes. At the Closing, the Company shall
satisfy the Company Notes to the extent provided in Section 2.02, and Kinser
shall have no right to any additional payments on account of the Company Notes
to the extent they are satisfied at the Closing or the Second Closing or are
satisfied or reduced pursuant to Section 2.02(d).
7.11 Sale of Aircraft Interest. The Parties covenant and agree to use
their reasonable best efforts to complete the sale of the Aircraft Interest from
Kinser to EFI (or one of its subsidiaries), for the consideration described in
Section 2.02, within sixty (60) days after the Closing. If the Parties do not
complete the sale of the Aircraft Interest by such date then Kinser shall pay to
EFI $275,000 in cash.
7.12 Tax-free Acquisition of Company. EFI and Kinser intend that the
Merger will qualify as a reorganization under Section 368 of the Code. EFI and
Kinser agree to prepare their Tax Returns in accordance with treatment of the
Merger as a reorganization. EFI makes no representation or warranty, explicit or
implied, to any Person that the Merger qualifies as a reorganization under
Section 368 of the Code.
7.13 Payment of Extraordinary Compensation. EFI shall cause the Company
to pay, as extraordinary compensation, to John McFarland, Herbert Patrick, Jr.
and Don Clayton, the aggregate amount of two million five hundred fifty-eight
thousand seven hundred ninety-four dollars ($2,558,794) and 207,738 shares of
EFI Common Stock, inclusive of all Taxes, which amounts shall be shared in equal
amounts by each.
7.14 Oral Leases. Kinser shall use his best efforts to reduce to writing
any and all oral leases to which any Acquired Company or Company Subsidiary is a
party within sixty (60) days after Closing.
7.15 GSHA. EFI shall use best efforts to file the application required to
obtain the Holiday Inn Consent by November 30, 1999. Between the Execution Date
and the Second Closing Date, EFI and Kinser shall each use best efforts to
obtain the Holiday Inn Consent, and EFI shall negotiate the terms of such
consent, including the property improvement plan, in good faith.
ARTICLE VIII
[INTENTIONALLY OMITTED]
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ARTICLE IX
THE CLOSINGS
9.01 Time and Place of Closing. Except as provided in Section 9.01A, the
consummation of the transactions contemplated by this Agreement (the "Closing")
shall take place at the offices of Wilmer, Cutler & Pickering, 2445 M Street,
N.W. Washington, D.C. 20037. The Closing will be at 10:30 a.m. (local time) on a
date as soon as practicable to be agreed on by the Parties, after all conditions
to Closing set forth in Sections 9.02, 9.03 and 9.03A have been satisfied or
waived by the applicable Party (and, in any event, within five (5) business days
of the satisfaction or waiver of all such conditions) but in no event later than
November 30, 1999. The date on which the Closing occurs shall be referred to as
the "Closing Date."
9.01A Time and Place of Second Closing. The consummation of the
transactions contemplated by this Agreement with respect to GSHA (the "Second
Closing") shall take place at the offices of Wilmer, Cutler & Pickering, 2445 M
Street, N.W. Washington, D.C. 20037. The Second Closing will be at 10:30 a.m.
(local time) on a date as soon as practicable to be agreed on by the Parties,
after all conditions to Closing set forth in Sections 9.03B have been satisfied
or waived by the applicable Party (and, in any event, within five (5) business
days of the satisfaction or waiver of all such conditions) but in no event later
than December 31, 1999. The date on which the Closing occurs shall be referred
to as the "Second Closing Date."
9.02 Conditions to Purchasers' Closing Obligations. The obligations of
Purchasers under this Agreement with respect to the Closing are subject to the
satisfaction, on or before the Closing Date, of the conditions set out in this
Section 9.02, any one or more of which may be waived in whole or in part by EFI
as provided by Section 11.09:
(a) Representations and Warranties True. The representations and
warranties of each of the Sellers (except as regards GSHA) contained in Article
III shall be true in all material respects on and as of the Closing Date (unless
a representation is made as of a specific earlier date or time, and in which
case it shall be true and correct in all material respects as of such date or
time only), and Sellers shall deliver to EFI a certificate of each of Kinser and
the Stockholders (in the case of the Stockholders, solely with respect to the
representations and warranties made by such Stockholders in Article III hereof)
to that effect.
(b) Performance. Each of the Sellers shall have performed and
complied in all material respects with the covenants, conditions, terms, and
agreements that it is to perform and comply with on or before the Closing Date,
and the Sellers shall deliver to EFI a certificate of each of Kinser and the
Stockholders to that effect.
(c) Opinion of Counsel. EFI shall have received one or more
opinions, dated as of the Closing Date, of Holland & Knight LLP and each of the
additional local counsel specified on the Disclosure Schedule, each a counsel to
Sellers, in a form as is reasonably acceptable to EFI.
(d) Absence of Litigation. There shall not (i) have been any legal
action or proceeding or other action instituted or threatened challenging the
purchase and sale of the Acquired Ownership Interests as contemplated by this
Agreement, or seeking to place any Encumbrance on any Acquired Ownership
Interests, or any attempt to terminate any of the ERISA Affiliate Plans subject
to Title IV of ERISA; or (ii) be outstanding any order of any court or
governmental agency having jurisdiction over the Parties enjoining or otherwise
preventing consummation of the purchase and sale of the Acquired Ownership
Interests; provided, however, that if such outstanding order is a temporary
restraining order, preliminary injunction, stay, or other similar order and all
other conditions precedent to Closing are satisfied or waived, the Closing Date
shall be extended without further act of the Parties to a date three (3)
business days after the date on which such order ceases to be in effect.
(e) [Intentionally Omitted.]
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(f) Deliveries. Sellers shall have delivered or provided for the
delivery of, to the reasonable satisfaction of EFI, the items listed in Section
9.04.
(g) Due Diligence Review. EFI shall have completed, to its sole
satisfaction, its due diligence review of the Acquired Companies; shall be fully
satisfied, in its sole discretion, with the results of its due diligence review,
its review of the Disclosure Schedule, and its review of other due diligence
investigations with respect to the operations, affairs, prospects, properties,
assets, existing and potential liabilities, obligations, profits and condition
(financial or otherwise) of the Acquired Business, including, without
limitation, Peppertree Vacation Club; and shall have determined, in its sole
discretion, that its due diligence review did not raise any concerns such that
EFI, in its sole discretion, does not consider the transactions contemplated by
this Agreement desirable.
(h) Notice to Bargaining Agents. Sellers shall have satisfied any
requirement for notice of the transactions contemplated by this Agreement under
applicable collective bargaining agreements and complied with any other
applicable labor laws relating to this Agreement and shall provide satisfactory
evidence of the same to EFI.
(i) FIRPTA Certificate. Sellers shall have delivered to EFI
certificates in form and substance reasonably satisfactory to EFI, duly executed
and acknowledged, certifying all facts necessary to exempt the transactions
contemplated hereby from withholding pursuant to the provisions of the Foreign
Investment In Real Property Tax Act.
(j) [intentionally omitted]
(k) Stockholder Notes. All notes payable by any of the Acquired
Companies, or their subsidiaries, to any stockholder or former stockholder,
except for the Company Notes, shall have been satisfied in full.
(l) Affiliate Agreements. EFI and the Company shall have entered
into affiliate agreements with each of John McFarland, Herbert Patrick, Jr. and
Don Clayton in the form attached hereto as Annex J.
9.03 Conditions to Sellers' Closing Obligations. The obligations of
Sellers under this Agreement with respect to the Closing are subject to the
satisfaction, on or before the Closing Date, of the conditions set out in this
Section 9.03, any one or more of which may be waived in whole or in part by
Sellers as provided in Section 11.09.
(a) Representations and Warranties True. EFI's representations and
warranties contained in Article IV shall be true in all material respects on and
as of the Closing Date (unless a representation is made as of a specific earlier
date or time, and in which case it shall be true and correct in all material
respects as of such date or time only), and EFI shall deliver to Sellers a
certificate of an officer of each of EFI and the Newcos to that effect.
(b) Performance. Each of EFI and the Newcos shall have performed and
complied in all material respects with the covenants, conditions, terms, and
agreements it is to perform and comply with on or before the Closing Date, and
Purchasers shall deliver to Sellers a certificate of an officer of each of
Purchasers to that effect.
(c) Opinion of Counsel. Sellers shall have received an opinion,
dated as of the Closing Date, of Wilmer, Cutler & Pickering, counsel to EFI, in
a form reasonably acceptable to Sellers.
(d) Absence of Litigation. There shall not (1) have been any legal
action or proceeding instituted or threatened challenging the purchase and sale
of the Acquired Ownership Interests, as contemplated by this Agreement; or (2)
be outstanding any order of any court or governmental agency having jurisdiction
over the Parties enjoining or otherwise preventing consummation of the purchase
and sale of the Acquired Ownership Interests; provided, however, that if such
outstanding order is a temporary restraining order, preliminary injunction,
stay, or other similar order and all other conditions precedent to Closing are
satisfied or waived, the Closing Date shall be extended without further action
of the Parties to a date three (3) business days after the date on which such
order ceases to be in effect.
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(e) Deliveries. EFI shall have delivered or provided for the
delivery of, to the reasonable satisfaction of Sellers, the items listed in
Section 9.05.
(f) Capital Contribution to Newco I. EFI or its Affiliates shall
have contributed or paid over to Newco I cash in the amount necessary to satisfy
the Company Notes to the extent the Company Notes are being paid at Closing, or
such lesser amount in accordance with Section 2.02(c), plus an amount equal to
two million five hundred fifty-eight thousand seven hundred ninety four dollars
($2,558,794) to fund certain employee bonuses and shall have sold or otherwise
transferred to Newco I sufficient shares of EFI Common Stock to fund certain
employee bonuses in accordance with Section 7.13.
(g) [Intentionally Omitted.]
(h) Consulting Agreement. EFI or the Company shall have offered a
consulting agreement to Kinser in the form attached hereto as Annex K.
(i) Assumption of Meridian Contract. EFI shall have ratified the
Company's obligations under that Certain Agreement for Collection of Unpaid
Accounts, dated July 15, 1999 and shall have obtained confirmation (that is
satisfactory to Kinser in his reasonable judgment) from Meridian Financial
Services, Inc. that it will not terminate the agreement on account of, or
otherwise claim as a basis for a breach of the agreement, the transactions
contemplated hereby..
9.03A Mutual Conditions to the Parties' Closing Obligations.
Notwithstanding any other provision in this Agreement, the obligations of the
Parties under this Agreement with respect to the Closing are further subject to
the satisfaction, on or before the Closing Date, of the conditions set out in
this Section 9.03A, any one or more of which may be waived in whole or in part
solely by the mutual agreement of the Parties:
(a) Consents and Approvals. Each of the Parties shall have obtained
all consents and approvals from any Person, administrative agency or other
governmental authority necessary for such Party to consummate the transactions
contemplated by this Agreement. Such consents and approvals shall include,
without limitation, all necessary consents and approvals from the lenders of the
Acquired Companies or the Purchasers.
(b) Board Approval. The Board of Directors of EFI shall have
approved the consummation of the transactions contemplated hereby; provided,
however, that this condition shall be deemed waived if the EFI Board of
Directors has not approved or disapproved the transactions contemplated hereby
within seven (7) days of the later to occur of (i) the execution of this
Agreement or (ii) Sellers' provision of complete and final schedules to this
Agreement to EFI.
(c) Bankruptcy Court Action. On or prior to the Closing Date (A) the
Bankruptcy Court of the Northern District of New York (the "Bankruptcy Court"),
which currently has jurisdiction over the bankruptcy estate of The Bennett
Funding Group, Inc., Bennett Management and Development Corporation and certain
other related entities (the "Estate"), shall not have taken any action to assert
jurisdiction over or otherwise impede the Merger or the other transactions
contemplated hereby or (B) neither the Official Creditors Committee of the
Estate nor any other Person shall have asserted in writing to the Estate or the
Bankruptcy Court that such court's approval is required with respect to the
Merger or the other transactions contemplated hereby.
(d) Fontana Consulting Agreement. The Company, or one of the Company
Subsidiaries, shall have entered into a consulting agreement with Peppertree
Fontana Village, Inc. that is acceptable to the Parties.
9.03B Conditions to Second Closing Obligations.
(a) Purchasers. The obligations of Purchasers under this Agreement
with respect to the Second Closing are subject to the satisfaction, on or before
the Second Closing Date, of the conditions set out in Section 9.02(a), (b), (c)
and (d) with respect to GSHA and the LP Interest and GP Interest.
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(b) Sellers. The obligations of Kinser under this Agreement with
respect to the Second Closing are subject to the satisfaction, on or before the
Second Closing Date, of the conditions set out in Section 9.03(a), (b), (c) and
(d) with respect to GSHA and the LP Interest and GP Interest.
(c) Both Parties. The obligations of Purchasers and Kinser under
this Agreement with respect to the Second Closing are subject to obtaining the
Holiday Inn Consent.
9.04 Deliveries by Sellers at Closing. At the Closing, Sellers (to the
extent applicable) shall deliver or shall cause to be delivered to EFI the items
identified below. EFI's receipt of these items is a condition to its obligations
under this Agreement, although EFI may waive any or all of these conditions in
whole or in part, as provided in Section 11.09:
(a) duly executed instruments of transfer, assignment, or conveyance
of the Acquired Ownership Interests, including without limitation original
endorsed certificates representing shares of the Company Stock, the PRVI Stock
and the Realty Stock, to the extent applicable, duly endorsed in blank, or
accompanied by blank stock powers duly executed, and with all necessary transfer
tax and other revenue stamps, acquired at the Sellers' expense, affixed and
canceled;
(b) a copy of the articles of incorporation or other governing
document of each Acquired Company, certified by the appropriate official of the
jurisdiction of incorporation or organization of such Acquired Company, as of a
date not more than fifteen (15) days before the Closing Date;
(c) a copy of the bylaws of each Acquired Company certified by the
Secretary of such Acquired Company;
(d) a Good Standing Certificate for each of the Acquired Companies,
as of a date not more than fifteen (15) days before the Closing Date from the
jurisdiction of incorporation or organization of such Acquired Company and for
each other jurisdiction in which the Acquired Company is qualified to do
business as a foreign corporation;
(e) a certified copy of any necessary resolution of each Seller
evidencing approval of this Agreement and the other documents and transactions
contemplated hereby;
(f) an incumbency and signature certificate executed by the
Secretary or Assistant Secretary of the Company;
(g) copies of all documents evidencing other necessary corporate or
other action and governmental approvals, if any, with respect to this Agreement
that EFI reasonably requests on reasonable notice prior to the Closing;
(h) a certificate from each of Kinser and the Stockholders stating
that (i) the representations and warranties of such Seller contained in Article
III of this Agreement are true and correct in all material respects as of the
Closing Date (unless a representation is made as of a specific earlier date or
time, and in which case it shall be true and correct in all material respects as
of such date or time only); and (ii) no condition or event with respect to such
Seller has occurred, or is continuing, or will result from the execution and
delivery of this Agreement or the sale of the Acquired Ownership Interests that
constitutes a material breach of this Agreement;
(i) the opinion(s) of Holland & Knight LLP and the other counsel to
Sellers listed on the Disclosure Schedule, in form reasonably satisfactory to
EFI;
(j) the Related Agreements, in form and substance reasonably
satisfactory to the Parties; and
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(k) all other documents reasonably required by EFI to evidence or
to consummate the transactions contemplated by this Agreement.
9.05 Availability of Records. On the Closing Date, Sellers shall make
available all original (or a certified copy if the original has been lost or
destroyed) Records in the possession of Sellers on the Closing Date relating to
the Acquired Business, subject to the following exceptions:
(a) EFI recognizes that certain Records may contain information only
incidentally related to the Acquired Business and that Sellers may retain these
Records;
(b) Sellers may retain a copy of all materials prepared by Sellers
to which EFI has been provided access in connection with the purchase and sale
contemplated by this Agreement, together with a copy of all documents referred
to in such materials; and
(c) Sellers may retain all consolidating and consolidated financial
information and all other accounting Records prepared or used in connection with
the preparation of financial statements.
9.06 Deliveries by Purchasers at Closing. At the Closing, EFI shall
deliver or shall cause to be delivered to Sellers the items identified below.
Sellers' receipt of these items is a condition to their obligations under this
Agreement, although Sellers may waive any or all of these conditions in whole or
in part, as provided in Section 11.09:
(a) payment of the Aggregate Purchase Price as contemplated by
Article II;
(b) a copy of the certificate of incorporation of EFI and each
Newco, certified by the Secretary of State of Delaware, as of a date not more
than fifteen (15) days before the Closing Date;
(c) a copy of the bylaws of EFI and each Newco, certified by the
secretary of EFI;
(d) a Good Standing Certificate for EFI and each Newco, as of a date
not more than fifteen (15) days before the Closing Date, from the Secretary of
State of Delaware and for each other jurisdiction in which each such company is
qualified to do business as a foreign corporation
(e) a certified copy of any necessary resolutions of the boards of
directors of EFI and each Newco evidencing approval of this Agreement and the
other documents and transactions that it contemplates;
(f) copies of all documents evidencing other necessary corporate or
other action and government approvals, if any, with respect to this Agreement
and the Acquired Ownership Interests that Sellers reasonably request on
reasonable notice prior to the Closing;
(g) an incumbency and signature certificate executed by the
Secretary or Assistant Secretary of EFI;
(h) a certificate from a duly authorized officer of EFI stating that
(i) the representations and warranties of EFI contained in Article IV of this
Agreement are true and correct in all material respects as of the Closing Date
(unless a representation is made as of a specific date or time, and in such
event it shall be true and correct in all material respects as of such date or
time); and (ii) no condition or event with respect to EFI or the Newcos has
occurred, is continuing, or will result from the execution and delivery of this
Agreement or the sale of the Acquired Ownership Interests that constitutes a
material breach of this Agreement;
(i) the opinion of Wilmer, Cutler & Pickering, counsel to EFI;
(j) the Related Agreements, in form and substance reasonably
satisfactory to the Parties; and
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(k) all other documents reasonably required by Sellers to evidence
or consummate the transactions contemplated by this Agreement.
9.07 Deliveries at Second Closing.
(a) At the Second Closing, Kinser and PHC (to the extent applicable)
shall deliver or shall cause to be delivered to EFI the items identified below.
EFI's receipt of these items is a condition to its obligations under this
Agreement, although EFI may waive any or all of these conditions in whole or in
part, as provided in Section 11.09:
(i) duly executed instruments of transfer, assignment, or
conveyance of the LP Interest and GP Interest, including without limitation
original endorsed certificates representing such certificated interests, duly
endorsed in blank, or accompanied by blank partnership powers duly executed, and
with all necessary transfer tax and other revenue stamps, acquired at the
Sellers' expense, affixed and canceled;
(ii) a copy of the governing document of GSHA
(iii) to the extent reasonably available, a Good Standing
Certificate for GSHA, as of a date not more than fifteen (15) days before the
Second Closing Date from the jurisdiction of incorporation or organization of
such entity and for each other jurisdiction in which it is qualified to do
business as a foreign partnership;
(iv) a certified copy of any necessary resolution of PHC
evidencing approval of this Agreement and the other documents and transactions
contemplated hereby;
(v) an incumbency and signature certificate executed by the
Secretary or Assistant Secretary of each of the PHC and GSHA;
(vi) copies of all documents evidencing other necessary
corporate or other action and governmental approvals, if any, with respect to
this Agreement that EFI reasonably requests on reasonable notice prior to the
Second Closing;
(vii) a certificate from Kinser stating that (i) the
representations and warranties of Kinser with respect to GSHA contained in
Article III of this Agreement are true and correct in all material respects as
of the Second Closing Date (unless a representation is made as of a specific
earlier date or time, and in which case it shall be true and correct in all
material respects as of such date or time only); and (ii) no condition or event
with respect to Kinser or GSHA has occurred, or is continuing, or will result
from the execution and delivery of this Agreement or the sale of the LP Interest
or GP Interest that constitutes a material breach of this Agreement;
(viii) the opinion(s) of Holland & Knight LLP and Charles B.
Worley, in form reasonably satisfactory to EFI; and
(ix) all other documents reasonably required by EFI to
evidence or to consummate the transactions contemplated by this Agreement.
(b) At the Second Closing, EFI shall deliver or shall cause to be
delivered to Sellers the items identified below. Sellers' receipt of these items
is a condition to their obligations under this Agreement, although Sellers may
waive any or all of these conditions in whole or in part, as provided in Section
11.09:
(i) the EFI Note contemplated by Section 2.02(c);
(ii) repayment of the existing Peppertree Note contemplated by
Section 2.02(c);
(iii) a copy of the certificate of incorporation of EFI and
Newco II, certified by the Secretary of State of Delaware, as of a date not more
than fifteen (15) days before the Second Closing Date;
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(iv) a copy of the bylaws of EFI and each Newco, certified by
the secretary of EFI;
(v) a Good Standing Certificate for EFI and Newco II, as of a
date not more than fifteen (15) days before the Second Closing Date, from the
Secretary of State of Delaware;
(vi) a certified copy of any necessary resolutions of the
boards of directors of EFI and Newco II evidencing approval of this Agreement
and the other documents and transactions that it contemplates;
(vii) copies of all documents evidencing other necessary
corporate or other action and government approvals, if any, with respect to this
Agreement and the LP Interest and the GP Interest that Sellers reasonably
request on reasonable notice prior to the Closing;
(viii) an incumbency and signature certificate executed by the
Secretary or Assistant Secretary of EFI;
(ix) a certificate from a duly authorized officer of EFI
stating that (i) the representations and warranties of EFI contained in Sections
4.01, 4.02 and 4.03 with respect to the purchase of GSHA are true and correct in
all material respects as of the Second Closing Date (unless a representation is
made as of a specific date or time, and in such event it shall be true and
correct in all material respects as of such date or time); and (ii) no condition
or event with respect to EFI or the Newcos has occurred, is continuing, or will
result from the execution and delivery of this Agreement or the sale of the LP
Interest or the GP Interest that constitutes a material breach of this
Agreement;
(x) the opinion of Wilmer, Cutler & Pickering, counsel to
EFI;
(xi) all other documents reasonably required by Sellers to
evidence or consummate the transactions contemplated by this Agreement.
ARTICLE X
INDEMNIFICATION
10.01 Indemnification of Sellers. Subject to the survival provisions in
Section 10.07, from and after the Closing, EFI shall indemnify Sellers for, and
shall defend and hold harmless each of them from, against, and with respect to
all Indemnifiable Losses as a result of, arising from, in connection with, or
incident to: (i) any breach or inaccuracy of any representation or warranty made
by EFI under this Agreement; (ii) any non-fulfillment of any covenant or
agreement by EFI or any Newco under this agreement; (iii) the operation by
Purchasers of the Acquired Business following the Closing; (iv) any breach or
early termination by the Company on account of acts or omissions occurring after
the Closing Date (other than acts or omissions by Kinser, John McFarland, Don
Clayton and Herbert Patrick, Jr.) of that certain Agreement for the Collection
of Unpaid Accounts, dated July 15, 1999, between Meridian Financial Services,
Inc. and the Company; or (v) guaranties made by either Kinser or GSHA for the
benefit of any of the Acquired Companies prior to the Closing which are not
released as of the Closing Date.
10.02 Indemnification of Purchasers. Subject to the survival provisions of
Section 10.07, from and after the Closing, Kinser (for himself and PHC) shall
indemnify EFI and its Affiliates, officers, directors, employees, partners
(general or limited), shareholders, and shareholders of its partners (general or
limited) for, and shall defend and hold harmless each of them from, against, and
with respect to all Indemnifiable Losses as a result of, arising from, in
connection with, or incident to: (i) any breach or inaccuracy of any
representation or warranty made by Sellers under this Agreement; (ii) any
non-fulfillment of any covenant or agreement by any Seller under this Agreement;
(iii) any guaranty made by the Company for the benefit of GSHA, provided, that,
such indemnification obligation shall terminate
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and be of no further force and effect if and when the Second Closing occurs; and
(iv) the liabilities set forth on the Disclosure Schedule, for which Kinser has
agreed to indemnify Purchasers.
10.03 Cap and Basket.
(a) Notwithstanding the foregoing, no claim other than (i) any
adjustment to the Aggregate Purchase Price pursuant to Article II, (ii) claims
by EFI in respect of any breach of representation made in Sections 3.14 (Capital
Stock), 3.20 (Taxes) or 3.25 (Brokers), (iii) claims by Kinser in respect of any
breach of representation made in Sections 4.04 (Capitalization) or 4.11
(Brokers), (iv) claims by EFI in respect of any breach of covenant made in
Sections 5.07 (Non-Competition and Non-Solicitation), 7.01 (Expenses, Transfer
Taxes, Apportionment) and 7.07 (Tax Matters), (v) claims by any Seller in
respect of any breach of covenant made in Sections 6.03 (Payment of Purchase
Price) and 7.01 (Expenses, Transfer Taxes, Apportionment) or (vi) claims
identified in subparagraphs 1.a. and 1.b. on Section 10.02(a) of the Disclosure
Schedule, may be made unless such claims shall be of an amount in excess of
$10,000 and the aggregate of all such claims shall exceed $600,000 (the
"Threshold Amount"), in which case the indemnifying party shall be required to
pay or be liable for all claims hereunder, but solely to the extent they exceed
$100,000. Claims specifically enumerated in Section 10.03(a)(i) - (vi) may be
made irrespective of the Threshold Amount (and shall not count toward the
Threshold Amount), in which case the indemnifying party shall be required to pay
or be liable for all claims hereunder.
(b) The maximum amount for which any Party may be liable for
indemnification hereunder shall not exceed $7,500,000 in the aggregate;
provided, that, the maximum amount for which Kinser may be liable for
indemnification with respect to those claims specifically enumerated in Section
10.03(a)(i)-(vi) as exclusions from the Threshold Amount and any Indemnifiable
Losses resulting from fraud or intentional misrepresentation shall be the
Aggregate Purchase Price.
(c) Kinser shall first satisfy with cash any and all Indemnifiable
Losses up to three million dollars ($3,000,000) and may, thereafter, satisfy any
and all Indemnifiable Losses that exceed such amount with either cash or shares
of EFI Common Stock valued at the VWAP as of the date on which the Indemnifiable
Losses are satisfied.
(d) Solely for the purposes of determining the indemnification
obligations of the Parties pursuant to this Article X, all representations and
warranties are deemed to be made without any limitations as to materiality or
material adverse effect.
10.04 Indemnifiable Losses Net of Insurance Proceeds. Indemnifiable Losses
shall be net of the amount of insurance proceeds received by an Indemnitee from
an insurance company on account of such losses, after accounting for any costs
incurred in obtaining such proceeds and any increase in insurance premiums
resulting from a claim regarding such proceeds, and no insurance companies shall
be subrogated to any rights of the Indemnitee against the Indemnitor under this
Article X. This Section 10.04, however, shall not permit an Indemnitor to delay
payment of Indemnifiable Losses until after an Indemnitee receives insurance
proceeds. Notwithstanding the foregoing, to the extent that Kinser or Purchasers
have paid for title insurance for EFI with respect to the Real Property, EFI
shall first look to the coverage provided by such policy for otherwise
Indemnifiable Losses related to title to such property, and EFI shall be
entitled to indemnification under this Article X in respect of Indemnifiable
Losses related to title to such property only to the extent it does not recover
the full amount of such Indemnifiable Losses from the proceeds of such title
insurance policy.
10.05 Procedure for Seeking Indemnification. Except as provided in Section
7.07, the provisions of Sections 10.01 and 10.02 expressly are subject to the
procedural requirements below.
(a) An Indemnitee shall promptly give notice to the Indemnitor after
obtaining knowledge of any claim against the Indemnitee as to which recovery may
be sought against the Indemnitee pursuant to Section 10.01 or 10.02. If such
indemnification obligation shall arise from the claim of a third party, the
Indemnitee shall permit the Indemnitor to assume the defense of any such claim
or any litigation resulting from such claim. The failure to give notice
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as required by this Section 10.05(a) in a timely fashion shall not result in a
waiver of any right to indemnification hereunder except to the extent the
Indemnitor is prejudiced thereby and then only to the extent of such prejudice.
(b) If the Indemnitor assumes the defense of such claim or
litigation, the obligations of the Indemnitor hereunder shall include taking all
steps reasonably necessary in the defense or settlement of such claim or
litigation and holding the Indemnitee harmless from and against any and all
Indemnifiable Losses caused by or arising out of any settlement approved by the
Indemnitor or any judgment in connection with such claim or litigation. The
Indemnitor shall not, in the defense of such claim or litigation, (x) consent to
entry of any judgment unless the judgment provides only for monetary damages to
be paid by the Indemnitor and which the Indemnitor has the ability to pay and
does in fact pay, or unless the Indemnitor obtains the written consent of the
Indemnitee, or (y) consent to entry of any judgement or enter into any
settlement (except with the written consent of the Indemnitee) which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnitee a release from all liability in respect of such
claim or litigation. In cases where the Indemnitor has, by written instrument
delivered to the Indemnitee, assumed the defense or a settlement with respect to
a claim for which indemnification is being sought, and is not in default, or
otherwise unable to perform its obligations, under this Article X, the
Indemnitor shall be entitled to assume the defense or a settlement thereof with
counsel of its own choosing, which counsel shall be reasonably satisfactory to
the Indemnitee, provided that the Indemnitee (and its counsel) shall be entitled
to continue to participate at its own cost in any such action or proceeding or
in any negotiations or proceedings to settle or otherwise eliminate any claim
for which indemnification is being sought, and the Indemnitor shall consult in
good faith with the Indemnitee upon the Indemnitee's request regarding the
conduct of such action, proceeding or claim. If (i) the Indemnitor does not so
assume such defense, (ii) the Indemnitor is in default or otherwise unable to
perform its obligations under this Article X, or (iii) the Indemnitee reasonably
concludes that there may be legal defenses available to it that are different
from or in addition to those available to the Indemnitor, or that another
conflict of interest exists or may occur in the defense of such action, the
Indemnitee may assume primary responsibility for the defense of the claims, and
may select legal counsel reasonably acceptable to the Indemnitor to conduct the
defense of such claims. If the Indemnitee assumes and undertakes a defense of a
third party claim or claims in accordance with the immediately preceding
sentence, the Indemnitor shall be liable to the Indemnitee for any reasonable
attorneys' fees and expenses incurred by the Indemnitee in connection with such
matter, after receiving notice from the Indemnitee to the effect that it intends
to take advantage of the provisions set forth in the immediately preceding
sentence; provided, however, that the Indemnitor shall continue to have the
right to participate in the defense of any such action and to employ separate
counsel in connection therewith, but the fees, costs, and expenses related to
such participation shall be at the expense of and paid by the Indemnitor. In the
event the Indemnitee assumes primary responsibility for the defense of the
claims, the Indemnitor shall continue to pay the legal fees and expenses of
counsel for the Indemnitee and the Indemnitor shall not have the right to direct
the defense of such action on behalf of the Indemnitee. The Indemnitee shall
have the right, with the consent of the Indemnitor (which consent shall not be
unreasonably withheld), to settle or compromise any such action on terms
satisfactory to it. Notwithstanding the foregoing provisions of this Section
10.05(b), if the Indemnitor has notified the Indemnitee that the Indemnitor
disputes its liability hereunder to the Indemnitee with respect to such claim
and if such dispute is resolved in favor of the Indemnitor, the Indemnitor will
not be required to bear the costs and expenses of the Indemnitee's defense
pursuant to this Section 10.05(b) or of the Indemnitor's participation therein
at the Indemnitee's request, and the Indemnitee will reimburse the Indemnitor in
full for all reasonable costs and expenses incurred by the Indemnitor in
connection with such claim.
(c) The Indemnitor shall promptly reimburse the Indemnitee for any
Indemnifiable Losses (including, without limitation, reasonable attorneys' fees
and expenses, except that where the Indemnitor is defending an action, then the
Indemnitor shall be liable for any attorneys' fees and expenses incurred by it).
The Indemnitor shall promptly pay or reimburse the Indemnitee for (i) the amount
of any judgment rendered or reasonable settlement (under the Indemnitee's
circumstances at the time the settlement was entered into, which may be
different from the Indemnitor's circumstances if the Indemnitor were conducting
the settlement) entered into with respect to any claim by a third party the
defense of which was not assumed by the Indemnitor, (ii) all reasonable
Indemnifiable Losses (as to settlement) and reasonable expenses, legal or
otherwise, incurred by the Indemnitee in connection with the defense against
such third party claim or litigation, and (iii) all reasonable costs incurred by
the Indemnitee in the securing of its rights under the terms of this Article X.
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10.06 Indemnification Remedy After Closing. After the Closing, the
indemnification obligations of this Article X and Section 7.07 shall be the
exclusive remedy for breaches of this Agreement except for breaches of covenants
requiring performance by a Party after Closing, which may be enforced or
remedied in any manner available at law or in equity. No other remedy shall be
had for any such breach in tort, contact, or otherwise.
10.07 Survival of Representations, Warranties, Covenants, and Agreements.
Except as provided in clauses (a), (b) or (c) of this Section 10.07,
representations, warranties, covenants, and agreements included in this
Agreement shall survive for a period of two (2) years: (a) the obligations set
forth in Sections 5.02 (Conduct of Acquired Business by Sellers), 5.03 (Access),
6.02 (Access), 7.02 (Publicity) and 7.04 (Full Disclosure) shall survive for the
periods specified therein for the performance of the covenants set forth
therein; (b) Sections 3.22(a) (Other Property), 3.14 (Capital Stock; Partnership
Interests), 5.04 (Confidentiality), and Articles X (Indemnification) and XI
(General Provisions), each of which shall survive indefinitely; and (c) claims
relating to or arising out of adjustments pursuant to Section 2.03(a) (DTL
Adjustment), breaches of the covenants contained in Section 7.07 (Tax Matters)
and damages arising from breaches of the representations and warranties set
forth in, or items scheduled with respect to, Section 3.08 (Environmental
Matters), Section 3.18 (Labor and Employment), Section 3.19 (Employee Benefit
Plans) or Section 3.20 (Taxes and Tax Returns), each of which shall survive
until the date that is six (6) months after the expiration of the longest
applicable federal or state statute of limitations (including extensions
thereof), or, with respect to claims under Section 3.08 (Environmental Matters),
a period of three (3) years, whichever is longer.
10.08 Setoff and Recoupment. EFI shall be entitled to setoff against or
recoup from any payment of consideration whether or not due hereunder, and
including the Deferred Payout pursuant to Section 2.04, the amount of any
Indemnifiable Losses suffered by it or any amounts that any Kinser may owe to
EFI under Article II.
10.09 Estoppel. From and after the Closing Date, the Kinser shall have no
right to, and agrees not to assert any right to or otherwise seek,
indemnification from any Acquired Company, or any of their subsidiaries, with
respect to any Indemnifiable Losses payable pursuant to Section 10.02.
10.10 Purchase Price Adjustments. Any indemnity payment made pursuant to
this Agreement will be treated as an adjustment of the Aggregate Purchase Price
for Tax purposes unless a determination (as defined in Section 1313 of the Code)
or a similar event under state law with respect to the Indemnitee causes any
such payment not to constitute an adjustment to Aggregate Purchase Price for
United States federal or state income tax purposes, as the case may be. To the
extent that an indemnity payment does not constitute an adjustment to Purchase
Price under the prior sentence, the amount of any claim or other liability for
which indemnification is provided under this Agreement and which is not an
indemnity payment relating to the AMT Liability shall be (A) increased to take
into account any Tax cost incurred by the Indemnitee arising from the receipt of
indemnity payments hereunder and (B) reduced to take account of any Tax benefit
realized by the Indemnitee arising from the incurrence or payment of any such
Indemnified Loss or other liability. Any indemnification payment hereunder shall
initially be made without regard to the prior sentence and shall be reduced to
reflect any such net Tax benefit or increased to reflect any net Tax cost only
after the Indemnitee has "actually realized" such benefit or such cost. For
purposes of this paragraph, an Indemnitee shall be deemed to have "actually
realized" a net Tax benefit or net Tax cost to the extent that, and at such time
as, the amount of Taxes payable by such Indemnitee is (i) reduced below the
amount of Taxes that such Indemnitee would have been required to pay but for
deductibility of such indemnity payment, and (ii) increased above the amount of
Taxes that such Indemnitee would have been required to pay but for the receipt
of such indemnity payments.
ARTICLE XI
GENERAL PROVISIONS
11.01 Entire Agreement. This Agreement supersedes all prior agreements
between the Parties (written or oral) and, together with the Related Agreements,
is intended as a complete and exclusive statement of the terms of the Parties'
agreement.
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11.02 Severability. The validity or enforceability of any term or
provision of this Agreement shall in no way affect the validity or
enforceability of any other term or provision. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
11.03 Amendment and Modification. This Agreement may be modified, amended,
or supplemented only by an instrument in writing signed by each Party.
11.04 Arm's Length Agreement. This Agreement has been negotiated at arm's
length and between Persons sophisticated and knowledgeable in the matters dealt
with in this Agreement. In addition, each Party has been represented by
experienced and knowledgeable legal counsel. Accordingly, any rule of law or
legal decision that would require interpretation of any ambiguities in this
Agreement against the Party that has drafted the Agreement is not applicable and
is waived. This Agreement shall be construed without regard to the identity of
the Person who drafted it or the Party who caused it to be drafted and shall be
construed as if all Parties had jointly prepared this Agreement. Each and every
provision of this Agreement shall be construed as though all of the Parties
participated equally in its drafting, and any uncertainty or ambiguity shall not
be interpreted against any one Party. The provisions of this Agreement shall be
interpreted in a reasonable manner to effect the purpose of the Parties and of
this Agreement.
11.05 Exhibits, etc. All Exhibits, Annexes and Disclosure Schedules to
this Agreement are incorporated into this Agreement and made a part of this
Agreement by reference.
11.06 Headings. The headings contained in this Agreement are solely for
reference purposes and shall not affect the meaning or interpretation of this
Agreement in any way. All references in this Agreement to Sections, Articles,
Disclosure Schedules, Annexes and Exhibits are to Sections and Articles of, and
Schedules, Annexes and Exhibits to, this Agreement, unless otherwise expressly
indicated. The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as the feminine and neuter genders of such term. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
11.07 Assignment. Neither Sellers nor EFI nor any Newco shall assign any
of its rights or delegate any of its obligations under this Agreement without
the prior written consent of the other Party; provided, however, that each
Seller consents to the assignment by EFI and each Newco of all of its rights
under this Agreement and the Related Documents to Bank of America, N.A. (the
"Bank") in connection with the Credit Agreement, dated as of November 17, 1999,
among EFI, the Newcos and the Bank pursuant to which the Bank is making a term
loan available to EFI to finance a portion of the consideration to be paid to
under this Agreement.
11.08 No Third Party Beneficiaries. Except as otherwise expressly
provided, nothing in this Agreement shall entitle any Person other than Sellers,
EFI, the Newcos, or their respective successors and assigns as permitted under
this Agreement, to any claim, cause of action, remedy, or right of any kind. No
current or former employee of Sellers or the Acquired Companies has any right to
enforce this agreement against any Party.
11.09 Waiver of Compliance; Consents. Except as otherwise expressly
provided in this Agreement, any failure of any Party to comply with any
obligation, covenant, agreement, or condition herein may be waived by the Party
or Parties entitled to the benefits thereof only by a written instrument signed
by the Party granting the waiver. Such waiver or failure to insist on strict
compliance with an obligation, covenant, agreement, or condition shall not
operate as a waiver of, or estoppel with respect to, any other failure. Whenever
this Agreement requires or permits consent by or on behalf of any Party hereto,
such consent shall be given in writing in a manner consistent with requirements
for a waiver of compliance as provided in this Section 11.09.
11.10 Sellers' Representative.
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(a) Each Seller, by signing this Agreement, designates Kinser to be
the Sellers' Representative for purposes of this Agreement. The Sellers shall be
bound by any and all actions taken by the Sellers' Representative on their
behalf.
(b) EFI and the Newcos shall be entitled to rely upon any
communication or writings given or executed by or on behalf of the Sellers'
Representative. All notices to be sent to the Sellers pursuant to this Agreement
may be addressed to the Sellers' Representative and any notice so sent shall be
deemed notice to all of the Sellers hereunder. The Sellers hereby consent and
agree that the Sellers' Representative is authorized to accept notice on behalf
of the Sellers pursuant hereto.
(c) The Sellers' Representative is hereby appointed and constituted
the true and lawful attorney-in-fact of each Seller, with full power in his or
her name and on his or her behalf to act according to the terms of this
Agreement in the absolute discretion of the Sellers' Representative; and in
general to do all things and to perform all acts including, without limitation,
amending this Agreement, and executing and delivering all agreements,
certificates, receipts, instructions and other instruments contemplated by or
deemed advisable in connection with this Agreement. This power of attorney and
all authority hereby conferred is granted subject to the interest of the other
Sellers hereunder and in consideration of the mutual covenants and agreements
made herein, and shall be irrevocable and shall not be terminated by any act of
any Seller or by operation of law, whether by death or other event.
11.11 Notices. All notices, requests, demands, and other communications
provided in this Agreement shall be in writing and shall be deemed given if
delivered personally, transmitted by facsimile (receipt confirmed), sent by
national overnight courier service, or mailed by registered or certified United
States Mail (return receipt requested) postage prepaid, to the Parties at the
following addresses (or at such other address for a Party as shall be specified
by like notice, provided that notices of a change of address shall be effective
only on receipt of such notice):
To Sellers:
10 Bear Mountain Road
Asheville, North Carolina 28805
Attn: C. Wayne Kinser
Fax: ( )
With a copy to:
Holland & Knight LLP
2100 Pennsylvania Avenue, NW
Suite 400
Washington, D.C. 20037
Attn: Mel S. Weinberger
Fax: (202) 955-5564
To EFI or any Newco:
Equivest Finance, Inc.
100 Northfield Street
Greenwich, Connecticut 06830
Attn: Richard G. Winkler
Fax: (203) 618-0063
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With a copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037-1420
Attn: Eric R. Markus, Esq.
Fax: (202) 663-6363
All notices, requests, demands, and other communications shall be effective at
the earlier of (a) five (5) business days after deposit of the same in the
United States Mail, certified postage prepaid; (b) twenty-four (24) hours after
delivery to a national overnight courier service; or (c) confirmation of receipt
if transmitted by facsimile or if delivered personally.
11.12 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to its
principles or rules regarding conflicts of laws.
11.13 Jurisdiction, Venue, and Service of Process. The Parties consent to
and waive any objection to the jurisdiction of the United States District Court
for the Northern District of New York, or any state court located in Onondaga
County, New York, over the person of any Party to this Agreement, for purposes
of any action brought under or as the result of a breach of this Agreement. The
Parties agree that venue of any action brought under or as the result of a
breach of this Agreement shall be proper in the courts named above, and each
Party waives any objection to such venue.
11.14 Jury Trial Waiver. TO THE FULL EXTENT PERMITTED BY LAW, EACH OF THE
PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
ANY PARTY HERETO.
11.15 Reliance by Each Party. Notwithstanding the right of each Party to
investigate the other Parties, and notwithstanding any knowledge determined or
determinable by any Party as a result of such investigation, each Party has the
unqualified right to rely upon, and has relied upon, each of the representations
and warranties to it made by any other Party in this Agreement or pursuant
hereto.
11.16 Attorneys' Fees. Should a dispute arise relating to this Agreement,
the Party prevailing in such dispute shall be entitled to all costs and
reasonable attorneys' fees and paralegals' fees (whether or not involving
litigation and/or appellate, administrative, or bankruptcy proceedings), in
addition to such other relief as may be granted.
11.17 Specific Performance. Each Party agrees that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed by it in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that each Party shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which such Party may be entitled at law or in equity.
11.18 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Execution Pages to Follow]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed by their respective duly authorized officers of the date first written
above.
EQUIVEST FINANCE, INC.
By: /s/
-----------------------------
Name: Richard C. Breeden
---------------------------
Title: CEO
--------------------------
PEPPERTREE ACQUISITION CORP.
By: /s/
-----------------------------
Name: Richard C. Breeden
---------------------------
Title: President
--------------------------
PEPPERTREE ACQUISITION II CORP.
By: /s/
-----------------------------
Name: Richard C. Breeden
---------------------------
Title: President
--------------------------
C. WAYNE KINSER
/s/
---------------------------------
PEPPERTREE RESORTS, LTD.
By: /s/
-----------------------------
Name: C. Wayne Kinser
---------------------------
Title: President
--------------------------
PIONEER HOTEL CORPORATION
By: /s/
-----------------------------
Name: C. Wayne Kinser
---------------------------
Title: President
--------------------------
<PAGE>
SHARON KAY WILLIAMSON
CHARITABLE REMAINDER UNITRUST
(Solely as to Sections 2.01 (The Merger) and
3.03 (Authorization))
By: First Union National Bank, Trustee
Name: /s/
-------------------------------
Title: Vice President & Trust Officer
------------------------------
DAVID WAYNE KINSER
CHARITABLE REMAINDER UNITRUST
(Solely as to Sections 2.01 (The Merger) and
3.03 (Authorization))
By: First Union National Bank, Trustee
Name: /s/
-------------------------------
Title: Vice President & Trust Officer
------------------------------
<PAGE>
Exhibit 7.07(d)-1
- --------------------------------------------------------------------------------
Cash Stock
and Note (expressed as
value)
- --------------------------------------------------------------------------------
Peppertree Resorts, Ltd. 2,380,648 12,788,889
- --------------------------------------------------------------------------------
Great Smokies Hotel Associates 4,000,000 NA
- --------------------------------------------------------------------------------
Stockholders' stock of Peppertree
Resort Villas, Inc. 1,500,000 NA
- --------------------------------------------------------------------------------
Section 5.07 Non-compete 940,000 NA
- --------------------------------------------------------------------------------
Peppertree Realty 10,000 NA
- --------------------------------------------------------------------------------
Aircraft 275,000 NA
- --------------------------------------------------------------------------------
The amount of any Tangible Net Worth Adjustment, Upward Adjustment or Downward
Adjustment shall be applied to the Merger Consideration for Peppertree Resorts,
Ltd.
E-1
<PAGE>
Exhibit 7.07(d)-2
Allocation of GSHA Consideration
[To be provided on or before the date of the Second Closing]
Execution Copy
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered
into as of this 16th day of November, 1999 by and among Equivest Finance, Inc.,
a Delaware corporation (together with its successors and assigns, the
"Company"), and C. Wayne Kinser ("Kinser"), the Sharon Kay Williamson Charitable
Remainder Unitrust, the David Wayne Kinser Charitable Remainder Unitrust, Donald
Clayton, John McFarland and Herbert Patrick, Jr. (collectively with Kinser, the
"Investors").
RECITALS
WHEREAS, the Company, Kinser and certain other parties entered into
an Agreement and Plan of Reorganization dated November 16, 1999 (as the same may
be amended, modified or supplemented from time to time, the "Merger Agreement"),
providing for the merger (the "Merger") of Peppertree Resorts, Ltd., a North
Carolina corporation, with and into Peppertree Acquisition Corp., a Delaware
corporation wholly-owned by the Company;
WHEREAS, pursuant to the Merger Agreement, a subsidiary of the
Company also acquired, or intends to acquire, various other companies,
partnerships, interests and assets owned by Kinser and certain other parties;
WHEREAS, pursuant to the Merger Agreement, the Investors are to
receive at Closing (as defined in the Merger Agreement), and in the future may
receive, shares (the "Shares") of the Company's common stock, par value $.01 per
share (the "Common Stock"), in partial consideration for the Merger and certain
related transactions; and
WHEREAS, as part of the inducement for the parties hereto to enter
into and perform the Merger Agreement, the parties hereto have agreed to enter
into this Agreement in order to provide, among other things, for certain
registration rights.
NOW, THEREFORE, in consideration of the mutual premises, covenants
and conditions set forth herein, the parties hereby agree as follows:
1. Definitions. Capitalized terms used herein without definition
shall have the meanings assigned to such terms in the Merger Agreement. For the
purposes of this Agreement:
"Commission" means the U.S. Securities and Exchange Commission
or any other governmental authority from time to time administering the
Securities Act;
"Common Stock" has the meaning given it in the third recital;
<PAGE>
"CSFB Shares" means those shares of Common Stock defined as
"Registrable Securities" pursuant to the Registration Rights Agreements between
the Company and Credit Suisse First Boston Mortgage Capital LLC dated as of July
17, 1998 and November 14, 1997;
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and the regulations of the
Commission promulgated thereunder, all as the same shall be in effect from time
to time;
"Harris Shares" means those shares of Common Stock defined as
"Registrable Securities" pursuant to the Stockholders' Agreement between the
Company and R. Perry Harris and Karen Harris dated as of July 16, 1998;
"Holder" means any Investor and any Permitted Transferee, in
either case who holds Registrable Securities;
"Minimum Amount" means, at the time a particular notice is
given, more than thirty percent (30%) of the then outstanding Registrable
Securities;
"Permitted Transferee" means any person to whom Registrable
Securities are transferred to the extent that such transfer complies with all of
the provisions of Section 10(i);
"Register," "Registered" and "Registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
"Registrable Securities" means (i) the Shares issued or to be
issued to Investors pursuant to the Merger Agreement or held by Permitted
Transferees and (ii) any securities issued to the Investors or Permitted
Transferees as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, such Shares,
including, without limitation, in connection with a combination of shares of
Common Stock, a recapitalization, reorganization, merger, consolidation or
otherwise. As to any particular Registrable Securities, such securities shall
cease to be Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been transferred in accordance
with such registration statement, (b) such securities shall have been sold to
the public pursuant to Rule 144 under the Securities Act or the holder thereof
is free to sell such securities without volume or manner of sale restrictions
pursuant to Rule 144(k) (or any successor provision) under the Securities Act,
(c) such securities shall have been otherwise transferred and new certificates
for them not bearing a legend restricting further transfer shall have been
delivered by the Company or (d) they shall have ceased to be outstanding;
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with Section 2, including, without
limitation: (a) any allocation of salaries and expenses of Company personnel or
other general overhead expenses of the Company,
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<PAGE>
or other expenses for the preparation of historical and pro forma financial
statements or other data normally prepared by the Company in the ordinary course
of business; (b) all Registration, application, filing, transfer fees, exchange
listing fees, and register fees; (c) all NASD fees and fees and expenses of
Registration or qualification of Registrable Securities under state securities
or blue sky laws (including any fees and disbursements of underwriters' counsel
in connection with such blue sky laws); (d) all word processing, duplicating and
printing expenses, messenger and delivery expenses; (e) the fees and expenses of
counsel for the Company and the fees of the Company's independent accountants,
including the expenses of any special audits and customary "cold comfort"
letters required by or incident to such performance and compliance; (f) any fees
and disbursements of underwriters and broker-dealers customarily paid by issuers
or sellers of securities; and (g) the reasonable fees and disbursements (not to
exceed for all registrations under this Agreement, $10,000) of one outside
counsel retained by the Holders of a majority of the Registrable Securities
being registered (which shall be the only counsel retained by the Stockholders
with respect to any registration and which counsel shall be reasonably
satisfactory to the Company); provided, however, that in all cases in which the
Company is required to pay Registration Expenses hereunder, Registration
Expenses shall exclude: (i) broker or underwriting fees, discounts, selling
commissions and transfer taxes, if any, in respect of the Registrable
Securities; (ii) all out-of-pocket expenses of any brokers or dealers of any
Holder participating in the Registration; and (iii) all fees and disbursements
of any counsel for any Holder (other than as provided in clause (g) of this
definition) participating in the Registration or for any brokers or dealers
referred to in clause (ii), all of which shall be borne by such Holder.
"Release Date" means the earlier to occur of: (x) the first
anniversary of the Closing Date; or (y) six (6) months after the date on which
the Bennett Funding Group, Inc. has sold, transferred or otherwise disposed of
all of the capital stock of the Company it owns as of the date hereof; and
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Special Registration" means the registration of shares of
equity securities and/or options or other rights in respect thereof (x) to be
offered solely to directors, members of management, employees, consultants or
sales agents, distributors or similar representatives of the Corporation or its
direct or indirect Subsidiaries, solely on Form S-8 or any successor form and
(y) on Form S-4 with respect to any merger, consolidation or acquisition.
2. Registration Rights.
(a) Incidental. If at any time (i) the Company proposes to
make a registered public offering (including for this purpose a registration
effected by the Company for any stockholders other than the Holders) of any
shares of Common Stock under the Securities Act (other than a Special
Registration) and (ii) a registration statement covering the sale of all of the
Registrable
5
<PAGE>
Securities is not then effective and available for sales thereof by Holders, the
Company will, prior to such filing but only as to filings made after the Release
Date:
(i) promptly give to each Holder a written notice
describing such proposed registration to the Holders and specifying the form and
manner thereof (including, without limitation, whether or not such registration
will be in connection with an underwritten offering of Common Stock and, if so,
the identity of the managing underwriter and whether such offering will be
pursuant to a "best efforts" or "firm commitment" underwriting); and
(ii) use reasonable best efforts to include in such
Registration (and any related qualification under blue sky laws and/or other
compliance) all the Registrable Securities specified in a written request or
requests made by any Holder, which such written request or requests shall be
delivered by a Holder within fifteen (15) days after receipt of the notice from
the Company described in clause (i) and shall specify the amount of Registrable
Securities such person wishes to register (which may be some or all of such
Holder's Registrable Securities) and its intended method of disposition of such
Registrable Securities; provided, however, that (x) the Company shall have the
right, prior to the effective date of the registration statement, to postpone or
withdraw any Registration effected pursuant to this Section 2(a) without
obligation to any Holder (but shall nevertheless pay the Registration Expenses
in connection therewith), without prejudice to the rights of the Holders to
request that a Registration be effected under Section 2(b) hereof; and (y) the
Company shall not be required to effect such Registration unless the Holders of
the Minimum Amount request Registration for sale of such shares.
No Registration effected under this Section 2(a) shall relieve the Company from
its obligation to effect a Registration under Section 2(b).
(b) Demand.
(i) At any time during the eighteen-month period
following the Release Date (as such period may be extended in connection with a
postponement of the filing, or a withdrawal, of the applicable registration
statement for a Valid Business Reason, as provided below), Holders holding more
than the Minimum Amount may request in writing that the Company effect a
Registration under the Securities Act of any of the Registrable Securities (a
"Demand Registration"). In the event the Demand Registration is underwritten,
the Company shall select an underwriter reasonably satisfactory to the Holders
participating in the Registration. If the Board of Directors of the Company, in
its good faith judgment, determines that a Demand Registration should not be
made or continued because (x) it would interfere with any material financing,
acquisition, reorganization, merger, or other transaction involving the Company
or any of its subsidiaries, (y) any required financial statements are
unavailable for reasons substantially beyond the Company's control, or (z) any
other event or condition the disclosure of which would be materially
disadvantageous to the Company or any of its subsidiaries taken as a whole (each
of the foregoing a "Valid Business Reason"), then (i) the Company may postpone
filing a registration statement relating to the Demand Registration until such
Valid Business Reason no longer exists, but in no event for more than one
hundred twenty (120) days, and (ii) in case a registration statement has been
filed relating to a
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<PAGE>
Demand Registration, the Company may cause such registration statement to be
withdrawn and its effectiveness terminated or may postpone amending or
supplementing such registration statement until such Valid Business Reason no
longer exists, but in no event for more than one hundred twenty (120) days. In
the event a Valid Business Reason exists and the Company either postpones the
filing of a registration statement relating to a Demand Registration or causes a
registration statement to be withdrawn or postpones amending or supplementing
such registration statement and, as a result, there is a delay in effecting such
Demand Registration for a period exceeding ninety (90) days, then Holders
holding a majority of the Registrable Securities included in such Registration
may withdraw the request therefor and, in such event, the request will not count
for purposes of the limit set forth in Section 2(b)(ii).
(ii) The Company shall not be obligated to effect more
than two Demand Registrations for the Holders pursuant to Section 2(b). A Demand
Registration requested pursuant to Section 2(b) shall not be deemed to have been
effected unless it is declared effective by the SEC and remains effective for
the period specified in Section 5(a)(i) or (ii). Notwithstanding the preceding
sentence, a Registration requested pursuant to Section 2(b) that does not become
effective after the Company has filed a Registration Statement with respect
thereto by reason of the refusal to proceed of the Holders of Registrable
Securities requesting the registration, or by reason of a request by a majority
of the selling Holders participating in such registration that such Registration
be withdrawn, shall be deemed to have been effected by the Company at the
request of such Holders unless (x) the registration statement relating to any
request for Registration pursuant to Section 2(b) is not declared effective
within ninety (90) days of the date such registration statement is filed with
the Commission or (y) the conditions to closing specified in the underwriting
agreement are not satisfied other than as a result of a default or breach
thereunder by any of the Holders.
3. Additional Provisions for Underwritten Offerings.
(a) If a Registration involves an underwritten offering, the
Company shall not be required to include any Registrable Securities in such
offering unless such Holder accepts the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it. No underwriting
agreement (or other agreement in connection with such offering) shall require
any holder of Registrable Securities to make any representations or warranties
to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such holder, the ownership
of such holder's Registrable Securities and such holder's intended method or
methods of disposition and any other representation required by law or to
furnish any indemnity to any Person which is broader than the indemnity
furnished by such holder in Section 7.
(b) If a Registration under Section 2(a) involves an
underwritten offering, and the managing underwriter (or, in the case of an
offering that is not underwritten, a nationally recognized investment banking
firm) shall advise the Company in writing that the number of securities
requested and otherwise proposed to be included in such Registration exceeds the
number which can be sold in such offering without materially and adversely
affecting the offering price, then such Registration shall include:
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(i) first, all Harris Shares and/or CSFB Shares proposed
to be registered in such offering by the Company must be included prior to the
Registrable Securities to prevent a breach of the applicable registration rights
agreement between the Company and such other persons, but only in such amount
and to the extent required by such agreement; and
(ii) second, all of the securities the Company proposes
to sell; and
(iii) third, the number of Registrable Securities and
Company securities of other holders (including shares of Common Stock in
addition to those included pursuant to clause (i) above) that the underwriter
advises will not adversely affect the success of the offering, allocated, pro
rata, among the Holders and the other holders entitled to registration, based
upon the number of shares of Common Stock each such person shall have requested
the Company to include in the offering.
(c) If the Registrable Securities which are being sold
pursuant to a registration requested under Section 2(b) are being sold in an
underwritten offering, the Company shall enter into an underwriting agreement
with the underwriters for such offering, such agreement to be reasonably
satisfactory in form and substance to the underwriters and to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in agreements of this type, including,
without limitation, indemnities to the effect and to the extent provided in
Section 7. The holders of Registrable Securities to be distributed by such
underwriters shall be parties to such underwriting agreement and may, at their
option, require that any or all of the representations and warranties by, and
the agreements on the part of, the Company to and for the benefit of such
underwriters be made to and for the benefit of such holders of Registrable
Securities and that any or all of the conditions precedent to the obligations of
such underwriters under such underwriting agreement shall also be conditions
precedent to the obligations of such holders of Registrable Securities.
(d) If and whenever the Company proposes to register any of
its equity securities under the Securities Act, whether or not for its own
account (other than pursuant to a Special Registration), or is required to use
its reasonable best efforts to effect the registration of any Registrable
Securities under the Securities Act pursuant to Section 2, each Holder, if
required by the managing underwriter in an underwritten offering, agrees by
acquisition of such Registrable Securities not to effect (other than pursuant to
such registration) any public sale or distribution, including, but not limited
to, any sale pursuant to Rule 144, of any Registrable Securities, any other
equity securities of the Company or any securities convertible into or
exchangeable or exercisable for any equity securities of the Company during the
seven (7) days prior to, and for ninety (90) days (unless advised in writing by
the managing underwriter that a longer period, not to exceed 180 days, is
required, or such shorter period as the managing underwriter for any
underwritten offering may advise in writing) after, the effective date of such
registration, to the extent timely notified in writing by the Company or the
managing underwriter, and the Company agrees to cause each holder of any equity
security, or of any security convertible into or exchangeable or exercisable for
any equity security, of the Company purchased from the Company at any time other
than in a public offering to enter into a similar agreement with the Company.
The Company further agrees not to effect (other than pursuant
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<PAGE>
to such registration or pursuant to a Special Registration) any public sale or
distribution, or to file any Registration Statement (other than such
registration or a Special Registration) covering any, of its equity securities,
or any securities convertible into or exchangeable or exercisable for such
securities, during the seven (7) days prior to, and for ninety (90) days after,
the effective date of such registration if required by the managing underwriter.
4. Allocation of Expenses. The Company will pay all Registration
Expenses of all Registrations under this Agreement. Each Holder shall be
responsible for all other expenses incurred by it or its agents in connection
with any Registration.
5. Obligations of the Company. Whenever required under this
Agreement to effect the Registration of any Registrable Securities under the
Securities Act, the Company shall:
(a) promptly prepare, and as soon as reasonably practicable,
file with the Commission a registration statement with respect to such
Registrable Securities, make all required filings with the NASD, and use
reasonable best efforts to cause such registration statement to become and
remain effective until the earlier of (i) one-hundred eighty (180) days, or if
such registration statement is related to an underwritten offering, such longer
period as in the reasonable opinion of counsel for the underwriters a prospectus
is required by law to be delivered in connection with the sales of Registrable
Securities by an underwriter or dealer or (ii) such shorter period as is
required to complete the distribution of all of the securities covered by such
registration statement (but in any event not before the expiration of any longer
period required under the Securities Act);
(b) promptly prepare, and as soon as reasonably practicable,
file with the Commission such amendments and supplements to the registration
statement and the prospectus used in connection with the registration as may be
necessary to keep such registration statement effective for so long as required
to comply with the provisions of the Securities Act and to complete the
disposition of all securities covered by the registration statement during the
periods referred to in Section 5(a) in accordance with the intended methods of
disposition by Holders set forth in such registration statement, including at
the request of Holders, any amendments or supplements necessary to reflect any
information regarding a Holder or its plan of distribution;
(c) permit the Holders of Registrable Securities to be
registered, their underwriters, if any, and their respective counsel and
accountants, to participate in the preparation of such registration statements,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto;
(d) furnish to counsel selected by Holders of a majority of
the Registrable Securities included in such Registration copies of all documents
proposed to be filed with the Commission in connection with such Registration;
(e) furnish to each Holder selling Registrable Securities,
without charge, such number of conformed copies of the registration statement
and of each such amendment and supplement thereto (in each case including all
exhibits and documents filed therewith) and such
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<PAGE>
number of copies of the prospectus (including each preliminary prospectus and
any summary prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities Act, and
such other documents as a selling Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Securities
owned by such Holder; provided, however, that if the Company has delivered
preliminary or final prospectuses to selling Holders and after having done so
the prospectus is amended to comply with the requirements of the Securities Act,
the Company shall promptly notify selling Holders and, if requested, selling
Holders shall immediately cease making offers of Registrable Securities and
return all prospectuses to the Company. The Company shall promptly provide
selling Holders with revised prospectuses and, following receipt of the revised
prospectuses, selling Holders shall be free to resume making offers of the
Registrable Securities;
(f) use reasonable best efforts to register or qualify the
Registrable Securities covered by the registration statement under the
securities or Blue Sky laws of such jurisdictions as selling Holders shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable selling Holders to consummate the disposition
of the Registrable Securities in such jurisdictions in accordance with the
intended method or methods of disposition thereof; provided, however, that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business as a foreign corporation in any jurisdiction wherein
it is not so qualified, subject itself to taxation in any jurisdiction where it
is not so subject, or take any action which would subject it to general service
of process in any jurisdiction or wherein it is not so subject;
(g) use reasonable best efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies, authorities or self-regulatory
bodies as may be necessary by virtue of the business and operations of the
Company to enable the selling Holders thereof to consummate the disposition of
such Registrable Securities in accordance with the intended method or methods of
disposition thereof;
(h) furnish to each selling Holder a signed counterpart,
addressed to such Holder, of a "cold comfort" letter signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in accountants' letters delivered to the underwriters in underwritten
public offerings of securities and such other matters as the Holders of a
majority of the Registrable Securities included in such Registration may
reasonably request;
(i) notify each selling Holder of any Registrable Securities
covered by such registration statement at any time when the Company has
knowledge that a prospectus relating thereto is required to be delivered under
the Securities Act of the happening of any event or existence of any fact as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the
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<PAGE>
circumstances then existing, and, as promptly as is practicable, prepare and
furnish to such selling Holder a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(j) otherwise use reasonable best efforts to comply with all
applicable rules and regulations of the Commission;
(k) use reasonable best efforts to obtain the lifting of any
stop order that might be issued suspending the effectiveness of such
registration statement at the earliest possible moment;
(l) use reasonable best efforts (i) to list such Registrable
Securities on each securities exchange or automated quotation system on which
Shares are then listed, if such securities are not already so listed and if such
listing is then permitted under the rules of such exchange or automated
quotation system, and (ii) to provide a transfer agent and registrar for such
Registrable Securities not later than the effective date of such registration
statement;
(m) enter into such agreements and take such other actions as
the underwriters reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities, including, without limitation, to
the extent that the offering in question is an underwritten offering, preparing
for, and participating in, such number of "road shows" and all such other
customary selling efforts as the underwriters reasonably request in order to
expedite or facilitate such disposition; and
(n) use its reasonable best efforts to take all other steps
necessary to effect the registration of such Registrable Securities contemplated
hereby.
6. Certain Obligations of Holders. It shall be a condition precedent
to the obligations of the Company to take any action under this Agreement with
respect to the Registrable Securities of Holders that Holders meet the following
conditions:
(a) each selling Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to effect
the Registration of such Holder's Registrable Securities;
(b) all information specifically with respect to a selling
Holder furnished to the Company by or on behalf of such Holder for use in
connection with the preparation of any registration statement relating to such
Registrable Securities shall be true and correct in all material respects and
shall not omit any material fact necessary to make such information, in light of
the circumstances under which it was disclosed, not misleading;
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<PAGE>
(c) each selling Holder shall distribute in connection with
the offering and sale of the Registrable Securities the prospectus or other
offering material permitted by the Securities Act and prepared by the Company,
and only such materials;
(d) each Holder will comply with the provisions of the
Exchange Act and the regulations thereunder;
(e) to assist the Company in qualifying the Registrable
Securities for sale under applicable state securities laws each selling Holder
will advise the Company of each jurisdiction in which it intends to offer or
sell any or all Registrable Securities, and will agree not to offer or sell any
Registrable Securities in any jurisdiction where the Registrable Securities are
not registered or exempt from registration;
(f) each selling Holder will inform the Company in writing of
any and all sales, or other transfers or dispositions of any Registrable
Securities within fifteen (15) calendar days following each such disposition;
(g) in the event of any underwritten public offering of any
Registrable Securities pursuant to Section 2, each Holder shall enter into and
perform its obligations under an underwriting agreement, in the form agreed upon
by the Company and the underwriters selected by it that is customary for the
type of transaction contemplated and reasonably acceptable to the Holders; and
(h) upon the receipt of notice from the Company of the
happening of any event described in Section 5(i), or upon the issuance of any
stop order or other order suspending the effectiveness of the registration
statement, each selling Holder will immediately discontinue disposi tion of the
Registrable Securities pursuant to the registration statement until the filing
of the effective post-effective amendment or the supplemented prospectus
referred to in Section 5(i) or until the withdrawal of such stop order or other
order, as applicable, and, if so directed by the Company, each selling Holder
will deliver to the Company (at the Company's expense) all copies, other than
perma nent file copies then in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of its receipt of such
notice.
7. Indemnification and Contribution. In the event of any
Registration of any of the Registrable Securities under the Securities Act
pursuant to this Agreement:
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<PAGE>
(a) The Company will, to the fullest extent permitted by law,
indemnify and hold harmless each selling Holder and each other person, if any,
who controls any selling Holder within the meaning of the Securities Act or the
Exchange Act (collectively, the "Indemnified Holder Parties"), against any
losses, claims, damages or liabilities, joint or several, to which the
Indemnified Holder Parties may become subject under the Securities Act, the
Exchange Act, state securities or Blue Sky laws, or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon a claim by a third party alleging any of the following
statements, omissions or violations (collectively the "Indemnified Violations"):
(i) any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
were registered under the Securities Act, any preliminary prospectus, or final
prospectus contained in the registration statement, or any amendment or
supplement to such registration statement; (ii) the omission or alleged omission
to state a material fact required to be stated therein or necessary to make the
statement therein not misleading; or (iii) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any state securities law or
any rule or regulation promulgated under the Securities Act, the Exchange Act or
any state securities law. The Company will reimburse Indemnified Holder Parties
for any legal (to the extent provided in Section 7(c)) and other expenses
reasonably incurred in connection with defending any such Indemnified Violation;
provided, however, that:
(x) the indemnity agreement contained in this Section
7(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon an Indemnified
Violation arising out of an untrue statement or omission in written information
furnished by any Indemnified Holder Party expressly for use in connection with
such registration;
(y) the Company will not be required to indemnify any
Indemnified Holder Party to the extent that any loss, claim, damage, liability
or action results from such party selling Registrable Securities (1) to anyone
to whom there was not sent or given, at or prior to the written confirmation of
the sale of such Registrable Securities, a copy of the prospectus, as most
recently amended or supplemented, if the Company has previously furnished or
made available to the sellers of the Registrable Securities copies thereof or
(2) during any period following written notice by the Company to such party of
an event described in Section 5(i) or of the issuance of any stop order or other
order suspending the effectiveness of the registration statement; and
(z) the indemnity provided in this Section 7(a) with
respect to any preliminary prospectus shall not apply, if the untrue statement
or alleged untrue statement or omission or alleged omission was corrected in the
final prospectus.
Such indemnity shall remain in full force and effect, regardless of any
investigation made by any Indemnified Holder Parties and shall survive the
transfer of any Registrable Securities by such Holder.
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<PAGE>
(b) Each Holder selling Registrable Securities pursuant to a
registration will, severally and not jointly, to the fullest extent permitted by
law, indemnify and hold harmless the Company, each of its directors and officers
and each underwriters (if any) and each person, if any, who controls the Company
or any such underwriter within the meaning of the Securities Act or the Exchange
Act (collectively, the "Indemnified Company Parties"), against any losses,
claims, damages or liabilities, joint or several, to which the Indemnified
Company Parties may become subject under the Securities Act, Exchange Act, state
securities or Blue Sky laws, or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in any registration statement under which such Registrable Securities
were registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the registration statement, or any amendment or
supplement to the registration statement, or arising out of or based upon any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with
information relating to such Holder furnished in writing to the Company by or on
behalf of such Holder specifically for use in connection with the preparation of
such registration statement, prospectus, amendment, or supplement. Each such
Holder will reimburse each of the Indemnified Company Parties for any legal and
other expenses reasonably incurred in connection with defending any such claim,
liability, demand, loss or action; provided, however, that the indemnity
agreement contained in this Section 7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of Holders of the Minimum Amount
(which consent will not be unreasonably withheld); and provided, further, that
the obligations of Holders hereunder shall be limited to an amount equal to the
proceeds to such Holder of Registrable Securities sold in connection with such
Registration. Such indemnity shall remain in full force and effect, regardless
of any investigation made by any Indemnified Company Parties and shall survive
the transfer of any Registrable Securities by a Holder.
(c) Each party entitled to indemnification under this Section
7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, however, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld). The failure by the Indemnified Party to deliver written
notice to the Indemnifying Party within a reasonable time of the commencement of
any such action, to the extent such failure is prejudicial to its ability to
defend such action, shall relieve such Indemnifying Party of any liability to
the Indemnified Party under this Section 7(c), but the omission so to deliver
written notice to the Indemnifying Party will not relieve it of any liability
that it may have to any Indemnified Party otherwise than under this Section
7(c). The Indemnified Party may participate in such defense at such party's
expense; provided, however, that the Indemnifying Party shall pay such expense
if representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party in the defense of any such
claim or litigation shall, except with
14
<PAGE>
the consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party a release from all
liability in respect of such claim or litigation, and no Indemnified Party shall
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) a
selling Holder or any controlling person of a selling Holder, makes a claim for
indemnification pursuant to this Section 7 but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 7 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of a selling
Holder or any such controlling person in circumstances for which indemnification
is provided under this Section 7; then, in each such case, the Company and the
selling Holders will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportions so that Investors are responsible for the portion represented
by the percentage that the public offering price of its Registrable Securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, and the Company is
responsible for the remaining portion; provided, however, that, in any such
case, (A) each such selling Holder will not be required to contribute any amount
in excess of the proceeds to it of all Registrable Securities sold by it
pursuant to such registration statement, and (B) no person or entity guilty of
fraudulent misrepresentation, within the meaning of Section 11(f) of the
Securities Act, shall be entitled to contribution from any person or entity who
is not guilty of such fraudulent misrepresentation.
(e) The obligations of the Company and the selling Holders
under this Section 7 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 7, or otherwise.
(f) All fees and expenses that an Indemnified Party is
entitled to receive from an Indemnifying Party under this Section 7 shall be
reimbursed as they are incurred, provided that each such Indemnified Party shall
promptly repay such fees and expenses if it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder.
8. Amendment of Registration Rights. Any provision of this Agreement
may be amended or the observance thereof may be waived either generally or in a
particular instance and either retroactively or prospectively, only with the
written consent of the Company and Holders holding the Minimum Amount. Any
amendment or waiver effected in accordance with this Section 8 shall be binding
upon each Investor and the Company. Nothing herein shall prevent a holder of
Registrable Securities from waiving its individual rights.
9. Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may permit the sale of
restricted securities (as that
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<PAGE>
term is defined in Rule 144(a)(3) under the Securities Act) to the public
without registration, the Company agrees to use commercially reasonable efforts:
(a) to make and keep public information available as those
terms are understood in Rule 144 under the Securities Act, at all times from and
after ninety (90) days following the effective date of the first registration
under the Securities Act filed by the Company for an offering of its securities
to the general public;
(b) to file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act at any time after it has become subject to such reporting
requirements; and
(c) so long as any holder of Registrable Securities owns any
restricted securities, to furnish to such holder upon request a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 (at any time from and after ninety (90) days following the effective
date of the first registration statement filed by the Company for an offering of
its securities to the general public), and of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as a holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any such securities without
registration.
10. Miscellaneous.
(a) Entire Agreement. This Agreement and the documents
referred to herein constitute the entire agreement among the parties relating to
the subject matter hereof, and supersedes all prior agreements, arrangements,
and understandings, written or oral, relating to the subject matter hereof.
(b) Specific Performance. Each Holder agrees that irreparable
damage would occur and that the Company would not have any adequate remedy at
law in the event that any of the provisions of this Agreement were not performed
in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the Company shall be entitled to an injunction or
injunctions to prevent breaches by any Holder of this Agreement and to enforce
specifically the terms and provisions of this Agreement, this being in addition
to any other remedy to which it is entitled at law or in equity. The Company
agrees that irreparable damage would occur and that Holder would not have any
adequate remedy at law in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that Holder holding the Minimum Amount shall
be entitled to an injunction or injunctions to prevent breaches by the Company
of this Agreement and to enforce specifically the terms and provisions of this
Agreement, this being in addition to any other remedy to which it is entitled at
law or in equity
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(c) Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement
except as expressly provided in this Agreement.
(d) Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be sent by courier service or certified
mail, return receipt requested, charges pre-paid, or by facsimile transmission,
to the address or facsimile number specified below:
If to the Company:
Equivest Finance, Inc.
2 Clinton Square
Syracuse, New York 13202
Attn: Richard Winkler
Fax: (315) 422-9477
with a copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037-1420
Attn: Eric R. Markus
Fax: (202) 663-6363
If to Investors:
10 Bear Mountain Road
Asheville, North Carolina 28805
with a copy to:
Holland & Knight LLP
2100 Pennsylvania Avenue, N.W.
Suite 400
Washington, D.C. 20037-3202
Attn: Mel S. Weinberger
Fax: (202) 955-5564
or to such other address or facsimile number as the person may specify in a
notice duly given to the sender as provided herein. Notice given hereunder will
operate and be deemed effective and received: (a) in the case of facsimile, when
received by the recipient in legible form and sender has received an electronic
confirmation of receipt of the transmission (provided, however, that such
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<PAGE>
transmission and confirmation are received by 5:00 p.m. on a business day;
otherwise, such transmission shall be deemed to have been received on the next
business day); (b) in the case of delivery by courier, upon the date of delivery
indicated in the records of such courier; or (c) in the case of certified mail,
upon signing of the return receipt
(e) Headings; Counterparts. Headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof. This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
(f) Further Assurances. Each of the parties hereto agrees to
execute and deliver those writings and documents reasonably required to more
fully carry out the purposes of this Agreement and the transactions contemplated
hereby.
(g) Governing Law; Severability. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York, exclusive of any choice of law principles that would result in a
choice of law other than the laws of the State of New York, except to the extent
superseded or preempted by the laws of the United States. Whenever possible,
each provision of this Agreement shall be interpreted in such manner as to be
effective and valid under said laws; provided, however, that if any provision of
this Agreement shall be held to be invalid or unenforceable under applicable
law, such provision shall be ineffective only to the extent of such invalidity
or unenforceability, without invalidating the remainder of such provision or the
remainder of the provisions of this Agreement.
(h) Consent of Jurisdiction. The parties consent to and waive
any objection to the jurisdiction of the United States District Court for the
Northern District of New York, or any state court located in Onondaga County,
New York, over the person of any party to this Agreement, for purposes of any
action brought under or as the result of a breach of this Agreement. The parties
agree that venue of any action brought under or as the result of a breach of
this Agreement shall be proper in the courts named above, and each party waives
any objection to such venue.
(i) Assignment. The registration rights of Investors with
respect to any Registrable Securities may be transferred to any transferee of
such Registrable Securities who acquires, in the case of the initial or any
subsequent transferee of Kinser, at least 20% of the greatest number of Shares
issued pursuant to the Merger Agreement to Kinser or, in the case of the initial
or any subsequent transferee of any other Investor, at least 50% of the greatest
number of Shares issued to such Investor, and in either case in a transaction
which does not cause such Registrable Securities to cease to be Registrable
Securities; provided, however, that (x) the transferring Investor transferring
or Permitted Transferee shall give the Company written notice at or prior to the
time of transfer stating the name and address of the transferee and identifying
the securities with respect to which the rights under this Agreement have been
transferred, (y) such transferee shall agree in writing, in form and substance
reasonably satisfactory to the Company, to be bound by the provisions of this
Agreement, and (z) such transfer is not in violation of Section 7.08 of the
Merger Agreement.
18
<PAGE>
(j) Term. This Agreement shall be effective as of the date
hereof and shall continue in effect thereafter until the earlier of (a) its
termination by the consent of the parties hereto or their respective successors
in interest, and (b) the date on which no Registrable Securities remain
outstanding.
(k) No Inconsistent Agreements. After the date hereof, the
Company shall not enter into any agreement (an "Additional Registration Rights
Agreement") granting to any person the right to require the Company to register,
or permitting such person to participate in a registration by the Company of,
Common Stock (or any other security of the Company issuable upon the conversion
or exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of, such Common Stock, including, without limitation, in connection
with a combination of shares of Common Stock, a recapitalization,
reorganization, merger, consolidation or otherwise, to the extent that the
registration rights granted under such Additional Registration Rights Agreement
(i) are inconsistent with the provisions of this Agreement, or (ii) may be
exercised earlier than the Release Date.
[Execution Page to Follow]
19
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed under seal by their respective duly authorized officers as of the day
and year first above written.
COMPANY
Equivest Finance, Inc.
/s/
- -----------------------------
By: Richard C. Breeden
Its: CEO
INVESTORS
/s/
- -----------------------------
C. Wayne Kinser
/s/
- -----------------------------
Donald Clayton
/s/
- -----------------------------
John McFarland
/s/
- -----------------------------
Herbert Patrick, Jr.
<PAGE>
SHARON KAY WILLIAMSON
CHARITABLE REMAINDER
UNITRUST
By: First Union National Bank, Trustee
Name: /s/
--------------------------------
Title: Vice President & Trust Officer
-------------------------------
DAVID WAYNE KINSER
CHARITABLE REMAINDER
UNITRUST
By: First Union National Bank, Trustee
Name: /s/
--------------------------------
Title: Vice President & Trust Officer
-------------------------------
